®

2018
ENVIRONMENTAL,
SOCIAL AND GOVERNANCE
PRIORITIES & APPROACH

TABLE OF CONTENTS
Sustainability at Caterpillar............................................................... 3
Caterpillar People................................................................................ 7
Operational Impact.............................................................................. 12
Product Stewardship........................................................................... 20
Governance & Policy........................................................................... 26
Community Impact ............................................................................... 32

2 | 2018 ESG PRIORITIES & APPROACH REPORTSUSTAINABILITY AT CATERPILLAR
VISIONMISSIONSUSTAINABILITY PRINCIPLESSTRATEGY

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 anda company that improves the quality ofthe environment and the communities
where we live and work.

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

Enable economic growth throughinfrastructure and energy development
and provide solutions that support
communities and protect the planet.

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 performance ofCaterpillar’s products, services, solutions
and operations.
We believe sustainable progress is madepossible 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.
We are executing our strategy by working
to meet our aspirational sustainability goals.

3 | 2018 ESG PRIORITIES & APPROACH REPORTSUSTAINABILITYSTRATEGYSTAKEHOLDER ENGAGEMENT
A key element of Caterpillar’s sustainability strategy is
engagement with stakeholders. We engage across a rangeof topics and issues as well as within functional areas.
The Caterpillar Sustainability Steering Committee provides
guidance and support for our internal sustainability initiatives.
This group is comprised of leaders from a number of business
units particularly focused on responsibilities that crossmultiple divisions.
Stakeholder engagement is also managed through our various
business units. For example, sustainability is considered ininteractions with our investors managed by our Investor Relations
team, with suppliers through our Purchasing teams, and withcustomers through our Customer Services team. We communicate
with and obtain feedback from stakeholders through a variety
of means, including surveys, in-person interactions, tradeorganizations and others. These stakeholder communications
and results are demonstrated throughout this report.

AFFILIATIONS & INVESTMENTS

The Caterpillar Foundation invests with many organizations,
including those below, to support programs that are focusedon lifting people out of poverty and placing them on the pathto prosperity:• American Red Cross• charity: water• Feeding America• Global Citizen• International Youth Foundation• Local Initiative Support Corporation• ONE• Opportunity International• The Nature Conservancy• United Nations Foundation• United Way• Water.org
Learn more about the Caterpillar Foundation.

Caterpillar Inc., our subsidiaries and the Caterpillar Foundation
work with diverse organizations in order to advance economic,
environmental and social issues and share best practices
across industries. The company’s affiliations include:• Business Council for Sustainable Energy• Business Roundtable• Diesel Technology Forum• Energy Technologies Institute• Remanufacturing Industries Council• Responsible Minerals Initiative• U.S. Green Building Council• World Coal Association• World Resources Institute4 | 2018 ESG PRIORITIES & APPROACH REPORTSUSTAINABILITYSTRATEGY

FOCUS AREAS
As part of our work in sustainable development, we haveidentified a set of focus areas that intersect with our businessand that guide our thinking as we make day-to-day businessdecisions.
Many of these areas are associated with our aspirational
2020 operational and product stewardship goals, while others
represent areas impacting our long-term business and thoseimportant to various stakeholders.
FOCUS AREA

TOPICS INCLUDED WITHIN THIS FOCUS AREA

Caterpillar
PeopleEmployee occupational health and safety

Operational
ImpactEnergy efficiency, greenhouse gas, water,
waste management and dealer network

Product
Stewardship

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

Governanceand Policy

Business ethics and core values, businessstrategy, financial performance of theenterprise, energy and climate policy, andhuman rights

These focus areas were originally identified and validated aspart of an assessment in 2014 and have been further refined,
based on stakeholder input, in the years since. This assessment
process included:

IDENTIFICATION

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

EVALUATION

Survey results were discussed in a workshop that included
representatives of our external stakeholders, as well as several
Caterpillar vice presidents, selected Caterpillar leaders withsustainability responsibilities, our Sustainable Development teamand our chairman and CEO. Insights gained from the workshop werecombined with the survey results to refine and prioritize topics
that were deemed material from a sustainability perspective. These
topics inform and direct future activities for strategic improvements.

PRIORITIZATION

Stakeholders universally agreed that all 35 topics identified
were important but viewed several topics as among the mostimportant to manage on a continuing basis.

ASSESSMENT

The engagement process included a survey of more than
100 customers, employees, shareholders, dealers, suppliers,
nongovernmental organizations, trade organizations andrepresentatives from academia to identify the sustainability
topics most influential in their decisions about Caterpillar.
Internally, we surveyed Caterpillar executive officers, vicepresidents and other key personnel to obtain insight from ourstrategic leaders as to the sustainability topics most importantto the success of our business.

5 | 2018 ESG PRIORITIES & APPROACH REPORTSUSTAINABILITYSTRATEGYHOW CATERPILLAR SUPPORTS
THE U.N. SUSTAINABLE
DEVELOPMENT GOALS
Caterpillar engages with customers, communities and policymakers
to improve living standards and make sustainable development
possible around the world. Our businesses, as well as the work of
the Caterpillar Foundation and our advocacy on behalf of policies
that enable sustainable development, support each of the United
Nations Sustainable Development Goals (UNSDGs).
CONSTRUCTION
INDUSTRIES

Enables customers to build
infrastructure – schools, roads,
homes, airports and more –to raise living standards andeconomic opportunity.

RESOURCE
INDUSTRIESSupports customers who mineand extract mineral resources.

ENERGY &TRANSPORTATION

Provides engine and alternative
energy solutions to help extract thefuels to satisfy global energy demand.

6 | 2018 ESG PRIORITIES & APPROACH REPORTCATERPILLAR
FOUNDATION

Supports a variety of philanthropic
efforts primarily related to protecting
the environment, improving
education and providing
basic human needs.

CATERPILLARPEOPLECATERPILLARPEOPLEINVESTING IN
OUR PEOPLE
There’s more to work at Caterpillar than the work itself. We’re a workforce
made up of smart, diverse, committed people who work together to help
build a better world, from supporting our customers through groundbreaking
solutions to giving back in our local communities.
To continue to innovate and maintain our global leadership, we must
attract, retain and develop the top talent. We do so by giving our people
opportunities to explore different career paths within Caterpillar – using
their skills and capabilities by moving between business units, locations
and job functions. Employees can also learn through a variety of formal
and informal programs. We cultivate a workplace where team members
feel supported and that reflects the diverse base of customers we serve
worldwide. Above all, we are dedicated to the safety of employees atCaterpillar, as well as our extended team of contractors, dealers, suppliersand customers.

2018 Awards

and Recognition• America’s Best Employers
for Diversity
Forbes• Best Employers for Women
Forbes•H uman Rights Campaign Corporate
Equality Index• Top 50 Employers
CAREERS & the disABLED Magazine• Top 50 Employers
Minority Engineer Magazine• Top 50 Employers
Woman Engineer Magazine

LEARN MORE IN OUR 2018 SUSTAINABILITY PROGRESS REPORT
Including Everyone in
Women’s Advancement

Solar Turbines Welcomes an
Untapped Source of Talent

Creating Pathways toCat® Dealer Careers

At Caterpillar, we believe diverse
ideas and experiences lead to deeper
understanding. Our Women’s Initiative
Network (WIN) employee resourcegroup in Singapore demonstrated thisin a big way. WIN surveyed female
employees to learn how to improve
Caterpillar’s culture and create
opportunities for growth. The top
answer: get more men involved.

The National Foundation for Autism
Research (NFAR) Tech program
teaches software testing skills toyoung adults with autism to preparethem for jobs in the tech industry.
When employees from the Solar
Turbines team toured NFAR’s facility,
they quickly realized that the students
could be an excellent fit for Solar.

We depend on talented people to run
dealerships, repair our equipment andlaunch businesses that use Cat®
machines. We know there are people
across the world eager to take on theseroles – they just need training andmentorship to help them get started.
This training gap inspired us to create
Technicians for the World, an online
program that meets the growing needfor skilled service technicians.

8 | 2018 ESG PRIORITIES & APPROACH REPORTCATERPILLARPEOPLESAFETYWe are dedicated to the safety of everyone at Caterpillar,
and we work with our extended team of contractors, dealers,
suppliers and customers to encourage a focus on safety for
their operations and employees. We are saddened to reportthat one employee and one contractor suffered fatal workplace injuries in our facilities in 2018. Our vision of every

employee returning home safely, every day has not wavered.
Our commitment to safety begins with the engineering ofour products and manufacturing processes, and extends tooperator training, job site solutions and promoting a cultureof safety that guides the way we work.

Recordable Injury Frequency(RIF)

SAFETY GOAL

Reduce our recordable
workplace injury rate to
0.6 and lost-time injury
case rate to 0.15 by 2020.

1

2018
Employee
Fatality

94.6%

1

2018
Contractor
Fatality

We have improved ourLost-Time Case Frequency
Rate by 94.6 percent fromour 2003 base year. We areencouraged that our LTCFR
declined by approximately
6 percent from 2017 to 2018,
even when our RIF increased
modestly. We strive for allteam members to go homesafe, every day.

91.5%

Recordable Injury
Frequency (RIF)

Recordable injuries per 200,000 hours worked

2003

6.22

2015

0.59

2016

0.50

2017

0.49

2018

0.53

2020

0.60

Lost-Time Case
Frequency Rate (LTCFR)
Work-related injuries resulting inlost time per 200,000 hours worked

2003

2.97

2015

0.20

2016

0.19

2017

0.17

2018

0.16

2020

0.15

We have improved our Recordable
Injury Frequency rate by 91.5 percent
from our 2003 base year. However,
our RIF increased by 8 percent from2017 to 2018. Relentless focus onsafety is important for our teammembers in all work areas. Our vision
has always been, and continues tobe, zero injuries. Our safety goals
represent expected progress on ourpath to zero. While we acknowledge
that our current RIF has surpassed
our long-established goals, we willcontinue to strive for improvement
until we reach our ultimate goal ofzero. We strive for all team members
to go home safe, every day.

9 | 2018 ESG PRIORITIES & APPROACH REPORTCATERPILLARPEOPLE

DIVERSITY & INCLUSION
We are committed to ensuring our workplace is diverse andrepresentative of the many customers we serve around the globe.
At Caterpillar, we respect the unique talents, experiences andviewpoints of all our employees.
Different perspectives help us
perform to our fullest potentialand enable our company tomake positive changes in thecommunities where we live andwork. And that matters to us.

2022
ASPIRATIONAL
GOALS

29% Women
in Enterprise

25%

Women
in Leadership2018 RESULTS

20% Women

in Enterprise

19% Women

We are a high-performing teamliving Our Values in Action. We
strive for an employee experiencethat includes a winning culture,
meaningful work, an empowered
environment and personal growth
opportunities. To achieve this,
employees are encouraged
to speak up and share ideas,
resulting in more innovation,
productivity and positive impact
to the business.

We also recognize the need to celebrate diversity and theuniqueness of each individual, while ensuring inclusion of
everyone’s ideas and contributions. One way we accomplish
this is through Caterpillar’s 14 Employee Resource Groups (ERGs),
which are open to all employees. Our ERGs are in the midstof an exciting evolution that reflects the changing needs ofCaterpillar’s business. They are broadening their scope beyond
the support and development of their members and aligning
their goals to business-focused activities. This importantchange amplifies the voices of our employees and the powerof diverse thinking to better influence our business decisions.
One example of this has been through the work of Caterpillar’s
Africa Business Resource Group (ABRG). Members have drawn
on their cultural ties to the emerging African market to connect
with the Caterpillar dealer network to support and promote
Caterpillar’s Technicians for Africa program. Together, ABRG
members and dealers have engaged with over 2,600 students
in 13 technical schools to promote the program and build thefuture pipeline of technical talent in Africa.
Through this initiative, ABRG members are building businessacumen, advancing leadership skills and gaining visibility tosenior executives. They are redefining the value proposition of
ERGs by fostering unique thinking and different points of viewthat translate into innovative solutions for our future talent needs.

in Leadership

10 | 2018 ESG PRIORITIES & APPROACH REPORTCATERPILLARPEOPLE

Much of our success relies upon having top talent with a global
mindset to build high-performing teams. The increased complexityof our business challenges demands that we have the right talent
in the right place at the right time. We are also committed toincreasing the representation of women at Caterpillar. According
to Catalyst, research shows that companies that achieve greater
gender balance, especially at leadership levels, yield more positive
results. This issue matters to both men and women and is essential
to the fulfillment of our company’s values on a global scale. Our
Women in Leadership initiative is an intentional, focused stepon a continuous journey toward a globally diverse team.

14 ERGs
9,500 members

1 in 10

NearlyCaterpillar employees
participates

We support a continual learning environment and recognize
the importance of multifaceted experiences through a variety
of formal and informal solutions for employees to grow skills,
knowledge and capabilities.
Our leadership development programs include:• A comprehensive, global program customized for each levelof leadership that provides development for all leaders at key
career transition stages and links business strategy anddevelopment to the ability to deliver business results.
• Technical and market leadership development programs engage
specific leader groups for development to enhance leader
capabilities and performance in functions or countries.
• Informal learning experiences for all employees throughlearning and technology-enabled systems for ease of accessand enterprise collaboration. Coaching and feedback reinforce
this experiential learning through our strategy and talentmanagement practices.

TALENT DEVELOPMENT

As a company with hundreds of global locations that serve diverse
industries, such as transportation, construction, oil and gas,
mining, marine and forestry, we are in a unique position to offer
opportunities and valuable experiences for all our employees.
This includes learning opportunities both inside and outside ofCaterpillar, targeted leadership development and the opportunity
to build technical capabilities.

COLLECTIVE BARGAINING
We respect the rights of our employees to form, join or not tojoin an employee association or trade union of their choicewithout fear of reprisal, interference, intimidation or harassment,
and in a manner that is consistent with national laws andpractices. Recognizing that exercising this right is an important
decision that requires thoughtful consideration, we believe it is

40% Caterpillar

Employees Under
Collective Bargaining
Agreements in 2018

115

Over
Labor Contracts

70

Over
Different Unions

critical that our employees exercise that right with the benefit
of available information.
We value the direct relationship we share with our employees
and are committed to a constructive social dialogue withthem and their representatives in accordance with applicable
employment legislation or local-level custom and practice.
Where employees are represented by an employee association
or trade union in accordance with applicable national laws, wecommit to seeking a constructive dialogue or, where appropriate,
to bargain collectively and in good faith. We expect the same ofthose employee associations or trade unions seeking dialogue
with us.

11 | 2018 ESG PRIORITIES & APPROACH REPORTOPERATIONALIMPACTOPERATIONALIMPACT

ENVIRONMENT, HEALTH & SAFETY
MANAGEMENT
In our own operations, Caterpillar employees have found ways
to implement innovative solutions that improve safety andlower our energy, water and waste costs, as well as reduce
our environmental impacts.
Our Values in Action – Caterpillar’s Code of Conduct states that
we protect the health and safety of ourselves and others andfocus on environmental responsibility and preventing waste. In
Caterpillar facilities, our Environment, Health & Safety (EHS)
Assurance Manual: A Practical Global Framework establishes
fundamental EHS requirements that apply globally. We haveestablished high performance standards for EHS that requirecompliance with, and at times extend beyond, laws andregulations. Proactive implementation of these standards
demonstrates our commitment to sustainability leadershipin our industry. Our EHS Management System, captured in
our EHS Assurance Manual, helps us comply with various
EHS requirements around the world.

majority-owned joint ventures, and is designed to effectively
implement an EHS enterprise wide management system.
In addition to these global expectations, our facilities implement
innovative local initiatives to improve safety and reduce
environmental impacts.

The EHS Assurance Manual sets out mandatory standards
consistent across the enterprise and annually assessed at
the facility level to improve management of enterprise EHS
compliance. The Manual applies to all Caterpillar facilities
worldwide, including majority-owned subsidiaries and

13 | 2018 ESG PRIORITIES & APPROACH REPORTOPERATIONALIMPACT

ENERGY CONSERVATION &GREENHOUSE GAS EMISSIONSREDUCTION
We have set energy efficiency targets in our operations since1998 and greenhouse gas emission (GHG) reduction targets since2003. We currently have operational targets for an increased
reliance on alternative and renewable energy, and reductions
in energy intensity and GHG intensity.
Our enterprise energy management team is instrumental inbuilding awareness, encouraging action and developing
solutions in the areas of energy efficiency and alternative/
renewable power generation.

As we work to achieve our 2020 energy-related goals, one
important facet of our efforts is to continually assess andimprove the efficiency of our existing operations. Systems
and facilities that were state-of-the-art for energy efficiency
and performance when first installed can be fairly quickly
eclipsed by new technologies and best practices.

Examples of our increased reliance on renewable energy
sources include facilities’ purchase of renewable energy
certificates and the installation of renewable energy sources
such as photovoltaics (PV), including an advanced microgrid
installation that combines PV and battery storage to supplement and offset diesel generation at an off-grid location. Ourlargest contribution to alternative energy consumption is theoperation of combined heat and power (CHP) systems to power
several manufacturing facilities. The energy management
team is evaluating additional opportunities for replication of
CHP, PV and microgrids at other locations.

14 | 2018 ESG PRIORITIES & APPROACH REPORTOPERATIONALIMPACT

ENERGY CONSERVATION & GREENHOUSE GAS EMISSIONS REDUCTION (CONT’D)

ENERGY GOAL

Energy Intensity1

Reduce energy intensity by
50 percent from 2006 to 2020.

2006

33% Operational energy intensity

decreased 33 percent from 2006 to
2018, and nearly 11 percent from2017 to 2018. While absolute energy
increased 8 percent from 2017 to2018, it decreased 11 percent overall from 2006 to 2018. These results
reflect our increased productivity
and efficiency.

GHG EMISSIONS GOAL

Reduce greenhouse gas
emissions intensity by 50 percent
from 2006 to 2020.

decreased 44 percent from 2006 to2018 and 13 percent from 2017 to 2018.
In addition, while our absolute GHG
emissions increased by 4.7 percent
from 2017 to 2018, our absolute GHG
emissions decreased by 26 percent
from 2006 to 2018. These results
reflect our increased productivity
and efficiency.

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

Sum of purchased and self-generated
electricity in million MWh

692

2015

2014

525

2016

598

2017

521
466

2018
2020

2.72

2015

2.50

2016

2.37

2017

2.45

2018

2.55

346

GHG Emissions Intensity 1,2

2018 Total Absolute
GHG Emissions 2

Absolute metric tons of CO2e/
million dollars of revenue

Million metric tons

2006

72.1

2015

0.93

44% Our GHG emissions intensity

ALTERNATIVE/
RENEWABLE
ENERGY GOAL

Total Electricity Consumption

Absolute gigajoules energy use/
million dollars of revenue

48.6

2016

2.21

2017

1.28

2018
2020

54.2
46.4
40.3
36.0

0.93 million metric tons – Scope 1 (direct emissions)1.28 million metric tons – Scope 2 market-based(indirect emissions from purchased electricity,heat or steam)
1.32 million metric tons – Scope 2 location-based 3

Alternative/Renewable
Energy 4,5,6

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

2014

17.6

9.8

27.4%

2015

17.2

9.9

27.1%

2016

17.8

10.1

27.9%

2017

16.9

14.3

31.2%

2018

17.4

15.1

32.5%

Alternative

Renewable

15 | 2018 ESG PRIORITIES & APPROACH REPORT

32.5% of our electricalenergy was from renewable
or alternative sources in2018. In addition, our useof renewable energy
increased from 2017 to 2018.

OPERATIONALIMPACT

WATER MANAGEMENT
The scarcity of water resources is an issue that crosses
cultures, geographies and industries. Today, water scarcity
affects four out of every 10 people, and current trends indicate
the problem will escalate, according to the World HealthOrganization and the United Nations. By 2025, 66 percent of theworld’s population could be living in water-stressed regions.
While our manufacturing operations are not as water-intensive
as those of other industries, we nonetheless recognize the
far-reaching economic, social and environmental implications
that water scarcity may have in the future – and have taken
steps to reduce our consumption.

WATER GOAL

Reduce water
consumption intensity
by 50 percent from2006 to 2020.

We continue to implement conservation strategies to:• Reduce water use in our operations• Explore water-treatment technologies• Introduce water-recycling processes• Train employees about water resources to raise theirawareness of the issue
Around the world, Caterpillar facilities take water scarcity
and water management seriously, with results that highlightthe scale of positive impact that our operations can have.

Water Consumption Intensity1,7Absolute thousand gallons
of water/million dollars of revenue

2006

76.3

2015

58.9

2016

66.0

2017

58.1

2018

47.2

2020

38.2

2018 Total Absolute
Water Consumption

38% Through 2018, we have reduced

water consumption intensity at our facilities
by a total of 38 percent from 2006, and19 percent from 2017 to 2018. In addition, ourabsolute water consumption decreased by
35 percent from 2006 to 2018 and decreasedby 5 percent from 2017 to 2018. This
demonstrates significant improvementsin the way we are using water in our
processes, increasing efficiency andalso increasing productivity.

2018 Water Sources
Percent

Billion gallons

0.4%
18.3%
1.26
3.85

32.8%
17.9%

2.59
30.6%
1.26 billion gallons – noncontact cooling water
2.59 billion gallons – enterprise water consumption
excluding noncontact cooling water

Noncontact cooling water
Municipal water
Groundwater
Surface water
Other water

16 | 2018 ESG PRIORITIES & APPROACH REPORTOPERATIONALIMPACT

WASTE MINIMIZATION
Minimizing waste in our processes not only reduces costs,
but also reduces our use of materials, energy, water and land.
We are focused on a goal to reduce by-product materials(i.e., waste) generated by our production processes.

on by-product material reduction strategies associated withimproved efficiency and quality measures, as these offer thegreatest opportunity to enhance cost competitiveness andreduce the potential for environmental impacts.

The use of the term “by-product materials” in our 2020
aspirational goal reflects our focus on minimizing our productionwaste and effectively managing the remaining waste throughremanufacturing, rebuilding, reusing and recycling. We focus

By taking a critical look at every phase of our operations, teams
have uncovered unexpected and high-impact methods toreduce waste while maintaining or improving performanceand customer satisfaction.

BY-PRODUCTMATERIALS GOAL
Reduce by-productmaterials intensity by
50 percent from 2006
to 2020.

By-Product Materials Intensity
Absolute metric tons of by-productmaterials/million dollars of revenue

2006

13.8

2015

14.3

2016

14.5

2017

13.2

2018
2020

11.6

16%

Our by-product materials
intensity decreased 16 percent
from 2006 to 2018, and decreased
12 percent from the previous
year. Our generation of total
absolute by-product materials
increased 11 percent from 2006
to 2018 and increased 6 percent
from 2017 to 2018.

6.9

2018 By-Product Materials
Thousand metric tons

13.2%
635
86.8%

Recycled
Disposed (sent to landfill or incinerated)
Total BPM = 635 thousand metric tons

17 | 2018 ESG PRIORITIES & APPROACH REPORTOPERATIONALIMPACT

VALUE CHAIN
Caterpillar is building capabilities to engineer our value chains just like we engineer our products.
The result is a synchronized system that maximizes quality, efficiency, value and speed to the customer.

SUPPLIERS
Provideproduct inputs
and materials

CATERPILLAR
Manufactures
equipment
and provides
technology
solutions

SUPPLIER NETWORK

Our suppliers are an essential link within our value chain andhelp us uphold our commitment to quality. We look for suppliers
who demonstrate strong values and commit to the ethical principles outlined in our Supplier Code of Conduct. This Codeincludes provisions on human rights, innovation, diversity andinclusion, as well as environmental responsibility and sustainability. We expect suppliers to comply with the sound businesspractices we embrace, follow the law and conduct activities ina manner that respects human rights.
To ensure impacted suppliers understand our expectations, werequest that they respond to our self-assessment questionnaire
to evaluate alignment to the Supplier Code of Conduct. In recent
years, we have increased and expanded our scope of suppliers
across the enterprise included in this self-assessment process.
When the process reveals issues of concern, Caterpillar senior
management is apprised, we request suppliers with issues ofconcern to take corrective action, and we track whether suchsuppliers remediate any deficiencies. To date, over 9,500 suppliers
have completed a self-assessment. By 2020, our goal is to have
responses from 95 percent of our priority suppliers.

Supplier Code of Conduct Assessment
2016

13%

2017

39%

2018

39%

2020

DEALERS
Distributeour products
and solutions
to our customers

CUSTOMERS
Use our
products andsolutions on job
sites and in energy
applications

We continue to expand the Assurance of Supply Center (ASC)to support our enterprise strategy to manage a world-class
supply network. The ASC provides visibility into our network
which involves thousands of suppliers shipping more than amillion parts and components every year. It allows us to see
orders from production to delivery by facility, business unit
and cost, enabling us to reduce waste caused by trial and error
or delayed decision-making.
Caterpillar expects its supply network to comply with applicablelaws and regulations. Caterpillar also requires its suppliers
to provide information on the source of certain minerals, witha goal of maximizing the quantity of such minerals that aresourced from conflict-free sources. These efforts continue tobe important in creating transparency in the supply network.

SUPPLIER DIVERSITY

Caterpillar strives to provide sourcing opportunities to awide range of diverse business types – minority-owned small
businesses, veteran-owned small businesses, women-owned
small businesses and many others – throughout our enterprise.
Seamless integration of these businesses allows for synergies
as we assist them in growth and development.
At Caterpillar, supplier diversity is a process of inclusion thatenables us to leverage and connect with an historicallyunderutilized supply base.

A MORE SUSTAINABLE LOGISTICS NETWORK
95%

Supplier Code of Conduct Self Assessments:
Percentage of Responses from Priority Suppliers (Cumulative)

Sustainability has long been been a focal point of how to design
shipping networks, optimize transportation modes and configure
products for optimal shipping. Our transportation team manages
movement of production material and service parts around theworld to support Caterpillar manufacturing and dealers. The group18 | 2018 ESG PRIORITIES & APPROACH REPORTOPERATIONALIMPACT

seeks to identify optimal schedules to increase truckload
utilization, which in turn reduces the number of trucks on theroad. Transportation also works closely with packaging teams
to determine the best way to stack material on a single truck
or in an ocean container. Higher utilization of a single vehicle
reduces the number of shipments overall.
Today we are leveraging the scale and expertise of Caterpillar’s
supply network to help our dealers and customers receive
products more efficiently. We now often transport product fromthe production yard to the dealership. Dealers can collaborate
with us on when and where they want a machine shipped,
check the shipping status online and instantly get information
on location and estimated time of arrival. By including the “lastmile” as part of our overall value chain design, we are delivering
products with higher dealer satisfaction, improved delivery
performance and visibility, and lower cost.

DEALER NETWORKCat® branded products and services are primarily distributedand sold through a worldwide network of 168 Cat dealers. Our
independent Cat dealers serve as a critical link between ourcompany and our customers. We rely on them to build andmaintain long-standing customer relationships, as well as
to work on projects related to e-commerce, digital solutions,services strategy, rental and used equipment strategy andparts logistics. Many of our dealers have their own policies
and practices which support working sustainably.
The vast majority of our worldwide Cat dealers are independently
owned and operated, and many of these businesses have been
in families for multiple generations. The Cat dealer network brings
value to customers through unmatched service, integrated
solutions, after-sales support, fast and efficient parts fulfillment
and world-class rebuild capabilities. We work with our Cat
dealers to provide products, services and support solutions
necessary to satisfy customer needs worldwide. Our distribution
model, which has consistently delivered unmatched local support,
is increasingly measured by global standards. Together, Caterpillar
and our Cat dealers are focused on four objectives:• Strengthening the Cat dealer model• Enhancing customer focus through services• Achieving superior economics for Caterpillar and the dealer• Seizing opportunities while mitigating risks

19 | 2018 ESG PRIORITIES & APPROACH REPORTPRODUCTSTEWARDSHIPPRODUCTSTEWARDSHIP

Product stewardship covers the full lifespan of our equipment –from the supply chain to the customer’s job site to remanufacturing.
This means taking steps to reduce potential environmental,
health and safety impacts, as well as optimizing operational
quality and efficiency throughout the life of the product.

We accomplish this by:• Engineering products to reduce or eliminate hazardous
substances if possible• Utilizing more sustainable energy sources as they
are available• Extending a product’s life through the use of remanufactured
parts or rebuilt machines• Working with customers and distributors to encourage
the proper disposal or recycling of end-of-life materials

INNOVATION MANAGEMENTOur Enterprise Technology Strategy establishes the foundation
for innovation in Caterpillar’s product development. It focuseson 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 to succeed
anywhere they work
• Allowing Caterpillar to maintain a competitive advantage
The strategy is driven by customers’ needs, deep market
research, regulatory requirements and global economic
indicators to inform decision-making. Each of the technologies
under development includes customer-focused goals thatserve as targets against which progress is measured.
By the end of 2018, there were more than 125 active New
Technology Introduction (NTI) and Component New ProductIntroduction (CNPI) projects being worked within the EnterpriseTechnology Strategy.
Our Enterprise Simulation Strategy lays the foundation forCaterpillar’s use of physics-based simulation in the productdevelopment process. This strategy is closely aligned with ourEnterprise Technology Strategy and facilitates sustainability
throughout the entire product development process. Caterpillar
uses simulation in all stages of product development – from theconceptual phases of research and design through production.
Simulation allows Caterpillar engineers to explore the impact
of new product and process designs without having to first build
prototypes in iron, which uses significant resources. Using
simulation in product development enables the exploration ofmultiple design concepts, drives research and development(R&D) efficiency, saves R&D dollars and decreases re-work,
all of which allows for fast-paced innovation that benefits ourcustomers and the company.

Our Technology and Simulation Strategies are governed
through multitiered councils composed of leaders from allareas of the business, from our Executive Office to engineeringand technical leaders. These councils create and execute thevision for future technologies and processes at Caterpillar, as
well as ensuring consistent and sufficient funding for Caterpillar’s
technology investments.

STANDARDS HARMONIZATION ANDTECHNICAL EXPERTISE

Our global standards and regulations team works closely withorganizations like the International Organization for Standardization(ISO) to harmonize machine safety standards worldwide.
Caterpillar makes management and technical expertise available
to regulatory bodies in advisory roles, offers technical assistanceas new product standards are developed and provides input
to help ensure the smooth introduction of new technologies.
For example, industry consensus standards, including thosefor visibility, rollover protective structures, braking andsustainability, apply to earthmoving equipment. Because of
our brand reputation, organizations often look to Caterpillar tolead the development of these standards. We are involved on
Research and Development
an international
level to develop and update global standards
Expenses 2016-2018
through the ISO andchair
the technical committee for earthDollars
in millions
moving machines.

Research and Development Expenses
U.S. dollars in millions

2016$1,8532017$1,842

2018$1,850Beyond ISO, we participate and hold leadership roles in industry
associations as well as governmental and nongovernmental
delegations to international bodies such as the International
Maritime Organization, Office of the U.S. Trade Representative,
European Union industry expertise panels and federal
advisory committees chartered under the U.S. Environmental
Protection Agency.

21 | 2018 ESG PRIORITIES & APPROACH REPORTPRODUCTSTEWARDSHIPCUSTOMER SAFETY
Caterpillar’s safety culture extends beyond our internal
operations to include promoting 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

The Zero-Incident Performance (ZIP™) process provides aformula for continuous improvement by enabling organizations
to achieve the engagement and accountability needed forsafety improvements.
• Engage Leadership• Assess the Culture• Build the Plan
• Develop the Processes• Implement the Processes• Check the Processes

CIRCULAR ECONOMY
Wherever possible, we keep resources in the Caterpillar value
chain through a circular flow of materials, energy and water.
Caterpillar strives to provide customers with quality equipmentthat delivers the best economic proposition for their business.
Our remanufacturing (reman) and rebuild businesses provide
customers with immediate cost savings, help extend life
cycles and use materials more efficiently. Reman and rebuild
programs increase the lifespan of equipment by providing
customers with a restored product for less cost than buying new.
A complete Cat® Certified Rebuild includes more than 350 tests
and inspections, automatic replacement of approximately
7,000 parts and a like-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 mostappropriate decisions on which parts to reuse in order toachieve expected longevity of rebuilt components. Reuse ofcomponents helps us use materials and energy more efficiently.
Remanufacturing is built on the concept of reusing raw materials
to extend their value and reduce waste. The reman process
starts when a component reaches the end of its serviceable life.
Dealers return the used iron (core) to Caterpillar where it iscleaned, inspected, salvaged and remanufactured to original
factory specifications. Cat Reman uses state-of-the-art salvage
techniques, strict reuse guidelines, and advanced remanufacturing processes and quality controls to ensure reman products
provide same-as-when-new performance, with a same-as-new
warranty, at a lower cost to the customer than buying new. By
repurposing the high-quality materials used to manufacture
the original Cat component, and recycling the rest, we extend
the value of the energy and finite natural resources used to
manufacture the original component.

Remanufacturing and rebuild programs allow customers tomaximize the built-in value of their equipment by:• Driving improved cost-effective performance• Increasing the customer’s return on their investment• Providing the customer with a variety of repair options to meettheir service needs•Providing the lowest total owning and operating life cycle costs• Preserving the majority of energy and materials required tomake the original component or machine22 | 2018 ESG PRIORITIES & APPROACH REPORTPRODUCTSTEWARDSHIPINCREASING GLOBAL ACCESS TO
REMANUFACTURED PRODUCTS

While global customers have driven demand for remanufactured
products, not all customers can benefit from the significant costand efficiency savings that Cat Reman products deliver, due
to import and export challenges. Certain countries – mostly indeveloping regions – do not recognize the value of remanufactured goods for the environment and their national economies,
and thus place trade barriers around remanufactured products.
There are typically two types of trade barriers:• A tariff barrier might include excessive fees or taxes levied bya certain country that significantly increase the customer’s
cost of choosing a viable remanufactured product.
• A nontariff barrier might include customs officials categorizing
remanufactured goods as “used” goods, which cannot be
imported under any circumstance or can only be imported after
complying with special inspection, certification, licensing orother onerous requirements.

REMAN & REBUILD GOAL
Increase remanufactured and rebuild
business sales by 20 percent from2013 to 2020.

17% Rebuild business sales growthsince 2013 8

7% Reman business sales growth

Similar barriers are often faced when customers seek to export
their cores and return them to Caterpillar in exchange for aremanufactured engine or component. With the same durability,
performance, quality and warranty as that of the corresponding
new Cat® engines and components, Cat Reman products
should not be treated as “used” goods by our trading partners
or by other countries. Indeed, this has been acknowledged ina number of free trade agreements and other multinational
statements, such as the Asia-Pacific Economic Cooperation(APEC) Pathfinder Initiative and the Comprehensive andProgressive Agreement for Trans-Pacific Partnership (CPTPP).
To ensure market access, we advocate that countries participatingin the global economy treat remanufactured products the same
way they treat new goods.
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 engages with government regulators aroundthe world on the sustainable benefits of Cat Reman products.

Reman End-of-Life“Take-Back” by Weight 8,9Reman End-of-Life“Take-Back” by Percent 8,9

2014

2014

94%

2015

93%

Millions of pounds of end-of-lifematerial received

166

2015

154

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

2016

125

2016

91%

2017

130

2017

92%

2018

92%

2018

155

since 2013 8

23 | 2018 ESG PRIORITIES & APPROACH REPORTPRODUCTSTEWARDSHIPCUSTOMER SUSTAINABILITY
Caterpillar helps customers build a better world, and customers
increasingly want to build that world by using less fuel andgenerating fewer GHG emissions. These customer needs
provide valuable business opportunities for Caterpillar.
We continue to invest in research and development aimed at
products that generate fewer direct emissions. In addition,
we’re increasing our investment in high-efficiency energy
conversion and electrification – working to increase power
density, expand the use of alternative fuels, maximize efficiencyof power systems, and introduce more electrification into
our product lines while significantly decreasing owning andoperating costs over time. 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 reductions of GHG
emissions, is strongly considered in our new product development efforts. By developing products, services and solutions
that increase customer efficiency, we are reducing the emissions
that would otherwise have been generated from the use of lessefficient products or solutions. We also collaborate with dealers
and customers to deliver customized solutions that help optimize

PRODUCT, SERVICES & SOLUTIONS GOAL
Leverage technology and innovation to improvesustainability of our products, services andsolutions for our customers.

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 supplyof energy through efficient power-generation solutions. With
distributed power generation solutions utilizing diesel andnatural gas engines, as well as alternative fuels, we help get
power where our customers need it.

19% reported sales and revenues in 2018

derived from products, services and solutions
that demonstrate an improved sustainability
benefit over prior offerings.10

Caterpillar has implemented distributed power generation
systems all over the world, which contribute to improving
energy access in the developing world while emitting fewer
GHG emissions compared to traditional power grid systems.
We provide combined heat and power systems and combinedcycle power systems that can double the efficiency of power
generation when compared to 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. These systems provide energy diversity
from plentiful (and in many cases, renewable) energy sources.

NATURAL INFRASTRUCTURE
Conventional (or grey) infrastructure – sanitary sewers,
treatment plants, roads, bridges, dams and levees – is not the
only infrastructure in need of rebuilding. Ecosystems that are
essential to the health of our economy, communities and planet –forests, prairies, agricultural lands, estuaries, coastal landscapes
and wetlands – 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, mitigate storm impacts, produce nourishment
and supply other raw materials. Our products and solutions are
well-equipped to be used for such critical restoration projects.

To increase awareness and understanding of natural
infrastructure development and restoration, Caterpillar isleading a group of like-minded organizations through the Natural
Infrastructure Initiative. The Initiative is focused on water-based
natural infrastructure projects such as coastal resilience, floodand storm mitigation, inland waterways and dam removals. Itsrole is to add value by accelerating the frequency and pace of
natural infrastructure projects in these areas and supporting
increased funding for these types of projects. It also is focusedon identifying and advocating for the removal or reduction ofregulatory and commercial barriers to implementing projects.

24 | 2018 ESG PRIORITIES & APPROACH REPORTPRODUCTSTEWARDSHIPJOB SITE EFFICIENCYCaterpillar customers want to realize the full value of theirassets on the job site. Our solutions business model is designed
to meet that goal by going “beyond the iron” to increase asset
utilization and optimize the return on customers’ site investments.
Designed and delivered by our Job Site Solutions (JSS) team inpartnership with Cat® dealers, these solutions help customers
find innovative ways to improve their operations and be morecompetitive in the marketplace. JSS leverages Caterpillar’sfinancial, technological, application and management expertise
to tailor solutions based on the customer’s own needs, typicallyin the areas of safety, sustainability, equipment, productivity andfinance. As a result, every solution is different, scalable and canrange from a short-term consulting engagement to a multiyear
fleet management solution.

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

We consistently find that cost savings unlocked by our
JSS team also deliver additional sustainability benefits. A more
efficient operation should drive reductions in emissions, noise,energy use and waste. For instance, optimizing fleet efficiency
not only reduces costs, but also it can improve the maintenanceand component replacement cycles of individual machines.
Better maintenance execution can extend the life of a machine,which in turn reduces fluid and maintenance parts consumption.
JSS helps customers select components and equipment thatmeet production goals, often giving options to rebuild or
remanufacture, thereby reducing waste and conserving natural
resources. The integration of these services is showcasing thethree dimensions of sustainability – economic growth, environmental stewardship and social responsibility – for our customers.

Fleet Hours

Service Agreements

2015

2015

2016
2017

68%
98%
124%

2018
2020

2016
2017
249%

2018

91%
126%
151%
321%

100%

249% Increase in fleet

hours managed by Job Site
Solutions (2013 to 2018)25 | 2018 ESG PRIORITIES & APPROACH REPORT

321%

Increase in numberof machines covered by service
agreements with Job Site
Solutions (2013 to 2018)

GOVERNANCE& POLICYGOVERNANCE& POLICY

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

CORPORATE GOVERNANCE
Our commitment to good corporate governance stems from ourbelief that a strong governance framework creates long-termvalue for our shareholders, strengthens board and management
accountability and builds trust in the company and our brand.
Learn more about our governance framework at the following:

The Public Policy and Governance Committee of our Boardof Directors provides oversight over environmental, healthand safety activities, including the company’s supply of
products and services that support sustainable developmentof global resources.

• Corporate Governance initiatives and Board
composition in Caterpillar’s Proxy Statement•B oard Committees•C aterpillar Code of Conduct

WORLDWIDE CODE OF CONDUCT TRAINING

All Caterpillar employees are required to complete Code of
Conduct training on an annual basis. This training includes acertification by each employee that they have read, understoodand will comply with Caterpillar’s Code of Conduct.

RISK MANAGEMENT
Risk is an inherent part of conducting global business. Caterpillar
regularly identifies and monitors business risks through a robustinternal 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 in several ways, including but
not limited to: the Enterprise Risk Management (ERM) programand Caterpillar’s Compliance program.
Each year, we conduct a comprehensive enterprise risk
assessment by reviewing risk information from multiple sources,
including business units. To better inform our decision-making,Caterpillar evaluates risks using three dimensions (significance,
likelihood and velocity) at the business unit and enterprise levels.

The results of this ERM risk assessment are incorporated into
future action plans to mitigate the identified risks. Compliancerisks are also reviewed as part of the ERM risk assessment
process and are managed as part of Caterpillar’s Complianceprogram. These risks cover a broad range of issues, including
legal and regulatory compliance.
The Compliance program establishes enterprise-level complianceexpectations. Business managers implement controls andprocesses to meet those requirements with the support ofcompliance professionals, legal personnel and subject matter
advisors with specific expertise. These efforts are enhanced
by regular communications, training and annual assessment
processes. Through these programs, Caterpillar can better
manage risk and gauge the potential impact of various outcomeson our ability to achieve strategic goals.

27 | 2018 ESG PRIORITIES & APPROACH REPORTGOVERNANCE& POLICY

PUBLIC POLICY
Government decisions regarding laws and regulations aroundthe world can have a significant impact – both positive andnegative – on Caterpillar, our employees, customers and stockholders. Learn more about Caterpillar’s political advocacy
and contributions.

ENERGY & CLIMATE POLICY

As a global energy consumer and industrial manufacturer, as
well as a major manufacturer of energy conversion and powergeneration products, Caterpillar has a fundamental interestin, and understanding of, energy needs around the world. We
provide products with leading integrated technology to various
energy customers and leverage our technology and innovation
to meet the world’s growing energy needs.
Greenhouse gas (GHG) accumulation in the atmosphere is amajor concern in both the public and private sectors becauseof the potential for these gases to affect climate patterns.
As a result, many governmental and intergovernmental organizations are implementing mechanisms in an attempt to reduce
GHG emissions.
Caterpillar supports integrated carbon and climate policies that
effectively balance environmental and economic considerations.
We understand that the most 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:• Pursuing energy-efficiency and GHG-reduction goals for ouroperations.
• Investing in energy-efficiency and GHG-reduction technologies
for our products that are important to our stakeholders andrepresent significant areas of opportunity for our business.
• Committing to the development and deployment of advanced
technologies that capture and store GHG emissions.
• Supporting policies and mechanisms that harness the marketplace to drive innovation, mobilize investment and facilitatesharing these technologies.
• Encouraging the coordination of domestic and international
programs that maximize the use of flexible, proven mechanisms
to sequester carbon in soils, plants and ecosystems.
Additionally, we support the reduction of GHG accumulation
through improved GHG management practices. We understandthat some atmospheric scientists believe atmospheric GHG
accumulation can occur as a result of inefficient or excessive
fossil fuel combustion, poor waste management practices orpoor land management practices. Caterpillar is a leader in thedevelopment and deployment of innovation and technologies
that, through our products, assist in the mitigation of all threeof these sources.

CARBON REGULATION

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 in developing and deploying technology
solutions to reduce GHG emissions. Ideally, regulatory structures
should provide a technology-neutral and level playing field inwhich competitive solutions can be developed.
Businesses will struggle to find solutions if vastly differing
approaches to GHG reduction are implemented around theworld. That is why we continue to endorse a comprehensive,international approach that encompasses GHG-reduction
commitments from all major economies. We encourage
constructive dialogue and a proactive approach to providing
energy safely, efficiently and affordably to the billions ofpeople who inhabit our planet.

CARBON RESEARCH INVESTMENTS

Carbon can offer productive uses in a variety of applications.
We are investing in research and advocating for policies that
support these developments 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-funder of theEnergy Technologies Institute (ETI), a collaboration between
industry and the U.K. government to accelerate the developmentof technologies that address the challenges of climate change
and provide affordable energy access.
Additionally, Caterpillar is a member of the project advisorygroup for the Midwest Geological Sequestration Consortium(MGSC), a national research partnership funded by the U.S.
Department of Energy. With the objective to safely demonstrate
the viability of long-term storage of CO2, the MGSC developeda large-scale demonstration project designed to store 1 million
metric tons (1.1 million U.S. ton) of CO2 in Decatur, Illinois. Now
in the ongoing monitoring phase of the demonstration project,
MGSC also hosts knowledge-sharing events and shares research
results with the project advisory group.

ENERGY ACCESSOne of the biggest differences between a developing nation
and a developed nation is reliable access to energy. Lack ofaccess to modern energy services hinders economic and social
development, making it more difficult to provide water purification,
sanitation and education. Today, technology and natural resources
exist to rapidly expand energy access, but the challenge isaccomplishing this in an effective and efficient manner.

28 | 2018 ESG PRIORITIES & APPROACH REPORTGOVERNANCE& POLICY

To increase energy access, we believe:• Access to affordable and dependable energy resources iscritical for energy security, economic prosperity and growing
economies. Caterpillar supports balanced and comprehensive
energy policies for the responsible development and utilizationof all energy resources, including traditional sources of energy
and expanded use of alternative energy technologies.
• No single solution can provide abundant, reliable, secure andreasonably 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 infrastructurethat address economic development, stability and environmental
impacts.
• When regulation is necessary, regulatory structures should
provide a technology-neutral and level playing field thatembraces competition and in which Caterpillar, our independent
dealers and our customers can operate.
• We support the development and use of strategies and technologies to increase energy efficiency and reduce emissions.
Energy diversification – such as coal in combination with carbon
capture and storage, new nuclear buildouts, new natural gas
reserves, plus renewable energy sources like biogas, wind,photovoltaic or solar, tidal and others – will contribute to anenergy portfolio that helps eliminate energy poverty, raises
standards of living and propels economic growth with less
impact on the environment. Eliminating energy poverty is avision that can be achieved.

INFRASTRUCTURE POLICY

Governments have a responsibility to maintain appropriate
levels of productive investment in infrastructure while providing
a level playing field for suppliers. Leveraging private investment
can bring additional sources of funding, provided that investment is supported by fair and predictable policies to maximize
the certainty and timeliness of financial returns.
Growth-enhancing infrastructure investments, however, cannot
be fully delegated to the private sector, and public financing
should continue to comprise the bulk of infrastructure investment.
Governments can influence the affordability of infrastructure
through the facilitation of permitting, the reduction of administrative burden and the simplification of related requirements.
The role of government in infrastructure financing should bebased on national needs, including urbanization, commerce andtrade policy, transportation, disaster prevention and mitigation,
defense and global competitiveness.

TRADE POLICY

The best means of economic development and the efficient
distribution of goods and services is the pursuit of businessexcellence in a climate of free enterprise, free trade and global
competition. Further, such international exchange promotes
better understanding across borders and cultures. Thesebenefits have been demonstrated by the rise in post-World War II
gross domestic product and living standards in countries participating in international commerce. By contrast, many isolated
countries have not experienced such advantages.
Increased global engagement leads to economic gains thatraise standards of living, improve the quality of life and promotesustainable development. More importantly, trade liberalization
can promote peace and understanding and can be an important
contributor to solving the global problems of poverty, hunger
and disease. Economic growth through international trade isessential for poverty reduction, but also comes with challenges.
Chief among them is the need to balance economic, environmental and social policies to achieve sustainable development. This
provides a common framework for allowing environmental
and trade policymakers to engage stakeholders, analyze issues
and evaluate policy more efficiently.
Caterpillar has a long history of advocating for free trade. Ourinterest comes not from the perspective of any one country, butfrom our global perspective and with the foundational belief thatcompanies compete best in a free trade environment. Free traderequires us to continually improve our global competitivenessand creates an environment that allows us to better respond to
our customers’ needs and to grow our business. It offers us theopportunity 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 requirements. Our employees around the world, and their respective
communities, benefit from a higher standard of living, as they
have access to more product choices at lower prices. Free
trade also allows us to provide more and better job opportunities,
because open markets lead to improved competitiveness.
Caterpillar will continue to support policies that enhancecompetition in the global marketplace and reduce – or better
yet, eliminate – trade and investment barriers. We believe thatdeveloped countries should adopt policies that allow the benefitsof the global economy to be extended to developing countries.
To this end, Caterpillar also recognizes that humanitarian anddevelopmental assistance is necessary to fight disease, improveliving conditions and combat corruption – all of which can bebarriers to free trade and economic growth in the world’s
poorest countries.

29 | 2018 ESG PRIORITIES & APPROACH REPORTGOVERNANCE& POLICYHUMAN RIGHTSOur Human Rights Policy is informed by the international humanrights principles described in the Universal Declaration of Human
Rights (UDHR) and the International Labour Organization’s (ILO)
Declaration on Fundamental Principles and Rights at Work. Our
Human Rights Program is aligned with the UN Guiding Principles
on Business and Human Rights (UNGP) and is governed byleadership with accountability across the enterprise, led by our
Global Human Rights Manager, focused on awareness-raising,information sharing, external reporting, monitoring and mitigationof impacts on an ongoing basis. When the company receives
an inquiry or grievance regarding human rights (which comein through various channels, including via the Office of Business
Practices Helpline), our Global Human Rights Manager is
responsible to engage and consult with relevant parties,
both internal and external stakeholders, and experts in thehuman rights field. These teams review and work toward an
appropriate resolution.
Caterpillar has conducted a human rights impact assessment(HRIA) to identify actual and potential human rights issues andimpacts on vulnerable groups along our value chain. In addition
to the HRIA, Caterpillar has introduced mechanisms to understand our human rights impacts across our value chain with
our partners. Our Supplier Code of Conduct self-assessment
process includes human rights questions focused on whether
our suppliers have policies and procedures to manage theissues determined to be salient for Caterpillar’s supply network.
This assessment process helps Caterpillar understand andlocate areas of risk in our supply base.

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 human rights impact assessments or audits in high-risk regions or facilities to improveunderstanding of human rights issues and impacts.

SALIENT ISSUESIn alignment with the UN Guiding Principles, Caterpillar has
identified potential human rights impacts associated with ourbusiness activities and relationships. These salient humanrights issues were determined as part of a comprehensive
human rights impact assessment that considered feedback
from shareholders, nongovernmental organizations, third-party
consultants and internal stakeholders. We recognize that oursalient issues may change as our business grows and evolves
over time. We will regularly review our priority areas and arecommitted to engaging in constructive dialogue with others
regarding these issues.
We are committed to engaging in dialogue with internal andexternal stakeholders to understand human rights-related
issues and concerns. We also want to be transparent about
Caterpillar’s position on these issues.

30 | 2018 ESG PRIORITIES & APPROACH REPORTGOVERNANCE& POLICY

Caterpillar’s ongoing commitment with respect to each salientissue is described below:• Child labor: We are committed to compliance with all applicablelaws and regulations governing age requirements for employment, and we do not condone the use of child labor.
•W ages and working hours: We are committed to compliancewith all applicable laws and regulations governing wages
and hours.
• Discrimination and harassment: We are committed to a workplace free of harassment and unlawful discrimination without
regard to race, religion, natural origin, color, gender, gender
identity, sexual orientation, age or physical or mental disability.
We also commit to support and obey laws that prohibit
discrimination everywhere we do business.
• Health and safety: We are committed to putting safety first,
with an aspirational goal to prevent all injuries, occupational
illnesses and safety incidents. We actively promote the healthand safety of everyone on our property with policies andpractical programs that help individuals safeguard themselves
and their co-workers.
• Forced labor and human trafficking: We do not condone theunlawful use of forced labor, bonded or indentured labor,
involuntary prison labor, slavery or the trafficking of persons.
• Impacts on local communities: We establish and adhere tosound environmental, social, and economic policies andpractices in product design engineering and manufacturingthat have minimal impact on local communities.
• Use of Cat® equipment: Caterpillar products have manydifferent applications and play an important role in advancing
sustainable global economic development in communities
where we operate. While we expect our products to be usedsafely and lawfully, we simply cannot control or monitor theuse of every piece of Caterpillar equipment around the world.
• Doing business in conflict-affected areas: We will act
responsibly and within the framework of applicable laws andregulations when conducting business in conflict-affectedareas. We use reporting from Verisk Maplecroft to identify
those countries that have experienced, are experiencing or
are at risk of experiencing violent conflict.
• Freedom of association and the right to collective bargaining:
We respect the rights of our employees to join, form or not tojoin an employee association or trade union of their choicewithout fear of reprisal, interference, intimidation or harassment,
and in a manner consistent with national law and practice.

CONFLICT MATERIALSThe extraction and trade of tin, tungsten, tantalum and gold,
collectively known as conflict minerals, are associated withhuman rights violations in the Democratic Republic of theCongo and adjoining countries. Caterpillar is committed to the
responsible sourcing of these minerals used in our products.
We will not knowingly provide any direct or indirect support tonon-state armed groups or security forces that illegally control
or tax mine sites, transport routes or trade points, or any upstream
actors in the supply chain. Caterpillar also has a policy thatprohibits its employees from engaging in corruption and bribery
and expects our suppliers to adopt similar policies with respect
to their own supply chains.
Caterpillar supports the Responsible Minerals Initiative (RMI)
to help influence smelters’ engagement to support supply chaintransparency and leverage industry collaboration toward greaterbusiness intelligence. Year over year, we strive for an increased
supplier response rate with an additional emphasis on priority
suppliers. We leverage industry standards for benchmarking
and explore efficiencies and cost improvements on an
ongoing basis.

For reporting year 2017, 255 of the 266 smelters
identified by suppliers (approximately 96 percent)were validated as conformant under the Responsible
Minerals Assurance Process (RMAP). This is an
improvement of three percentage points over 2016.

Learn more about our commitment to the responsible sourcesof conflict minerals here.

31 | 2018 ESG PRIORITIES & APPROACH REPORTCOMMUNITY
IMPACTCOMMUNITY
IMPACT

Our success contributes to the social stability of regions around the world. Caterpillar andour employees focus on contributing time and resources to promote the health and welfare
of communities in which we live and work. We conduct our business in a manner that respects
human rights individually.
We encourage employees to actively engage in activities that contribute to a better society
by volunteering time and talent or investing money in worthwhile community projects andinitiatives. In addition, Caterpillar supports the Caterpillar Foundation, which has been dedicatedto transforming lives in communities around the world since 1952. The Foundation’s mission
is to help lift people out of poverty, and it champions programs that support education, environment and basic human needs.

ECONOMIC DEVELOPMENT
Caterpillar and our products support economic growth around theworld, both in developed countries, where aging networks need
improvement, and emerging regions, 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 for sustainable development, economic growth,competitiveness and long-term job creation.
Our facilities in more than 50 countries provide quality jobs andopportunities for the people in those locations. At the end of 2018,
Caterpillar had approximately 104,000 full-time employees, which
accounts for only a fraction 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 supplier compensation and other operating expenditures,
additional indirect and induced contributions occur as a result ofspending by the employees, dealers, suppliers and customers
who visit our facilities throughout the world.

33 | 2018 ESG PRIORITIES & APPROACH REPORTCOMMUNITY
IMPACT

PHILANTHROPY/SOCIAL INNOVATIONAs Caterpillar and our customers work to build traditional
infrastructure, the Caterpillar Foundation is focused onbuilding human infrastructure through strategic investments
and collaboration focused on alleviating poverty and making
sustainable, scalable progress possible for all. As a company,
we collaborate across our value chain to develop programs
that provide job training and increase workplace safety.
Globally, our employees generously volunteer their time,skills and talents to achieve positive community impact
where they live and work.

SHARING THE VALUE OF WATER

In 2018, the Caterpillar Foundation turned its focus
toward examining the most pressing water challengesof our time, declaring 2018 the Year of Water andlaunching the Value of Water campaign. Through thiscampaign, we highlighted our work with grant partners such as charity: water, Ducks Unlimited, Global
Citizen, Living Lands & Waters, Opportunity
International, The Nature Conservancy and Water.org.
Read more about the Value of Water in our 2018
Sustainability Progress Report.

HOW WE MAKE A DIFFERENCETHE CATERPILLAR FOUNDATION
SINCE 1952

$740M+

Contributions

ENVIRONMENT

Restoring natural
infrastructure while
improving the quality oflife as it relates to poverty

GOAL: Place 50 million people

on the path to prosperity. The
Caterpillar Foundation impacts
people through our nonprofit
partners’ work on the ground toaddress the root causes of poverty.
Since 2013, we have helped put morethan 48.1 million people on the pathto prosperity.

EDUCATION

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

Number of people in millions

2015

30.6

2018 Caterpillar Foundation
community investments

38.6

2017

46.5

2018

48.1

2020

50.0

We believe no one individual
or organization can do this work
alone – collaboration among businesses, nonprofits,
governments and citizens is key, and working together
is the only way to create sustainable change.

2018 COMMUNITY INVESTMENTS

$27M

10.5

2016

Food, water, shelter,
energy and disaster relief

INVESTMENTS

People Impacted(Cumulative)
2013

BASIC HUMAN
NEEDS

$4M

Caterpillar Foundation matching
gifts program11$11.8M2018 United Way total donations12

34 | 2018 ESG PRIORITIES & APPROACH REPORTINDEPENDENTASSURANCESTATEMENTIndependent Assurance Statement to Caterpillar Inc.
ERM Certification and Verification Services (ERM CVS) was engaged by Caterpillar Inc. (Caterpillar) to provide limited
assurance in relation to specified 2018 data in the Caterpillar 2018 Sustainability Progress Report and the Caterpillar
2018 Environmental, Social and Governance Priorities & Approach as set out below.
Engagement summary
Whether the Caterpillar 2018 data for the following indicators are fairly presented, in all material
respects, with the reporting criteria:

Scope of ourengagement

Reportingcriteria

Environmental data
Absolute and intensity:
Scope 1 GHG emissions [million metric tons
CO2e and million metric tons CO2e/million
dollars of revenue];
Scope 2 GHG emissions market based
methodology [million metric tons CO2e andmillion metric tons CO2e/million dollars ofrevenue];
Total GHG emissions [million metric tons
CO2e and million metric tons CO2e/million
dollars of revenue];
Energy intensity [GJ/million dollars ofrevenue] and total 2018 consumption in GJ
used to calculate this;

Safety data
Lost Time Case Frequency Rate (LTCIR);
Recordable Injury Frequency Rate (RIF)
per 200,000 hours worked.

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

Assurance
standard

ISAE 3000 (Revised).

Assurance level

Limited assurance.

Respective
responsibilities

Absolute only:
Scope 2 GHG emissions location based
methodology [million metric tons CO2e]
Total electricity [MWh];
Non-contact cooling water [billion gallons];
Water sources (non-contact cooling waterfrom foundry operations, municipal water,
groundwater, surface water) [%];
Global water consumption [billion gallons];

based on the International Standard on Assurance Engagements

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.
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 2018 data for the indicators listed
above
Our assurance activities
Our objective was to assess whether the selected data are presented in accordance with the principles of completeness,comparability (across the organization) 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 werenecessary 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
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;
Virtual visits to two sites Large Engine Center (Lafayette, IN, USA) and Building Construction Products BCP (Torreon,
Mexico) to review local reporting processes and consistency of reported annual data with selected underlying source data
for each indicator. We interviewed relevant staff, reviewed site data capture and reporting methods, checked calculations
and assessed the local internal quality and assurance processes;
Year-end assurance activities at corporate level including reviewing the results of internal control procedures, checking
completeness of locations in the consolidation as well as the accuracy of the consolidation of the data for the selectedindicators 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 .

Jennifer Iansen-Rogers
Head of Corporate Assurance Services
29 April 2019
ERM Certification and Verification Services, London
www.ermcvs.com; email: post@ermcvs.com

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 ensurethat the work we undertake with clients is free from bias and conflict ofinterest. ERM CVS staff that have undertaken this engagement haveprovided no consultancy related services to Caterpillar in any respect.

36 | 2018 ESG PRIORITIES & APPROACH REPORTABOUT THIS REPORTOur sustainability practices focus on ways to maximize the life cycle benefitsof our products while minimizing the economic, social and environmental costsof ownership for Caterpillar customers. Our most recent results are reflected here
and build on the themes and results described in our 2017 report. The reporting period
is the 2018 calendar year, which is also Caterpillar’s fiscal year.
This report has been prepared in accordance with the Global Reporting Initiative(GRI) Standards: Core option. A GRI Index is available here.
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.
Caterpillar’s environmental and safety metrics for operations are consolidated basedon the Greenhouse Gas Protocol “operational control” approach. Caterpillar isheadquartered in Deerfield, Illinois, USA. Contact us here.
ERM Certification and Verification Services (ERM CVS) has conducted independent
assurance of selected 2018 environmental and safety data. To understand the scope,
activities and conclusions of the assurance process, please see the ERM CVS
Assurance Statement here.
Environmental data includes all manufacturing and office facilities with more than
500 employees. Safety data includes employees in all manufacturing and officefacilities within Caterpillar’s reporting boundary.

37 | 2018 ESG PRIORITIES & APPROACH REPORTFORWARD-LOOKING STATEMENTS

Certain statements in this Environmental, Social and Governance Priorities & Approach document 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 of the 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 basedon a number of 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 orsignificant 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 restructuringcosts 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 orother employee relations issues; (xiii) adverse effects of unexpected events including natural disasters; (xiv) disruptions orvolatility 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 increasein 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 theirimpact on demand for our products and our competitive position; (xxiv) additional tax expense or exposure including theimpact of U.S. tax reform; (xxv) significant legal proceedings, claims, lawsuits or government investigations; (xxvi) new
regulations or changes in financial services regulations; (xxvii) compliance with environmental laws and regulations; and(xxviii) other factors described in more detail in Caterpillar’s Forms 10-Q, 10-K and other filings with the Securities andExchange Commission.

38 | 2018 ESG PRIORITIES & APPROACH REPORTENDNOTES

1.	Data prior to 2018 has been revised to reflect the correction of immaterial errors.
2.	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.
3.	Location-based Scope 2 GHG emissions are provided in accordance with the GHG Protocol Scope 2 guidance (2015).
Our market-based Scope 2 emissions are calculated using the 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 power generation facilities and, for the remainderof our facilities, grid average emission factors from USEPA’s eGRID (2014) and the International Energy Agency’s data
(2014). For 2018 calculations, Caterpillar did not use residual mix factors.
4.	Total includes purchased and on-site generated alternative and renewable energy, as well as calculating the percentageof renewable energy from grid-purchased electricity using data obtained from the International Energy Agency.
5.	Renewable Energy: Caterpillar defines renewable energy as energy resources that are naturally replenishing overa short period of time and virtually inexhaustible. Power generation examples include wind, solar, hydro, geothermal,
tidal, wave, biomass and biogas from anaerobic digestion.
6.	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, coal mine and abandoned mine methane, combined heat and power (cogen, trigen and quadgen),coal with carbon sequestration and localized power generation.
7.	Water consumption intensity does not include noncontact cooling water from foundry operations.
8.	Data does not include Progress Rail or Solar Turbines.
9. Product returned for remanufacture (called “core”) is not always returned within the same calendar year as sold.

10.	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 toadjust for acquisitions, divestitures, offerings that become standard and improvements to data accuracy.
11.	This represents employee and retiree donations made in the calendar year 2017, and the Caterpillar Foundation’smatch made in the calendar year 2018.
12.	This includes employee and retiree contributions, and the Foundation match, for campaigns in the United States,
Canada, Mexico and Panama.

®

© 2019 Caterpillar. All Rights Reserved. CAT, CATERPILLAR, LET’S DO THE WORK, their respective logos, “Caterpillar Yellow”,
the “Power Edge” and Cat “Modern Hex” trade dress as well as corporate and product identity used herein, are trademarks ofCaterpillar and may not be used without permission.
Caterpillar: Nonconfidential

39 | 2018 ESG PRIORITIES & APPROACH REPORT