Towards a Sustainable Future. Peter Löscher President and CEO, Siemens AG Istanbul, 1 st June Check against delivery!

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1 Towards a Sustainable Future Peter Löscher President and CEO, Istanbul, 1 st June 2010 Check against delivery!

2 The economic crisis will be resolved The recent weeks have shown that we cannot talk about the end of the economic crisis. Although the worst scenario of a global recession seems to have been avoided, we are still tackling severe challenges like high unemployment rates and their impact on welfare systems. Like tight household budgets and their limiting effects on public investments. As well as state deficits and their threats to currency stability. I do not want to comment on these risks in detail. We read about them every day in the newspapers. Nevertheless, I am confident, that governments and private partners will take the necessary steps. And I am confident that the economic crisis will be resolved within a few years. Demographic change, urbanization and climate change will shape our surroundings However, things look different if we consider long-term global developments. There are a number of global developments which will change our economic, environmental and social surrounding for the next decades, if not centuries. The first example of such a development is demographic change: Our population will increase, and we will live longer. In fifty years, our planet will be a home to 9 billion people, 2.5 billion more than today. Fifty years back, there were only 3 billion. The global median age will climb from 29 years to 38 years. Turkey corresponds closely to these trends: The population will grow from 75 million to more than 95 million people. The median age will rise from 28 to 40 years. That s good news! We all want to live long. But there are always two sides to the coin: These trends also bear consequences. For example, the effects on our healthcare systems: How can we provide affordable, quality healthcare to increasing numbers of elderly people? 2 / 10

3 The second development is urbanization. As our populations grow, cities will grow. Today, more than half of the world s population lives in cities. By mid-century, it will be almost two thirds in Turkey, it is already 70 percent. The importance of cities will increase: As centers of business and trade, of industrial production, of research and education, of our work life and cultural life. Istanbul is an outstanding example for this: Europe s largest city is home to 15 percent of Turkey s population. The number of inhabitants has grown by 400 percent since Istanbul is Turkey s economic center generating almost 25 percent of GDP. It is also the center of research institutes and universities. And it is a melting pot of different cultures and heritages. It s no wonder that Istanbul was selected to be a European Cultural Capital this year. However, everyone who lives and works in this striking megacity also knows about Istanbul s infrastructure challenges. Improved transport is just one infrastructure challenge next to energy and water supply, lighting and buildings, safety, and healthcare. Furthermore, cities account for 70 percent of global energy consumption and they emit 80 percent of all greenhouse gases. The big question is: How can cities expand their infrastructures, improve the living conditions and at the same time, save costs and resources? This leads me to the third global development: Climate change. It certainly is the most serious development of all. I am not an expert on ecosystems, so I will not comment on the consequences from this side. I d rather concentrate on the economic consequences: The former chief economist of the World Bank, Sir Nicholas Stern, has projected costs of up to 20 percent of the global GDP, if we do not combat climate change. In comparison: Last year the current economic crisis cost us about 2 percent of global GDP. We have to fight against climate change. There is no alternative. But how can we do so, without limiting our welfare and progress? How can we meet the rapidly rising energy demands of companies worldwide, and at the same time, reduce CO2 emissions as well as costs? There is no easy answer to that question. 3 / 10

4 We have to move away from the short term perspective At the end of the day, it boils down to two central challenges we have to face: The shortterm challenge. We have to overcome the financial crisis, with all the consequences I just mentioned. And the long-term challenges of ageing societies, growing cities and a threatened climate. A situation like this calls for substantial change. We have to move away from the short term perspective of quick gains and losses. Instead, we have to march in the direction of sound long-term value creation. We have to set our sails towards a more sustainable future. Economy and ecology goals do not contradict each other Sustainability has three dimensions: ecology, economy and social responsibility. Those three dimensions are interdependent. They have to be seen in combination. The first combination is ecology and economy. I think we all agree that the times are gone, when ecological targets contradicted economical goals. A few weeks ago, on April 27, we had the privilege of welcoming U.S. President Obama to our wind turbine factory in Fort Madison, Iowa. In his speech he stated one thing very clearly: The country that leads the clean-energy economy will be the country that leads the 21st century global economy. And his government has earmarked 100 billion US- Dollars out of its 800 billion Dollar stimulus program to boost green growth, to create green jobs and to promote green research and development. 4 / 10

5 A few days after President Obama, on May 14th, we were honored by the visit of China s Premier Wen Jiabao. He toured our production site for energy efficient electric drives in Tianjin. And here the Premier renewed the commitment of the Chinese Government to the targets of the current Five Year Plan. He put particular emphasis on one measure of the Five Year Plan: Resources utilization efficiency will be improved considerably while energy consumption per unit GDP will be lowered by 20 percent. Both leaders put the shift to a greener, resource efficient and thus more sustainable economy on the top of their agendas. Green business is growing For good reasons: The market for green products is growing. According to research, the volume of markets for green products like energy efficient products will double within the next ten years to a volume of more than 3 trillion euros. So while many markets stagnate or decline, green markets are growing at a very high rate. A good proof point for this is Siemens: Last fiscal year we sold green products for around 23 billion euros. Our green revenue increased by 11 percent, which helped us to balance sales in businesses that were hit by the crisis. Also, our green revenue helped us to increase our total workforce in the past two years. In the midst of the toughest economic crisis for decades, Siemens increased its workforce by 4,000 people. 5 / 10

6 Green technologies pay for themselves So clearly, the focus on green business is good for Siemens. And it is also good for our customers, because our green energy efficient products save a lot of money and most of them pay for themselves. For example, the new gas turbine we build in Berlin is the cleanest and most efficient way to turn natural gas into electricity. Through its record efficiency our utility customers save between one and two million Euros per year of gas costs. At the same time they reduce CO2 emissions: One turbine alone saves 40,000 tons of CO2 emissions per year compared to the next best turbine. That s the equivalent of 10,000 cars driving 20,000 kilometers per year. If this gas turbine were installed around the world in the place of existing gas turbines, annual CO2 emissions would drop by 320 million tons. It takes a forest half the size of Turkey to abate that much CO2. A second example is our high-speed trains. The Spanish high-speed train AVE connects Barcelona and Madrid and operates at speeds of up to 300 kilometers per hour. In fact, it can go much faster. In test operations, we set the world record for high-speed trains of 404 kilometers per hour. That makes the AVE the fastest train in commercial operation. But it's not only fast; it's very energy-efficient. On average, the AVE consumes only 0.33 liters of fuel per passenger per 100 kilometers as much fuel as fits in a can of Coke. An average car with four passengers on board, consumes more than 5 times more fuel per passenger than the AVE. 6 / 10

7 The third example is electric motors, used in manufacturing. Worldwide, they account for slightly more than two thirds of all industrial power consumption. In Turkey, there are 15 million electric motors in operation. Only 1 percent of them are energy efficient motors. If we installed efficient motors in the place of existing ones, Turkey could save 3,000 Gigawatt hours of energy. That s almost two times the power generated by the Keban Dam station. Furthermore, due to their high efficiency rate, these motors save energy costs. And so, they pay for themselves. Investments are amortized in just two to three years. In terms of cost efficiency the simple conclusion is: Green products are lean products. Going green means growing your business profitably The second combination in sustainability is ecology and social responsibility. At Siemens, we interpret this combination simply as: We walk the talk! We have taken the approach of sustainability to heart and we act accordingly. Between 2006 and 2011 we will reduce: our energy consumption by 20 percent, our CO2 emissions by 20 percent, our water consumption by 20 percent and our waste by 15 percent. These figures are worldwide, and relative to our revenue development. These are certainly ambitious goals. But we will reach them, if we follow the example of our role models. One of these role model factories is just around the corner: It s our new factory in Gebze, which we proudly inaugurated last spring. Gebze is one of our most advanced factories worldwide. It has won the first LEED Gold certification in Turkey for Leadership in Energy and Environmental Design. Compared to our previous facilities, Gebze: reduced energy consumption by 25 percent, CO2 emissions accordingly and water consumption by 50 percent. 7 / 10

8 In total, we will invest about 100 million Euros in Gebze. That money is very well spent. Gebze will serve our customers in all three sectors, Energy, Industry and Healthcare. Here in Turkey and abroad. Also, Gebze is one of our most productive and profitable production sites worldwide. So in terms of production, the conclusion is: Going green, means growing your business profitably! Education, research and development are the prerequisites of sustainable success The third combination of sustainability is business and social responsibility. The link between the two is just one word: Education. We believe in the following equation: the prerequisite of economic success is superior products. The prerequisite of superior products is intensive research and development. Siemens currently spends 5 percent of its revenues on R&D. Despite the crisis, we spent almost four billion euros on R&D last year, three percent more than in the previous year. This money was, for example, invested in our new R&D center in Gebze. In the last fiscal year alone, our employees came up with 7,700 inventions worldwide that's 35 per working day. We currently hold a total of 56,000 active patents. More than 16,000 of these relate to "green" products. In Turkey, our pursuit of innovation was recognized recently by Prime Minister Erdogan who assigned the Patent Award to our affiliate Bosch Siemens Hausgeräte. The prerequisite to research and development are excellently educated employees. In this respect Turkey is in the pole position for success: The average age of Turkey s 76 million people is about 28 years. Two thirds of the population is of working age, between 15 and 64 years. About one quarter of the population is in school. Nearly two-and-a-half million young people here in Turkey are striving for degrees in higher education. And those who do not get a place at a university, study at "dershanes. 8 / 10

9 Turkey knows that education is the key to prosperity. It spends more than 3 percent of its GDP on education. Around 450,000 graduates from 143 universities join the labor market each year. And the pursuit of green growth business may provide the future jobs for these young talents. Turkey's young people are well educated, ambitious, full of energy and hungry for new challenges. We see that at Siemens. And this is the reason why we consider Turkey a key region for our economic success in Europe. Green growth will help to overcome current weaknesses If we change and move our economies in the direction of sustainability, we will be able to solve both, our short-term and long-term challenges: Green markets are among the fastest growing markets today and even more so in the future. This growth can help us to overcome our current weakness especially here in Europe. This growth can also help to create new, future proof jobs. And this growth can help to reduce the deficits as well as the pressures on our social systems. So much for the short term perspective. As for the long term perspectives: There is no alternative to higher energy efficiency on all levels and to an increase in renewable energies, if we want to meet the challenges of a growing world population, that needs more energy. But at the same time has to reduce CO2 emissions drastically. A fantastic project that encompasses all the aspects of sustainability is Desertec. The initiative s CEO, Paul van Son, will talk about Desertec later. I am sure Turkey could play an important role here as a doorway to North Africa and as a dynamic regional hub. We are very proud that Siemens is one of the founding members of the Desertec initiative. And we are fully committed to bring this Apollo Project of the 21st century to life. 9 / 10

10 Although, the global economy still is in rough waters, there can be no doubt that we will master this crisis. But the question is: how will we master it and what role will we as Europeans play in this struggle? Naturally, we could simply wait until the crisis is over and then see how others have shaped the world. But, I think the better alternative is to perceive this crisis as an opportunity to create a sustainable economic system that engenders prosperity and protects our necessary resources through leading-edge technology. If we are to master such a Herculean task, decision makers in the world of science, government and business will have to work together. We need to contribute our ideas to the process and work together on developing solutions. It is our responsibility. 10 / 10