2012 Sustainable Development Report

Transcription

1 2012 Sustainable Development Report

2 Erratum: The first version of the report was published in June 2012, this is version 2. The following elements from the June 2012 publication were amended or added: 1. Chart 1.1(1). In the graph, Carbon Productivity: O2 and Kr, the value of CO2e avoided has been corrected. 2. Two new assertions are made: EN2: 47.5% of Praxair s 2011 revenue was derived from products sourced from renewable input raw materials - principally the air. EN4: Praxair procures 14.8% of energy from renewable sources, mainly hydro in New York state and in Brazil. 3. On page 88, the global diversity chart was inadvertently omitted. This has been added.

3 2012 Sustainable Development Report Strategy & Profile Economic Environment

4 Strategy & Profile Economic Environment Contents 1. Strategy and Analysis 1 2. Organizational Profile Reporting Parameters Governance, Commitments and Engagement Economic Disclosures Environmental Disclosures Disclosures 82 Labor 86 Human Rights 98 Society 105 Product Responsibility 113 GRI Index 119 Forward Looking Statement This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of These statements are based on management s reasonable expectations and assumptions as of the date the statements are made but involve risks and uncertainties. These risks and uncertainties include, without limitation: the performance of stock markets generally; developments in worldwide and national economies and other international events and circumstances; changes in foreign currencies and in interest rates; the cost and availability of electric power, natural gas and other raw materials; the ability to achieve price increases to offset cost increases; catastrophic events including natural disasters, epidemics and acts of war and terrorism; the ability to attract, hire, and retain qualified personnel; the impact of changes in financial accounting standards; the impact of changes in pension plan liabilities; the impact of tax, environmental, healthcare and other legislation and government regulation in jurisdictions in which the company operates; the cost and outcomes of investigations, litigation and regulatory proceedings; continued timely development and market acceptance of new products and applications; the impact of competitive products and pricing; future financial and operating performance of major customers and industries served; and the effectiveness and speed of integrating new acquisitions into the business. These risks and uncertainties may cause actual future results or circumstances to differ materially from the projections or estimates contained in the forward-looking statements. The company assumes no obligation to update or provide revisions to any forward-looking statement in response to changing circumstances. The above listed risks and uncertainties are further described in Item 1A (Risk Factors) in the company s Form 10-K and 10-Q reports filed with the SEC which should be reviewed carefully. Please consider the company s forward-looking statements in light of those risks.

5 Strategy & Analysis 1. Strategy and Analysis Table 1.1 (1) Key Figures Economic Sales $ million $10,116 $11,252 Capital expenditures $ million $1,388 $1,797 Adjusted operating profit 1 $ million $2,167 $2,469 Adjusted net income Praxair, Inc. 1 $million $1,476 $1,666 Adjusted diluted earnings per share 1 actual dollars $4.74 $5.43 Productivity savings $ million $400 $375 After-tax return on capital 2 percentage 14.4% 14.7% Return on equity 2 percentage 26.4% 28.2% Payments to vendors $ million $5,054 $5,600 Donations and other community investments $ million $4.3 $4.5 Environment Electrical energy intensity/product vs (100) MM MWh per unit Indirect GHG intensity ASU product vs (100) MT CO2e per unit, baseline 100 in Direct GHG intensity /H2 product vs (100) MT CO2 per unit, baseline 100 in Distribution GHG intensity vs MT CO2e per unit product delivered in truck Water use intensity vs M3 per unit, baseline of NOx emissions MT 1, Environmental fines actual dollars $27, $35,562 R&D: revenue from eco-portfolio percent 23% 26% Total employees 26,261 26,184 Employee engagement results of biennial survey 88% - Worldwide employee diversity - male/female ratio, 82%/18% 82%/18% Board diversity percent of women or U.S. minority or non-u.s. 50% 50% Executive leadership diversity percent of women or U.S. minority or non-u.s. 57% 51% Emerging country leadership diversity national or regional 92% 92% Lost workday case rate Praxair per 200,000 hours worked Lost workday case rate contractors per 200,000 hours worked Recordable injury rate Praxair per 200,000 hours worked Recordable injury rate contractors per 200,000 hours worked Fatalities employees 0 0 Fatalities contractors 1 1 Worldwide vehicle accident rate Praxair drivers per million miles Worldwide vehicle accident rate contractors per million miles Vendor scorecard visits to key suppliers percentage 100% 100% Community engagement: Number of people benefitting 140, ,000 Community engagement: Percent of employees involved 29% 40% Strategy & Profile Economic Environment Note 1: Adjusted amounts are non-gaap measures adjustment amounts exclude the impact of a gain from an acquisition and charges relating to a cost reduction program adjusted amounts exclude the impact of the Spain income tax settlement, U.S. homecare divestiture, repatriation tax benefit andvenezuela currency devaluation. Adjusted amounts are reconciled to reported amounts in the "Non-GAAP Financial Measures" section in Item 7 of the 2011 Annual Report. Note 2: After-tax return on capital and return on equity are non-gaap measures defined in the Non-GAAP Financial Measures section in Item 7 of the 2011 Annual Report. 1

6 Strategy & Profile Economic Environment Chart 1.1 (1) Praxair GHG Goals and Results vs.target Goals Targets Results Improve GHG intensity (emissions per unit) Improve GHG intensity of manufacturing operations Air Separation Units (ASUs): 1% annual intensity improvement Hydrogen Plants: 4% intensity improvement by 2020 vs baseline (0.4% per year) ASUs Percentage Improvement vs Target 2012 Target (1% improvement/year) H2 Plants Percentage Improvement vs Target 2012 Target (4% improvement by 2020) Cost-Savings from Eco-Productivity Integrate GHG management across business Distribution: 1.5% annual emissions intensity improvement per product delivered Capital Projects: An average of at least 1% annual energy intensity improvement for ASU plants in our design portfolio Eco-Productivity: Document environmental savings from productivity Offices: 20% reduction in emissions by Bulk Distribution Target 2012 Target (1.5% improvement/year) Packaged Gas Distribution Target 2012 Target (1.5% improvement/year) Capital Projects Percentage Improvement vs Enable customer carbon productivity Innovate to meet market risks & opportunities Innovation: Projects in R&D pipeline should annually avoid 2 million metric tons (MT) CO2e when commercialized Report eco-portfolio: Percent of revenue from applications that bring environmental advantage Work with customers & regulators to develop green technologies Innovation 2 MM 2 MM Target (2MM MT CO2e avoided /year when applications are commercialized) 22% 2009 Eco-Portfolio Offices Percentage 100 Improvement vs % % 2011 Percent of revenue from applications that bring environmental advantage Communicate carbon reductions from use of Praxair products and applications Carbon Productivity: Measure and validate carbon productivity for selected Praxair products and applications Carbon Productivity: O2 & Kr CO2e emissions Gross CO2e avoided Oxygen used to make steel enables 8.7 million MT CO2e to be avoided. Krypton used for thermal insulation enables 1.1 million MT CO2e to be avoided. These two applications avoid almost as much CO2e as is emitted from all Praxair air separation activity. Carbon Productivity: H2 4.4 CO2e emissions Gross CO2e avoided Hydrogen used to make ultra-low sulfur diesel and driven with a diesel particulate filter results in nearly three times more GHG avoided than is emitted in all of Praxair s H2 production Target: Increase reported environmental savings within productivity Target 2011 Target (1% energy efficiency improvement/year for ASUs in design portfolio) 2011 Target 2012 Target (20% reduction in emissions by 2012) 2

7 Strategy & Analysis CEO Message 1.1 Statement from the most senior decisionmaker of the organization Dear Friends, At Praxair, Making our planet more productive is more than a slogan it demonstrates how well we provide efficiency, energy, environmental, economic and social advantages to our customers and our planet. We believe that our mission and business model work together to help address some of the world s greatest energy and environmental challenges. We create technology, products and services that help sustain and protect our planet. What do we mean by Making our planet more productive? Praxair s growth strategy is primarily in energy markets, emerging economies and environmental applications. Overall, 26 percent of Praxair s 2011 revenue was generated from applications technologies that help customers reduce operating costs, increase process efficiencies and improve their environmental performance. If we include our healthcare business, 34 percent of our revenue came from environmental and social solutions. In the area of greenhouse gases (GHG), for example, we evaluated the carbon productivity of just three applications, together worth 11 percent of revenue. Chart 1.1 (1) shows that in 2011 they allowed our customers and the planet to avoid 23 million metric tons (MT) of GHG emissions. That s seven million MT more GHG avoided than our total GHG emissions. with record productivity savings. We delivered record earnings per share, and in early January 2012, announced the 19th consecutive annual increase in Praxair s dividend. It means focusing on our core values and standards of compliance, ethics and integrity, results, customer focus, employee excellence, safety and environmental awareness. We had our best-ever safety performance in 2011 with worldwide recordable injuries down 22 percent and serious vehicle accidents down 26 percent from an already outstanding base. Praxair invested more than 1.3 million hours in safety training for employees and contractors. Making our planet more productive means constantly focusing on a culture of operational excellence and resource optimization. Strong financial discipline has consistently produced outstanding return on capital and shareholder value. Making our planet more productive means establishing a culture of 100 percent compliance, zero accidents, and zero waste. We are increasingly linking sustainability and productivity. In 2011, we reported 967 projects that produced $62 million of eco-productivity savings within our $375 million productivity savings. Employee environmental awareness and enthusiasm is evident everywhere. We launched a Zero Waste initiative in 2011 and achieved zero waste at 10 global sites. Our site participation in Earth Day has doubled each year since 2009, and in 2011, over 250 sites were involved. Strategy & Profile Economic Environment Making our planet more productive means maintaining strong business results. During 2011, the Praxair team brought in new business and managed costs We are committed to improving the global communities where we live and work. We hire and promote local talent and leadership. We expect 3

8 Strategy & Profile Economic Environment Strategy & Analysis CEO Message suppliers to meet our high standards for safety and environmental responsibility and invest in training to ensure they exceed expectations. We invest in Praxair Foundation grants and employee energy to support initiatives in social capacity-building and environmental stewardship. Praxair s sustainability reporting has been guided by the Global Reporting Initiative (GRI) framework since For the 2012 Sustainable Development Report, the GRI confirmed that Praxair s sustainability reporting fulfills the expanded GRI guideline 3.1 with the highest application level, A+. I am proud to be part of Praxair s highly skilled, innovative global team that consistently demonstrates our mission of Making our planet more productive. This is what sustainable development means to us. Together, we are making a difference, one customer, one person, one community at a time. Steve Angel Chairman and CEO Chart 1.1 (2): Praxair s Carbon Footprint Praxair s carbon productivity was calculated for three signature Praxair products in three markets: hydrogen sold to make ultra-low sulfur diesel fuel, which is driven by trucks fitted with diesel particulate filters; krypton sold to insulate thermal windows; and oxygen sold to optimize combustion in steelmaking. In 2011, these markets contributed some 11 percent of sales. Praxair applications enabled customers to avoid 23 million MT CO2e an amount that exceeded all Praxair GHG emissions by seven million MT. More information on our methodology and an external audit of results can be found on our website at less carbon more green. 15MM 10 MM 5 MM Praxair s CO2e Emissions 16 million MT CO2e Praxair s CO2e Avoided 23 million MT CO2e Net Benefit: 7 million MT GHG 0 MM -5 MM -10 MM 4 million MT GHG emissions from hydrogen 1 million MT Other GHG emissions 11 Million MT GHG emissions from Air Separation (0.3 million MT) Eco-efficiency savings (13 million MT) GHG avoided from hydrogen for ULSD (1 million MT) CO2e avoided from krypton in windows (9 million) CO2e avoided from oxygen use in steelmaking 4

9 Strategy & Analysis 1.2 Description of key impacts, risks and opportunities Strategic Platforms Earnings Growth & Customer Sustainable Employee Return on Capital Satisfaction Development Engagement Company Vision: Be the best-performing industrial gases company in the world as determined by our customers, shareholders, suppliers, employees and the communities in which we operate. Corporate Goal: Embed sustainable development across the value chain. Business Drivers Economic Environmental Energy Enable affordable, reliable, Support renewable Protect health & the environment efficient solutions energy technologies Environment Widen opportunities from emerging Demonstrate customer Ensure safety, health, security & engagement regulations & innovations carbon productivity Emerging Economies Invest in growth & innovation Promote eco-efficiency Develop local talent and partnerships Execution Safely drive profitability & productivity Minimize resource use Uphold global standards The table above demonstrates that Praxair s Sustainable Development Vision 2015 is fully integrated into our business drivers, goals and vision. It maps the sustainable development themes of economic, environmental and social value (presented in this report in blue, green and gold) against Praxair s four secular business drivers: growth in energy and environmental solutions, growth in emerging economies and productivity through operational excellence and execution. The vision is supported by goals, targets and key performance indicators (KPIs) in each area. These are reported in this chapter and at the introduction to the following sections on economic, environmental and social themes. Praxair s Sustainable Development Vision 2015 was first presented in Praxair s 2011 Sustainable Development Report and confirms our corporate goal: to embed sustainable development across the organization. We created a platform for this in 2010 with Praxair s second-generation GHG goals and targets. These included targets for improving our GHG intensity in our operations: air separation, hydrogen production, distribution, capital projects and offices; and in customer carbon productivity: showing the environmental value Praxair applications brought to customers and the planet. We introduced new environmental targets to reduce energy use and nitrogen oxide (NOx) emissions from vehicles and to launch a Zero Waste program. In this report, we introduce our Sustainable Development Materiality Assessment (SDMA), and announce several new or improved targets. Praxair determines its key impacts on sustainability and related challenges and opportunities, as well as its approach to prioritizing them, in its SDMA process and conclusions. Summary data is provided in Table 1.1(1). A summary table is provided in Table 1.2(2). Praxair s strong emphasis on compliance, ethics and integrity ensures that stakeholders rights are respected and protected in this regard. Praxair also references a range of internationally-agreed standards and norms (see 4.12). In , Praxair prepared a SDMA. Praxair s SDMA is the first step in Praxair s Sustainable Development Management System (SDMS) process, as shown in Chart 1.2(1) following. 1 For the purposes of this report, the words material and materiality are not meant to describe materiality for the purposes of financial reporting, but rather refer to the relevance of sustainability issues to Praxair. Strategy & Profile Economic Environment 5

10 Strategy & Profile Economic Environment Strategy & Analysis Chart 1.2 (1): Prioritization of Key Impacts SDMA Stakeholder SDMA The SDMA defines the material sustainable development issues for Praxair. The SDMA process illustrates how stakeholder issues are met and, as appropriate, integrated into sustainability governance. Sustainable development KPIs, including Environmental Key Performance Indicators (EKPIs) are selected based on business priorities and current and emerging internal and external considerations. Our SDMS elements help achieve a solid process to implement the KPIs. Performance targets are developed and are cross-referenced to the SDMA. The selection of SD KPIs and EKPIs is reviewed annually within the SDMS management review cycle. The SDMA follows these steps: 1. Identify a broad universe of externally perceived sustainability risks and opportunities. We pooled the indicators of the GRI, together with other relevant sets of international recommendations and guidelines, such as those published by the American Chemistry Council (ACC) Responsible Care Management System (RCMS ) initiative, the Carbon Disclosure Project (CDP) climate change and water programs and the Dow Jones Sustainability Index (DJSI). Together, these external frameworks represent the views of regulators, communities, a key industry association and trillions of dollars of investors interested in environmental and social governance (ESG) issues. In addition, Praxair took into account the views of investors, investors from socially responsible SDMS Process Identify Key Issues Measure Manage Define Performance SD & EKPIs EKPI Reporting Principles documents + EKPIs (other SD KPIs)** Policy SOPs Reporting Schedule Approval Schedule Roles & Responsibilities Data mgt. system Training Document control Goals & Targets Action Plans SD dashboard Report to Management Monthly business mgt. reports Quarterly reports to OOC Annual mgt. review Annual report to OOC Annual report to board Report Externally Annual SD report SD highlights CDP GHG report CE Highlights **SD KPIs beyond environmental KPIs have a less well-developed management system information and reporting system. This will be improved over time. investor groups (SRIs) who raised issues in inquiries sent directly to Praxair, and all customer requests for sustainability information. Employee priorities and concerns were gleaned from the 2010 employee survey and from the internal business sustainable development coordinators. These were ranked based on relevance of the questionnaire (for example, key customers and key sustainability standards and rankings rated higher) and frequency of request. This list of potentially significant sustainability issues is provided in the full SDMA. 2. Overlay these external issues with Praxair business priorities. These were determined from Praxair s mission, vision, values and strategy; key business drivers and growth platforms; and key business risks; as well as our commitment to sustainable development. 3. Map stakeholder issues that emerged from this process to the economic (including governance), environmental and social components of sustainable development. This internal process involved consolidating issues, promoting and demoting others and seeking to create a finite and credible set of indicators that evenly covered the three elements of sustainable development. The results are presented in Chart 1.2 (2). 6

11 Strategy & Analysis Chart 1.2 (2): Praxair Sustainable Development Materiality Analysis (SDMA) Important to Stakeholders Relative Reporting Priority GHG Emissions Health & Safety Air Emissions Integrity, Ethics Energy Earnings Growth & Return on Capital Resource Optimization Talent Development & Diversity Stakeholder Engagement Eco-Productivity Compliance Emerging Markets Product Stewardship Customer Carbon & Environmental Productivity Costs of Compliance Supplier Sustainability Management Transport Organizational Brand Alignment Environmental Issues 1st Priority Impact to Praxair Economic & Governmental Issues 2nd Priority Issues 3rd Priority Strategy & Profile Economic Environment This matrix arranges Praxair sustainable development priorities and those of its stakeholders. Key Stakeholders: investors, customers, employees, regulators, and communities. 1st and 2nd priority items are subjects of Praxair Sustainable Development action plans and targets. This matrix is a summary; it does not represent the full range of issues considered. 7

12 Strategy & Profile Economic Environment Strategy & Analysis Six issues rose to the top in each theme, as indicated in the SDMA in Chart 1.2 (2) and Table 1.2 (1). Table 1.2 (1): Praxair Sustainable Development Priorities Economic & Governance Integrity & Ethics Earnings Growth & Return on Capital Compliance Costs of Compliance Eco-Productivity Emerging Markets Environment Energy Customer Carbon & Environmental Productivity GHG Emissions Resource Optimization Air Emissions Transport Health & Safety Talent Development & Diversity Stakeholder Engagement Product Stewardship Supplier Sustainability Management Organizational Brand Alignment Each of the 18 priorities was used to confirm or improve programs and/or goals and targets in the Sustainable Development Action Plan (SDAP). In line with the SDMS process, the full set of potentially significant sustainability issues will be annually reviewed and improved. Sustainable Development Action Plan Praxair s SDAP was originally created in Five-year goals were developed for each sustainable development principle. Annually, targets are set to move toward or support the goals at the corporate level and in each of the businesses. The director of sustainable development reports on performance against this plan monthly to senior management and the executive team. At the corporate level, the plan is implemented through the various corporate functions. For example, the chief compliance officer manages the goal to maintain compliance with the law and our Standards of Business Integrity, and the chief technology officer manages the goal of demonstrating the environmental value of Praxair products across their life cycle. Each business has a parallel action plan, with annual targets that relate to issues specific to the particular business but that support the corporate plan. Targets: Summary and Next Steps Table 1.2 (2) maps targets against Praxair s KPIs, as identified in our SDMA, and shows how activity and accountability are embedded in the organization. In 2011 Praxair achieved all these targets. Following is a summary of performance against targets, challenges and next steps. 1. An annual management system review process will allow for the periodic review, confirmation and/or improvement of standard operating procedures (SOPs), roles and responsibilities, training, communication, targets and other management system elements, including better automation of environmental data and reporting. 2. Eco-productivity has become an important initiative with executive leadership. This reports cost savings from sustainability initiatives in the productivity and in procurement. 3. We have issued a new target in the social area: measure supplier sustainability management. The Global Procurement and Materials Management (GPMM) organization s Asset Management program reports sustainability savings into the productivity database. 4. In 2011, Praxair added a new target for 2012: to install the 8

13 Strategy & Analysis World Business Council (WBCSD) Water Tool. This has been completed. 5. In 2011, we had a target to launch a Zero Waste program. This was accomplished and 10 sites achieved this status. A new target was created to achieve 50 Zero Waste sites in In Praxair s carbon productivity targets, we added a third market application that brings a net carbon dioxide equivalent emissions (CO2e) avoided in use: krypton is used to improve thermal window insulation and save energy. We added this to Chart 1.1 (1), and show that the GHG emissions avoided by just three of Praxair s market applications more than exceed our total GHG emissions. 7. Praxair s GHG innovation target, that our applications under development should be worth a potential 2 million MT CO2e avoided, will be closed at the end of The other GHG innovation targets are maintained. 8. The office GHG reduction target was met and is complete. We are considering other programs that will maintain the momentum built up in this program. 9. In 2011, we exceeded our target of 0.4 percent per annum GHG intensity improvement target in our hydrogen business that operates and steam methane reformers (SMSs). We will retain this target for 2012, but this may need to be reviewed. 10. Many of Praxair s GHG intensity improvement targets are annual improvement targets. The question has been asked how long this can be sustained. For the most part, Praxair does not foresee a short-term concern, but we will continue to monitor this. Strategy & Profile Economic Environment 9

14 Strategy & Profile Economic Environment Strategy & Analysis Table 1.2 (2): 2011 Goals,Targets, Performance SDMA KPI Target 2011 Status/Results GRI Indicator Economic Integrity, Ethics Compliance, Costs of Compliance Earnings Growth & ROC Maintain global standards of corporate governance, compliance, ethics, integrity, accountability & human rights Achieve continuous growth in earnings per share (EPS) and industry-leading return on capital (ROC) 100% employees certified that they read and understood Praxair Standards of Business Integrity Annual ROC: 14.7% Growth in EPS: 15% Eco-Productivity Document environmental savings from productivity $62 million EC 2 Emerging Markets Enable delivery of safe drinking water to millions of 30 million people served EC 8 consumers, particularly in China Achieve 45 percent global sales from emerging economies by 39% 2015 Source 50 percent applications development from emerging 23% economies by 2016 Environment Energy Customer Carbon & Environmental Productivity GHG Emissions Achieve a minimum energy savings of 1.8 million MWh of electricity & 2.5 million MMBtu of natural gas, delivering anticipated savings > $100 million by 2020 vs Average of at least 1% annual energy intensity improvement for ASU plants in our design portfolio Increase revenue from environmental applications ( ecoportfolio ) Projects in commercial pipeline will annually avoid 2 million metric tons CO2e Measure and validate carbon productivity for key Praxair products & applications ASUs: 1% annual GHG emissions intensity improvement per unit produced Hydrogen: 4% GHG emissions intensity improvement, (0.4% per year) Savings achieved of 0.6 million MWh and 1.4 million MMBtu EC 1 EN 3 EN 4 3.8% improvement vs EN 4 26% EC2 EN 26 Achieved GHG avoided exceeds GHG emissions by 7 million MT 3.2% improvement vs EN 16 2% improvement vs EN 16 Offices: 20% reduction in GHG emissions by % improvement vs EN 17 Resource Optimization Install WBCSD Global Water Tool Water tool installed EN 9 Air Emissions 20% reduction in vehicle NOx emissions, % improvement vs EN 20 Transport Distribution: 1.5 % annual GHG emissions intensity improvement per unit delivered 4% improvement vs EN 29 10

15 Strategy & Analysis SDMA KPI Target 2011 Status/Results GRI Indicator Health & Safety Continuously improve safety performance 22% improvement in recordable injuries Talent Development & Diversity Source and retain top talent, particularly in emerging economies 92% emerging economy leadership are local nationals Stakeholder Engagement Launch facility Zero Waste initiative 10 sites achieved Zero Waste 2012 target: 50 sites Supplier Sustainability Management Product Stewardship Organizational Brand Alignment Continue to improve levels of employee satisfaction in employee survey (Target: 86%) Demonstrate value of community engagement to our communities, businesses, employees Work with customers & regulators to develop green technologies Measure sustainable development in our supply chain Track trends & respond to customer interest in sustainable development issues Embed sustainable development into businesses and functions: Increase Earth Day participation Continue to be recognized by external stakeholders as a leader in sustainable development 86% achieved (2010) Biennial survey Number of beneficiaries: 277,000 Percent reporting that community engagement improved Praxair reputation: 70% See SO5 See EN DMA and boxes at EN 26 LA 7-8 LA 1, 2, 10, 14, 14 Box EN26(3) SO 1 SO5 EN DMA EN26 CDP supply chain requests: , 4.16, PR 1, 3, 6, sites participate 1.1, 1.2, 2.10 See 2.10 Key Themes There were several themes in our sustainability efforts in 2011 that align with our strategy and business drivers: Energy: Provide bold solutions to global energy challenges. Environment: Demonstrate that environmental management brings both revenue and margin. Emerging economies: Promote employee environmental and community engagement. Execution/Operational Excellence: Develop our SDMS and dashboard. Strategy & Profile Economic Environment 11

16 Strategy & Profile Economic Environment Strategy & Analysis 1.Energy: Provide bold solutions to global challenges - energy efficiency and renewable energy As a large energy user, Praxair faces interest from investors and the sustainability community concerning our investment in renewable energy sources. Stakeholders such as the CDP, DJSI and socially responsible investors provide positive ratings to firms that can show reductions in their own energy use and net GHG emissions, and that are investing in renewable energy to bring these reductions. Praxair actively and frequently considers proposals for these investments, but requires that these projects meet our normal investment hurdle rates for capital spend. In , and in response to external and internal stakeholder interest, Praxair prepared an energy return on investment (ROI) evaluation (see Chart 1.2 (3)). The results show that Praxair investments in improving the energy efficiency of its plants provides a far better return for the planet and for our shareholders than any current renewable energy alternative. Praxair sees market opportunity in clean technology and renewable energy, and we continue to provide innovative applications in this area. See Chart 1.2 (3). A comparative energy ROI was conducted between Praxair s own investments in improving the energy efficiency of our plants and a range of alternatives for purchasing renewable energy. Energy efficiency is the best investment we can make to reduce our global energy footprint and reduce natural resource consumption. Praxair s energy efficiency program returns are 12 times those of typical solar projects and more than twice the energy ROI of wind alternatives. For each $1,000 invested, Praxair s energy efficiency program reduced demand by 0.59 kw versus 0.18 kw for solar PV. Many renewable energy solutions depend on the wind or sun and run at less than 100 percent capacity. In terms of energy saved or produced, Praxair s energy efficiency program is 12 times more effective than solar, when adjusted for capacity factors (three times more when unadjusted). Energy efficiency is consistent with Praxair s ongoing business model and value proposition. Chart 1.2(3): Energy Efficiency vs. Renewable Energy: Comparing the Energy ROI Praxair Energy Efficiency Projects Wind (>1,000 kw) MSW-Landfill gases New Hydro Wind (100-1,000 kw) Wind (off-shore) Geothermal Biomass Solar PV Solar PV Distributed (scale) kw/$1,000 adjusted for capacity factor Praxair kw/$1,000 adjusted for capacity factor kw per $1000 invested In addition, Praxair energy efficiency investments have proven benefits: Praxair has demonstrated the ability to manage costs and schedules to a very tight tolerance. In 2011, our engineering team delivered more than a dozen new major projects around the world within one percent of budget and three percent of schedule. Praxair energy efficiency is recognized as beneficial by the public, environmental groups and government agencies.

17 Strategy & Analysis 2.Environment: Demonstrate that environmental innovation generates both revenue and margin Does a focus on the triple bottom line (economic, environmental and social issues) bring value? This remains the central challenge and opportunity for sustainable development. Praxair s business model is focused on environmental innovation as a source of revenue, savings and margin improvement, which all result in earnings growth. Four examples are provided: Enabling customers to reduce energy and environmental emissions. Praxair produced an updated 2011 Carbon Footprint chart (Chart 1.1 (2)) to show that GHG avoided through customer use of our products and applications exceed our GHG emissions. In addition, Praxair has several goals and targets for customer carbon productivity performance against these targets is reported in Table 1.2 (2).Environmental productivity is both a source of revenue and a source of cost savings and earnings growth. On the revenue side, environmental innovation is built into our business model. In the energy sector, hydrogen volumes for our refining customers are expected to increase at about 20 percent annually. Hydrogen is essential to the production of cleaner-burning transportation fuels that meet air quality regulations and reduce sulfur emissions. In the cement and steel sectors, atmospheric gas applications improve the energy efficiency of industrial processes. Praxair gases are also components of several clean and/or renewable energy solutions such as solar panels. Krypton, for example, is used in thermal window insulation. In 2011, the use of Praxair krypton conserved the energy equivalent of over one million tons of CO2e. Contributing to clean and renewable energy solutions. Praxair is a significant industrial gas supplier to the polysilicon market, and currently serves more than 50 photovoltaic manufacturing facilities worldwide. Praxair was recently named the Star Performer among suppliers to Tata India Solar, one of the biggest solar companies in the world. Industrial gases are crucial ingredients in second-generation biofuels such as jet fuel produced from non-food animal fat. Leading in byproduct synergy (BPS). We create business value from wastes. See Boxes EN2 (1) and EN2 (2). Maximizing environmental productivity as a source of margin. Margin improvement is the goal of Praxair s Productivity and Lean Six Sigma organization, which since 2007 has delivered a five percent reduction in Praxair s cost stack each year. Since 2010, Praxair has reported environmental savings from cost reduction, or eco-efficiency. In 2011, $62 million of productivity savings was achieved from environmental savings. The energy, air emissions and fuel associated with this was equivalent to 300,000 MT CO2e. See Chart 1.2 (4). Elsewhere in this Report we show value (revenue and cost savings) from social investments and from supplier sustainability management. Value from employee environmental engagement is referenced in item 3 below and in the Disclosures (SO) section. Value from supplier sustainability management is reported in Boxes EN 2, EN 26 (1), EN 26 (3), and EN 26 (4). Chart 1.2 (4): Eco-efficiency Savings from Eco-Productivity Productivity Annual Savings Eco- Productivity Savings In Millions - Percent of Cost Stack $320 5% 2008 $450 7% 2009 $400 7% 2010 $375 6% 2011 > $60 million saved >300,000 MT CO2e Equivalent to the annual CO2 emissions from electricity use at 35,000 homes (U.S.) Strategy & Profile Economic Environment 13

18 Strategy & Profile Economic Environment Strategy & Analysis 3.Promote employee environmental and community engagement Praxair earns 39 percent of revenue from emerging markets (up from 36 percent in 2010). As we grow globally and compete to source and retain talent, employee engagement and employee community engagement are key elements of establishing our corporate culture and community license to operate. Praxair s emphasis on improving global brand identity and on our environmental strategy will work only if employees are fully engaged and understand their role in bringing the brand, Making our planet more productive, to life. Employee engagement is well recognized as a key element in building a company culture and in retaining talent. Employees are a vital component of Praxair s environmental mission and sustainable development goals and initiatives. The key to achieving successful employee engagement was to identify and recognize multiple individual and site accomplishments that resulted in environmental benefits ( ) and then to align these accomplishments with the business mission to show that there is business and environmental value and senior management support. Chart 1.2 (5): Earth Week celebrations Number of sites participating Praxair has a range of meaningful programs to achieve a strong culture of employee environmental engagement. This report contains multiple case studies of employee involvement to conserve resources, such as water, energy or fuel, and save money at the same time. The results are evident with the increase of site participation in Earth Week activities, which has more than doubled each year since we started 251 keeping records: from eight sites in 2009 to 251 in See Chart 1.2(5). In addition to site Earth Week activities in 2011, over 1,500 employees from around the world submitted narratives of what they had done at home, at work, on the road, or in the community, in recognition of Earth Day. Increasing employee environmental engagement drives additional engagement (see section SO1) as employees make the connections between living the Praxair brand and their activity at work, at home and in the community. In addition, this trend has been strong in our emerging economy countries. This is bringing multiple business benefits: Examples are provided at Box EN26 (3) and BOX EN26 (2). Employee engagement in our communities is a leadership activity at Praxair, and participation in this area has escalated from individual-led initiatives to becoming integrated into the corporate culture. Many of the site Earth Day activities were also site community engagement activities. Since the inception of the Praxair CEO Award for site- or business-level engagement in 2009, Praxair s global community engagement program now has 40 percent employee participation and collects metrics to measure value. Praxair appointed a new Leader of Community Engagement at the start of 2012 to ensure that our global engagement programs were well aligned with the Praxair Foundation and our brand mission and to help develop a culture of sustainable development. More information is provided at SO1. 4.Execution: Develop our SDMS and dashboard The SDMS was launched in 2011 and has brought a new rigor and focus to Praxair s environmental reporting. The function of the SDMS is to maintain the Sustainable Development Dashboard and report performance against targets on a monthly basis to the director, sustainable development; on a quarterly basis to the Office of the Chairman; and at least annually to the Board. This includes results of performance against Praxair s GHG targets (for air separation, hydrogen, distribution and office greening); eco-productivity and zero waste; as well as related programs, such as the global rollout of the WBCSD Water Tool and Earth Day activity performance against environmental goals and targets is provided in Table 1.2 (2) and in the Environmental Disclosures chapter. 14

19 Strategy & Analysis Governance Mechanisms to Manage Sustainable Development Risks and Opportunities The most senior body responsible for sustainable development at Praxair is the company's Board of Directors via its Governance and Nominating Committee. This committee has oversight responsibility for, among other things, the company's responses to broad public policy issues in the areas of corporate social responsibility, corporate citizenship and sustainable development. The director of sustainable development presents at least annually to the Board on these issues. The director also creates and leads the corporate sustainability strategy and drives functional alignment and awareness throughout the organization. A senior vice president in conjunction with the Office of the Chairman is responsible for oversight of sustainable development plans and goals and business performance against goals. The director, sustainable development, chairs the Corporate Sustainable Development Council, which ensures alignment with the business strategy and functions. Members are executives from the corporate functions responsible for implementing the sustainable development strategy, including: Governance and Integrity, Risk Management, Strategy, Finance, Sales, Investor Relations, Investment, Legal, Sourcing, Energy, Capital Projects, Research and Development (R&D), Operations, Productivity, Safety and Environment, Human Resources, Marketing and Business Development, Corporate Communications, Mergers and Acquisitions, Government Relations, Information Technology Services and the Praxair Foundation. It is the responsibility of the Council to stay current with emerging issues that pertain to sustainable development. The council meets at least quarterly and is tasked to: 1. Maintain a process to define the content and quality of Praxair s sustainable development activity and reporting, including an assessment of what issues should be given priority; identification of relevant stakeholder concerns and confirmation that suitable responses have been made; and confirmation that sustainable development reporting covers all relevant issues. 2. Review important broad public policy issues in the areas of corporate social responsibility, corporate citizenship and sustainable development (in line with the scope of Praxair s Board Committee oversight). Ensure that responses are in place to address material issues. 3. Develop and maintain the corporate sustainable development strategy and action plan. 4. Ensure business alignment. 5. Understand, analyze and propose to the Office of the Chairman specific emerging issues in the sustainability area that require dedicated cross-functional and/or crossbusiness attention (such as the existing GHG Strategy Team). The director, sustainable development, leads the SDMS and is accountable the achievement of the corporate sustainable development targets and continued progress in community engagement. At the business/segment level, each business president chairs a Sustainable Development Council for his/her business and each functional vice president is represented on the corporate Sustainable Development Councils. Each business unit has a dedicated sustainable development coordinator, who leads their business council, arranges quarterly meetings and reports on its action plans and progress on the SDMS work areas and targets. Some segments, such as Asia, have appointed coordinators at the country level as well. Coordination of the work of the business sustainable development coordinators is through the director, sustainable development. This group meets monthly via teleconference and periodically in person as time and budget permit. Strategy & Profile Economic Environment 15

20 Strategy & Profile Economic Environment Strategy & Analysis 2. Organizational Profile 2.1 Name of the Organization Praxair, Inc. 2.2 Primary brands, products, and/or services 2.3 Operational structure of the organization Praxair, Inc. (Praxair or the company) was founded in 1907 and became an independent publicly traded company in Praxair was the first company in the United States to produce oxygen from air using a cryogenic process and continues to be a major technological innovator in the industrial gases industry. Praxair is the largest industrial gas supplier in North and South America, is rapidly growing in Asia and has strong, well-established businesses in Europe. Praxair s primary products in its industrial gases business are atmospheric gases (oxygen, nitrogen, argon and rare gases, including krypton) and process gases (carbon dioxide, helium, hydrogen, electronic gases, specialty gases, acetylene). The company also designs, engineers, builds and operates equipment that produces industrial gases. The company s surface technologies segment, operated through Praxair Surface Technologies, Inc., supplies wear-resistant and high-temperature corrosion-resistant metallic and ceramic coatings and powders. Industrial Gases Products and Manufacturing Processes Atmospheric gases are the highest volume products produced by Praxair. Using air as its raw material, Praxair produces oxygen, nitrogen and argon through several air separation processes of which cryogenic air separation is the most prevalent. As a pioneer in the industrial gases industry, Praxair is a leader in developing a wide range of proprietary and patented applications and supply systems technology. Praxair also led the development and commercialization of non-cryogenic air separation technologies for the production of industrial gases. These technologies open important new markets and optimize production capacity for the company by lowering the cost of supplying industrial gases. These technologies include proprietary vacuum pressure swing adsorption (VPSA) and membrane separation to produce gaseous oxygen and nitrogen, respectively. Praxair also manufactures precious metal and ceramic sputtering targets used primarily in the production of semiconductors. Process gases, including carbon dioxide, hydrogen, carbon monoxide, helium, specialty gases and acetylene, are produced by methods other than air separation. Most carbon dioxide is purchased from byproduct sources, including chemical plants, refineries and industrial processes and is recovered from carbon dioxide wells. Carbon dioxide is processed in Praxair s plants to produce commercial and food-grade carbon dioxide. Hydrogen and carbon monoxide are produced by either steam methane reforming of natural gas or by purifying byproduct sources obtained from the chemical and petrochemical industries. Most of the helium sold by Praxair is sourced from certain helium-rich natural gas streams in the United States, with additional supplies being acquired from outside the United States. Acetylene is typically produced from calcium carbide and water or purchased as a chemical byproduct. Industrial Gases Distribution There are three basic distribution methods for industrial gases: (1) on-site or tonnage; (2) merchant liquid; and (3) packaged or cylinder gases. These distribution methods are often integrated, with products from all three supply modes coming from the same plant. The method of supply is generally determined by the lowest cost means of meeting the customer s needs, depending upon factors such as volume requirements, purity, pattern of usage and the form in which the product is used (as a gas or as a cryogenic liquid). On-site. Customers that require the largest volumes of product (typically oxygen, nitrogen and hydrogen) and that have a relatively constant demand pattern are supplied by cryogenic and process gas on-site plants. Praxair constructs plants on or adjacent to these customers sites and supplies the product directly to customers by pipeline. On-site product supply contracts generally are total requirement contracts with terms typically ranging from years and containing minimum purchase requirements and price escalation provisions. Many of the cryogenic on-site plants also produce liquid products for the merchant market. Therefore, plants are typically not dedicated to a single customer. Advanced air separation processes allow on-site 16

21 Strategy & Analysis delivery to customers with smaller volume requirements. Customers using these systems usually enter into requirement contracts with terms typically ranging from 5-15 years. Merchant. The merchant business is generally associated with distributable liquid oxygen, nitrogen, argon, carbon dioxide, hydrogen and helium. The deliveries generally are made from Praxair s plants by tanker trucks to storage containers owned or leased and maintained by Praxair at the customer s site. Due to distribution cost, merchant oxygen and nitrogen generally have a relatively small distribution radius from the plants at which they are produced. Merchant argon, hydrogen and helium can be shipped much longer distances. The agreements used in the merchant business are usually 3-5 year requirement contracts. Packaged Gases. Customers requiring small volumes are supplied products in metal containers called cylinders, under medium to high pressure. Packaged gases include atmospheric gases, carbon dioxide, hydrogen, helium and acetylene. Praxair also produces and distributes a wide range of specialty gases and mixtures in cylinders. Cylinders may be delivered to the customer s site or picked up by the customer at a packaging facility or retail store. Packaged gases are generally sold by purchase orders. Praxair s packaged gas operations also distribute welding equipment purchased from independent manufacturers. Over time, Praxair has acquired a number of independent industrial gases and welding products distributors at various locations in the United States and continues to sell merchant gases to other independent distributors. Between its own distribution business, joint ventures and sales to independent distributors, Praxair is represented in 48 states, the District of Columbia and Puerto Rico. Surface Technologies Praxair s surface technologies segment supplies wear-resistant and high-temperature corrosion-resistant metallic and ceramic coatings and powders to the aircraft, energy, printing, textile, plastics, primary metals, petrochemical and other industries. It also manufactures a complete line of electric arc, plasma and high-velocity oxygen fuel spray equipment as well as arc and flame wire equipment used for the application of wear-resistant coatings. The coatings extend wear life and are applied at Praxair s facilities using a variety of thermal spray coatings processes. The coated parts are finished to the customer s precise specifications before shipment. Inventories Praxair carries inventories of merchant and cylinder gases, hardgoods and coatings materials to supply products to its customers on a reasonable delivery schedule. On-site plants and pipeline complexes have limited inventory. Inventory obsolescence is not material to Praxair s business. 2.4 Location of organization's headquarters Praxair s worldwide headquarters is located in leased office space in Danbury, Conn. Other principal administrative offices are owned in Tonawanda, NY, and leased in Rio de Janeiro, Brazil; Shanghai, China; and Madrid, Spain. 2.5 Countries where the organization operates Praxair is a global enterprise with approximately 63 percent of its 2011 sales outside of the United States. It conducts industrial gases business through consolidated companies in Argentina, Bahrain, Belgium, Bolivia, Brazil, Canada, Chile, China, Colombia, Costa Rica, Denmark, Dominican Republic, France, Germany, India, Italy, Japan, South Korea, Malaysia, Mexico, the Netherlands, Norway, Paraguay, Peru, Portugal, Puerto Rico, Russia, Saudi Arabia, Spain, Sweden, Taiwan, Thailand, United Arab Emirates, Uruguay and Venezuela. Societa Italiana Acetilene & Derivati S.p.A. (S.I.A.D.), an Italian company accounted for as an equity company, also has established positions in Austria, Bosnia, Bulgaria, Croatia, the Czech Republic, Hungary, Romania, Russia, Serbia, Slovakia, Slovenia and Ukraine. Refrigeration and Oxygen Company Limited (ROC), a Middle Eastern company accounted for as an equity company, has operations in the United Arab Emirates, Kuwait and Qatar. Praxair s surface technologies segment has operations in Brazil, Canada, China, France, Germany, India, Italy, Japan, Singapore, South Korea, Switzerland and the United Kingdom. Strategy & Profile Economic Environment 17