Sustainability report.

Corporate responsibility

Environment

GKN’s main impacts on the environment are energy (and associated CO2 emissions), waste generation and recycling, and water consumption. The Group is committed to continuous improvement in all these areas of environmental performance and continues to take actions to address each of them.

81% of manufacturing locations are either certified to ISO14001 or are in the process of obtaining certification. As noted above, Lean Enterprise is applied to energy efficiency and waste reduction programmes, both in offices and at our manufacturing locations. All sites continue to develop energy efficiency targets, and actions are incorporated into their Continuous Improvement plans, ensuring regular reviews and appropriate actions.

The Group objective is to improve energy efficiency by 15% over the period 2009 to 2014. Every division is on track to meet this: since 2009, GKN Driveline has improved energy efficiency by 13%, GKN Powder Metallurgy by 12%, GKN Aerospace by 7% and GKN Land Systems by 18%.

All four divisions improved energy efficiency in 2011 with in excess of a 4% improvement over the prior year; in GKN Land Systems the improvement exceeded 16%.

Actions to reduce the generation of waste adhere to a hierarchy of first, and the best alternative, of not producing waste, second of reusing materials, and finally, if neither of these is possible, to recycle rather than simply dispose of the material.

Demonstrating the first of these, eliminating waste, GKN Powder Metallurgy at Menomonee Falls, Wisconsin, USA, won the GKN Group Environmental Excellence Award in 2011 for the elimination of anhydrous ammonia by replacing the previous system with newer technologies, thus removing any risk of environmental impact.

During the year 88% of overall Group waste was recycled.

Overall Group water consumption reduced in 2011, with GKN Land Systems achieving a 26% reduction.

Much work remains to be done to improve GKN’s environmental footprint and a combination of learning and best practice sharing will be used to support this.

Compliance with all applicable rules and regulations remains a core objective. Unfortunately in 2011 five notices of non-compliance were received and penalties were paid of US$2,600.

Health and Safety

GKN is committed to continuous improvement in health and safety performance, with a goal of zero preventable accidents. The tragedies at the Hoeganaes site in Gallatin, Tennessee, USA, in 2011 have broken a previously strong safety record. As a result of these incidents GKN has significantly improved health and safety processes worldwide.

The Hoeganaes site in Gallatin experienced two significant events that led to the deaths of five GKN employees. The health and safety of GKN employees is the number one priority for GKN and the Company deeply regrets the loss of lives. It is taking every measure to ensure Gallatin operates to world class standards and that the lessons learned from these accidents are applied throughout the Group. The accidents and actions are described below:

The plant has historically had a very strong safety record and, as with all industrial plants of this kind, is continually monitored by external agencies to confirm compliance with all applicable regulations.

These accidents have had a profound and permanent affect on everyone at GKN and most particularly the families and friends of the colleagues who lost their lives. Support continues to be provided to the families and employees at the facility.

Following the incident in May 2011, all production ceased at the plant and two expert external firms were engaged to lead a comprehensive safety review of the entire facility. This review involved all Gallatin employees as well as health and safety experts from across the Group.

The aim of the review was to ensure that the root causes of the incidents were fully understood and all necessary corrective actions implemented. In addition, it was tasked with making recommendations that would take the Gallatin facility far beyond regulatory compliance to world class standards of operations and safety.

Over a period of three months, the recommendations from the review were implemented to ensure that similar accidents will not happen again. This primarily involved: the upgrade of electrical systems; the replacement of key components in the gas and air supply system in the affected building; the implementation of significantly upgraded gas management and hydrogen detection systems; the development of an industry-leading powder metal dust management system; upgrade to furnaces to improve operations and safety; and full and comprehensive retraining of all employees and contractors.

The work was carried out in full consultation with Tennessee Occupational Safety and Health Administration and the Gallatin Fire Department. The plant went through a phased restart during August 2011, but only after the actions from the review were verified as complete. Hoeganaes continues to cooperate fully with the US Chemical Safety Board specifically with regard to the recommendations made in its final report.

The lessons learned from the tragic events in Gallatin are now being spread across the whole Group to improve safety performance. The key actions are set out below:

Global procedures and ways of working are continually reviewed and improved based on best practice, including the robust deployment of RADAR (Risk Awareness, Detection, Action and Review). This is a GKN-developed behavioural awareness and improvement tool, which assists employees in recognising hazards and risks in their work area and empowers them to take action to eliminate or mitigate those hazards or risks detected. A risk assessment programme has also been developed for machinery, including auxiliary and support equipment. The continued use and spread of RADAR and machinery risk assessment, supported by improved processes and procedures, will be regularly audited and will reinforce the foundations already in place to drive continuous improvement.

Employee communication about health and safety occurs regularly, including safety briefings, hazard awareness training and incident investigation. A variety of audio, visual and animation techniques are being used to engage employees, delivering clear and consistent messages.

The management of health and safety, including compliance with laws and regulations in GKN, is based on the international health and safety system standard – OHSAS 18001. 78% of locations have achieved certification to OHSAS 18001 and the remaining sites are working towards this.

Health and safety performance is measured on a regular basis and reports are made monthly to the Executive Committee. A half and full year report is made to the GKN Board.

Accident frequency rate (AFR) and Accident severity rate (ASR) are the key health and safety performance indicators for the Group and our performance for 2011 is shown in the adjacent charts.

The Group has seen overall improvement in these safety metrics over the last ten years. Whilst there was an increase in AFR in 2010, performance against both metrics has improved in 2011.

Each division sets annual targets based on health and safety improvement and accident rate reduction. These targets are set at portfolio, division and plant level taking into account local conditions, priorities and objectives. All actions are aligned with the Group objective of zero preventable accidents.

During 2011 there were six health and safety enforcement actions against GKN companies in the US and UK, two of which resulted in fines issued by relevant authorities amounting to $16,000. This amount does not include fines that may be incurred as a result of the Gallatin incidents, which are yet to be finalised.

Communities

GKN has a proud history of working with the communities in which it operates. To encourage this, individuals and groups of employees are recognised for the contribution they make through the annual GKN Hearts of Gold Awards.

One of the highlights of the 2011 awards was an on-going project at the GKN Driveline facility in Porto Alegre, Brazil, integrating people with learning difficulties and disabilities into its workforce. Partnerships with local specialists support the different challenges that are involved in this.

In 2011 two projects, funded by the GKN Millennium Trust, were completed. The first, a project based in rural Pabal, India, is a partnership between GKN and Vigyan Ashram and involved a new education facility to develop engineering skills in local children so that they can take back to their communities skills such as welding, maintenance, electrical installation and much more. The 602 square metre building was completed in 2011 and officially opened at a ceremony in which Sir Kevin Smith presented the first set of students with certificates of achievement after completion of their foundation modules.

The second project is a new teaching and innovation facility which opened at the GKN Aerospace Filton facility in the UK. Leveraging the Group’s position within the UK National Composites Network, it provides training to students to help them design new products and understand the environmental impact of production processes. The facility welcomed its first students in 2011; since then 102 students have attended for two days of activities.

GKN seeks to react positively when unexpected events strike the communities in which we work. In April 2011, tornados devastated large parts of North Carolina, USA, close to GKN facilities. 14 GKN employees’ families were directly affected including fatalities, loss of homes and structural damage to houses. The GKN Driveline community helped clear debris, repair and rebuild homes and provide funds to support affected families.

In another event near to GKN’s operations, the massive earthquake and tsunami that struck north eastern Japan in March 2011 had a devastating effect, claiming thousands of lives and destroying communities. In the aftermath of this devastation, and after seeking advice from colleagues in Japan on the most appropriate way to provide support, GKN made a donation of US $250,000 to the Japanese Red Cross to help alleviate the suffering.

These activities are just a few of the numerous connections with communities; visit www.gkn.com/corporateresponsibility for further examples of the work undertaken by GKN employees.