STRATEGY AND MANAGEMENT

Sustainability management is an investment in our future success. We leverage new business opportunities, minimise risk and seek to overcome social and business challenges such as scarcity of resources, climate change and demographics at an early stage.

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By the year 2020, the BMW†Group will be the world's leading provider of premium products and premium services for individual mobility. That is the goal we set ourselves in 2007 when we established our Strategy Number ONE, which has undergone continued development ever since. As we strive to achieve our vision, we will focus consistently on growth, profitability, working actively to shape the future, and on access to new technologies and customers. These core areas of action form the four pillars of Strategy Number ONE. Sustainability is one of the BMW†Group's core principles and an integral part of each of the four strategy pillars.

For us, however, premium also means setting standards in the development of sustainable solutions for individual mobility needs. We are convinced that the manufacturer with the most efficient and resource-friendly production processes will be the future industry leader, offering its customers state-of-the-art solutions for environmentally compatible individual mobility.

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OUR SUSTAINABILITY STRATEGY

The sustainability strategy passed in 2009 is derived directly from Strategy Number ONE and is applicable worldwide as the overarching strategy for all corporate divisions. The main aim is to establish sustainability along the entire value chain and in all basic processes – thus creating added value for the company, the environment and society. We derive specific requirements and targets for each individual division from the sustainability strategy, which allow us to systematically establish sustainability criteria in all areas of the company.

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Our core principles form the foundation for consistently sustainable operations at the BMW†Group. They stipulate that taking social responsibility is inextricably linked to the Group's perception of itself as a business enterprise. At the same time, sustainability is seen as making a positive contribution to the business success of the company (see section "Business case for sustainability").

Sustainability has also been established as a strategic corpor≠ate objective in the BMW†Group Balanced Scorecard since 2009. This means that every project must be measurable in terms of "Sustainability" as a corporate objective, ensuring that, in addition to economic factors, environmental and social aspects are also accounted for in the decision-making process – because we know that, today, the value of a company is not measured solely by direct financial indicators but also by so-called non-financial performance indicators. By setting the right course in the early stages of a project, the company saves resources and any necessary corrective measures down the line, which often entail much higher costs. In addition, sustainability as a corporate objective cascades down to personal target agreements for managers and is thus part of their performance-based remuneration.

A set of key performance indicators (KPIs) and the BMW†Group's performance in various ratings and rankings are the factors that influence our sustainability management. An overview of the relevant KPIs is provided on the fact sheet at the beginning of each chapter and specific details are provided in the respective chapters.

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MATERIALITY ANALYSIS

To identify issues that may present opportunities or risks to our business in the future, we analyse these indicators regularly to find out exactly what they mean for our company, both from the point of view of different stakeholder groups as well as from an internal BMW†Group perspective.

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1. First, we use specific criteria to internally identify the 20 most relevant issues for society and the company.

2. Then our stakeholders (primarily sustainability experts) evaluate these 20 topics in an online survey. To enhance quality, we also carry out a stakeholder analysis. The stakeholder survey and analysis result in a prioritisation of the topics by our stakeholders.

3. Finally, experts from the company's strategy offices carry out a materiality workshop to evaluate the significance of the topics for the BMW Group. This makes the results more robust.

The results of the materiality analysis are mapped out above. The y-axis maps the relevance of the topics to our stakeholders, the x-axis shows the relevance of the topics from the company's internal perspective. We judge a core area to be particularly significant if it is categorised as very important by both our stakeholders and the company. The materiality matrix is the point of departure for regular verification of the direction our sustainability strategy is taking.

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OUR SUSTAINABILITY TARGETS

As an active member of the World Business Council for Sustainable Development and the UN Global Compact, we recognise that it is a global challenge to further increase our efforts on sustainable development. It is essential that we take a long-term approach. We intend to further expand our leading position and focus on the topics we can have most impact. With this in mind, we developed a target vision for 2020 in the year under report. This includes efforts in the areas Products and Services, Production and Value Creation as well as Employees and Corporate Citizenship.

ORGANISATION AND MANAGEMENT

One important goal of our sustainability strategy is to establish sustainability as a core strategy within our organisation. For this reason, our Sustainability and Environmental Protection department has been directly incorporated into our Corporate Strategy unit since 2007, under the mandate of the Chairman of the Board. Its responsibilities include the continued enhancement of our sustainability strategy and the management of sustainable operations in all its forms. Some of its tasks include:

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• Derivation, specification and establishment of a sustainability strategy in individual divisions, taking account of the entire value chain
• Development and monitoring of ambitious targets
• Identification of and internal approach to addressing core challenges
• Central corporate function for environmental protection (Group Representative) and management of environmental protection network
• Management of global centres of competence for a range of environmental issues

The long-term direction of the core areas of the sustainability strategy is set down by the Sustainability Board, which includes all members of the Group's Board of Management. The Sustainability Board convenes twice a year to assess the company's progress. The topics are prepared for presentation to the Sustainability Board by the so-called Sustainability Circle, which comprises department heads from all divisions.

The main focus of work in 2012 was as follows:
• Development of long-term sustainability targets (Target Map 2020)
• Development of an energy strategy
• Integration of sustainability into purchasing and supplier management
• Revision of corporate citizenship strategy
• Further entrenchment of the topic of human rights
• Strengthening of international cooperation on the exchange of best practices in the environmental network
We made considerable progress on all of these focal areas in the period under report. Our comprehensive Target Map offers a detailed overview of which measures we carried out in the different divisions as well as the challenges we still face.

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BUSINESS CASE FOR SUSTAINABILITY

Sustainable operations is an investment in our future success and one of the main drivers of our business. We are already demonstrating how sustainability measures have led to cost savings or generated revenue – thus validating the business case for sustainability.

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• Between 2006 and 2012, we invested in environmentally friendly plants and technologies as part of our Clean Production Strategy throughout the BMW†Group's production network. The resulting reduction in energy, water, waste and VOC emissions of around 36% per vehicle produced led to cost savings of around €100†million.

• Due to global megatrends (e.g. urbanisation, climate change and regulation), customer mobility requirements are also shifting. A range of studies has already shown that environmental awareness on the part of customers is coming more and more to the fore, while at the same time their focus remains on design, dynamism and comfort – this brings new business potential for the BMW†Group. With our new sub-brand BMW i, we will be able to fulfil these customer requirements to an even greater extent than before. This will give us both a clear competitive edge as well as make a significant contribution to the company's future success.

• Direct feedback from our fleet customers indicates that environmental issues are gaining in significance. Many DAX-listed companies are increasingly focusing their car policies on sustainability. Employees are also motivated to use environmentally friendly vehicles via a bonus malus system. Thanks to our efficient vehicles as well as the sustainability advice provided by our subsidiary Alphabet, we can fulfil the changing expectations of our fleet customers. The experience gained by the Alphabet sales team shows that BMW vehicles have a significant edge on the competition – a clear sign that sustainability measures such as our Efficient Dynamics Programme really pay off.

• We are seeing accelerated global growth and already sell around 85% of our vehicles outside Germany. To remain successful worldwide, we need intercultural diversity in our company – people from different countries, different backgrounds – and a good balance between male and female employees. With our intercultural workforce structure, we increase revenues by improving our focus on the customer and finding the perfect fit on global markets with different customer requirements. This increases the appeal of our products at local level and steps up our global growth, resulting in additional earnings potential.

• Our premium standards are at the heart of everything we do. In order to develop and offer top-quality products and services, we need the best employees available. Being amongst the most popular employers in many markets is therefore a crucial competitive advantage. We want to continue to expand this edge. To do this, we rely not only on above-average remuneration and extra social benefits, our leading role in sustainability also increases our attractiveness as an employer.

• As part of the Age/Experience Diversity Dimension, for example, our Today for Tomorrow project reduces follow-up costs and risks. Behavioural measures (e.g. health education) and preventive measures at the workplace (e.g. ergonomically optimised workstations) offset our workforce's age-related physical performance limitations. This can compensate for absenteeism due to illness and reduce the number of employees who can no longer carry out their tasks due to constraints on their performance, allowing us to continue to fulfil our responsibility towards our employees and avoid costs, in spite of the rising average age structure.

• Effective leadership is essential to successful implementation of Strategy Number ONE. Manager training contributes towards establishing the key importance of leadership at all management levels. Managers are given the tools they need to improve their leadership skills in the long run and thus to play their part in achieving the strategic objectives. At the same time, effective leadership increases the employability of the individual, employee satisfaction as well as the attractiveness of the BMW Group as an employer. It makes an important contribution towards the success of the company and ultimately secures jobs.

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HUMAN RIGHTS AT THE BMW GROUP

Respect for human rights is integrated in the strategy and culture of the BMW†Group. Our management process is aligned with the requirements of the UN Guiding Principles on Business and Human Rights, which were passed by the United Nations in 2011. We use these principles as our main guide to critical reflection and continuous improvement of how we entrench human rights requirements within the company. To ensure that the due diligence processes set down in the UN Guiding Principles are implemented, a comprehensive internal risk analysis along the entire value chain of the BMW†Group was carried out in the 2012 financial year.

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Our cross-divisional human rights team mainly comprises representatives from the Sustainability and Environment division, Legal Compliance, HR Strategy and Corporate Communications. The team monitors current developments in the international human rights debate, analyses potential risks for the BMW†Group and – where there are any open issues – promotes further entrenchment of human rights requirements in the BMW†Group. It reports to the Sustainability Circle and the Sustainability Board. The respective specialist departments are responsible for the individual operational topics.

We have training courses in place for employees and management to raise their awareness of human rights issues. In our supplier management process, we inform suppliers of human rights issues and ensure their commitment to the topic. We also address our other business partners, e.g. in the retail organisation, offering them training on our standards and requirements and successively integrating them into our contractual agreements.

To avoid human rights violations, all employees can consult their line managers or the BMW†Group Human Rights Contact helpline if they have any questions. Employees also have the opportunity to submit information – anonymously and confidentially – via the BMW†Group SpeakUP Line about possible human rights violations within the company. The BMW†Group SpeakUP Line is available in a total of 34 languages and can be reached via local free-of-charge telephone numbers in all of the countries in which BMW†Group employees carry out activities. Between December 2011 and December 2012, a specific procedure was applied to follow up five queries which were submitted to the Human Rights Contact helpline. Three of these were in connection with discrimination, the other two referred to employee/manager relations. In none of the five cases was any violation of human rights determined.

Human rights requirements are also integrated into our risk management process as well as investment and location decisions.

To protect the physical safety of its employees and visitors, the BMW†Group takes the appropriate security measures. These are based on location-specific risk analyses. Our courses train all BMW†Group employees on how to implement human rights requirements in the company.

Security service providers to the BMW†Group are obliged to comply with human rights. This is set down successively in the respective purchasing conditions. If necessary, they receive advice and training on implementation. For example, in South Africa, the security personnel receive instruction on human rights before they take up their tasks for the first time.

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RAISING WORKFORCE AWARENESS

We can only achieve our aim of becoming the most sustainable company in the automotive industry if we work together with our employees. In total, more than 2,500 members of our staff attended courses on sustainability during the reporting period – including the courses that form part of our yearly quality, environmental and occupational safety training programme.

Our training courses are tailored to the different levels of knowledge and needs of participants. Some 1,400 trainees attended a sustainability course, and around 3,600 managers completed the Managing Business training programme, which includes several hours of training on sustainability. All training courses are regularly evaluated – and have met with high levels of acceptance. One example: 86% of the 2,500 participants in our introductory seminar Sustainability at the BMW†Group said that they gained knowledge from the course.

RATINGS AND RANKINGS

In the reporting period, the BMW†Group received a number of listings and awards.

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• Dow Jones Sustainability Index (DJSI): The BMW Group is the only company in its industry that has been listed on the Dow Jones Sustainability Index World every year since it was founded in 1999. Index provider Dow Jones commissions rating agency RobecoSAM to evaluate the company's sustainability performance. In September 2012, the BMW Group was named industry leader for the eighth time in succession and as a result was listed in the Dow Jones Sustainability Index World and Europe. The BMW Group was praised as being a leader in terms of innovation management and having demonstrated a clear commitment to reducing negative environmental impact along the entire value chain.

• Carbon Disclosure Project (CDP): The BMW Group achieved a record result in the Global 500 Ranking CDP which was published in September 2012. With 99 of a possible 100 points, the company is an industry leader and listed on the Carbon Disclosure Leadership Index (CDLI). In addition, the BMW Group is listed on the Carbon Performance Leadership Index (CPLI). The BMW Group is also among the Top 3 of all participating companies worldwide in the CDP Global 500 Ranking.

• FTSE4Good: The BMW Group was again listed on FTSE4Good in 2012, an index of the British index family on sustainability and corporate governance provided by FTSE in London.

• Sustainalytics: This agency rated the BMW Group number one in sustainability among all DAX-30 companies.

• iŲw/future report ranking: The BMW Group achieved first place for its Sustainable Value Report 2011 among 150 analysed reports.

Awards
• SAM Sustainability Award: In June 2012, the SAM Group launched the SAM Sustainability Awards in Germany. As one of three German carmakers, the BMW Group's commitment to sustainability was awarded the SAM Gold Class Status and the company was also named industry leader.

• DuMont-DWS-Preis: In November 2011, the BMW Group received a further important sustainability award for its performance and activities in this area – the DuMont-DWS-Preis for Verantwortungsbewusstes Wirtschaften (award for responsible operations), which the DuMont-Gruppe and DWS Investments awarded for the first time in 2011.

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STAKEHOLDER DIALOGUE

The BMW†Group engages in ongoing dialogue with its stakeholders at its locations and in relevant markets. This is a very important learning process for our company. As a corporate citizen, we fulfil our responsibility by using targeted dialogue to gain various perspectives and input on relevant topics, to identify trends and key topics at an early stage and to enhance acceptance for our corporate activities and decisions.

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Our main stakeholder groups comprise our customers, employees, business partners and suppliers. But the media, political decision-makers, researchers and associations as well as non-governmental organisations (NGOs) and representatives of the capital market are also among the groups we address.

Dialogue is based on continuous and specific identification and prioritisation of stakeholders at relevant locations, implementation of different dialogue formats and the systematic communication of results to internal departments, the Sustainability Circle and the Sustainability Board. Measures are also derived and the input is further integrated into strategy development processes.

Our "Guidelines on Stakeholder Dialogue at the BMW†Group" form the basis of our ongoing exchanges and set down the targets, processes for identification and prioritisation of our stakeholders as well as the selection of dialogue formats and communication principles.

Our relevant stakeholders are systematically identified and prioritised by mapping them on a regular basis with regard to strategically important topics. In addition, our subsidiaries, our political offices in the different markets as well as our plants engage in regular dialogue with local stakeholders on locally relevant topics. A range of committees and channels also allow specialist departments of the company to contact relevant stakeholder groups directly.

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RESULTS OF 2012 STAKEHOLDER SURVEY

88 German and international experts from NGOs/civil society, politics, research and the sciences, the capital market, business associations/initiatives and media took part in the BMW†Group's 2012 stakeholder survey which took the form of a quantitative online questionnaire evaluating the relevance of sustainability topics among other things.

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The results shows that – from a stakeholder perspective – fuel consumption and CO2 emissions are still most relevant for the automotive industry as a whole as well as for the BMW†Group. Environmental and social standards in the supply chain as well as resource efficiency and recyc≠ling management are also considered very important topics for both the automotive industry and the BMW Group.

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IN DIALOGUE: LOCALLY, GLOBALLY, DIGITALLY

In the period under report, the BMW†Group engaged in dialogue with its stakeholders in regular local and international formats and at specific events. For example, we took part in the United Nations Conference on Sustainable Development (Rio+20) in Rio de Janeiro, Brazil, in summer 2012. At a number of events, the BMW†Group presented its view of the future of mobility and provided the Brazilian government and the United Nations with efficient shuttle-service vehicles such as the BMW 7 Series ActiveHybrid. In addition, we have been intensifying dialogue with our stakeholders since the end of 2011. For example, we held Roundtables in New York and Leipzig in 2011 as well as in Berlin and in Silicon Valley in 2012. The BMW†Group also initiated a stakeholder Roundtable with students in Berlin in 2012. All of these dialogue formats deal with sustainability, and we received valuable feedback regarding our activities.

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By engaging in regular, active and open dialogue with polit≠ical decision-makers, union representatives and associations as well as non-governmental organisations (NGOs), we are fulfilling the task of playing a constructive role in shaping the general political framework for our business activities, offering our expertise, promoting fair competition for all involved and finding sustainable solutions. The BMW†Group's public affairs department ensures that central and strategic corporate decisions are always based on a complete picture of the political and legal situation, and that the requirements of society and government are taken into account in the corporate strategy.

In the BMW†Group's core markets, branch offices carry out public affairs on environmental, financial and socio-political topics and deal with relevant economic policy and industry-specific issues. In the period under report, the main topics in this regard were how to put CO2 regulation into practice, how to deal with trade barriers, fair taxation legislation as well as social challenges such as demographic change and the company's commitment to promoting more women to management positions.

In the period under report, we also continued our traditionally intensive dialogue with capital market representatives by holding road shows and conferences, in particular with invest≠ors and analysts who focus on sustainability. When making their decisions, investors are increasingly focusing on how the BMW†Group integrates aspects of the environment, society and corporate governance into its business model, products and activities. This is particularly true of institutional investors with long-term strategies, such as pension funds.

Communications with stakeholders via social media are playing an increasingly important role. Our BMW†Group Facebook page now has over 105,000 followers. The Facebook page is one of the basic tools used to foster discussion of sustainability with stakeholders as well as to identify new trends and receive feedback on our activities.

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ACTIVITIES, DIALOGUE AND PLATFORMS

  • IN DIALOGUE WITH POLITICAL DECISION-MAKERS

    The representative offices in Berlin, Brussels, London, Washington, D.C. and Beijing are the direct point of contact for political stakeholder groups in our main markets. Over the years, we have entered into long-term dialogue on a range of different topics in the political arena. Between 2010 and 2012, additional representative offices were added in Sacramento, Tokyo, Delhi, Moscow and Seoul, in order to strengthen dialogue with politicians and NGOs in these markets. In addition, the sales organisations of the BMW Group in a further 43 countries are responsible for public affairs.

    A central department in Munich manages political stakeholder communications. This department ensures that public affairs in all areas and all markets worldwide are always in line with our basic corporate strategy and with the positions, guidelines, codices as well as all basic principles and voluntary commitments published by the BMW Group. In addition, we foster continuous dialogue with political decision-makers, not only directly, via our employees, but also by way of membership in a number of national associations such as VDA, bayME or vbm, umbrella associations such as BDI and BDA as well as international industry representative bodies such as ACEA or AUTO ALLIANCE.

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  • IN DIALOGUE WITH INVESTORS IN SUSTAINABILITY

    In 2012 again, a number of individual and group discussions at SRI (Socially Responsible Investment) road shows and conferences in Europe’s financial centres and the USA fostered and further expanded our contacts to sustainably oriented investors and analysts. In this context, we informed stakeholders of current progress in the area of sustainability. The Capital Markets Day on Sustainability, which was held in 2011 for the first time in New York and Munich, was very well received by investors and analysts. Sustainability and mainstream investors also participated in the stakeholder dialogues in Leipzig (2011), Berlin (2012) and Silicon Valley (2012).

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  • IN DIALOGUE WITH OUR EMPLOYEES AND SUPPLIERS

    When it comes to evaluating employee satisfaction, what they think of their working environment, personal development opportunities, corporate culture, and of the BMW Group as an employer, we hold regular Group-wide employee surveys. The next employee survey is scheduled to take place in the first half of 2013. There are also additional dialogue events for employees and managers and we engage in regular dialogue with our suppliers. You can read more here.

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  • IN DIALOGUE WITH LOCAL STAKEHOLDERS

    In addition, we seek to engage in dialogue with our stakeholders and the public via lectures. For example, we held a talk on environmental protection and sustainability at the BMW Group for employees of the energy agency in Regensburg on 28 November 2012. On 15 May 2012, we also presented our Today for Tomorrow project on age-appropriate workplace design as part of the Zukunftsforum Regensburg (Regensburg future forum). We have also engaged in dialogue with various stakeholder groups at our locations in the UK. For example, we discussed future issues of urban mobility with 110 representatives of industry, government, the sciences and NGOs on 26 April 2012 in London. The same topic was the subject of a panel discussion on 13 November 2012 at our MINI plant in Oxford between representatives of NGOs, the government, the sciences and suppliers. 200 representatives from the industry and fleet management companies were in the audience.

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  • IN DIALOGUE WITH STUDENTS – THE OPINION-MAKERS OF THE FUTURE

    In 2012, the BMW Group also launched a Roundtable with students as part of a pilot project in Berlin. 20 students from renowned German universities took part in the Roundtable on 9 July 2012. In three workshops with BMW experts, they discussed the topics of greenwashing vs. credibility, electromobility and transformation of the German energy industry. The students had a completely different perspective on many things than experts from government and industry, giving the BMW Group some valuable input.

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  • BMW GROUP PARTICIPATION AT RIO+20

    A further example of how the BMW Group is positioned on the international political stage as a responsible carmaker is our regular participation in UN climate and sustainability conferences. In summer 2012, the BMW Group clarified its own position on the future of sustainable mobility at a number of events at the UN Conference for Sustainable Development Rio+20. It also provided the Brazilian government and the United Nations with vehicles equipped with Efficient Dynamics technology such as the BMW 7 Series ActiveHybrid. At a special pavilion on the official grounds of the UN conference, employees answered critical questions from delegates, press representatives and the specialist public and held their own events to demonstrate the positive contribution a carmaker can make towards sustainable growth – by creating efficient mobility and environmentally friendly production processes. In addition, at the Rio+20 conference in South Africa, the MINI E and BMW ActiveE were made available to politicians and interested members of the specialist public for the first time in order to let them experience the appeal of sustainable mobility.

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  • OTHER ACTIVITIES

    Worldwide, the BMW Group participates in a large number of initiatives, forums and events with chief executives as well as technical and other experts, organised by government authorities, political parties, scientific organisations and NGOs. Many national and international delegations from government and industry come to our company each year to inform themselves about the latest technological developments and the BMW Group's strategic direction. This can take on a variety of forms, from bilateral visits to regular dialogue with representatives of government and industry.

    For example, to demonstrate the potential and challenges of electromobility in practice and explain what needs to happen in terms of policy, the BMW Group has collaborated with public authorities to carry out comprehensive field tests with electric vehicles such as the MINI E and the BMW ActiveE. In markets where BMW Group electric vehicles have covered over 21 million kilometres in field tests, the information and experience gathered is shared with government, authorities and scientific institutions and can thus be integrated directly into future framework policy.

    The BMW Group also plays a central role in the National Platform for Electric Mobility (NPE), a German government advisory committee on electromobility founded by German Chancellor Angela Merkel in 2010. This platform aims to push for progress on electromobility, create a lead market for it in Germany and speed up the introduction of innovative electric vehicles onto the market. Here again, the BMW Group provides the government with its knowledge and research results and actively helps shape political framework conditions via its established political network.

    In addition, BMW Group representatives have taken part in panel discussions of the World Business Council for Sustainable Development and Union Investment on the topic of sustainability.

    We also carried out a Perception Study to ask investors about their understanding of the financial aspects of sustainability communications and integrated the results into the further development of our SRI communications.

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MEMBERSHIPS AND NETWORKS

Through a large number of memberships, we engage in dialogue with other organisations and work towards more sustainability, in particular in the following initiatives, networks and associations.

• World Business Council for Sustainable Development (WBCSD)
• United Nations Global Compact LEAD Platform
• Global Compact Network Germany
• econsense – the Forum for Sustainable Development of German Business

• German Chamber of Industry and Trade/Chambers of Industry and Trade (DIHK / IHK)
• National Platform for Electric Mobility (NPE)
• Federation of German Industry (BDI)
• Confederation of German Employer Organisations (BDA)
• European Research Group on Environment and Health in the Transport Sector (EUGT)
• Association of the Bavarian Economy (vbw)

• European Automobile Manufacturers' Association (ACEA)
• AUTO ALLIANCE
• Employers' Associations for the Bavarian Metalworking and Electrical Industries (bayme)
• German Association for the Automotive Industry (vda)

In order to continuously develop our understanding of sustainability, we also participated in the following conferences, networks and projects in the period under report:

• BMW Group was the main sponsor of the Regeneration Roadmap, a project by SustainAbility and GlobeScan which creates specific solutions for sustainable development as well as global challenges for the economy and demonstrates what leadership in corporate sustainability will mean in the future

• UN Global Compact LEAD event: Symposium in Berlin in autumn 2011 and as part of Rio+20

• World Business Council for Sustainable Development Participation in conferences and co-initiator of the Sustainable Mobility Project II

• econsense (Forum for Sustainable Development of German Business): Participation in a range of working groups (making sustainability measurable, supply chain, human rights)

STAKEHOLDER ROUNDTABLES IN THE USA AND GERMANY

NEW YORK

LEIPZIG

BERLIN

SAN FRANCISCO

3 October 2011, Guggenheim Lab: In three workshops, individual mobility was discussed with 35 representatives from government, associations, industry, the capital market, the sciences and non-governmental organisations (NGOs). The focus of these discussions was on the requirements electric vehicles will have to fulfil in order to play a role in individual and sustainable mobility in the future and how changing mobility needs in urban areas will create new opportunities for mobility services.

21 November 2011, BMW plant Leipzig: Following on from the Roundtable in New York, we discussed such topics as sustainable urban mobility and the role of energy in the manufacturing and utilisation phase with 15 stakeholders from different areas.

10 July 2012, BMW plant Berlin: 21 international experts from various areas accepted our invitation to enter into a European dialogue. Some of the topics of discussion were: What are the main sustainability trends in the coming years? How can we better implement our vision of becoming the most sustainable carmaker?

27 November 2012, BMW Group Technology Office: Following on from the dialogue in Berlin, 31 participants from government, NGOs, the sciences, the capital market and think tanks continued the discussion of sustainable leadership, mobility services and energy.

RISK MANAGEMENT

Increasing internationalisation of our activities in all our business areas, ever more intense competition and technological challenges are both an opportunity and a risk for the BMW†Group. These are evaluated at an early stage by a Group-wide risk management system so that we can install the appropriate risk control measures.

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To ensure our success as a company, we utilise the opportun≠ities we are presented with by applying our Strategy Number ONE. To guarantee growth, profitability and sustainable operations, the BMW†Group takes calculated risks in many areas.For this reason, it is essential to have a permanent risk management process in place to rapidly evaluate and take account of changes in policy and legislation as well as in general technical and economic conditions or within the company.

The BMW†Group has a risk management system in place throughout the company to identify and analyse opportun≠ities and risks early on as well as to apply the appropriate control and monitoring measures. Risk Management is controlled by the central Finance Division, but is set up at local level as a Group-wide network of risk management officers in order to raise awareness of how to deal with risk in a balanced and appropriate manner at all levels of the organisation. The Corporate Audit Department carries out regular audits in this area.

The network structure is officially mapped as part of the organisation. Ownership, responsibilities and tasks are allocated to the network. Integration into the organisational structure enhances transparency and emphasises the import≠ance of risk management within the BMW†Group. The risk management process is based on the criteria of effectiveness, functionality and completeness. Risk Management also works in close cooperation with the Compliance Committee, the internal control system and the Corporate Audit department.

The risks identified at local level by the divisions and departments are presented to the Risk Management Circle on a regular basis. If fundamental risk or risk that would present a threat to the company arises, this is reported to the Board of Management and Supervisory Board. Opportunities and risks in the area of sustainability are discussed by the Sustainability Circle. The resulting strategic options and measures that can be taken for the BMW†Group are presented to the Sustainability Board, which includes all members of the Board of Management. New aspects of risk are integrated into the Group-wide risk network. The Steering and Sustainability Circles have been merged to guarantee a close interplay between risk and sustainability management.

Regular dialogue with other companies on their experience with risk management ensures that new developments are integrated into the BMW Group's risk management system. Regular seminars, further training courses and informative events at the BMW Group play a fundamental role in preparing those involved in the process to deal with new or additional requirements. For example, all employees who work with personal data take part in a Web-based training course on data protection at the BMW Group.

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  • POLITICAL AND GLOBAL ECONOMIC RISKS

    In today's global economy, increasing connectivity and fiercer competition are multiplying the risk of immeasurable chain reactions and knock-on effects. Growing interdependence of international economic cycles intensifies this risk. General concern about the stability of the European and global financial system and how the euro and sovereign debt crises are going to develop is another challenge the BMW†Group is currently facing.

    Other geopolitical and global risks are the danger of a slowdown in growth in China, a sovereign debt crisis in the USA and political instability in the Middle East and parts of Asia as well as protectionist tendencies in some countries.

    An escalation of political tension as well as terrorist activities, natural catastrophes or pandemics can lead to scarcity of resources as wells as production downtime due to problems with material and parts delivery. The impact this has on the global economy and the international capital markets can also lead to indirect effects on the business performance of the BMW Group.

    The BMW Group confronts these risks by expanding its international network of sales and production locations.

    You can find more information about the political and global economic risks the BMW†Group faces in our Annual Report.

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  • ENVIRONMENTAL RISKS

    The BMW†Group minimises natural and environmental risks by implementing a number of technical and organisational measures. These range from fire prevention measures to direct emergency communications in case of fire. To avoid negative ground impact and groundwater pollution, the BMW†Group has developed and implemented appropriate preventive strategies and initiatives. When choosing a new site for a facility, we analyse the effects of climate change in the region and the risk factors associated with it.

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  • STRATEGIC AND INDUSTRY-SPECIFIC RISKS

    The demands placed on the automotive industry worldwide are also increasing with regard to reduction of fuel consumption and safety. Government intervention into activities that have an impact on climate change is intensifying. Resulting regulations (e.g. city tolls or CO2 taxes), trends in fuel prices as well as changing values and environmental influences all have an impact on customer behaviour. We are facing these challenges and increasing our competitiveness with our Efficient Dynamics concept and by developing sustainable drivetrain technologies. Lightweight construction is also part of our Efficient Dynamics programme and plays a fundamental role in fulfilling our corporate objectives. Risks that arise in connection with the statutory requirements for vehicle return and recyc≠ling are minimised by consistently applying Design for Recyc≠ling in product development. The safety of our customers as well as other road users is an integral part of product responsibility at the BMW†Group. We are implementing technologies and measures to promote both active and passive safety and mitigate the effects of accidents.

    In addition to emissions reduction, another challenge facing the BMW Group is the fact that some megacities are now restricting traffic. Changes made to legislation and regulations on short notice present a fundamental risk. These can lead to increases in capital expenditure and budget requirements to deal with the new requirements. Changes in customer behaviour, however, are not only caused by new regulations but also by new attitudes, values and environmental influences. Global climate change also has an impact on legislation, regulations and customer behaviour. Young people in particular have a different understanding of individual mobility than previous generations. Today, it is no longer linked to vehicle ownership. Appropriate measures have to be taken to confront this risk. We are facing the structural changes in demand for individual mobility by offering a range of mobility services.

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  • OPERATIONAL RISKS

    Production
    Risks from production standstills, whatever their cause, are a fundamental threat for the BMW†Group. In addition to risks caused by the elements such as fire, flooding and energy or IT outages, problems with logistics and parts supply (suppliers not able to deliver) can also result in production risk.

    Our flexible global production systems and our working time models contribute to reducing risk, as does the consideration of environmental and social risks when selecting new production locations. Risks from operational and production standstills due to the elements are also covered by policies with insurance companies that have high levels of credit≠worthiness. The production and logistics systems are designed to prevent risk or reduce it in case of loss.

    Purchasing
    The division of labour between manufacturers and suppliers in the automotive industry brings economic benefits on the one hand, but also makes them mutually dependent on the other. For example, suppliers cooperations are increasingly joining forces to develop critical future technologies. Location risks at our supplier companies are playing an increasingly important role in preventive risk management for purchasing decisions. To enhance transparency, we evaluate all of our supplier locations with regard to natural threats such as flooding or earthquakes. Then we take the measures needed to reduce the risk to parts supply. Standards to manage sustainability risk are in place at our supplier companies.

    Sales
    The regional and structural character of vehicle demand and related services is constantly changing. The sales and production processes of the BMW Group are flexibly designed to ensure that the opportunities resulting from these changes can be leveraged to meet demand effectively. We also offer new, attractive sales promotion and other services tailored to demand behaviour.

    Workforce
    For many years, we have been in a good position when it comes to the competition for skilled workers and managers. Satisfied and motivated employees are a key success factor for the BMW Group. The further development of next-generation programmes focusing on our target groups and the design of consistently attractive HR development measures play a key part in finding, keeping and promoting highly qualified employees. This is how we reduce the risk of losing important expertise.

    Demographic developments will have a long-term impact on labour markets. The BMW Group is addressing the consequences of this for the company. We are focusing in particular on designing our working environment for the future, promoting and maintaining performance and employability, training and reinforcing our employees' capacity to work on their own initiative, and time models tailored to suit employees throughout their working careers.

    The BMW Group promotes diversity in its workforce, as heterogeneous teams perform better and are more innovative. Both male and female employees with different cultural backgrounds and from different age groups ensure that the focus is kept on the customer in existing and new sales markets worldwide.

    Information, data protection and IT risks
    Protection of personal rights, business secrets, innovative developments and process data against unauthorised access, destruction and abuse is a high priority. Protection of information and data is an integral part of our business processes, and we comply with the international security standard ISO / IEC 27001. Employees, process design and information technology are integrated into our comprehensive risk and security management system.

    The Group-wide regulations are part of our corporate principles and are also documented in detailed instruction manuals. They compel employees to treat information, customer and employee data with care, to be secure in their use of information systems and to deal with IT risks in a transparent manner. Regular communications, awareness-raising and training measures (e.g. online training on information and data protection) increase understanding of the issues for everyone involved. In addition, our employees are also trained by the compliance organisation to comply with statutory and regulatory requirements.

    Risk Management regularly monitors both IT risk as well as data protection risks resulting from information processing, and this process is supervised by the responsible departments.

    In cooperation and partnership projects, we protect our intellectual property as well as customer and employee data by way of clearly defined requirements on information and data protection as well as on utilisation of information technology. Information relating to core competencies is subject to particularly rigorous security measures.

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  • FINANCIAL RISKS

    The BMW†Group sells around 85% of its vehicles outside Germany. At the same time, materials and finished parts are purchased in foreign currencies. The BMW†Group takes both a strategic (medium and long-term) and an operational (short and medium-term) approach to minimising the resulting currency risks.

    Availability of certain raw material groups as well as changes in raw material prices represent a significant risk for the BMW†Group. To secure supply of production material and to reduce cost risks, raw material markets are monitored and analysed on an ongoing basis.

    Controlling liquidity risk secures the BMW†Group's financial solvency at all times. When strategic and industry-specific risks, risks from operational business and financial risks occur, they have a direct or delayed impact on the liquidity situation of the BMW†Group.

    Currency risks result from vehicle sales outside the euro area. The share of the three currencies Chinese renminbi, US dollar and pound sterling in the overall foreign currency risk structure of the BMW Group was around two thirds in 2012.

    Financial derivatives hedge against price risks for precious metals such as platinum, palladium and rhodium as well as nonferrous metals such as aluminium, copper, lead and some steel and basic steel substances such as iron ore. Additional security is provided through medium and long-term supply agreements with fixed prices for raw materials such as steel and synthetic materials.

    Price trends in crude oil, which is a basic material for our components, have an indirect impact on our production costs. In addition, the price of crude oil has an impact on currencies as well as on fuel prices, which have a direct influence on customer demand for our vehicles. The BMW Group confronts this risk by developing and offering highly efficient and low-consumption engines as well as alternative drive train technologies.

    Based on lessons learned from the financial crisis, a modified target liquidity concept was created some years ago and is complied with at all times. In addition to maintaining liquidity reserves, Group-wide liquidity is secured by a broad spread of refinancing sources.

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  • LEGAL RISKS

    Responsible action in compliance with legislation is one of the basic prerequisites for our success. Applicable law forms the binding framework for our diverse business activities. Increasing internationalisation of the BMW Group's business activities, general economic conditions as well as the large number and complexity of legal regulations and taxation lead to a situation in which there may be violations due to ignorance of the law. Several years ago, the BMW Group set up a compliance organisation to ensure that its entities, managers and employees comply with the law.

    Like all companies, the BMW Group is or could be confronted with legal disputes with regard to guarantees, product liability, breaches of property rights and legal proceedings regarding claims of legal violations. These can also have an effect on the reputation of the Group and are mainly procedures that are typical of the industry or result from the adaptation of our product or purchasing strategy to changing market conditions. In the US market in particular, class actions and product liability risks can have a considerable impact on the company's finances and reputation.

    The BMW Group makes sufficient provisions for legal proceedings. If it makes economic sense, a share of the risk, in particular on the US market, is also covered by insurance policies. However, some risks can only be evaluated to a limited extent or not at all. In spite of precautionary measures taken, risk may still occur which is not or not completely covered by insurance policies or provisions. The high quality standard of our products, which is secured by way of regular audits and continuous improvement measures, also reduces risk. This may give us a comparative competitive edge and generate opportunities. The BMW Group is currently not involved in any court or arbitration proceedings which would have a significant influence on the financial situation of the Group.

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COMPLIANCE AND CORPORATE GOVERNANCE

Responsible and lawful conduct is fundamental to the success of the BMW†Group. At the same time, it is an integral part of our corporate culture. The Board of Management and all BMW†Group employees are obliged to act responsibly and in compliance with applicable laws and regulations. This principle has been embedded in the BMW Group's internal rules of conduct for many years.

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In order to protect the BMW Group systematically against compliance-related and reputational risks, the Board of Management created a Compliance Committee back in 2007, mandated to establish a worldwide Compliance Organisation throughout the BMW†Group. The BMW†Group Compliance Committee comprises the heads of the following departments: Legal Affairs, Corporate and Governmental Affairs, Corporate Audit, Organisational Development and Corporate Human Resources. It manages and monitors activities necessary to avoid non-compliance with the law (legal compliance). These activities include training, informational and communication measures, compliance controls and following up cases of non-compliance. The BMW†Group Compliance Committee reports regularly to the Board of Management and Supervisory Board on all compliance-related issues.

The decisions taken by the BMW†Group Compliance Committee are drafted in concept and implemented operationally by the BMW†Group Compliance Committee Office. The BMW†Group Compliance Committee Office is allocated in organisational terms to the Chairman of the Board of Management. Around 200 Compliance Responsibles are integrated into the Compliance Organisation. They regularly report on the compliance status in the different units as well as on any legal risks or infringements and correctional or preventive measures taken.

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  • AVOIDING ANTITRUST AND CORRUPTION RISKS

    Compliance Management in the BMW†Group has instruments and measures in place to ensure that the Group, its representative bodies and all employees act in a lawful manner. Particular emphasis has been placed on compliance with antitrust legislation and the avoidance of corruption risks. Compliance measures are supplemented by a whole range of internal policies, guidelines and instructions, which in part reflect applicable legislation. The BMW†Group Policy "Corruption Prevention" deserves particular mention: This document sets out the framework for dealing with gifts, hospitalities and other benefits in compliance with the law and defines appropriate value limits and approval procedures for specified actions.

    Compliance measures are determined and prioritised on the basis of an annually updated Group-wide compliance risk assessment covering 250 business units and functions worldwide within the BMW†Group. Since 2012, measures are realised with the aid of a regionally structured compliance management team covering all parts of the BMW†Group.

    The BMW†Group Legal Compliance Code is the cornerstone of the Group's Compliance Organisation, spelling out the Board of Management's acknowledgement of the fact that compliance is a joint responsibility ("tone from the top"). This document explains the significance of legal compliance and provides an overview of the various areas relevant for the BMW†Group. It is available in German and English as well as eleven other languages.

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  • COMPLIANCE AS A MANAGEMENT TASK

    Managers in particular bear a high degree of responsibility and must be a role model in the process of preventing infringements. Managers throughout the BMW†Group accept this principle by signing a written declaration, in which they also undertake to inform staff working for them of the content and significance of the Legal Compliance Code and to make staff aware of legal risks.

    More than 16,500 managers and staff have received training worldwide in essential compliance matters since the introduction of the BMW†Group Compliance Organisation. Participation in the training programme is mandatory for all BMW†Group managers. Appropriate processes are in place to ensure that all newly recruited managers and promoted staff undergo compliance training. In this way, the BMW†Group ensures full training coverage for its managers in compliance matters. In addition to this basic training, in-depth training is also provided to certain groups of staff in specific compliance issues, for example on competition and antitrust law.

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  • QUERIES AND INFORMATION

    In order to avoid legal risks, all members of staff are expected to discuss matters with their managers and with the relevant departments within the BMW†Group, in particular Legal Affairs, Corporate Audit and Corporate Security. As a further point of contact, the BMW†Group Compliance Contact has also been set up both for employees and non-employees to answer any questions that may arise regarding compliance. Employees also have the opportunity to submit information – anonymously and confidentially – via the BMW†Group SpeakUP Line about possible breaches of the law within the company.

    The BMW Group SpeakUP Line is available in a total of 34 languages and can be reached via local free-of-charge telephone numbers in all of the countries in which BMW Group employees carry out activities.

    Compliance-related queries and all matters to which attention has been drawn are documented and followed up by the BMW Group Compliance Committee Office using an electronic Case Management System. If necessary, Corporate Audit, Corporate Security, the Works Council and Legal Affairs may be called upon to assist in the investigation process.

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  • CONTROLS AND FOLLOW-UP MEASURES

    Compliance with and the implementation of the Legal Compliance Code are audited regularly by Corporate Audit and subjected to control checks by Corporate Security and the BMW†Group Compliance Committee Office.

    As part of its regular activities, Corporate Audit carries out on-site audits. The BMW†Group Compliance Committee also engages Corporate Audit to perform compliance-specific tests. In addition, sample checks (BMW†Group Compliance Spot Checks) specifically designed to identify potential risks of corruption are carried out. Compliance control activities are coordinated by the BMW†Group Panel Compliance Controls, established in 2011. Any necessary follow-up measures are organised by the BMW†Group Compliance Committee Office.

    It is essential that employees are aware of and comply with applicable regulations. The BMW Group does not tolerate violations of law by its employees. Culpable violations of law result in employment-contract sanctions and may involve personal liability consequences for the employee involved. The BMW Group reports on legal infringements in its Annual Report if the events in question could be of interest for shareholders, analysts and other stakeholders due to economic consequences. We are not aware of any such infringements having occurred in the period under report.

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  • COMMUNICATIONS

    In order to avoid violations of law, employees are kept fully informed of the instruments and measures used by the Compliance Organisation. The central means of communication is the Compliance website within the BMW†Group's intranet, where employees can find compliance-related information and FAQs, and also have access to training materials in both German and English. The website contains a special service area where various practical tools and aids are made available to employees that help them to deal with typical compliance-related matters, for example an electronically supported approval process for invitations in connection with business partners.

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  • BMW GROUP BUSINESS RELATIONS COMPLIANCE

    In the same way that the BMW†Group is committed to acting responsibly and conducting business in full compliance with the law, it also expects no less from its business partners. In the year under report, the BMW†Group developed a new Business Relations Compliance programme aimed at ensuring the reliability of its business relations. Relevant business partners are checked and evaluated with a view to identifying potential compliance risks.

    These procedures are particularly relevant for relations with sales partners and service providers such as agencies and advisers/consultants. Depending on the results of the evaluation, appropriate measures – such as communication measures, training and possible monitoring – are implemented to manage compliance risks. The Business Relations Compliance programme was introduced in selected pilot markets in 2012 and, over the coming years, will be rolled out successively throughout the BMW Group's worldwide sales organisation.

    Cooperation with employee representatives
    Compliance is also an important factor in terms of safeguarding the future of the BMW Group's workforce. With this in mind, the Board of Management and the national and international employee representative bodies of the BMW Group signed a set of Joint Principles for Lawful Conduct in 2009. In doing so, all parties involved gave a commitment to the principles contained in the BMW Group Legal Compliance Code and to trustful cooperation in all matters relating to compliance. Employee representatives are therefore regularly involved in the process of developing compliance systems within the BMW Group.

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  • CORPORATE GOVERNANCE

    The BMW†Group manages its business in accordance with principles of responsible corporate governance geared to long-term value creation. In 2002, it confirmed its commitment to these principles in its own Governance Code. Based on the German Corporate Governance Code (GCGC), this document is regularly updated. You can find more information in the Annual Report under "Statement on Corporate Governance".

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FORECAST

  • STAKEHOLDER DIALOGUE

    We intend to continue fostering dialogue with our stakeholders. We aim to integrate even more stakeholder input into the further development of our strategy – but also to communicate openly with our stakeholders to give them a more realistic view of what they can expect in specific areas.

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  • RISK MANAGEMENT

    In the future, both the global economy and our own corporate processes will become even more complex. We must therefore further optimise the interplay between risk management, strategy and dialogue with external partners in society.

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  • COMPLIANCE AND CORPORATE GOVERNANCE

    In the coming financial year, the BMW†Group plans to examine the possibility of certifying the compliance management system and will create a concept to avoid compliance risks when preparing and implementing events. It will also integrate compliance aspects into its international employee survey.

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