The Group believes that excellence in corporate responsibility delivers competitive advantage and contributes to long-term success. It helps the Group attract and retain the best people and maintain successful working relationships with customers, suppliers and governments. It also enables the Group to build goodwill and to support the communities in which its employees live and work. The sustained wealth, created by providing thousands of highly skilled jobs, represents the Group's single greatest contribution to those communities.
Charitable donations and community involvement are encouraged within a global framework which assists local regeneration and promotes education in business and technology-based studies.
The Group supports its own employees with well-developed policies and practices in health, safety and environment, employment policy and employee learning and development. The Group also operates proactive policies to manage its supplier and customer relationships responsibly.
The Group's achievements during the year were recognised when it was ranked in 9th position in the 2004 UK Business in the Community Corporate Responsibility Index and retained its inclusion in the Dow Jones Sustainability Indices.
The following paragraphs describe in more detail how the Group addresses specific aspects of its policy and practice in the field of corporate responsibility.
The Group makes its approved suppliers aware of the expected business requirements and performance standards through its supplier quality system, 'Supplier Advanced Business Relationships' (SABRe). This includes a supplier code of conduct and a health, safety and environmental management system, which set minimum standards. Regular visits are made to suppliers to assess their performance and a supplier awareness programme is delivered through conferences and regular communications. The Rolls-Royce purchasing code of conduct for employees complements the supplier code of conduct and ensures that employees act consistently with suppliers.
In 2005, Rolls-Royce won a UK award from the Chartered Institute of Purchasing and Supply in recognition of its contribution to corporate responsibility through the recycling of material in its supply chain.
The Group's sourcing policies in the USA reflect US Government regulations on small and disadvantaged businesses and our performance is monitored regularly.
Health, Safety and Environment (HS&E)
Rolls-Royce recognises that exceptional HS&E performance makes sound business sense. Our strategy is to protect our employees, contractors and the wider community; attract and retain a motivated workforce; maintain business continuity; avoid asset damage; and reduce overall costs. We also aim to have zero injuries and environmental incidents and to minimise the environmental impact of our operations.
The Chief Executive chairs the HS&E committee which is responsible for defining strategy, the management system, Group objectives and all performance measures. The Group is supported by the Environmental Advisory Board (EAB), whose members include respected external authorities. The EAB reviews and makes independent recommendations on the environmental and sustainability aspects of the Group's activities.
The Chief Operating Officer chairs the Major Incident Board which reviews incidents to ensure that lessons learnt are effectively communicated throughout the Group. Incidents considered in 2005 were a fire in a magnesium cutting operation and an explosion in a hydrogen bell furnace. Fortunately, these regrettable incidents did not result in any injuries and the Group experienced no work-related fatalities in 2005.
Three-year targets were set across the Group in 2003 covering: lost time injury rate; number of working days lost; incident rate of occupational diseases and other work related ill health; 100 per cent health surveillance of any populations at risk; energy use; solid waste; solid waste recycling and hazardous liquid waste. Programmes are in place to improve performance in these areas and an update, with data for 2005, will be published on the Group's website in April 2006. Independent assurance is provided by Deloitte & Touche LLP.
The Group operates three sites in the UK which manufacture, test and support nuclear reactor cores for Royal Navy submarines. All these sites continue to maintain a strong health, safety and environmental record.
The Group's HS&E audit programme independently assesses the implementation of its HS&E management system. Several audits were completed in 2005, covering operations in the UK, USA, Finland and Norway. Good progress continues to be made in implementing the Group-wide standard for an integrated HS&E management system. HS&E reviews were also undertaken at joint venture operations in the UK and the USA and at selected suppliers in Bulgaria, Romania and Taiwan.
The Group recognises HS&E performance with annual awards presented by the Chief Executive. Recognition was given in 2005 to those sites achieving zero lost time injuries.
The Group operates environmental management systems which are third party certified to the international standard ISO 14001. In 2005 the Group's operations at Oberursel and Dahlewitz in Germany received certification and all the Group's major sites are now certified. Our aim is for newly acquired businesses to achieve certification within two years of acquisition.
The Group continues to make excellent progress in improving the environmental performance of its products, with environmental impacts reduced by sustained investment in technology. We work with industry groups to support these objectives and in 2005, we were a key participant in the development of the UK Sustainable Aviation initiative. This defines a long-term strategy to maintain the benefits of growth in air travel, whilst managing the environmental impacts within sustainable limits.
The Group also supports the long-term goals published by the Advisory Council for Aeronautics Research in Europe (ACARE). ACARE seeks, by 2020 from a 2000 baseline, to develop aero-engine technology to help reduce fuel burn and carbon dioxide emissions per passenger kilometre by 50 per cent, noise by 50 per cent and emissions of oxides of nitrogen by 80 per cent. Rolls-Royce engines for the Airbus A380 and the Boeing 787 show improvements in environmental performance which are fully consistent with achieving these goals. Similar programmes are being followed in the energy and marine businesses.
The Group continues to participate in the UK carbon dioxide emissions trading scheme and the Chicago Climate Exchange and has targets for reduced carbon dioxide emissions from its operations in the UK and North America. In 2005, the Group again exceeded its obligations to reduce emissions under the UK Emissions Trading Scheme and sold some emissions units, thereby enhancing the cost-saving benefits of energy reduction.
In 2005, the Group was again placed first in its business sector in the Business in the Environment index of corporate environmental management. Its environmental achievements have also been recognised by several UK awards, including Business in the Community's 'Big Tick,' Business Commitment to the Environment and the Energy Accreditation Scheme.
The Group's strategy is to provide a progressive Occupational Health service recognised for delivering best practice based upon prevention and with processes fully integrated into the quality management system.
The Group recognises the link between physical and mental health and the need for employees to enjoy working effectively and successfully with proper regard for their personal well-being. To support the link between well-being and productivity, the HS&E committee in 2005 endorsed a preventative occupational health strategy, which concentrates on four key areas: screening and surveillance; rehabilitation; health promotion; and education.
In screening and surveillance, stringent targets are set for assessing fitness for work, reducing occupational disease and work-related ill health. A campaign continues to reduce noise-induced hearing loss and the Company played a significant part in 2005 in advising on the introduction of 'The Control of Vibration at Work Regulations' and their supporting guidance.
The priority in rehabilitation is early intervention and active case management of individuals. Training is provided to assist managers in managing absence and rehabilitation effectively.
Health promotion in 2005 included awareness campaigns on smoking and obesity. Employees are encouraged to stop smoking by highlighting the many benefits of not smoking and promoting the wide range of help and support in giving up. A three-month educational campaign called 'Reduce Hazardous Waist!' was launched with the aim of reducing health problems associated with obesity.
The Group's approach to managing workplace pressure has previously been recognised as an example of best practice by the UK's Health and Safety Executive (HSE) commissioned report on 'Beacons of Excellence'. Similarly its approach to absence management was cited by the HSE in its 'Better business' campaign.
Dr Ian Lawson, the Group's Chief Medical Officer, has recently completed a term of office as President of the Society of Occupational Medicine and has become a member of the International Commission on Occupational Health.
At the end of 2005, the Group employed 36,191 employees (2004 35,372).
The Group and employee representatives continue to work closely together to improve the quality of employee engagement and participation in the development of the business. This was reflected by the creation in April 2005 of a Global Council. It comprises employee representatives from countries worldwide and provides a structured approach to consultation and communication on international issues. The Global Council meets at least twice a year, supported by the Global Council's Executive Committee which progresses issues between the Council meetings.
In 2005, the Group consulted widely over changes to the Rolls-Royce Group Pension Scheme for UK employees. New arrangements took effect from July 1, 2005 after agreement with employee representatives and acceptance by employees. The changes introduced were similar to those made to the Rolls-Royce Pension Fund in 2004.
As part of its commitment to effective consultation with all employees, the Group carried out a worldwide Employee Engagement survey in 2004. In 2005 the results of this survey were shared with all employees. Each business identified an action programme to address the issues arising.
The Group's global policy on diversity and equality continues to develop in consultation with employee representatives. The Group is committed to equal opportunities and to developing a diverse and inclusive workforce. It continues to support initiatives to encourage more women and people from ethnic minorities to pursue careers in engineering. The Group recognises the need to promote its policies effectively and widely reflecting the international scope of its operations.
The Group's policy is to provide, wherever possible, employment and training and development opportunities for disabled people. It is also committed to supporting employees who become disabled and to helping disabled employees make the best possible use of their skills and potential.
The Group actively encourages employee share ownership. All employees are regularly invited to participate in sharesave plans and the workforce has committed to save over £90 million to buy shares in the Company. In addition, statutory arrangements enable UK employees to receive part of their annual bonus in Company shares and make monthly share purchases from their salary.
Learning and development
To strengthen its competitive position, the Group has over many years invested in the training and development of its employees, customers and suppliers. In 2005, we spent £30 million on the education, training and professional development of employees.
Training programmes were delivered to support major change programmes. In particular, we have launched the 'Process Excellence' initiative to improve our management and operating processes and we have trained people to undertake specific projects to raise standards of performance and improve customer satisfaction.
Some 2,000 people were trained to support 'Product Lifecycle Management' which enables the Group and its supply chain to deliver products and services at a higher quality and with greater efficiency.
The Company offers employees access to wide-ranging courses on-line and over 5,000 employees have taken an on-line course over the past two years.
The Group continues to attract trainees into its skilled and professional workforce. In the UK, graduate applications totalled over 3,500 in 2005 and we recruited 183 graduates. We also recruited 136 apprentices and technicians. In addition, over 500 undergraduate students were employed for training periods of between two and 12 months. At the end of the year, worldwide there were 273 graduates and 370 apprentices and technicians in formal training programmes.
In 2005, the Group was ranked first in its business sector and 24th overall in the UK Times Newspaper Top 100 Graduate Employers list.
The Group continues to work closely with schools, colleges and universities to promote science, technology and enterprise. Our policy is to work with government, local and national bodies and educational institutions to widen pupils' and students' experience of industry and to promote careers in the aerospace, marine and energy sectors. In 2005, the Group progressed two flagship activities: Profitable Pursuit, a business simulation to stimulate enterprise education in schools, and the Rolls-Royce Science Prize which promotes and rewards science teaching in schools and colleges in the UK and the Republic of Ireland. In 2005 the first round finalists and special merit award winning teams were selected, representing a wide range of schools.
The Group supports educational projects and initiatives to promote engineering education in schools including Open Industry, Specialist Schools, Education Action Zones and Science and Engineering Ambassadors. In North America, Rolls-Royce supports 'Project Lead the Way,' a programme which creates partnerships with schools to encourage more students to consider careers in engineering and technology.
Some of the Group's training facilities are made available to local communities with free places being offered on internal training programmes. In addition, working on local community projects forms a key part in developing employees.
We continue to meet customer training needs with management and business education. We led the initiative to establish the British University in Dubai and developed executive programmes for China's aviation industry leaders. Under the UK Government's Chevening scheme, the Group sponsored students from Brazil, China, India, Indonesia, Malaysia and Taiwan. We also manage a company scheme for placing English language teachers in China, arranging 40 assignments for UK graduates.
The Group community investment committee is responsible for the Group's policy on charitable donations. In 2005, total charitable donations amounted to £1,484,000. A list of the principal donations made in the year is available on written request to the Company Secretary.
The committee is supported by national committees and all operate within the following guidelines:
'As a forward-looking, innovative and global company, Rolls-Royce Group plc is committed to being a good corporate citizen in its operations throughout the world. The Group's policy on donations is to direct its support primarily to causes with educational, engineering and scientific objectives, as well as to social objectives connected with the Group's business and place in the wider community.'
During 2005, charitable donations in the UK amounted to £671,000. They included support for The Prince's Trust, Community Foundations, SS Great Britain, The Industrial Trust and Duxford AirSpace.
The Group has made charitable donations of £563,000 in other major regions. In North America, this included support for the work of United Way, Habitat for Humanity, the Smithsonian National Air and Space Museum and Purdue University. In Germany, the Group supported a range of organisations including the Brandenburg Summer Festival, World Youth Day and the International Airport Race. In the Nordic countries, it supported a number of local sports and arts-based projects.
In response to the tsunami disaster in south east Asia, the Group contributed £250,000 in 2004 and an additional £250,000 in 2005 to match employee donations. Funding is being used to support a number of projects in the affected areas, including the construction of a primary care clinic in Aceh, Indonesia, the construction of a school in India and other projects in Thailand.
Our response to the hurricane Katrina disaster was very visible in the devastated communities affected. The Group provided housing, transportation and medical support, followed by a range of special support services. Employee groups mobilised their support through food and clothing drives and also raised over £35,000. The Rolls-Royce response was exemplary and was recognised as such both externally and internally.
In addition to our charitable donations, contributions of £1,700,000 were made by the Group's sponsorship committee and individual business groups, primarily to support arts and educational programmes.
The Group also finances the administration of the Payroll Giving Scheme for UK employees. In 2005, the scheme helped employees make donations of over £396,000 to over 200 charities of their choice. Sixteen per cent of employees participate, one of the highest levels in the UK. The scheme received a Gold Award from the UK Institute of Fundraising in 2005. In addition, 36 per cent of employees in North America have contributed over £200,000 to good causes through 'United Way' schemes, which are partly matched by the Company.
The Company also supports its commitment to being a good corporate citizen by supporting projects in which employees are encouraged to participate. Examples include:
- running successful mentoring and literacy programmes for school pupils through education business partnerships;
- participating in the UK's Science and Engineering Ambassadors Scheme;
- undertaking community projects with trainees as part of their training;
- supporting employees who are school governors; and
- providing business mentors and advisers through The Prince's Trust and Young Enterprise.
The Group offers support in-kind to local initiatives including providing places on in-house training programmes; donating surplus computer equipment and furniture; and offering the free use of meeting rooms and premises.
The Company is a member of Business in the Community and actively supports Common Purpose programmes across the UK. These two organisations aim to promote greater business awareness and involvement in wider community issues and to encourage greater employee participation.
Rolls-Royce has a long and successful history of community involvement which it is determined to maintain. We continue to attach particular priority to supporting education, the environment, the arts and economic and social regeneration. Our approach supports our values of reliability, integrity and innovation.
By order of the Board
February 8, 2006