Committed to the United Nations Global Compact Principles in Europe COMMUNICATION ON PROGRESS

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1 Committed to the United Nations Global Compact Principles in Europe COMMUNICATION ON PROGRESS

2 This document reflects the commitment made and actions taken in 2016 by the European operations of XPO Logistics. 2

3 Statement of Continued Support To our stakeholders: I am pleased to confirm that XPO Logistics Europe reaffirms its support of the 10 Principles of the UN Global Compact. In this annual Communication on Progress, we describe our 2016 progress in further improving the integration of the Global Compact and its principles into our business. We also commit to share this information with our stakeholders using our primary channels of communication. Sincerely, Troy Cooper Chief Executive Officer of XPO Logistics Europe Chief Operating Officer, XPO Logistics 3

4 HUMAN RIGHTS Principle 1: Businesses should support and respect the protection of internationally proclaimed human rights, and Principle 2: Make sure that they are not complicit in human rights abuses. Our Commitment Respect all human rights laws across all XPO operations, every day, everywhere we do business. Raise awareness of rules, legislation and human rights within our company and with our customers. Ensure that key subcontractors operate in ways that respect human rights laws. Promote the importance of human rights within our industries and those we serve. 4

5 HUMAN RIGHTS Code of Ethics XPO adopted a new global Code of Business Ethics during 2016 as part of its Integrity Matters ethics and compliance program. This code is a blueprint of our company s business standards and its guiding principle is to treat everyone with dignity and respect. All XPO employees, officers and directors are subject to the code, as are other parties acting on XPO s behalf, such as its suppliers and partners. The code contains a number of global business ethics policies that govern our conduct, including no discrimination, harassment or retaliation, trade compliance, data protection, anti-trust and fair competition and anti-corruption. The XPO Integrity Matters Code of Business Ethics and associated policies have been issued to all employees and the business operates a central compliance office available to all XPO workers and third parties for the reporting of queries and concerns. General Common Human Resources Principles and Policy Our business is widespread and strongly oriented toward growth. To manage everything this entails in terms of the integration of new people and practices, we have set up common principles, policies and standards in human resources management; these are based on respect for the rules, legislation and human rights. XPO Logistics Europe has introduced an independent CSR audit procedure. In addition, it participates in projects carried out by several organizations such as SEDEX, reviewing ethical and HR practices of various branches. In 2016, SEDEX evaluation rate of our practices remained the same as in 2015 (98.4% compliance). 5

6 HUMAN RIGHTS Internal Audit The Internal Audit department dedicates part of its time to verifying that internal procedures and policies relating to laws, regulations and human rights are fully and efficiently enforced. This department also verifies that common HR standards, principles and policies are applied. A general country audit is completed on average every two years, which includes a review of HR processes and assessment of the working environment for employees. In 2016, 17 audits were completed across XPO Logistics Europe subsidiaries during the first semester. The second semester was dedicated to the implementation of Sarbanes-Oxley (SOX) legislation and internal testing. Subcontractors Procedure Our procedure follows a two-step approach: Make key subcontracted businesses subject to prior standardized checks to ensure compliance with rules, legislation and human rights. Encourage every operational manager to certify key subcontractors and to undertake regular audits. Use of subcontractors is mainly linked to the performance of transport activities, for which it is a common and necessary market practice. A dedicated policy has therefore been introduced and is implemented directly by the transport solutions business unit. New XPO transport subcontractors have to sign the Subcontractors Charter and meet the requirements set out in XPO Logistics general purchasing conditions, which define the quality and safety standards with which any transporter chartered by the company must comply. In addition, the transport solutions business unit has set up a transport subcontractors database, which is used to manage staff use of previously approved, classified and monitored suppliers. This imposes effective compliance controls in the subcontracting process. The Internal Audit department regularly conducts audits of XPO Logistics procedures for managing subcontractors. 6

7 LABOR Principle 3: Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining, Principle 4: The elimination of all forms of forced and compulsory labor, Principle 5: The effective abolition of child labor, and Principle 6: The elimination of discrimination in respect of employment and occupation. Our Commitment We consider human resources to be our foremost asset and are committed to managing our people in line with the values of fairness, respect and trust. We consider different perspectives to be an asset and an opportunity, and therefore encourage diversity. We support freedom of association and the expression of employee ideas and opinions through social dialogue and close local management. We will never tolerate any form of forced or compulsory labor, nor any form of child labor, within our organization or our subcontractors organizations. We believe that our scale and global diversity place us in a position to have a positive influence on social integration, and we invest in developing people through training and a policy of internal promotion. 7

8 LABOR General Common Human Resources Principles and Policy The company s HR policies encompass proper background checks and work contracts as the absolute minimum requirements everywhere across the business. To foster internal promotion, our company gives priority to internal candidates in seeking to fill any recruitment needs. XPO Logistics Europe also runs a talent development training program to maximize its chances of receiving internal applications. By the end of 2016, more than 2,900 of the company s managers had the opportunity to improve their management, communication and social dialogue skills through our Red Management training program, toward a goal of 100% trained. In 2016, 782,990 hours of training were provided to staff, and XPO Logistics Europe spent 14.9 million, or 1% of total staff costs, on staff training. Employees spent an average of 18 hours on training during the year. XPO Logistics Europe has made internal job mobility a recruitment priority. Some 56% of our key positions are filled through internal promotion. In logistics in 2016, for example, 57% of team leaders and 60% of operating managers have been promoted in-house. In both transport and logistics, and 65% of site managers were promoted from within the company. Code of Ethics Managers who are newly appointed, hired or integrated are made especially aware of their responsibility to respect and enforce HR principles, standards and policies. 8

9 LABOR Combating Discrimination HR principles clearly set out the restrictive criteria upon which decisions on human resources (hiring, pay raises, promotion, disciplinary measures and access to training) can be based: track record, skills, past career and experience. The issue of integrating and supporting employees with disabilities is covered by decentralized policies in each country and area of activity. These policies aim, in particular, to increase the number of people with disabilities employed by XPO Logistics Europe. With regards to equivalent roles, the company s aim is to reduce the pay gap between men and women, notably by monitoring this indicator more closely within the framework of pay review cycles. To increase the employment of disabled people, the matter of employing and supporting disabled people is covered by specific policies according to each country and business unit. In 2016, the French operations employed 531 disabled colleagues. In the French supply chain operations, this issue is covered in a signed agreement with the staff representatives, which includes the following commitments: Increase recruitment and training of disabled people to improve retention and access to jobs; Develop training courses and internships, increase use of companies operating in the French protected sector as well as temporary disabled staff by working with relevant agencies; Support disabled staff to be RQTH certified (French abbreviation for the Recognition of the Quality of a Disabled Worker) and at their place of work within the company and Strive to retain disabled people in employment. In France, XPO Logistics Europe, together with the charity Ares, has set up a unique organization in the form of a joint venture for charitable purposes: Log ins. The company aims to train disabled or unqualified logistics workers, qualifying them to subsequently work for the company supported by social aid and professional support. 9

10 LABOR Management and Social Dialogue Principles Responsibility for leading social dialogue is given to local operational managers. By empowering local managers, we provide quick, relevant and appropriate answers to local employees concerns and issues, in line with the local reality this guarantees the quality, fairness and efficiency of our social dialogue. XPO Logistics Europe is committed to providing its social partners with a broad picture of its activities, its economic health and its perspectives on subjects of interest such as employment. This is accomplished through a European social dialogue body the XPO European Work Council and through a French social dialogue body covering the whole organization the XPO Group Committee. Most of the countries in which XPO Logistics Europe operates have local employee representation bodies with whom it has regular and constructive dialogue (the absence of formal employee representation bodies is due to the very limited number of employees in some countries). In 2016, 249 negotiating meetings were held with staff representatives throughout the company, resulting in 204 agreements being signed. 72% of XPO Logistics Europe s employees are covered by a collective bargaining agreement or similar agreement. Internal Audit Internal audit reviews encompass common HR standards, principles and policies, and compliance checks. A general country audit is completed on average every two years, which includes a review of HR processes and assessment of the working environment for employees. In 2016, 17 audits were completed across the Group s subsidiaries during the first semester. The second semester was dedicated to the implementation of Sarbanes-Oxley (SOX) legislation and internal testing. Audit visits include observing whether the procedures in place ensure respect of labor principles in the working environment. 10

11 ENVIRONMENT Principle 7: Businesses should support a precautionary approach to environmental challenges, Principle 8: Undertake initiatives to promote greater environmental responsibility, and Principle 9: Encourage the development and diffusion of environmentally friendly technologies. Our Commitment As the owner of the largest road fleet in Europe, XPO Logistics Europe makes it a priority to reduce each truck s environmental impact and, in particular, its carbon footprint. We have been a partner of the French Environment and Energy Management Agency (ADEME) for the past 10 years, and our primary focus is on constantly improving the CO 2 emissions performance of transport through innovation and other means. Our company has also set a demanding standard for the environmental management of its sites, which is applied to all its logistics platforms. XPO Logistics teams are professionally trained and provided with up-to-date equipment and infrastructure, including technology, to ensure a high level of safety both on the road and in warehouses where goods are stored and handled. 11

12 ENVIRONMENT Reducing Pollutant Emissions In transport operations, XPO Logistics Europe has introduced an action plan to meet its commitments, covering the following: reducing vehicle fuel consumption, training drivers in responsible eco-driving, experimenting with new engines using alternatives to diesel such as the diesel-electric hybrid or natural gas (NGV or LNG), and optimizing transport flows with the aim of always using the most appropriate transport route from a financial and environmental point of view road, rail, river or short sea. In supply chain operations, each country has a department responsible for all quality, health, safety and environment issues. Responsibilities include operating staff on sites and in the country head office. In 2016, the department comprised 185 FTEs in 257 locations (Europe). The company has been measuring its carbon footprint since 2005 and has been committed to curbing CO 2 emissions since 2008 under the CO 2 Charter the first instrument for cutting road transport CO 2 emissions, which was introduced by the French Environment and Energy Management Agency (ADEME). In accordance with its CO 2 Charter commitments, XPO Logistics has undertaken to reduce total vehicle emissions by 6% under a three-year program ( ). In 2009, the company introduced its own CO 2 calculator (now part of its service offering), which allows us to calculate carbon footprints for each customer and for each transport operation. In 2014, XPO Logistics Europe once again collaborated with the ADEME in drawing up a new standard to certify transporters performance with a CO 2 Label. The company received this certification in May Our company has the most modern and environment-friendly fleet in Europe. The fleet is 97% compliant with Euro V, EEV and Euro VI standards, and each truck is on average 2.5 years old. In 2016, the company opened a distribution center operating 30 liquefied gas-powered (LNG) tractors in France. As of December 31, 2016, XPO Logistics operated a fleet of 45 LNG tractors that have traveled over 20 million kilometers. We also launched a megacamiones (mega-trucks) service in Spain designed to mitigate the environmental impact of road freight by carrying larger volumes per journey and saving on fuel. 12

13 ENVIRONMENT XPO Logistics Europe monitors its direct greenhouse gas emissions (fuel and gas) as well as its indirect energy related emissions (electricity). In many cases, we have also been able to estimate the emissions of operations executed by our subcontractors. We are currently working on 14 measures that fall within the four areas of improvement defined under the CO 2 Charter : vehicles, drivers, fuel and transport flows organization. XPO teams have performed more than 15,700 multimodal transport operations. In 2016, our company again improved its performance by achieving a 1% reduction in CO 2 emissions: grams of CO 2 per tonne.km (versus gr/t.km in 2015). Environmental Management of Sites Our approach includes complying with regulations; monitoring and measuring energy consumption, discharges into water and noise pollution; recycling and reusing waste, and raising the awareness of our employees and partners. XPO Logistics Europe is engaged in an ISO certification process and meet the highest standard in the environmental field. In 2016, 50% of the company sites were ISO certified. Approximately 80% of the supply chain operation s waste was treated and 76% was recycled. XPO Logistics Europe also measures water consumption at each of its facilities and monitors differences in order to implement the required corrective measures. In 2016, thanks to this close monitoring, water consumption was reduced by 7.5%. Around 3% of the Supply Chain Business Unit s facilities are equipped with rainwater collection systems. The supply chain business units is modernizing its buildings and equipment by providing energysaving and secure solutions in order to reduce electricity consumption. New technologies (LED lighting, motion sensors and light sensors) and the use of less energy-intensive materials are systematically used for any new buildings and renovations. The transport operations head office is ISO certified (energy management system certification). 13

14 ENVIRONMENT Promoting Awareness and Training Employees About Environmental Protection and Safety on the Road and in the Warehouse XPO Logistics Europe makes significant investments in training related to recycling waste, saving energy, new technologies and the prevention of environmental accidents. The training and awareness courses are given to all staff including managers, support function employees and operating staff. The course content is based on any changes in regulations and issues specific to each site (e.g. monitoring regulations for facilities classified for environmental protection, waste transportation, fire prevention and compliance with ISO-14001). As early as 1991, our company created its own tool, the Safe Driving Plan, which provides guided induction, training and work for all employees dealing directly or indirectly with road risks (from drivers to top managers). This tool is used in all of XPO Logistics Europe s subsidiaries. XPO Logistics Europe has also been a member since 2009 of the European Road Safety Charter supervised by the European Commission. Due in part to the company s investments in road safety, XPO drivers, on average, drove 613,793 km without causing an accident over the period an improved performance that is significantly higher than the average for drivers in our industry. 100% of our drivers are trained under the Safe Driving Plan and to use eco-drive (rational driving) techniques. Over 5,000 hours of training in eco-drive techniques were provided to drivers in 2016 under the Safe Driving Plan. Additionally, in 2016, we launched a project to equip 28 vehicles by 2018 with eco-friendly driving self-assessment systems so that drivers can assess their own driving habits in real time. 14

15 ANTI-CORRUPTION Principle 10: Businesses should work against corruption in all its forms, including extortion and bribery. Our Commitment XPO Logistics Europe is opposed to any form of corruption inside and outside the company by suppliers, customers or any other individual or organization. Our governance rules and procedures include the protection of our company against corruption and bribery cases. 15

16 ANTI-CORRUPTION Code of Ethics Managers who are newly appointed, hired or integrated are made especially aware of XPO Logistics Europe s strict rules prohibiting corruption as set out in its Integrity Matters Code of Business Ethics. This includes a warning as regards any form of gift from any organization; gifts of a value over a specified or reasonable amount must be refused. The decision-making and selection process is subjected to several levels of validation, which helps to protect against corruption. A Risk Committee has been set up at the company level to ensure XPO s development complies with key rules and procedures; including those strictly prohibiting bribery and corruption. On average, each country is audited at least once every two years. The Internal Audit department reviews processes and procedures in place whilst auditing, and refers to the Rules and Key Procedures company guidelines with regards to bribery and corruption. Additional measures are being introduced to further increase awareness and to bolster legal and regulatory compliance in this key area. Measures include the addition of anti-corruption as a mandatory item for the Risk Committee, Audit Committee, and high-level executive meeting agendas to enable constant monitoring across the business; the design and roll-out of a dedicated training program aimed at country executive teams (and to be extended to on-site teams as a next step); and the development of specific guidance on prohibited facilitation payments. 16

17 ANTI-CORRUPTION Commercial Policy The company s commercial policy defined in the Integrity Matters Code of Business Ethics clearly prohibits any form of corruption to improperly influence business matters. The company s commercial policy has been given and explained to 100% of our commercial staff. 17

18 Committed to the United Nations Global Compact Principles in Europe COMMUNICATION ON PROGRESS 2017 XPO Logistics, Inc.