December 2017 Modern Slavery Act Statement, December 2017 Page

This document forms Danfoss Modern Slavery Act Statement pursuant to section 54 of the UK Modern Slavery Act 2015. International Labour Organization (ILO), estimates that 21 million people live and work under conditions, which can be characterized as modern slavery. This includes forced, debt-bonded and involuntary work, and work performed under threat of penalty. Examples of forced labor is withholding of passport, recruitment fees which compels workers in debt bondage or excessive working hours for a minimal pay sometimes paid infrequent or heavily delayed. Our commitment and policies Danfoss is since 2002 a member of the UN Global Compact and is committed to respecting the internationally declared human rights. Since 2008, Danfoss has maintained the company s Ethics Handbook detailing internal rules and requirements regarding human rights, labor rights, anti-corruption and fair competition. The Ethics Handbook is updated when new or revised legislation is issued and complemented by compliance manuals and online training programs for abovementioned issues, data privacy and export control. While internal ethical guidelines have long been a high priority in Danfoss, in 2016 revisions have been made to accommodate for the recent development in the modern slavery regulation. Currently, the company s Supplier Code of Conduct is subject to revision to accommodate for the same. Yours sincerely, Kim Fausing President & CEO Modern Slavery Act Statement, December 2017 Page 2

About Danfoss Danfoss is a privately-owned company founded by Mads Clausen in 1933, and today the company is controlled by the Bitten and Mads Clausen Foundation. Danfoss engineer technologies that enable the world of tomorrow to do more with less. We meet the growing need for infrastructure, food supply, energy efficiency, and climate-friendly solutions. Our products and services are used in areas such as refrigeration, air conditioning, heating, motor control, and mobile machinery. We also operate in the field of renewable energy, as well as district energy infrastructure for cities and urban communities. The Group is divided into four business segments: Danfoss Power Solutions, Danfoss Cooling, Danfoss Drives, and Danfoss Heating. Modern Slavery Act Statement, December 2017 Page 3

Control environment Danfoss has a two-tier management system consisting of a Board of Directors and a Group Executive Team. The Danfoss Board of Directors and the Group Executive Team have the overall responsibility for the Group s risk management and internal controls in its financial reporting, including the responsibility for the Group s compliance with all relevant legislation and regulations in connection with the financial reporting. Further details about the company s governance structure, risk management and organizational structure can be found in the Annual Report, the Statutory Report and on the company s website http://www.danfoss.com. Modern Slavery Act Statement, December 2017 Page 4

Responsible supplier handling Danfoss source its materials and components from 3,200 suppliers in 48 countries. 75% of all direct suppliers are in Denmark, China, USA, Germany, Italy, Sweden, Finland, France and Poland. The company works systematically with risk assessment and supplier management. Danfoss Code of Conduct for Suppliers defines the Group s environmental and social requirements and all suppliers are required to sign the Code as a part of signing business contracts. Further, a supplier risk assessment model has been implemented, forming the basis for measures taken at the individual supplier. The risk assessment model includes the location of the supplier, which ensures that the highest priority is given to suppliers in the areas which pose the greatest risk of non-compliance. All suppliers in high risk countries are subject to a thirdparty audit, except in cases where the spend is very low. The scope for our responsible supplier management is 1 st tier suppliers, but in case of suspicion of malpractice by 2 nd tier suppliers, these are also comprised by third party audits. More than 90 % of all existing suppliers are compliant with our Code of Conduct and for the remaining suppliers there is a specifically tailored action plan. In 2017, Danfoss have seen one incident where a 2 nd tier supplier did not meet the requirement for paying minimum wages. Not meeting the standards for minimum wages is critical because minimum wages may not always be sufficient to live on. An action plan has been made and Danfoss will follow up on this. Danfoss Code of Conduct Competence Center conducts training of all employees who are in contact with suppliers on an ongoing basis. This is to ensure that they are familiar with Danfoss Code of Conduct and the roles and responsibilities within the area. The training consists of multiple modules, primarily as online training. Conflict minerals handling Danfoss support the efforts of governments and organizations to end violence and atrocities in conflictaffected areas. Danfoss is therefore committed to source its materials and components from companies that also share our values around human rights, ethics and environmental responsibility. We have established internal processes to determine whether our products are Conflict-Free to ensure that our procurement of materials and components do not contribute to human rights violations in conflict areas. We identify potential sourcing risks affecting our products and proactively require all minerals in our supply chain to be conflict-free. We exercise due diligence regarding the origin and chain of custody of the 3TGs contained in products in our supply chain that we manufacture or contract to manufacture. We furthermore encourage our suppliers to responsibly source 3TGs through smelters and refiners that have been verified as DRC conflict-free through the Conflict Free Smelter Program (CFSP) or a similar framework. Finally, we support and adhere to national and international standards and guidelines for responsible supply chains of 3TG minerals like the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals. Due diligence As a member of the UN Global Compact, Danfoss is committed to live up to the UN Guiding Principles for Human Rights. This implies that we must carry out a human rights due diligence process, where potential human rights impacts are identified, assessed, prioritized and mitigated. We consider modern slavery being a part of the human rights due diligence process. The issue of human rights is rather complex and needs to be translated into a business context. Therefore, Danfoss has decided to gain some experience with due diligence internally before introducing it in the supply chain. Danfoss has started its human rights due diligence process in 2016, where a pilot project was carried out in Eastern Europe Region, covering Poland, Slovakia and Romania. With a few adjustments, the project will be rolled out in the other regions where Danfoss operates in 2017-2019, starting with China and India. The figure below shows the process. Modern Slavery Act Statement, December 2017 Page 5

Moving forward Understanding modern slavery is a complex issue, Danfoss will continue to examine different aspects of modern slavery in order to understand the risks in our supply chain. This will be a task for the coming year. Modern Slavery Act Statement, December 2017 Page 6