Sustainability

Rolls-Royce is ranked in a number of external indices which benchmark our performance:

Business in the Community Corporate Responsibility Index (BitC)

The BitC Index assesses the extent to which corporate strategy is integrated into business practice throughout an organisation. In 2010, Rolls-Royce retained its Gold status with an overall score of 91 per cent. We also scored 94.8 per cent in the Environmental Index component of the overall survey.

Dow Jones Sustainability World and European Indexes (DJSI)

Rolls-Royce has retained its position in the DJSI for the ninth consecutive year and, with an overall score of 79 per cent, was sector leader for the Aerospace and Defence sector. The Group scored 100 per cent for environmental reporting, product impact and operational eco-efficiency and occupational health and safety.

Carbon Disclosure Project (CDP)

For the third consecutive year Rolls-Royce has been included within CDP’s FTSE 350 Carbon Disclosure Leadership Index, in recognition of a ‘professional approach to corporate governance in respect of climate change disclosure practices’. Our score increased from 76 in 2009 to 79 in 2010.

We regard ethical behaviour as key to maintaining and strengthening our reputation and in support of our commitment to act with integrity, we continued the deployment of the global ethics programme launched in 2009. This is underpinned by our Global Code of Business Ethics which is issued to all employees.

Compliance and assurance

The new UK Bribery Act, which is expected to come into force in May 2011, and whose scope extends beyond UK borders, has led us to prioritise the review of the policy areas linked to anti-bribery and corruption. Policies on gifts and hospitality and commercial intermediaries were reviewed and updated during the year and agreement was given for the establishment of a new compliance organisation.

Training and awareness programme

The global ethics training programme in 2010 was incorporated into a global risk, reputation and ethics training curriculum. A tailored e-learning package on the Global Code of Business Ethics has been developed to reinforce the key ethics messages and allow employees to work through ethical dilemmas. This will be introduced in 2011.

Reporting line

An independently operated and confidential ethics reporting facility is available worldwide. This allows employees to raise issues or concerns regarding business conduct independently of the normal management chain.

The following senior corporate governance bodies are in addition to those described within Governance:

• The Group Community Investment and Sponsorship Committee, chaired by the Chief Executive;
• The Global Diversity Steering Group, chaired by the Chief Operating Officer;
• The Sustainability Steering Group, chaired by the Director – Engineering and Technology;
• The Environment Council, chaired by the Director – Engineering and Technology; and
• The Environmental Advisory Board, chaired by a senior academic from the Massachusetts Institute of Technology.

Rolls-Royce employs 38,900 people in more than 50 countries. Our growing order book and the continuing innovation of the Group’s products makes it imperative that we have a skilled workforce that is committed to delivering excellence to customers. To achieve this, we seek to create an inclusive working environment that attracts and retains the best people, enhances their flexibility, capability and motivation, and encourages them to be involved in the ongoing success of the Group. Our workforce is dispersed globally across our business sectors:

Business segment	Headcount
Civil aerospace	19,500
Defence aerospace	6,900
Marine	9,000
Energy	3,500
TOTAL	38,900

Resourcing

In 2010, over 1,250 experienced professionals were recruited to support the growth of the business and, of these, nearly 50 per cent were recruited outside of the UK. During 2010, our campus teams were active at more than 40 universities in the UK, Europe, Asia and the US, and we recruited 222 graduates onto our company graduate programmes from 73 universities and 25 nations worldwide.

We were ranked 26th overall in The Times newspaper’s Top 100 UK Graduate Employers of 2010, achieving first position in the Engineering sector. In Singapore, we entered Singapore’s Top 100 Graduate employers in 21st place.

In 2010, we recruited 220 apprentices globally. Our apprenticeship programme in the UK was graded as ‘Outstanding’ by Ofsted.

Learning and career development

Rolls-Royce provides all employees with access to learning that helps them deliver high performance in their current and future jobs. We have made significant improvements to the quality of our performance development review activity and in 2011 we will continue to focus on developing the right performance culture. The Global Code of Business Ethics, rolled out to managers in 2009, has been cascaded to all employees during 2010. A global Gifts and Hospitality and Commercial Intermediaries policy compliance programme has been provided to all employees as a result of the new UK Bribery Act.

We provide over 2,400 learning solutions globally through our online learning system. The catalogue includes several hundred programmes covering health, safety and the environment, diversity, ethics and corporate and management responsibility.

By the end of 2010 employees from 55 countries had accessed the learning system with over 34,000 employees undertaking more than 94,000 days of learning. Of these, 86,000 hours consisted of online learning. We have updated our global leadership development framework in 2010 and partnered with world-class providers to ensure that the Company has a strategically focused and consistent way of managing its people.

Learning investment for 2010 was £33 million.

Engaging employees

We continue to place great value on giving a voice to our workforce. Employee opinions are obtained via a two-year rolling engagement programme. Improvement activities are then embedded into local and corporate business planning activities. In 2010, the Group conducted its second global engagement survey. Seventy-four per cent of the workforce responded, representing a continuing high level of participation in such activities.

Comprehensive feedback has been shared with teams across the Group. The general trend indicates an improvement in overall engagement levels compared to 2009 when the first global survey was undertaken.

Encouraging diversity

The Group is committed to developing a diverse workforce and equal opportunities for all. Our global governance framework for diversity includes a senior executive Global Diversity Steering Group that provides leadership and shapes strategic direction.

During 2010, we developed a number of awareness programmes to increase self awareness and promote cross-cultural working. The Group is launching a reverse mentoring programme in 2011, where our most senior executives will be reverse mentored by a colleague who is junior to them in the organisation. The aim is to give senior executives a different perspective from a colleague who can share diverse experiences and ideas.

The Group supports a number of women’s networks that focus on personal and professional development as well as providing support through networking.

Our policy is to provide, wherever possible, employment training and development opportunities for disabled people. We are committed to supporting employees who become disabled during employment and helping disabled employees make the best use of their skills and potential.

Product safety is paramount and the highest standards are maintained by the application of a robust safety management system. Our role does not stop once the product has been delivered to the customer. Safety and reliability are our highest priorities and we continue to drive uncompromised levels through rigorous design processes and by providing expert through-life support.

Rolls-Royce is both committed and well placed to find solutions to the substantial challenges posed by climate change. We receive independent expert advice from the Group’s Environmental Advisory Board, comprising distinguished academics who are leading authorities in their respective fields, vital to the overall business strategy and design process.

The Board believes that technology must be applied on an industrial scale, through companies such as Rolls-Royce with its global reach, to achieve significant reductions in emissions. In 2010, we invested £923 million in research and development, two-thirds of which was aimed at improving the environmental performance of our products.

The aviation industry has a strong track record of addressing its environmental impact, investing consistently in product technology over the past six decades. Aircraft today are 75 per cent quieter and use 70 per cent less fuel on a passenger-kilometre basis than the earliest jet aircraft.
Rolls-Royce is continuing to work on ways to further reduce the effect of aviation.

The Trent 900 and 1000 engines, for the Airbus A380 and Boeing 787 respectively, and in the future the Trent XWB for the Airbus A350 XWB, help us demonstrate progress towards meeting our Advisory Council for Aeronautics Research in Europe (ACARE) goal of a 15–20 per cent reduction in engine fuel burn by 2020 compared to 2000 levels. The Group also continues to drive for reduction in noise and improvements in air quality.

In the longer term, we continue to see open rotor technology as offering a potential step change in performance and we are currently targeting entry into service early in the next decade for this technology. Our civil engine product strategy for 2010–2025 means that we will have engines entering service that, on average, will reduce the fuel burn of aircraft replaced in that 15-year period by at least 15 per cent.

There is widespread interest in the possibility that the aviation industry could replace, at least in part, traditional fuels with biofuel – a synthetic fuel made from biomass. Rolls-Royce actively supports, and plays a central part in, the rigorous scientific testing and evaluation of biofuels and we support demonstrations of biofuels where they directly contribute to developing fuel specification criteria, or to the improvement of scientific understanding. However, we have to make sure that biofuel achieves the same technical and commercial standards as traditional fuels, and that its production is sustainable (taking account of such factors as impact on biodiversity, water resources, livelihoods, ecosystems and life-cycle CO₂ emissions).

Rolls-Royce, as a world leader in marine technology, is well placed to help address the requirement for significantly reduced emissions. Our latest generation Azipull thruster technology, which is up to 16 per cent more efficient than conventional marine thrusters, enables ships to use less energy and so reduce emissions. Our Bergen lean-burn reciprocating gas engine achieves up to a 90 per cent reduction in oxides of nitrogen, virtually zero emissions of sulphur and a 20 per cent improvement in CO₂ emissions, compared with a conventional diesel engine.

The Group continues to explore opportunities in low emission and alternative energy products and is working in partnership with the UK Energy Technologies Institute. As part of this work programme, a prototype tidal device has been developed and is under test at the European Marine Energy Centre, in the Orkney Islands, Scotland.

The need to drastically cut greenhouse gas emissions, combined with the increasing insecurity of oil supplies, is likely to lead to an expansion of nuclear power over the coming decades. With more than 50 years’ experience in designing and supporting pressurised water reactors, we are well placed to make a significant contribution to this nuclear renaissance. We have recently established a new civil nuclear business with the aim of serving this growing global power market.

We are also leading the development of the Nuclear Advanced Manufacturing Research Centre (NAMRC), as part of the UK’s Low Carbon Industrial Strategy.

Rolls-Royce is committed to building and maintaining a high reliability organisation; one that delivers consistently high performance across all aspects of health, safety and environmental (HS&E) management. Our objective is to achieve world-class levels of performance throughout our business and to be widely recognised for the excellence of our performance.

During 2010, the Group conducted a programme of Process Safety audits on our main manufacturing plants and test facilities. The results are being used to further strengthen our approach to assurance over process safety.

We operate three sites in the UK which together manufacture, test and support nuclear reactor cores for the Royal Navy’s submarines. The Nuclear Propulsion Assurance Committee regularly monitors the performance of both the submarines and our recently formed civil nuclear business and seeks evidence that the highest standards of HS&E are maintained and that fit-for-purpose processes are followed.

The Group’s contribution to developing best practice through third party collaboration continues. We are taking a leading industry role in Registration, Evaluation, Authorisation and restriction of Chemicals (REACH), the latest EU chemicals regulation, and continue to work with other companies, trade bodies, sectors and regulators on implementation to ensure our continued access to materials necessary for the production and support of our products.

Operational performance

In 2009, we declared a new set of global targets for our HS&E performance. Progress against these will be reported in an update to our last HS&E report ‘Powering a better world’ planned for April 2011. We made progress against two of our key targets: reducing the Group’s Total Reportable Injury (TRI) rate and greenhouse gas (GHG) emissions. Our data collection and reporting is subject to independent assurance by Deloitte LLP.

TRI

Following a reduction of 40 per cent in our TRI1 rate during 2007–2009 we set a new target last year to reduce this by a further 50 per cent by 2012 (based on 2009). We can now report that we have reduced our TRI from 0.73 per 100 employees in 2009 to 0.69 in 2010. This represents a five per cent reduction which is slightly behind our interim target. We continue to develop global programmes focused on improving our performance.

GHG

At the end of our last three-year target cycle (2007-2009) we reported a 38 per cent reduction in energy use (normalised on turnover). In addition, there was an accumulated 36 per cent reduction in absolute GHG emissions in the past decade. During 2010, we have achieved a further three per cent reduction in total Group GHG emissions (including product test and development) moving us towards our target of a ten per cent reduction (normalised) by 2012. In absolute terms, GHG emissions for our facilities (excluding product test and development) have remained at the same levels as 2009 compared with our five per cent reduction target by 2012².

Group Greenhouse Gas – GHG Emissions for 2010 (ktCO ₂e)

	2010	2009
Scope 1 (direct)	217.3	210.4
Scope 2 (indirect)	363.1	356.22
Total GHG	580.4	566.6

We recognise the need to make cuts in global emissions within our own operations. Individual reduction targets and budgets have been agreed for our top 25 energy consuming sites to enable us to build on previous improvements in energy efficiency. We will continue to work on ways to reduce our reliance on fossil fuels. This includes using more sustainable energy sources, like renewable and other low carbon technologies/materials within our facilities where this is cost effective and practical.

This year we have introduced a new process of notifying serious and high-potential incidents to senior management. High-potential incidents are now required to be reviewed at Chief Operating Officer level within the businesses and functions. This is intended to strengthen our learning from incidents and to prevent their reoccurrence.

Rolls-Royce recognises the association between physical and mental health and the need for our employees to consider their personal wellbeing. A preventative occupational health strategy has been in place since 2005 and supports employee wellbeing and productivity through a series of health promotion initiatives.

In 2010, 1,300 employees took part in the ‘Know your body metrics’ health promotion campaign in the UK representing six per cent of the covered population.

Our Group-wide HS&E targets for the period 2009–2012 are set out opposite.

(The methodology used by the Group to collect and report HS&E performance data is set out in our ‘Basis of Reporting’ available at www.rolls-royce.com).

In 2010, supplier engagement has seen Rolls-Royce leading Global and Regional Supplier Forums which focused on near-term and long-term business improvements. We also hosted Regional Supplier Groups, culminating in a Global Best Practice Sharing event aimed at promoting the application of lean techniques across the supply chain.

We aim to communicate effectively, protect or enhance local quality of life and be recognised as part of the local community. We also recognise that there are significant business benefits for our organisation through community investment. These benefits include recruitment and retention of staff, employee engagement and development of our reputation and brand.

The Group has a long-standing commitment to supporting its local communities focusing on four key areas: education; environment; regeneration; and arts and culture. The Group’s total contribution in these areas was approximately £5.3 million in 2010, measured using the London Benchmarking Group model.

Donations and sponsorship

The Group’s charitable donations amounted to £2.3 million, of which £1.15 million were made in the UK. Rolls-Royce made charitable donations of US$970,000 in the Americas, €535,000 in Europe and £80,000 in other regions.

A further £1.1 million was contributed in sponsorships including the Smithsonian National Air and Space Museum in North America, the Brandenburg Summer Festival in Germany, and The Big Bang fair for young scientists and engineers in the UK.

Each year, the Rolls-Royce Science Prize awards £120,000 in prize money to recognise excellent and innovative science teaching in the UK. This year’s winner, Teesdale School in Barnard Castle, England, received a total of £20,000 for their project in which pupils developed enrichment devices for primates in zoos.

Employee time

Employee time contributed during 2010 is estimated at a value of over £1.5 million, with more than 4,000 employees participating in activities with societal benefits.

Over 300 employees across the globe took part in 30 community and education outreach projects as part of their personal development during the year. Our programme of community projects, run by graduate and apprentice trainees, was awarded a ‘Big Tick’ by Business in the Community in its Awards for Excellence in 2010 in the category of ‘Building Stronger Communities’.

Employee giving

Rolls-Royce finances the administration of a Payroll Giving Scheme for UK employees, enabling them to make tax-free donations to their chosen charities. During 2010, employees gave almost £460,000 to more than 500 charitable causes. In North America, employees donated US$430,000 directly from payroll to good causes through the United Way and Centraide schemes, a percentage of which is matched by the Group.