ABB Ltd

Annual Report • Feb 28, 2023

ABB Ltd This document includes the following reports: – Integrated Report 2022 – Corporate Governance Report 2022 – Compensation Report 2022 – Financial Report 2022 — About ABB ABB is a technology leader in electrification and automation, enabling a more sustainable and resource-efficient future. The company’s solutions connect engineering know-how and soft- ware to optimize how things are manufactured, moved, powered and operated. Building on more than 130 years of excellence, ABB’s ~105,000 employees are commit- ted to driving innovations that ac- celerate industrial transformation. — Key figures at a glance $ in millions, unless otherwise stated FY 2022 FY 2021 Change Comparable 1 FINANCIAL Orders 33,988 31,868 7% 16% Order backlog (end December) 19,867 16,607 20% 29% Revenues 29,446 28,945 2% 12% Income from operations 3,337 5,718 -42% Operational EBITA 1 4,510 4,122 9% 18%2 as % of operational revenues 15.3% 14.2% +1.1 pts Income from continuing operations, net of tax 2,637 4,730 -44% Net income attributable to ABB 2,475 4,546 -46% Basic Earnings per share ($) 1.30 2.27 -43% 3 Dividend per share (in CHF) 0.84 4 0.82 0.02 Cash flow from operating activities 5 1,287 3,330 -61% Cash flow from operating activities in continuing operations 1,334 3,338 -60% Net (cash) debt (end December) 1 2,779 (98) ENVIRONMENTAL 6 Energy consumption (GWh) 1,417 1,505 -6% Renewable energy consumption (%) 52 33 +18 pts Own operations emissions scope 1 and 2 (kt CO 2 e) 223 390 -43% Total waste sent to landfill (kilotons) 11.6 12.3 -6% SOCIAL AND GOVERNANCE Total number of employees (FTE) 105,100 104,400 0.7% Women in workforce (%) 7 28 27 +1 pts Women in senior management positions (%) 7 17.8 16.3 +1.5 pts Community spending 10.2 10.9 -6% 1 For non-GAAP mea - sures, see the chapter “ Alternative perfor - mance measures” in the appendix of this report. 2 Constant currency (not adjusted for portfolio changes). 3 EPS growth rates are computed using un - rounded amounts. 4 Proposed by the Board of Directors and subject to approval by share - holders at the Annual General Meeting on March 23, 2023, in Zu - rich, Switzerland. 5 Amount represents total for both continu - ing and discontinued operations. 6 Figures are adjusted for portfolio changes. 7 Percentages calculated using headcount data. ABB SUSTAINABILITY RATINGS 2022 CDP CLIMATE CHANGE CDP WATER S&P GLOBAL ESG SCORE ECOVADIS A- B- 69/100 1 Gold 1 Sustainability Yearbook Member (within the top 15% of industry). 2 Prime status. 3 Low risk exposure and management of material ESG issues is strong. → More information about our sustainability ratings can be found in our Sus - tainability Report 2022. ISS ESG MSCI SUSTAINALYTICS B-2 AA 15.73 3 Next chapter 01 02 00 — Table of contents 24 Value creation 26 Who we are 32 Our purpose 36 Our strategy and objectives 46 How we create value 52 Our operating model – the ABB Way 74 Stakeholder engagement and material topics 78 Risks and opportunities 80 Our changing world 86 Risk and opportunity management 94 TCFD Recommen- dations report 6 About this report 8 Important milestones in 2022 10 Performance highlights 14 Chairman’s letter 18 CEO interview 4 Tap on the image to go to the chapter 03 04 06 05 104 Performance 106 We deliver financial performance 124 We create value through world-class technology 132 We enable a low- carbon society 140 We preserve resources 146 We promote social progress 156 We create a culture of integrity and transparency along the extended value chain 166 Corporate Governance summary 168 Governance 170 Board of Directors 176 Executive Committee 194 Appendix 196 Consolidated financial information 200 Alternative performance measures 204 Key terms 180 Compensation summary 182 Extracts from Compensation Committee Chair Letter 184 Board compensation 185 Executive Committee compensation 190 Sustainability considerations in ABB’s compensation 191 Employee remuneration 5 Next chapter ABB’s Integrated Report highlights progress against our strategy and demonstrates how we create value holistically for our stakeholders in the short-, medium- and long-term. As our primary report at Group level, this report is aimed at our shareholders, customers, suppliers, partners and employ - ees. It integrates the most important ma - terial information about our company’s fi - nancial and sustainability performance and is published in conjunction with our addi - tional, separate reports. The scope of the data in this report covers our operations worldwide and provides an overview of fi - nancial and sustainability-linked perfor - mance for the full calendar year 2022 or re - flects the status as of December 31, 2022. Our Integrated Report contains five main sections: • Value creation • Risks and opportunities • Performance • Corporate Governance summary • Compensation summary As a global company with stock exchange listings in Switzerland, Sweden and the United States, we adhere to interna - tionally recognized standards and frame - works. This Integrated Report is based on elements of the International Integrated Reporting Framework. Our financial state - ments are prepared in accordance with US GAAP. Sustainability information is provided in accordance with the GRI Standards and also covers the SASB — About this report Standards, the TCFD (Task Force on Climate-Related Financial Disclosures) Recommendations, the EU Taxonomy and the 10 principles of the UN Global Compact. In addition to performance measures prepared in accordance with recognized accounting standards, we use alternative (non-GAAP) measures deemed useful in evaluating ABB’s operating results. Please refer to “Supplemental Reconciliations and Definitions” in ABB’s Q4 2022 Finan - cial Information. In this integrated report, we cover topics that are relevant for ABB’s value creation for our stakeholders, including our contri - bution towards broader societal targets as outlined, for example, in the UN Sus - tainable Development Goals. For a full pic - ture of our performance and the value we have created, please consult our entire annual reporting suite on the ABB web - site as follows: • Integrated Report 2022 • Financial Report 2022 • Corporate Governance Report 2022 • Compensation Report 2022 • Sustainability Report 2022 • Form 20-F (filed with US SEC, also in iXBRL format) Our Integrated Report is translated into German (the original English version is binding). For environmental reasons, only a small number of copies of the In - tegrated Report are printed. All other re - ports are published as PDF only. 6 ABB INTEGRATED REPORT 2022 7 Next chapter ≡ Table of contents — Important milestones in 2022 Acquired a controlling interest in InCharge Energy, strengthening EV CHARGING presence in the United States. Adopted the UNITED NATIONS WOMEN’S EMPOWERMENT PRINCIPLES to promote gender equality and women’s empower- ment in the workplace, market- place and community. Completed the share buyback program 2021–2022 and launched new share buyback program of up to $3 BILLION . Acquired a controlling interest in NUMOCITY , leading digital platform for electric vehicle charging in India. Raised more than CHF 2.2 million in EMPLOYEE AND GROUP DONATIONS to support humani- tarian aid efforts in Ukraine. Announced the acquisition of Siemens’ low-voltage NEMA motor business, to strengthen presence in North America. Acquired POWERTECH CON- VERTER , leading supplier of auxiliary power converter solutions for light rail vehicles and metros, headquartered in Berlin, Germany. Completed the sale to Hitachi of ABB’s remaining 19.9 percent equity stake in the HITACHI ENERGY JOINT VENTURE that was formed from ABB’s Power Grids business in 2020. 8 ABB INTEGRATED REPORT 2022 SPUN OFF TURBOCHARGING DIVISION , creating a new public company, Accelleron; shares started trading on the Swiss stock exchange on October 3, 2022. Acquired ASKI ENERGY of Austria, leading provider of energy optimization and control solutions that help customers reduce energy costs. Announced a NEW SUPPLY CHAIN EMISSIONS TARGET covering main tier-one suppliers to achieve a 50 percent reduction in their emissions by 2030. Achieved a 43% REDUCTION IN SCOPE 1 AND 2 GHG EMISSIONS compared to previous year, and 65 percent reduction compared to 2019 baseline. Became the OFFICIAL SUPPLIER OF FAST CHARGERS to the ABB FIA Formula E World Championship. E-MOBILITY BUSINESS raised approx. CHF 525 million in a private placement, completed in February 2023, to support growth journey. Announced the full and final settle- ment with US, South African and Swiss authorities for the legacy KUSILE PROJECT awarded to ABB in 2015. 9 Next chapter ≡ Table of contents — Performance highlights Target (annual average through economic cycle1) Target (as from 2023) 2022 performance 2022 performance 4–7 % ≥15% 12 % 15.3 % — Revenue growth — Financial targets and performance — Operational EBITA margin 2 Target 2022 performance 15–20 % 16.5% — ROCE (Return on Capital Employed) 2 10 ABB INTEGRATED REPORT 2022 Target 2022 performance ~100 % -43% 27 % — FCF (free cash flow) conversion to net income 2 EPS — Basic EPS (earnings per share) growth 1 Calculated to exclude FX impacts and trans - formational acquisi - tions and divestments, includes bolt-on acquisitions and divestments within divisions. 2 For non-GAAP measures, see the chapter “Alterna - tive performance mea - sures” in the appendix of this report. 3 Includes adverse impact from charges triggered by the exit of the legacy full-train retrofit busi - ness in non-core opera - tions and the provision related to the legacy Ku - sile project in the cur - rent year as well as the impact of the book gain related to the divestment of the Mechanical Power Transmission in 2021. Target (growth > revenue growth) Basic EPS growth 3 11 Previous chapter Next chapter ≡ Table of contents reduction of own scope 1 and 2 GHG emissions since 2019 Target finalized and published in October 2022 and measurement of baseline and performance in progress 65 % Target established — We enable a low-carbon society 1 — Selected sustainability targets and performance Target: Carbon neutrality in own operations and own scope 1 and 2 GHG emissions reduced by at least 80% by 2030 compared with baseline year 2019 Target: Scope 1 and 2 GHG emissions of main tier-one suppliers covering 70% of our annual procurement spend re - duced by 50% by 2030 com - pared to baseline year 2019 reduction of waste to landfill compared to 2019 baseline 32 % — We preserve resources Target: Zero waste to land - fill by 2030, where compatible with local conditions 1 As we intend to have our targets validated against the Science Based Targets initia - tive’s new Net-Zero Standard, we are no longer focusing on a limited amount of cases linked to the 100 megatons emis - sions’ avoidance but rather on our com - plete portfolio of offerings. reduction in lost-time injury frequency rate (LTIFR) since 2019 employee engagement score (out of 100) of spending on high-risk suppliers in focus countries covered by Sustainable Supply Base Management (SSBM) women in ABB senior management 42 % 76 22 % 17.8 % — We promote social progress — We create a culture of integrity and transparency Target: Zero harm is caused to our people and contractors - yearly reduc - tion in lost time from inci - dencts (LTIFR value = 0 by 2030) Target: Increase propor - tion of women in senior management roles to 25% by 2030 Target: Reach a top-tier employee engagement score Target: At least 80% of spending on high-risk suppliers in focus coun - tries covered by Sustain - able Supply Base Man - agement (SSBM) by 2025 13 Previous chapter Next chapter ≡ Table of contents Dear shareholders, I am pleased to present ABB’s first inte - grated report, which explains how our company purpose enables us to drive performance and create value for our stakeholders. The report shows how the various parts of our global company fit together to deliver improved finan - cial results while contributing to a more sustainable society. It also provides an overview of the external environment in which we are operating and how we in - tend to meet our targets in the short-, medium- and long-term. Naturally, the report also covers our performance over the past year and it is these achieve - ments that make me most proud and confident in our team’s ability to deliver on our ambitious financial and sustain - ability targets in the years ahead. In 2022, we as a society faced many challenges – economic, environmental, political and social. The most extreme was of course the devastating war in Ukraine, which resulted in a mass exodus of refugees as well as terrible suffering in the country itself. Beyond Ukraine, the war triggered the energy crisis in Europe, — Chairman’s letter — Delivering performance through purpose 14 ABB INTEGRATED REPORT 2022 “Thanks to our clear purpose, strong team and leading technologies, we have delivered improved performance while supporting the shift to a more sustainable society.” PETER VOSER Chairman of the Board of Directors 15 Previous chapter Next chapter ≡ Table of contents food shortages in many of the world’s poorest countries, and contributed to ris - ing inflation, which is undermining eco - nomic growth as businesses’ and house - holds’ spending power is reduced. I am extremely proud of the way that our people at ABB supported those affected by the war through fundraisings and di - rect help on the ground. In response to the war and related international sanc - tions, we also took the decision to exit the Russian market. Here again, we did our utmost to support our Russian col - leagues as we realigned our operations. The resulting energy crisis is transform - ing global energy markets and has high - lighted the need for a more secure and sustainable energy system. With our lead - ing electrification and automation tech - nologies, ABB is in a strong position to help our customers improve energy ef - ficiency and support the transition to a sustainable and resource-efficient future, in line with our company purpose. In spite of the war and ongoing supply chain challenges, we delivered strong order and revenue growth in 2022 and achieved our long-term margin target one year early. Orders were up by 16 per - cent, revenues rose by 12 percent and we increased our Operational EBITA to $4.51 billion, delivering a margin of 15.3 per - cent. These results put us well on course to meet our 2023 financial targets. Our earnings per share declined by 43 per - cent to $1.30, largely due to a book gain related to the divestment of the Mechani- cal Power Transmission business in 2021. In line with our policy of paying a ris - ing sustainable dividend over time, we will be proposing a dividend of CHF 0.84 per share to be voted on at ABB’s annual general meeting on March 23, 2023. We also made significant progress in re - ducing ABB’s environmental footprint and contributing to a more sustain - able society. We reduced our own green - house gas (GHG) emissions by 43 percent in 2022 by sourcing more power from renewables, improving energy efficiency at our sites and increasing the number of electric vehicles (EV) in our fleet. We con - tinue to support our customers and sup - pliers in their effort to reduce their own emissions. Longer-term, as a global technology company with operations in more than 100 countries, we at ABB have an import - ant role to play in helping our customers and communities adapt to challenges and megatrends in our economy and so - ciety. The most pressing of these is cli - mate change, but increasingly we are fac - ing other environmental challenges such as waste disposal and resource deple - tion, which can only be solved by moving towards a circular economy. On top of that, the nature of work and production is being reshaped by demographics and technology as well as changing public 16 ABB INTEGRATED REPORT 2022 attitudes towards the role of corpora - tions in society. At ABB, these shifts have helped to de - termine our company purpose as well as our operating model and strategy. We put our purpose of enabling a more sustainable and resource-efficient future through our leadership in electrification and automation at the heart of every - thing we do. To drive a performance cul - ture and strengthen our position in key markets and segments, operating deci - sions are made in the divisions close to the customer and we pursue a strategy of active portfolio management. In 2022, we acquired strong companies that will improve our technology and market leadership in EV charging and low-voltage electric motors, as well as expand our presence in the rail segment. To further drive our leadership in EV charging, our E-mobility business raised approximately CHF 525 million in a pri - vate placement, the second and final part of which was completed in February 2023. We plan to list our E-mobility busi - ness on the Swiss stock exchange when market conditions are favorable, with ABB retaining a majority shareholding. In line with our portfolio management strategy of divesting businesses that no longer fit with our strategic focus, we spun off our successful Turbocharg - ing division, creating a new public com - pany, Accelleron. The listing of Accelle - ron on the Swiss stock exchange enables our shareholders to realize the full value of that business while allowing ABB to focus on our core electrification and au - tomation portfolio. Accelleron is a true gem of Swiss industry and will be able to play even better to its strengths as an in - dependent company. Finally, and earlier than expected, we divested to Hitachi ABB’s remaining 19.9 percent equity stake in the Hitachi Energy joint venture that was formed from our Power Grids business in 2020. For me, a highlight of the year was inau - gurating our “Learning Factory Indus - try 4.0” in Berlin with the German Chan - cellor, Olaf Scholz, last September. The new training center is equipped with the latest technologies and demonstrates ABB’s commitment to prepare appren - tices for the industry needs of tomorrow. Looking ahead, as our financial targets show, we are aiming to increase our growth rates, profitability and returns to levels that ABB has not delivered before. We are also pursuing ambitious sustain - ability targets for 2030. Among them, we aim to be carbon neutral in our own operations and to help our customers and tier-one suppliers reduce their GHG emissions. In addition, we will cut waste by having at least 80 percent of our prod - ucts and solutions covered by our circu - larity approach. ABB’s success has always been driven by our talented people and superior tech - nologies. With our agile, high-performing divisions, strong focus on diversity and inclusion and engaged teams, I am cer - tain that ABB will meet its targets and continue to go from strength to strength. On behalf of the Board of Directors, I would like to thank our stakeholders for their con - tinued trust and support. Together with our customers, employees, partners, sup - pliers and investors, we will continue to create superior value for all of our stake - holders by balancing the needs of society, the economy and the environment. Best regards, PETER VOSER Chairman of the Board of Directors 17 Previous chapter Next chapter ≡ Table of contents ABB CEO Björn Rosengren talks to Sandra Wiesner, Corporate Communications, about ABB’s performance during a challenging year and explains why ABB’s decen- tralized business model is the right one for a global technology com- pany operating in a fast-changing and uncertain world. — CEO interview — Delivering strong results in the face of formidable challenges 18 Björn, how would you describe the year 2022? Were you expecting a tough year? 2022 was a crisis year by any reckoning. In the wake of the COVID-19 pandemic, we had anticipated ongoing supply chain, logistics and labor challenges. But the war in Ukraine took us by sur - prise. Most shocking, of course, was the scale of devastation and human suffer - ing in Ukraine itself. But the resulting energy crisis and rising inflation affected everyone and reminded us that the energy transition is long overdue. I am extremely proud of the way our people responded to the humanitar - ian crisis caused by the war in Ukraine. Although we had no employees based there, our teams arranged safe passage out of the country for employees and their families who were in Ukraine at the time. Some of our employees also tra- velled to Ukraine’s borders to transport people fleeing the country to a safe place, while others donated essentials like food and warm clothing to refugees through ABB-driven initiatives. In total, we raised more than CHF 2.2 million in employee and Group donations for the humanitar - ian effort of the International Committee of the Red Cross. The war had little direct impact on our business, other than our decision to exit the Russian market, where we were pre- sent with 750 people and two production sites, and which accounted for about 1 to 2 percent of our revenues and little of our sourcing. We are in the process of reducing our presence and will complete the exit as soon as possible in compli - ance with applicable laws and sanctions. How is ABB helping its customers ad- dress the energy crisis? Our customers face two main chal - lenges: energy sustainability, which is a long-term challenge for everyone, and energy security, which is a much more urgent concern. Some of our customers have had to deal with power outages; others have seen their energy bills increase by 50 percent year-on-year. At ABB, energy and resource efficiency are at the core of our company purpose and value proposition. Most of our products and solutions reduce energy consumption, including our digital and software offerings which help our cus - tomers make better use of their oper - ational data to cut down on energy use and prolong the lifetime of their equip - ment. Our technologies also improve efficiency and productivity in the energy sector itself. Overall, how did ABB perform in 2022? I am very pleased and proud of ABB’s performance in 2022. In an increasingly challenging market environment, we continued to win orders and overcame significant supply chain and logistical difficulties to fulfil our commitments to customers. The proof of our performance can be seen in our high revenues and especially our Operational EBITA margin, where we hit our 2023 target of ≥15 percent one year early. Our strong margin performance shows that our ABB Way operating model, with higher transparency, accountability and speed, is delivering. This strong performance, especially in such a challenging year, shows that we have the right team in place and that our businesses are focusing on the right mar - ket segments. ABB announced some important portfolio and leadership changes over the course of the year. How are these working out? In 2022, we stepped up our portfo - lio management activities to further strengthen our market and technology leadership in electrification and auto - mation. We acquired controlling stakes in two electric-vehicle charging com - panies – InCharge Energy in the United States and Numocity in India – which 19 Previous chapter Next chapter ≡ Table of contents will significantly strengthen our E-mobility business in those markets. In a private placement completed in Febru - ary 2023, we also raised approximately CHF 525 million to invest in our E-mo - bility business. As of 2023, E-mobility is being treated as a standalone business for managing and reporting purposes. We plan to list the business on the Swiss stock exchange, with ABB retaining a ma - jority stake, once the market conditions are favorable. In our Motion business area, we announced two important acquisitions. Our NEMA Motors division has agreed to acquire Siemens’ low-voltage NEMA motor business, which will strengthen our presence in North America. And in the fourth quarter, our Traction division acquired PowerTech Converter, a leading supplier of auxiliary power converter solu - tions for light rail vehicles and metros, with operations in Germany and the United States. Finally, our Smart Power division acquired ASKI Energy, a leader in energy automation and control systems, with customers in Germany, Austria and Switzerland. Part of our portfolio management strategy is to exit businesses that no longer fit with our strategic focus. In October, we spun off our Turbocharging division, creating a new public company, Accelleron, which was listed on the Swiss stock exchange on October 3, 2022. The spin-off allows ABB to focus on our core portfolio of electrification and automa - tion while giving Accelleron the flexibility to operate as an independent company. And earlier than expected, we divested to Hitachi ABB’s remaining 19.9 percent equity stake in the Hitachi Energy joint venture that was formed from our Power Grids business in 2020. Over the course of the year, we had a number of changes in the Executive Committee. On April 1, 2022, Morten Wierod became President of our Electri - fication business area, succeeding Tarak Mehta, who assumed the leadership of our Motion business area from Morten. Since then, the two business areas have improved their already strong perfor - mance and helped the Group reach our 2023 operational EBITA margin target a year early. We also had two new colleagues join the Executive Committee in 2022: Andrea Antonelli became Group General Coun - sel and Company Secretary in April and Karin Lepasoon joined ABB in October as Chief Communications and Sustain - ability Officer. Both of them will help to drive forward our successful ABB Way operating model. How is ABB progressing towards its 2030 sustainability goals? Since the launch of our 2030 sustainability strategy in December 2020, we have made strong progress towards our goals of enabling a low-carbon society, preserving resources, promoting social progress and creating a culture of integrity and trans - parency along the extended value chain. Among our many achievements in 2022, we reduced greenhouse gas (GHG) emissions from our own operations by 43 percent. And we continue to support our customers in their effort to reduce their own emissions. We also took important steps to improve sustainability in our supply chain with a new target to help our main tier-one suppliers achieve a 50 percent reduction in their GHG emissions by 2030. And we launched the ABB EcoSolutions label, which provides transparency on the circular value and environmental impact of a product. Last but not least, we are making good progress in building a safer and more inclusive working environment in which our people can succeed and develop. Since 2019, we reduced the amount of lost time caused by injuries by 42 per - cent. In 2022, we increased the number of women in senior management positions to 17.8 percent, up from 16.3 percent a year ago, in line with our goal of having 20 ABB INTEGRATED REPORT 2022 25 percent of senior management roles filled by women by 2030. On December 2, 2022, ABB announced that it had settled with South African, Swiss and American authorities on the legacy Kusile project in South Africa. What led to this outcome and what has it meant for ABB’s integrity program? Since promptly self-reporting to the rel - evant authorities, ABB has fully coope- rated with their investigations into what happened on the Kusile project. We have spent considerable time and effort in supporting their inquiries by providing access to information and the people needed for them to thoroughly complete their investigations. We have performed extensive remediation and enhance - ments across our operations and integ - rity program – including launching a new Code of Conduct, educating employees and implementing an enhanced control system, because we only accept business that is done with integrity and trans - parency. Our cooperation since these investigations commenced has been described as extraordinary, and this is re - flected in the settlements announced on December 2, 2022. Our work does not stop here as integrity is not a static concept. We will continue to work, innovate and enhance our integ - rity program to have controls, processes and a culture that are effective deter - rents to bribery, corruption and improper behavior. ABB has a clear purpose and a decen- tralized business model, which you introduced starting in 2020. How do these lead to superior value creation? ABB’s purpose is to enable a more sus - tainable and resource-efficient future with our technology leadership in elec - trification and automation. We can best achieve that through a decentralized business model in which we have clear accountabilities. In our decentralized structure, our 20 divisions represent the highest level of operating decisions with full ownership and accountability for their respective strategies, performance and resources. This moves decision-making closer to the customer and allows our businesses to operate with speed, which is key to success in today’s world. Collaboration is crucial in our decentral - ized business model and our leaders are encouraged to cooperate and find syner - gies to create competitive advantages. We strongly believe that smart leaders collaborate. Performance is measured through a trans - parent scorecard system and all divisions have the mandate to be the no. 1 or 2 posi - tion in their respective market segments. To get there, they must be stable and pro- fitable before they focus on growth. We drive profitable growth organically and through active portfolio manage - ment. This means strategically acquiring companies that will strengthen our core business and divesting or spinning off businesses that no longer fit with our portfolio. What in your view sets ABB apart? In two words – technology innovation. At ABB, we like to say that innovation is in our DNA because we have been innovating since the company was founded in the late 19th century. ABB pioneered many of the technologies that have made the modern world pos - sible, from the first high-speed loco- motive with a direct-drive system to the first microprocessor-controlled industrial robot. Today, through our market and tech - nology leadership in electrification and automation, we are helping to drive the shift from combustion fuels to electricity as well as reducing resource consump - tion and emissions in industry, buildings and transport, sectors that together account for three quarters of global 21 Previous chapter Next chapter ≡ Table of contents “I am very proud of our great team and our achievements in what was an extremely challenging year. We protected our people, improved our performance and delivered on our commitments to our stakeholders.” BJÖRN ROSENGREN CEO energy consumption. In 2022, we invested approximately 4 percent of our consol - idated revenues in R&D activities in our continuing operations. In December, we opened our most ad - vanced robotics factory, complete with an R&D center, in Shanghai to serve the world’s fastest-growing robotics mar - ket. The new facility uses artificial intelli - gence, digital connectivity and software to make robots smarter, more flexible, safer and easier to use. China accounts for more than half of all new robotics in - stallations and we expect the global ro - botics market to grow from around $80 billion today to $130 billion in 2025. Looking ahead – what can we expect from ABB in 2023? Looking into 2023, we currently do not anticipate a major setback in demand, although the high inflationary environ - ment adds uncertainty. We have a vast order backlog, which will keep revenues coming in, as well as the technologies and market-leadership position to take advantage of growth opportunities as and when they arise. Energy efficiency and productivity are at the center of our value proposition and these are exactly what our custo- mers need to manage the energy crisis and inflationary pressures. Our products and solutions are also oriented towards longer-term challenges like moving to resource-efficient operations and adapting to tighter labor markets. Most importantly, we have the right people in the right positions to drive our business forward. Over the past three years, our teams have improved ABB’s performance despite huge challenges. That is truly an achievement and one that makes me confident that ABB has what it takes to succeed and support the transition to a sustainable society. I want to thank the entire ABB team for their commitment and strong perfor - mance in 2022 and to thank our custo- mers, partners, suppliers and sharehold - ers for their continued trust and support. 22 ABB INTEGRATED REPORT 2022 23 Previous chapter Next chapter ≡ Table of contents Value creation 24 ABB INTEGRATED REPORT 2022 VALUE CREATION VALUE CREATION 26 Who we are 32 Our purpose 36 Our strategy and objectives 46 How we create value 52 Our operating model – the ABB Way 74 Stakeholder engagement and material topics 01 25 ≡ Table of contents Previous chapter Next chapter — Who we are ABB has a history of innovation excellence stretching back more than 130 years. Today, we are a leading global technology com- pany that enables a more sustain- able and resource-efficient future with our technology leadership in electrification and automation. Our strong heritage as a technology pioneer has led to long-lasting relation - ships with many of our customers and given us a deep understanding of market needs and the ability to anticipate and drive trends. Our solutions connect engineering know-how and software to optimize how things are manufactured, moved, powered and operated. Building on our heritage of excellence, ABB’s ~105,000 employees are committed to driving innovations that accelerate industrial transformation. — Leading offering in electrification and automation 26 ABB INTEGRATED REPORT 2022 VALUE CREATION 27 ≡ Table of contents Previous chapter Next chapter Our Electrification business area pro - vides leading electrical distribution and management technologies, solu - tions and services to electrify the world in a safe, smart and sustainable way. The portfolio includes medium- and low-voltage electrical components, switchgear, digital devices, enclosures, breakers, power conversion products and charging solutions for electric vehicles, among others. With our products, solu - tions and services, we collaborate with customers to improve power delivery and security, and enhance energy manage - ment, efficiency and operational reliabi- lity, as we seek to enable a low-carbon society. Our Motion business area keeps the world turning – while saving energy every day. We innovate and push the bounda- ries of technology to enable a low-carbon future for customers, industries and so - cieties. With our digitally enabled drives, motors and services, our customers and partners achieve better performance, safety and reliability. We offer a combina - tion of domain expertise and technology to deliver the optimum drive and motor solution for a wide range of applications in all industrial segments. Our Process Automation business area is the leading supplier of integrated automation, electrical and digital solu - tions for the process, hybrid and mari - time industries. It enables customers to operate some of the largest and most complex industrial infrastructure essen - tial to modern life and run it more safely, intelligently and sustainably. The portfo - lio includes ABB’s market-leading distrib - uted control system, industrial software, advanced sensing, as well as industry- specific anchor products. Our Robotics & Discrete Automation business area offers a comprehensive and integrated portfolio covering robots, autonomous mobile robots and machine automation solutions, designed and or - chestrated by our value-creating soft - ware. The business area helps companies of all sizes and sectors – from automo- tive to electronics and logistics – be - come more resilient, flexible and efficient. 28 ABB INTEGRATED REPORT 2022 VALUE CREATION Electrification WHAT WE DO WHAT: OFFERING FOR WHOM: CUSTOMERS WHERE: GEOGRAPHIES Asia, Middle East and Africa Americas Europe Industry Utilities Transport and infrastructure Systems Services and software Products Motion Process Automation Robotics & Discrete Automation 29 ≡ Table of contents Previous chapter Next chapter 142 8 16 OUR GLOBAL PRESENCE ∼105,000 EMPLOYEES IN MORE THAN 100 COUNTRIES SEVEN CORPORATE RESEARCH CENTERS ABB’s corporate research centers develop new technologies and improve existing ones on behalf of the Group and its four busi - ness areas. ELECTRIFICATION Number of employees: ∼52,300 MOTION Number of employees: ∼21,100 PROCESS AUTOMATION Number of employees: ∼20,100 ROBOTICS & DISCRETE AUTOMATION Number of employees: ∼ 10,700 AMERICAS Number of sites: Electrification: 114 Motion: 43 Process Automation: 50 Robotics & Discrete Automation: 19 Number of employees: ∼26,400 → Many ABB sites are home to more than one business area . 30 ABB INTEGRATED REPORT 2022 VALUE CREATION 357 203 25 2 3 5 7 13 ASIA, MIDDLE EAST AND AFRICA Number of sites: Electrification: 160 Motion: 145 Process Automation: 130 Robotics & Discrete Automation: 105 Number of employees: ∼29,000 EUROPE Number of sites: Electrification: 211 Motion: 150 Process Automation: 177 Robotics & Discrete Automation: 140 Number of employees: ∼49,700 31 ≡ Table of contents Previous chapter Next chapter — Our purpose ABB’s purpose is to enable a more sustainable and resource- efficient future with our tech- nology leadership in electrifica- tion and automation. Our purpose is why we are in business and the guiding star for ABB’s direction and strategy. Through our technologies and responsible business practices, we aim to make our stakeholders and soci - ety more successful and sustainable. Our purpose is based on five themes that capture the essence of what ABB stands for, what we aspire to and how we make an impact. We seek to address the world’s energy challenges, transform industries and embed sustainability in everything we do. 32 ABB INTEGRATED REPORT 2022 VALUE CREATION ABB’s purpose is to enable a more sustainable and resource-efficient future with our technology leadership in electrification and automation. 33 ≡ Table of contents Previous chapter Next chapter — Creating success — Addressing the world’s energy challenges At ABB, we are passionate about creating success. This starts with our customers – we enable them to reach new levels of performance. Their success translates into success for all our stake - holders: employees, part - ners and shareholders. Our people make the difference. Their domain knowledge and experience are why custo- mers come to us with their biggest challenges. As pioneers in electrification and automation, we help to address the world’s energy challenges. We are enabling the world’s data growth, mo - bility expansion and urbaniza - tion while preserving the envi - ronment. Our solutions make homes, offices, factories and transport more energy- efficient and safer, and energy more affordable. — Leading with technology We envision a future where the physical and digital worlds merge. Together with our customers, we are turn - ing this vision into reality. We provide electrification, auto- mation and motion solutions that fulfill today’s needs while bringing the physical and digital worlds together. We make operations safer, more intelligent and more productive and work towards a more prosperous and sustainable future. For us, sustainability is both the right thing to do and a business opportunity. We strive to embed sustainability in everything we do. Our solu - tions reduce harmful emis - sions and preserve natural re - sources. We champion ethical behavior and human rights to contribute to better lives for people across the globe. — Transforming industries — Embedding sustainability If there is one thing that ABB is recognized for, it’s our world-class technology. Inno - vation has been in our DNA since we were founded more than 130 years ago to take ad - vantage of a new technology called electricity. This is one of the main reasons why customers and others turn to us for help with their biggest challenges. Together, we con - tinuously push the frontiers of technology to make things possible that were not possi - ble before. Previous chapter Next chapter ABB’s strategy is deeply rooted in our purpose and designed to accelerate profitable and sustainable growth by capitalizing on global megatrends like sustain- ability, digitalization, electrifica- tion and automation. Introduced in 2020 and based on our ABB Way operating model, our strat - egy has the overarching objective of creating superior value for all our stake- holders. To achieve this, we set clear strategic priorities for the development of the entire Group, including our busi - ness areas and divisions: • Systematic capital allocation, both organic and for acquisitions, aligned with ABB’s purpose; • Increase ABB’s exposure to high- growth, profitable markets that are benefiting from key megatrends; • Strive for market leadership positions in all our businesses and enchance our technology and digital leadership through software-enabled products and systems and stand-alone software and digital services; • Build resilience to successfully manage a global business in an increasingly volatile world; • Embed sustainability in all our processes and across our value chain. In order to achieve ABB’s strategic ob - jectives and create superior value for all our stakeholders, we follow consistent strategic and management approaches across all businesses and on all levels of the organization: • Active portfolio management, • Performance management, • Market leadership and digital technology at our core, • Embedding sustainability in everything we do. — Our strategy and objectives 36 ABB INTEGRATED REPORT 2022 VALUE CREATION 37 ≡ Table of contents Previous chapter Next chapter Stability Restructure Transform offering/ business model Profitability Improve margin/return Moderately invest in growth Pursue selected technology add-on acquisitions Growth Grow above market while maintaining high levels of return Invest strongly in organic growth (e.g., digital, R&D, sales/service, capacity) Actively pursue acquisitions: including technology additions, larger market consolidation moves and penetration of new market segments DIVISIONAL STRATEGIC MANDATES — Active portfolio management ABB actively manages its business port - folio to create value through two comple - mentary approaches; organic investment and active portfolio management, inclu- ding major acquisitions. In this way, we increase our exposure to current mega - trends that are shaping the economy and society and that offer attractive business opportunities for us. Priority setting and capital allocation across divisions: stability and profit- ability before growth Each of ABB’s divisions is assigned a strategic mandate that reflects its performance: stability, profitability or growth. These strategic mandates reflect the Group’s expectations and thus also de - termine the divisions’ strategic and per - formance priorities. Divisions in the sta - bility phase are required to restructure or transform their business to significantly and sustainably improve performance. Divisions with a profitability mandate must focus on further improving their profitability while moderately investing in growth – both organic and inorganic. Finally, divisions that are operating at or above their performance targets are mandated to actively pursue orga- nic growth and value-creating, add-on acquisitions. → For more information about how we deal with our changing world and related risks and opportunities see chapter “Risks and opportunities”. 38 ABB INTEGRATED REPORT 2022 VALUE CREATION The goal of our portfolio strategy is to bring as many of our divisions into the growth phase as possible. We also seek to improve the quality of our revenues by aligning our business portfolio with more attractive growth markets, developing more long-term business relationships with our customers and reducing our ex - posure to project-driven activities. The strategic mandates of our divisions also support the allocation of capital in the most value-creating manner, in line with ABB’s overarching objective of superior value creation. Evolution of ABB’s portfolio through divestments and acquisitions To achieve our strategic objectives, we regularly assess ABB’s business port - folio according to the following criteria and in line with our Group-wide strategic priorities: • Fit with ABB and our purpose, complementing existing strengths and capabilities; • Business and market attractiveness (mid- to long-term growth and attractive profit potential) aligned with key megatrends; • Potential for value creation and achieving market leadership. This assessment approach is used both for acquisitions and divestments. Busi - nesses that structurally do not fit these criteria could become exit candidates. This also applies to parts of divisions. Add-on acquisitions, regardless of size, that ABB’s divisions and/or business areas wish to pursue must also match these criteria in order to demonstrate that ABB is a better owner and can create more value than before. Overall, ABB aims to make at least five small to mid-sized bolt-on acquisitions per year. The majority of such add-on ac - quisitions should be carried out by divi - sions with a growth mandate. The ratio - nale for acquisitions can be the need to fill technology gaps, complement or ex - pand our offering for high-growth seg - ments, gain access to new geographi - cal markets or boost economies of scale through market consolidation. Ultimately, acquisitions are made to improve our po - sition in attractive markets and create additional value. 39 ≡ Table of contents Previous chapter Next chapter — Performance management By pairing our strategic priorities with a continuous improvement mindset, we aim to deliver better performance on all metrics and consistently deliver supe - rior value creation. We are translating our strategic priorities into a set of short- and long-term targets that are supported by appropriate incentives. These targets en - compass both financial performance and progress on sustainability (see “Embed - ding sustainability in everything we do”). In line with our financial target frame - work, we focus on the five financial key performance indicators (KPIs), as shown on the right-hand side. The targets and their related incentives are supported by strong performance management through our scorecard sys - tem which is designed to drive continu - ous improvement. We plan, monitor and incentivize performance using a holistic set of KPIs covering financials, such as revenues, profit and net working capi - tal, as well as sustainability-linked perfor - mance such as reductions in GHG emis - sions, improvements in health & safety and an increase in the proportion of women in senior management positions. When it comes to capital allocation, ABB’s priorities are as follows: • Funding organic growth, research and development (R&D) and Capex at attractive returns; • Paying a rising, sustainable dividend per share over time; • Investing in value-creating acquisitions; • Returning additional cash to shareholders. → Please refer to the chapter “Perfor - mance” for more de - tails on our financial and sustainability progress. 40 ABB INTEGRATED REPORT 2022 VALUE CREATION 4–7 % Revenue growth annual average through economic cycle 1 3–5% comparable, 1–2% inorganic ≥15% Operational EBITA margin as of 2023 Basic EPS growth > revenue growth Effective tax rate of 25% as from 2023 EPS rising strongly due to capital structure optimization program 15–20 % ROCE steady improvement ~100 % FCF conversion to net income maintain solid track record ABB’S FINANCIAL TARGET FRAMEWORK 1 Calculated to exclude FX impacts and transformational ac - quisitions and divest- ments, includes bolt-on acquisitions and divestments with divisions. 41 ≡ Table of contents Previous chapter Next chapter — Market leadership and digital technology at our core Market leadership with world-class tech - nology is key to ABB’s long-term success. All our divisions have the clear objective to achieve and maintain a no. 1 or 2 posi - tion in their respective markets and both our active portfolio management and per - formance management help us achieve this. Market leadership creates high bar - riers to entry for competitors and helps to improve profitability, drive superior returns, enable growth opportunities for our people and attract talent. It is based on our core competencies, including: cut - ting-edge technology, ability to scale and decades-long domain expertise. Our world-class technology and domain- led digital capabilities are embedded in our company DNA. Maintaining and ex - tending our technology and digital lead - ership is a strategic priority across our divisions. Pushing the boundaries of technology enables us to help our custo- mers attain new levels of performance and clearly differentiate ABB’s offerings. As part of ABB’s digital strategy, we drive growth in both software-enabled pro- ducts and systems (e.g., drives or break - ers with embedded software) as well as stand-alone software and digital ser - vices (e.g., in Process Automation). ABB Ability™ is our digital brand and plat - form for our extensive portfolio of digi - tal solutions that helps companies au - tomate, optimize and future-proof their businesses to achieve higher levels of per - formance and drive sustainable progress. Digital solutions offer significant growth potential and help us boost other stra - tegic priorities. Therefore, we invest in digital organically and complement this through partnerships and venture invest - ments as well as acquisitions. Cutting-edge technology CUSTOMER VALUE Decades-long domain expertise Ability to scale CORE COMPETENCIES GLOBAL NO. 1–2 in electrification & automation 42 ABB INTEGRATED REPORT 2022 VALUE CREATION COMPREHENSIVE OFFERING, MODULAR INFRASTRUCTURE “Digitalization is key to sustainability. Our digital solutions enable organiza- tions in energy and resource-intensive process industries to transform more quickly in terms of productivity and efficiency, generating holistic benefits from a sustainability, economic and safety perspective.” PETER TERWIESCH President Process Automation Software and digital services Software-enabled products & systems ABB Ability™ platform Traditional offering Tangible customer benefits Improved gross margin from higher digital/ software content ↑ Indicative growth rate → Listen to the full podcast “Why digitalization is key to sustainability”. 43 ≡ Table of contents Previous chapter Next chapter — Embedding sustainability in everything we do At ABB, sustainability is at the center of our company purpose and the value we create for our stakeholders. We believe that sustainable development means progress towards a healthier and more prosperous world, today and for fu - ture generations. To achieve this, we balance the needs of society, the envi - ronment and economy across our entire value chain, creating superior value for our customers, suppliers, employees and society. Our 2030 sustainability strategy posi - tions our company to address the world’s greatest sustainability challenges. As a technology leader, we focus on those ar - eas where we can make the biggest im - pact: enabling a low-carbon society, pre- serving resources and promoting social progress, while applying our own high standards for integrity and transparency and complying with relevant regulations wherever we operate. To meet our 2030 sustainability targets, we are taking ac - tion across the value chain because we believe we can have a greater impact by acting in coordination with our custo- mers, suppliers and other stakeholders. Our sustainability strategy is based on the following four objectives: • Enabling a low-carbon society: We partner with our customers and suppliers to reduce and avoid value- chain emissions, and we aim to make our own operations carbon-neutral by 2030. • Preserving resources: We aim to embed circularity across our value chain. Many of our solutions reduce waste, increase recycling and foster reusability. • Promoting social progress: We take care of our employees and promote social progress around the world. We strive to create safe, fair and inclusive working environments where people can succeed and develop, and we support community-building. • Creating a culture of integrity and transparency: : We drive a culture of integrity and transparency across our value chain and take accountability for our actions. For each of the four pillars of our sustain - ability strategy, we have defined targets for the three levels of our value chain; our customers, our own operations and our suppliers. In 2022, we announced a new supplier emissions target to help enable a low-carbon society, and will work with our main tier-one suppliers to reduce their GHG emissions by 50 percent by 2030 compared to 2019. We have set up a clear sustainability gover- nance model. Responsibility for meeting our sustainability targets lies with our busi - ness areas and divisions and progress in implementation is regularly reviewed by our Sustainability Board, comprising the Executive Committee members. The ulti - mate oversight and responsibility lies with the ABB Board of Directors. By meeting our sustainability targets for 2030, we will contribute to the United Nations’ Sustain - able Development Goals (SDGs), of which ABB has been a strong advocate. Only with a joint and concerted effort that includes business will we as a society be able to achieve a sustainable future for us all. → More information about our sustain - ability strategy and governance can be found in our Sustain - ability Report 2022. 44 ABB INTEGRATED REPORT 2022 VALUE CREATION Enabling a low-carbon society Preserving resources Promoting social progress Creating a culture of integrity and transparency 2030 SUSTAINABILITY TARGETS 45 ≡ Table of contents Previous chapter Next chapter — How we create value 46 ABB INTEGRATED REPORT 2022 VALUE CREATION our business and manage it holistically to guard against maximizing one form of capital at the expense of another. We see ourselves as responsible stewards of the capitals available to us and hold ourselves accountable for the way we use them, knowing that this ultimately impacts all of our stakeholders. Only by balancing all capitals and creating holis - tic value can we be successful in the lon - ger term. This approach is reflected in the six outcomes that we pursue, each of which is linked to a capital input and aligned with our strategic objective, which is to create superior value: • by delivering financial performance, • through world-class technology, • by enabling a low-carbon society, • by preserving resources, • by promoting social progress, • by driving ethical and sustainable practices across our value chain. Each of these outcomes and related out - puts is explained in more detail in the chapter “Performance”. Our value creation model is not only rooted in our purpose of enabling a more sustainable and resource-efficient future with our technology leadership in elec - trification and automation but also em - bedded in our relationships with our key stakeholder groups. We receive value from them and in return create value for them. The goal of our value creation is to posi - tively impact all our stakeholders. As a global company, we are embedded in our markets, ecosystems, communities and society as a customer, employer, partner, supplier, income provider, taxpayer, community member and corporate citizen. Our purpose, strategic objectives and operating model are all focused on creating superior value for all our stakeholders. To run our business and be successful, we rely on many forms of “capital” – financial, intellectual, natural, manufactured, human, social and rela - tionship. They enable us to operate, be in - novative, realize our continuous improve - ment mindset and come up with the best solutions for our customers while creating wealth for our investors and increasing value across many different dimensions. Our value creation model transforms the contributions (= inputs) from those va- rious capitals via our operating model, the ABB Way, into our outputs which then turn into outcomes. These in turn also represent impacts on the capitals, as through our value creation model they can be increased, decreased or transformed. Because our capital flows are closely interconnected, our success and ability to deliver on our commitments to stakeholders depends on maintain - ing a healthy and sustainable balance among our various capitals. To achieve this, we take an integrated approach to → Read more about our stakeholder engage - ment in the chapter “ Stakeholder engage - ment and material topics”. 47 ≡ Table of contents Previous chapter Next chapter Capital inflows from stakeholders Capital outflows to stakeholders Investors Society Need for reliable and efficient power supply, increased productivity and lower environmental impact Capital Innovative technology and solutions, fair employment, tax contributions, community support $4.5 bn capital payments (share buyback and dividends) Employees, partnerships and ecosystems Revenues of $ 29.4 bn Community spending $10.2 mn, 4,050 volunteer days Meeting custo- mers’ needs for products, solutions and services Customers Communities Suppliers ABB Material & services Services Spend ~$14.4 bn Income tax $757 mn Governments 48 ABB INTEGRATED REPORT 2022 VALUE CREATION 49 49 ≡ Table of contents Previous chapter Next chapter VALUE CREATION MODEL Financial capital • Total stockholders’ equity: $13.2 bn • Total liabilities: $25.9 bn Intellectual capital • 60% of R&D employees in software development • R&D spend: 4% of revenues in 2022 Natural capital • Energy consumption: 1,417 GWh in 2022 (741 of which comes from renewable energy sources) • Water withdrawal: 2,815 kilotons in 2022 Business model ABB purpose Governance Brand People & culture INPUTS ABB WAY Manufactured capital • Procurement spend 1 : $14.4bn • Number of sites as of December 31, 2022: 828 (incl. leased & owned sites) Human capital • Diverse workforce: ~105,000 employees representing 140 nationalities as of December 31, 2022 • Average hours of training per year and employee 2 : 30 Social and relationship capital • Customer base evenly distributed amongst the three regions • ABB Ability™ industry partnerships with 8 leading organizations 3 50 ABB INTEGRATED REPORT 2022 VALUE CREATION We deliver financial performance • Revenue • Operational EBITA • ROCE • FCF conversion to net income • EPS We create value through world- class technology • Orders from digital and software services: ~$500mn 4 • Numbers of priority patents filed in 2022 5 : ~500 We enable a low- carbon society • Reduction of ABB’s own emissions: 65% since 2019 • Emissions of main tier-1 suppliers: target of 50% reduction by 2030 was finalized and published in October 2022 • We support customers in reducing their GHG emissions 1 Including services. 2 Includes tools such as My learning, Harvard Spark, Har - vard Manager Mentor, LinkedIn Learning, and covers both lead - ership and functional/technical learnings, for internal employees. 3 Including Microsoft, Hewlett Packard Enterprise, Huawei, IBM, Ericsson, Accen - ture, Mesh Systems and Crate.io. OUTPUTS AND OUTCOMES We preserve resources • Circularity framework for product portfolio: methodology to be further refined in alignment with relevant regulations in 2023 • Reduction in amount of waste sent to landfill: 32% since 2019 • Number of recycling and waste reduction projects implemented in 2022: approx. 60 We promote social progress • Employee engagement score: 76/100 in 2022 • Women in senior management positions: 17.8% as of December 31, 2022 • Community spending: $10.2mn and 4,050 volunteer days in 2022 We create a culture of integrity and transparency • Targeted upskilling in integrity risk areas, including bribery and corruption • Delivering Straight Talk case studies (internal integrity successes and failures) 4 Growing at a double-digit rate. 5 Including patents, utility model and design applications. 51 ≡ Table of contents Previous chapter Next chapter The ABB Way is the common operating model for our divisions, business areas and lean corporate center. It is the “glue” that holds the Group together and has at its core ABB’s purpose, i.e., the “why” we are in business. The ABB Way defines “how” we create value: how we drive performance, how we ensure that we have the right people in the right place at the right time, how we create a strong culture of governance and integrity and how we build and protect our brand and reputation. The ABB Way is owned and controlled by ABB’s Executive Committee and is mandatory for all busi - nesses in ABB. — Our operating model – the ABB Way 52 ABB INTEGRATED REPORT 2022 VALUE CREATION VALUES PEOPLE LEADERSHIP POSITIONING REPUTATION MANAGEMENT CODE OF CONDUCT INTERNAL CONTROL & COMPLIANCE RISK MANAGEMENT REGULATIONS, PROCESSES AND POLICIES DECENTRALIZED SETUP FULL DIVISION ACCOUNTABILITY PERFORMANCE MANAGEMENT PORTFOLIO MANAGEMENT Business Model ABB Purpose Governance Brand People & Culture 53 ≡ Table of contents Previous chapter Next chapter — Our business model Our business model determines how we govern, steer and manage the per - formance and portfolios of our 20 divi - sions. Under our decentralized business model, our divisions represent the high - est level of operating decisions within ABB with full ownership and accountabi- lity for their respective strategies, per - formance and resources. Our divisions drive value creation with the clear aim of being no. 1 or 2 in their respective market segments. Performance management and portfo - lio reviews of the divisions are carried out by our four business areas – Electri - fication, Motion, Process Automation and Robotics & Discrete Automation – using a transparent scorecard system. Business areas also manage selected, shared resources on behalf of the divi - sions, such as R&D and the ABB Ability™ digital platform. Collaboration is crucial in our decentral - ized business model. Business leaders are encouraged to cooperate and find synergies to create competitive advan - tages. Such collaboration can range from internal benchmarking or best-practice sharing to sharing of business resources (e.g., digital platform, account manage - ment). We strongly believe that smart leaders collaborate. Customers ABB’S DECENTRALIZED BUSINESS MODEL DIVISIONS BUSINESS AREAS Corporate Electrification Motion Process Automation Robotics & Discrete Automation 54 ABB INTEGRATED REPORT 2022 VALUE CREATION “Our decentralized business model moves decision-making closer to the customer, enabling us to operate at speed, which is key to success in today’s world. I am absolutely convinced that decentralizing the company by empowering its divisions was the right decision for ABB.” BJÖRN ROSENGREN CEO → Read more in the “CEO interview” in this report. 55 ≡ Table of contents Previous chapter Next chapter • Distribution Solutions • Smart Power • Smart Buildings • Installation Products • Power Conversion • E-mobility • Service BUSINESS AREAS DIVISIONS Electrification • Drive Products • Systems Drives • Service • Traction • IEC LV Motors • Large Motors & Generators • NEMA Motors Motion 56 ABB INTEGRATED REPORT 2022 VALUE CREATION • Energy Industries • Process Industries • Marine & Ports • Measurement & Analytics • Robotics • Machine Automation Robotics & Discrete Automation Process Automation 57 ≡ Table of contents Previous chapter Next chapter Electrification Electrifying the world in a safe, smart and sustainable way is the motto of ABB’s Electrification business, a global technology leader in electrical distribution and management from source to socket. As global demand for electricity grows, our 50,000+ employees across 100 coun - tries collaborate with customers and partners to transform how people con - nect, live and work. We develop innova - tive products, solutions and digital tech - nologies that enable energy efficiency and a low-carbon society across all sec - tors. By applying global scale with local expertise, we shape and support global trends, deliver excellence for custom - ers and power a sustainable future for society. Market growth is driven by the ever-in - creasing demand for electricity, which in turn is the result of global megatrends of urbanization and population growth. Ad - ditionally, digitalization and connectivity are accelerating demand for intelligent solutions and smart devices. CUSTOMERS: ABB Electrification serves a wide range of customer segments, in - cluding residential, commercial and in - dustrial buildings, as well as utilities, oil and gas, chemicals, data centers, e-mobility, renewables, food and bever - age, transport and infrastructure, among others. From some of the world’s tall - est buildings to the busiest airports, ABB Electrification’s products and solutions are all around us across all sectors. 58 ABB INTEGRATED REPORT 2022 VALUE CREATION Market position: Global no. 3 No. 1-2 in distribution enclosures and DIN-rail products Market position: Global no. 3 No. 2 in low voltage Market position: Global no. 1 in medium voltage — Smart Power — Distribution Solutions — Smart Buildings Offering: Improves electric power quality and reliability while strengthening grid resilience through automation. With ABB Ability™ enabled digital products and solutions, our customers can un - lock the full potential of their electrical systems. Offering: Global leader in techno- logies enabling buil- dings, factories and transportation to make energy management smarter, renewables more productive and op - erations more resilient. Offering: Global leader in safe and reliable energy distribu - tion and management to ensure smart and sustainable buildings and homes. OUR DIVISIONS 59 ≡ Table of contents Previous chapter Next chapter Market position: Global no. 1 in EV charging solutions Market position: No. 4 in DC power solutions Market position: Global no. 1-2 No. 1 in North America Market position: Global no. 3 No. 2 in digital services — Power Conversion — E-mobility — Service — Installation Products Offering: This market leader in North America builds on its 100-year history of innovation to create products and solutions to safely connect and protect electrical sys - tems that power busi - nesses, cities, homes and transportation. Offering: Designs, develops and manufactures solutions to power and safeguard life’s everyday moments. With customers in indus - tries where power reliabil - ity, efficiency and quality are essential, solutions are relied upon to solve some of the most diffi - cult power challenges. → As announced on January 20, 2023, ABB has reached an agreement to sell this division; the transaction is expected to be completed in 2023. Offering: The world leader in EV charging solutions is the partner of choice for the world’s largest EV OEMs and nationwide EV charging network operators, and is build - ing a zero-emission mo- bility future from home to highway. → As of January 2023, the E-mobility division is no lon - ger part of the Electrifica - tion business area and is managed as a standalone business. Offering: A range of innovative, scalable electrical ser - vice solutions to bring peace of mind about the security, safety and re - liability of electrical in - frastructure, supporting customers to optimize their electrical assets and partner with them as their future energy challenges evolve. 60 ABB INTEGRATED REPORT 2022 VALUE CREATION 61 ≡ Table of contents Previous chapter Next chapter ABB’s Motion business is the leading supplier of drives and motors globally. We provide cus- tomers with the complete range of electrical motors, generators, drives, services and integrated digital solutions. ABB Motion is a key enabler of a low- carbon future. We help our customers and partners improve energy efficiency and shift energy consumption from fossil fuels to clean electricity. CUSTOMERS: With our digitally enabled drives, motors and services, we can deliver the optimum drive and motor solutions for a wide range of applications in all in - dustrial segments and in transportation. Through our global presence we are al - ways close by to serve our customers. Motion 62 ABB INTEGRATED REPORT 2022 VALUE CREATION OUR DIVISIONS — Drive Products — System Drives — Service Offering: Comprehensive product portfolio of low-voltage AC drives. Offering: Low- and medium- voltage AC drives and modules, wind converters. Offering: Base services and spare parts, upgrades and replacements, smart solutions. Market position: Global no. 1 Market position: Global no. 1 Market position: Global no. 1 63 ≡ Table of contents Previous chapter Next chapter — IEC LV Motors — Large Motors and Generators — NEMA Motors — Traction Offering: Traction systems in - cluding converters and motors, battery energy storage systems, auxil - iary converters. Offering: Comprehensive portfo - lio of low-voltage mo - tors for any industry and application, com - pliant with all major markets globally. Offering: Comprehensive product portfolio of large AC mo - tors and generators. Offering: Comprehensive product portfolio of low-voltage electric motors. Market position: Global no. 2 Market position: Global no. 2 Market position: Global no. 2 Market position: Global no. 1 64 ABB INTEGRATED REPORT 2022 VALUE CREATION ABB Motion is a key enabler of a low- carbon future. 65 ≡ Table of contents Previous chapter Next chapter ABB’s Process Automation business offers a broad range of solutions for the process, hybrid and maritime industries, including integrated automation, electrical and digital systems. The portfolio includes control technolo - gies, industrial software, industry spe - cific anchor products, advanced sensing and lifecycle services. Until the spin-off of the Turbocharging division on Oc - tober 3, 2022, the Process Automation business area portfolio also included turbochargers. CUSTOMERS: The Process Automation business area’s end customers include companies across process, hybrid and maritime industries. These industries include the energy sector, chemicals and plastics, mining and minerals, metals, pulp and paper, pharmaceuticals, food and beverage, power generation and ma - rine and ports. Process Automation 66 ABB INTEGRATED REPORT 2022 VALUE CREATION — Process Industries — Marine & Ports — Measurement & Analytics — Energy Industries Offering: Integrated automation and electrical systems, safety, service and digi - tal solutions. Offering: Automation, electri - cal and motion sys - tems; quality control systems, mine hoists, gearless mill drives, high-power rectifiers. Offering: Gas and liquid analyz - ers, field instrumen - tation, force measure - ment, digital and service solutions. Offering: Azipod® propulsion, ship and port electrification, automation and digital solutions. OUR DIVISIONS Market position: No. 1–2 in distributed control systems, no. 1 in power generation, no. 3–5 in oil, gas and chemicals Market position: No. 1 in distributed con - trol systems, no. 1–2 in mining, pulp & paper Market position: Global no. 1 in electric propulsion, no. 1 in container terminal automation Market position: No. 1 in analytical, force measurement, no. 2–5 in instrumentation → A fifth division, Turbo - charging, was spun off with a listing on the Swiss stock exchange on October 3, 2022. 67 ≡ Table of contents Previous chapter Next chapter ABB’s Robotics & Discrete Automa- tion offers a comprehensive and integrated portfolio covering robots, autonomous mobile robots (AMRs) and machine automation solutions, designed and orchestrated by our value-creating software. Our unparalleled expertise and the seam - less integration of our products enable customers from all industries to unlock flexible automation. With our global presence in sales, engineering and service, we support our customers at every step of their growth journey. CUSTOMERS: Robotics & Discrete Automa - tion serves a wide range of customers in in - dustries such as automotive, machine build - ing, metalworking, electronics, food and beverage and logistics. They include end- users such as manufacturers, system integ- rators and machine builders. Robotics & Discrete Automation 68 ABB INTEGRATED REPORT 2022 VALUE CREATION — Machine Automation — Robotics OUR DIVISIONS Offering: Solutions based on Programmable Logic Controllers (PLCs), Industrial PCs (IPCs), servo motion, industrial transport systems and vision, software. Offering: Robots, robotics appli - cation cells and smart systems, field services, spare parts, digital ser - vices and software. Market position: Global no. 5 No. 2 in high-end segment Market position: Global no. 2 69 ≡ Table of contents Previous chapter Next chapter — Our people & culture At ABB, we understand that sustainable value is created by people working to - gether in supportive environments that encourage creativity and collaboration and reward performance. To attract, retain and nurture talent, we are building safe, fair, equitable and in - clusive working environments in which our people can succeed and develop. Our performance culture is characterized by our ABB values of courage, care, curi - osity and collaboration, supported by ro - bust performance and review processes. Our four values reflect the attitudes and behaviors we need to drive our decen- tralized company with its empowered divisions. They guide and shape our be- havior and interactions with each other, our customers and partners, and society as a whole. To help our people succeed, we provide opportunities for learning and personal development and empower them to ma- nage their own careers within ABB with our open job market, where all po - sitions up to Executive Committee level are posted internally and anyone may ap - ply. A key focus of our people strategy is leadership development – our leadership teams review the strengths and develop - ment needs of their team members and support their development so that they are ready to pursue new opportunities when they arise. Relying on our people’s unique attitudes, experiences and domain expertise, we push the boundaries of technology to drive performance, shape new business models and find new ways of working that bring valuable benefits to our cus - tomers, partners and society overall. We actively seek partnerships with our cus - tomers to drive value creation and sus - tainable development. → For more information about our people- related performance, please refer to the chapter “We promote social progress”. 70 ABB INTEGRATED REPORT 2022 VALUE CREATION Courage At ABB, we: • Take action and manage consequences • Speak up and ask for help • Take calculated risks to create success Care At ABB, we: • Take care of our customers, our people and the environment • Respect and value differences • Do what is right and act with integrity Curiosity At ABB, we: • Believe there is always a better way • Lead with technologies and innovations • Learn from failures and successes Collaboration At ABB, we: • Believe smart people collaborate • Build on each other’s strengths and success • Partner with our customers ABB VALUES 71 ≡ Table of contents Previous chapter Next chapter — Our brand Our ABB brand is an important part of the glue that unites us as a com - pany. It is an asset that allows us to occupy a strong position in the market, enables us to differentiate ourselves through quality rather than price and better attract talent and investors. To keep our brand strong, we speak with a single voice and ensure that what we say matches what we do. Credibility is the key to building trust. When we are trusted, customers rely on us, our peo - ple feel empowered and all our stake - holders reap the benefits. Our strong ABB brand is built on the skills and domain expertise of our peo - ple who are experts in creating superior customer value through our world-class technology solutions. → For more infor- mation about how we create value through world- class technology see chapter “We create value through world- class technology”. 72 ABB INTEGRATED REPORT 2022 VALUE CREATION We safeguard our business and our company from financial and reputa - tional harm with a comprehensive governance framework that defines how we work, collaborate and do busi - ness across our organization. We are committed to fostering a culture in which integrity is woven into the fabric of everything we do. To embed integrity in our own operations as well as throughout our entire value chain, our Code of Con - duct guides our employees to fol - low the law, act honorably and treat each other with respect. The code also forms the basis of our interactions with projects and counterparties and underpins our commitment to ethi - cal behavior and human rights. Our Supplier Code of Conduct describes ABB’s expectations of our suppliers and is included in our standard terms and conditions. Through our Sustainable Supply Base Management (SSBM) approach, we as - sess sustainability risks, compliance and the performance of our suppliers to make sure they meet our expecta - tions. To strengthen our sustainability ambitions from a governance perspec - tive, we are also embedding sustaina- bility targets in our senior manage - ment incentive awards. — Our governance → Download our Code of Conduct. on the ABB website. → For more information on how we deal with risks and opportuni - ties, please consult the next chapter. → More information on our governance can be found in “We create a culture of integrity and trans - parency along the ex - tended value chain” and in the chapter “ Performance”. 73 ≡ Table of contents Previous chapter Next chapter — Stakeholder engagement and material topics Creating value for our stakeholders is why we are in business. Through meaningful dialogue and close cooperation with key stakeholder groups, we work to shape and hone ABB’s positions and policies to reflect the broad range of our stakeholders’ perspectives in everything we do. 74 ABB INTEGRATED REPORT 2022 VALUE CREATION We maintain regular contact and com - munication with our stakeholders, such as customers, suppliers and employees. We also conduct a transparent dialogue with the capital markets to enable par- ticipants to make informed investment decisions on a timely basis. Further - more, we engage with industry peers, partners, governments and organizations from civil society. Beyond business-as-usual discussions, we engage with stakeholders for specific strategic and reporting purposes. We are especially interested in understanding how they perceive value and what mat - ters to them as far as economic, environ - mental and social issues are concerned. These insights shape our strategic deci - sions and the way we manage risks and opportunities and they help determine the actions we take and how we com - municate to enhance transparency and accountability. This dialogue helps us to identify and anticipate emerging trends, shifting customer needs and changing market expectations. 75 ≡ Table of contents Previous chapter Next chapter We have identified the following key stakeholder groups for regular engagement: — Stakeholder groups Customers Investors Suppliers Employees Governments and civil society Communities External partners 76 ABB INTEGRATED REPORT 2022 VALUE CREATION Stakeholder engagement allows ABB to assess and disclose matters that sub - stantively affect our ability to create value for our stakeholders over the short, medium and long term. In 2020, ABB conducted a comprehen - sive stakeholder engagement process to identify material sustainability topics. More than 300 stakeholders across our four business areas were interviewed and based on their feedback, each business area created its own materiality matrix for sustainability. These matrices were then aggregated into an overall ma - trix for the Group, which was used as the basis for determining our 2030 sus - tainability strategy and related targets. The identified topics impact not only — Material topics sustainability but also our financial per - formance, our ability to create value and our reputation. They can be summarized in three categories as shown below. In 2022, we conducted follow-up dis - cussions with our investors, customers and suppliers about ABB’s sustainability performance. In 2023, we will further enhance and update our comprehensive material - ity assessment with internal and exter - nal stakeholder engagement, based on a double materiality approach, consid - ering both the impact that ABB has on the environment and society, and the im - pact the topics have on ABB’s business success. Business and governance Environment • Carbon reduction • Operations- environment • Circular economy • Health & safety • Employee well-being • Human rights & labor • Socio-economic impact • Diversity & inclusion Social • Products, solutions and services • Stakeholder engagement • Ethics • Responsible sourcing • Business resilience • Data privacy • Financial performance • Risks and opportunities * In addition to the topics identified in the sustainability materiality assess - ment in this Inte - grated Report, we also report on our financial perfor - mance as well as risks and opportu - nities that influence our holistic value creation. MATERIAL TOPICS FOR VALUE CREATION → More information about our engage - ment with stake- holders, material topics and the re - lated process can be found in our Sustain - ability Report 2022. 77 ≡ Table of contents Previous chapter Next chapter Risks and opportunities 78 ABB INTEGRATED REPORT 2022 RISKS AND OPPORTUNITIES RISKS AND OPPORTUNITIES 80 Our changing world 86 Risk and opportunity management 94 TCFD Recommendations report 02 79 ≡ Table of contents Previous chapter Next chapter — Our changing world To fulfil our purpose and create superior value, we must identify, assess, mitigate and manage risks and opportunities facing our business. In doing so, we take a broad view of the external environment and megatrends and actively try to prevent risks from materializing while at the same time turning challenges into opportunities. Our holistic approach covers both finan - cial and sustainability-linked aspects of enterprise risk management and special emphasis is placed on climate-related fi - nancial risks and opportunities through the adoption of the recommendations of the Taskforce on Climate-Related Finan - cial Disclosures (TCFD). 80 ABB INTEGRATED REPORT 2022 RISKS AND OPPORTUNITIES 81 ≡ Table of contents Previous chapter Next chapter As the pace of change and uncertainty increases, ABB closely monitors mega - trends that are shaping the external en - vironment, analyzes economic and geo - political shifts and adapts accordingly through its agile and decentralized busi - ness model. In many economies around the world, in - dustry’s share of GDP is shrinking and the service sector is expanding. At the same time, companies are increasingly focused on resilience and reshoring to guard against supply chain challenges in the wake of the pandemic, as well as bracing for a downturn as the energy crisis and inflation reduce businesses’ and house - holds’ spending power. For ABB, as a leader in electrification and automation, these are challenges to be managed, but they also represent an important busi - ness opportunity. To take advantage of them, and support our customers with more sustainable solutions, we need more proactive planning, monitoring and management. On a societal level, demographic change is increasing the size of the population but also shrinking the labor force, creat - ing a need for increased labor productiv - ity. Businesses are also grappling with a lack of qualified and experienced work - ers, which makes attracting and retain - ing talents a priority for ABB. At the same time, pressure is growing to improve hu - man and labor rights and respect for di - versity, leading to safer, more equitable and inclusive working environments and greater focus on community engage - ment and development. Across the world, rapid urbanization is driving the need for smart buildings and infrastructure and e-mobility. These developments are being enabled by technology but are also increasing de - mand for energy and putting more pres - sure on the planet’s resources. To limit climate change and resource scarcity, bold and ambitious action is needed to decarbonize the energy system, improve energy and resource efficiency and move towards a circular economy. With its advanced automation, robot - ics and digital technologies, ABB is well positioned to tackle these pressing challenges and turn them into business opportunities. Our innovative technolog - ical solutions increase productivity and resource efficiency and improve man - ufacturing flexibility, quality and sim - plicity. Our purpose of enabling a more sustainable and resource-efficient future with our technology leadership in elec - trification and automation addresses the megatrends shaping the economy and places ABB in a strong position to drive and support the technologi - cal advances that are needed to achieve a sustainable society. 82 ABB INTEGRATED REPORT 2022 RISKS AND OPPORTUNITIES KEY MEGATRENDS THAT ARE SHAPING ABB’S STRATEGIC CONTEXT Sustainability • Climate change • The energy transition • Environmental protection • Natural disasters • Human rights & equality • Sustainable sourcing Digitalization • Artificial intelligence • Connectivity • Augmented/virtual reality • Autonomous operations • EaaS (Everything-as-a-Service) Economic shift • Declining share of industry in GDP, growing share of the service sector • Maturing of the Chinese economy • Globalization, regionalization, (economic) nationalism • Supply chain security and re-/ near-shoring Demographics • Ageing and declining working age population • Care and medication for the elderly • Population boom in Africa • Urbanization • Growing world population and resource demand (e.g., food, water, energy) 83 ≡ Table of contents Previous chapter Next chapter More electricity Electricity demand is growing >2x faster than other energy sources resulting in ~50% higher average annual investment into distribution networks over the next 10 years 1 1 IEA World Energy Outlook 2021, Announced Pledges Scenario. 2 United Nations World Population Prospects 2019. CHANGING WORLD OUR PURPOSE Reduce waste and increase circularity OPPORTUNITIES TO CREATE VALUE FOR OUR CUSTOMERS Reduce carbon intensity 84 ABB INTEGRATED REPORT 2022 RISKS AND OPPORTUNITIES Higher energy efficiency ~45% of the world’s electricity is converted into motion by electric motors yet only ~23% of the world’s electric motors are optimized through the control of drives New energy sources Share of low-carbon sources in global energy mix to increase +30% points from ~20% today to ~50% in 2050 Shrinking labor force Globally, the number of working age people (25 to 64 years) per retiree (65 years and over) will fall by ~20% over next 10 years 2 We enable a more sustainable and resource-efficient future with our technology leadership in electrification and automation. Increase labor productivity Increase energy efficiency Increase flexibility Reduce GHG emissions Reduce downtime Increase safety and improve working environment 85 ≡ Table of contents Previous chapter Next chapter — Risk and opportunity management Every event, factor or circumstance that could adversely affect ABB’s ability to achieve its business ob- jectives and create value is a risk. Therefore, risk management within a strong governance framework is an integral part of our business. Yet, at ABB we don’t only try to minimize risks, we seek to turn them into opportu - nities and create value for our stakehold - ers and society. Our goal is to responsi - bly manage both risks and opportunities, which also includes taking certain risks and getting paid for it. We are well equipped to do so, thanks to our pur - pose, our ABB Way operating model and our diverse portfolio. 86 ABB INTEGRATED REPORT 2022 RISKS AND OPPORTUNITIES 87 ≡ Table of contents Previous chapter Next chapter ABB’s enterprise risk management (ERM) process provides managers and the Board of Directors, including the Board’s Finance, Audit and Compliance Commit - tee (FACC), with a comprehensive and holistic view of the risks facing our busi - ness. This information informs our overall strategic and risk discussions and allows us to make better informed decisions and take calculated risks to create value for our stakeholders. 4. Risk mitigation effectiveness monitoring 3. Risk mitigation planning & implementation 1. Business objectives identification 2. Risk identification & assessment The ERM process is typically cyclical in nature, enabling the continuous refine - ment of risk management in a dynamic business environment. It starts with the identification of business objectives and related risks that could prevent their successful achievement. Risks are as - sessed in terms of their potential im - pact, likelihood, and speed with which an impact could occur should the risk mate- rialize. Risk mitigation measures are then — Enterprise Risk Management ENTERPRISE RISK MANAGEMENT (ERM) PROCESS 88 ABB INTEGRATED REPORT 2022 RISKS AND OPPORTUNITIES planned, implemented and monitored on an ongoing basis to ensure their ef - fectiveness. ERM assessments are both top-down and bottom-up. They cover strategic, financial and operational risks, in the short, medium and long term. Our ERM process is aligned with our strategy and the ABB Way, our operating model, and links to our values of courage, care, curiosity and collaboration. All busi - ness areas, divisions and corporate func - tions are required to identify, assess and report their top five risks as a minimum each year based on a defined methodol - ogy and governance. Risks are classified in one of the follow - ing three categories based on a compre - hensive ERM risk catalogue: 1. Strategic This category includes strategic risks which can significantly impact the execu - tion of our business strategies, the man - agement of our portfolio and our abil - ity to achieve our objectives. At ABB, we typically include external and emerging risks in this category, such as industry and technological shifts, macroeconomic developments and geopolitical aspects. These can impact our business negatively in the long term but can also create busi - ness opportunities. 2. Operational This category includes operational and commercial risks which arise as a result of our day-to-day dealings with custom - ers and suppliers as well as engineering, manufacturing and product manage - ment. Other examples in this category include integrity and compliance, health, safety and environment, supply chain management, cyber and information se - curity, physical asset management and talent attraction and retention. 3. Financial This category includes financial risks which arise as a result of ABB’s interna - tional activities such as currency or in - terest-rate fluctuations and commodity price volatility. Risks relating to account - ing and financial reporting requirements, financial planning, analysis and man - agement, and tax obligations are also covered. → Further details on how we manage financial risks by using derivative financial instru - ments can be found in the Financial Re - port 2022 in Note 6 “Derivate financial instruments”. 89 ≡ Table of contents Previous chapter Next chapter Information & cyber security Availability of components & commodity price volatility Lack of qualified/ available resources Economic slowdown Geopolitical instability RISK CLUSTER Across all categories of risk, ABB actively aims to prevent risks from materializing and reduce potential adverse impacts by designing, im - plementing and monitoring a wide range of mitigation actions, con - trols and governance. Based on the 2022 ERM process, the following top five risk clusters were identified for ABB. 90 ABB INTEGRATED REPORT 2022 RISKS AND OPPORTUNITIES EXAMPLES OF REPORTED RISKS EXAMPLES OF MITIGATION MEASURES • Cyber attacks including ransomware attacks that disrupt ABB operations and business processes • Cyber attacks including ransomware attacks that impact ABB’s product and service offerings, including key suppliers, leading to financial and reputational impact • Non-compliance with information security requirements and laws, leading to business interruptions and adverse financial impacts • Failure to deliver/fulfill contracts due to business disruptions • Shortage of material availability, especially for electronics and semi-conductors • Delays in delivery across the supply chain • Increased costs due to a lack of key components • Shortages and changes in customer buying behavior • Adverse macro-economic and market conditions, such as recession, stagflation and inflation, which impact ABB’s ability to achieve financial targets • Energy crisis and associated higher costs impacting operations • Prolonged demand drop coupled with slow economic recovery • Continued pandemic challenges • Lack of qualified and experienced personnel • Inability to attract and retain talent • Inability to execute business strategy effectively and within the defined timeline • Reduced ability to maintain high engagement in a continuously uncertain environment • Trade wars and increase in protectionism • Increase in controlled technology, sanctions and embargoes • Changes in local content rules and potential preference by customers for local products • Apply security event monitoring to business- critical systems • Implement strong network and cyber-defense controls • Continue raising awareness and providing training on information security requirements • Perform continuous monitoring of material and market availability • Engage in dual sourcing of key components • Pro-actively discuss extended schedules with customers • Provide long-range forecasts to suppliers for strategic commodities • Track situation across the world on GDP, employment rate and correlated market growth • More proactive scenario planning and related cost measures • Continue effective risk identification and mitigation in our tender and project risk management processes • Drive continuous focus on contractual protection • Review ABB’s ability to offer competitive employment terms with business leaders • Collaborate within ABB to gain greater visibility into talent available within the organization • More innovative and agile recruitment sourcing and use of modern tools and channels to attract talent • Identify viable succession lines • Closely monitor geopolitical developments during tender and execution phases of projects, conduct customer and country screenings • Continuous focus on trade compliance • Awareness and understanding of export control regulations and product classification requirements 91 ≡ Table of contents Previous chapter Next chapter In addition to the risks covered above, we place special emphasis on sustainability- related risks and opportunities, not least because they can impact all other risk categories. Being both a mega - trend and part of our company purpose, sustainability is a significant business opportunity as well as one of the reasons that we are in business. For example, we are enabling a low-carbon society with our electrification and automation solu - tions. Our clients and partners rely on our innovative and sustainable technologies for holistic benefits. See the following page for an example of how sustainabil - ity turns into a business opportunity for ABB. Sustainability risks and climate change in particular can impact our operations and financial performance. That is why we support the Task Force on Climate-re - lated Financial Disclosures (TFCD) frame - work and include it in our reporting (see next chapter). Further sustainability-re - lated aspects of our risk management in - clude, among others: • Human rights risk management and mitigation: these are part of our standard risk review process for screening major ABB projects, supplier engagements and potential mergers & acquisitions. • Supplier risks and conflict minerals: we rely on our Sustainable Supply Base Management (SSBM) and conflict minerals management programs to manage risks related to our relationships with suppliers. • Integrity risks: we assess and monitor reputational and legal risks arising from our relationships with third parties, including our sales channel, as well as from our own teams to mitigate fraud, corruption and any other risks related to business ethics. To manage our sustainability risks, we have several policies, governance struc - tures and measures in place, includ - ing: Code of Conduct, Supplier Code of Conduct. The latter is derived from our Code of Conduct and takes account of the 10 principles of the UN Global Com - pact, the ABB Policy Combating Traffick - ing in Persons, the ABB Policy on Con - flict Minerals, our Human Rights policy and statement, our Social policy, supply chain and contractor questionnaires, as well as internal policies and guidelines. Furthermore, we dispose of a business ethics helpline, a Sustainability Board, Health/Safety/Environment (HSE) & Se - curity functions as well as regular train - ings and audits. We also have due diligence practices in place and continuously work towards further improvements, including assess - ing risks related to conflict minerals and child labor as will be required in 2023 by Swiss law, in accordance with the coun - terproposal to the Responsible Business Initiative. We have established a “Conflict Minerals Compliance Program” to review the use of conflict minerals in our prod - ucts and are committed to not buying products and materials containing con - flict minerals directly from conflict mines and working towards conflict-free trade with our suppliers. With the Form SD Specialized Disclosure Report, we submit our Conflict Minerals Report to the US SEC. We support the principles contained in the OECD Guidelines for Multinational Enterprises and the ILO Core Conven - tions on Labour Standards and are com - mitted to implementing the United Na - tions Guiding Principles on Business and Human Rights (UNGP) throughout our operations and along the value chain. We issue a Modern Slavery Statement an - nually pursuant to the U.K. Modern Slav - ery Act 2015 and the Australian Modern Slavery Act 2018. → For more information about how we man - age our sustainability risks, please refer to the chapters on “Hu - man rights” and “Re - sponsible sourcing” in our Sustainability Report 2022. — Sustainability risks and opportunities 92 ABB INTEGRATED REPORT 2022 RISKS AND OPPORTUNITIES For your home Holistic energy management Combined HVAC offering Enhanced connectivity For commercial buildings LOWER ENERGY COSTS SIMPLE DEVICE MANAGEMENT REDUCED CARBON FOOTPRINT ABB partners with Samsung Electron- ics to drive holistic smart building technology In 2022, we entered a collaboration with Samsung Electronics to provide remote monitoring and control solutions that de - liver energy and cost savings in residential and commercial buildings. By connecting Samsung’s SmartThings application to ABB’s home automation solutions, resi - dents will be able to monitor and manage their appliances, gas and smoke sensors, energy, security and comfort systems from a single application. This partnership is just one example of how the challenge of reducing energy consumption can be turned into a business opportunity that makes buildings more sustainable while improving people’s quality of life. → For more information about how we man - age our sustainability opportunities, please refer to our Sustain - ability Report 2022. 93 ≡ Table of contents Previous chapter Next chapter — TCFD Recom- mendations report As a company that is exposed to the consequences of climate change and at the same time can have a considerable influence on climate change mitigation and adaptation, we strongly identify with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) to report on how we contribute towards climate change mitigation through GHG emissions reduction, how we reduce our negative impact and what climate change means to ABB in terms of financial risks and opportunities and business resilience. This is our first report in line with the structure proposed by TCFD, but we have been reporting towards similar disclo - sures through our CDP climate question - naires for many years. We will continue developing our TCFD reporting in the next year, in line with the upcoming Swiss Ordinance on Climate Reporting and U.S Securities and Exchange Commission (SEC) Climate Risk Disclosures. 94 ABB INTEGRATED REPORT 2022 RISKS AND OPPORTUNITIES 95 ≡ Table of contents Previous chapter Next chapter ABB’s Board of Directors has ultimate responsibility for ABB’s sustainabil - ity strategy, its sustainability targets as well as the annual Sustainability Re - port, and monitors progress and target achievements. It receives reports on sustainability-related topics including climate from the Executive Committee on a quarterly basis. The Governance & Nominations Committee (GNC) ensures that sustainability topics are holistically considered and integrated into the com - pany’s strategy and sets a long-term commitment. towards sustainability goals, while the Compensation Commit - tee ensures that ABB’s remuneration pol - icies are linked to the achievement of its sustainability targets. The extensive busi - ness and sustainability expertise and ex - perience of our Board members enables them to apply the right judgement and make informed decisions about sustain - ability and climate matters (see also com - petence matrix in the chapter “Corporate Governance summary”). — Climate-related governance The ABB Sustainability Board, compris - ing all Executive Committee members and chaired by the CEO, validates the sustainability strategy and its imple - mentation, and the resources required to deliver it. It is also responsible for re - viewing and validating strategic goals and ensuring that a culture focused on sustainability is embedded in the com - pany. This includes both assessing and managing climate-related risks and op - portunities. Formal sustainability and climate-related sessions happen at least every second month. The Chief Commu - nications and Sustainability Officer, who is a member of the Executive Committee, has functional responsibility and reports to the GNC on sustainability-related top - ics and progress. The Sustainability Board is advised by a Sustainability Council, consisting of the Group Head of Sustainability and repre - sentatives from each of our four business areas. The Sustainability Council’s pur - pose is to ensure alignment across the Group on the strategic direction of sus - tainability, common topics and sharing of best practices. As the operational body that oversees sustainability policies and programs, re - views developments, and monitors prog - ress toward our targets, the Sustain - ability Council makes recommendations to the Sustainability Board on strategy, target deployment and performance reviews. — Board of Directors — Executive Committee → More information about our sustain - ability governance framework and our governance struc - ture for sustainability can be found in our Sustainability Report 2022. 96 ABB INTEGRATED REPORT 2022 RISKS AND OPPORTUNITIES We continuously identify, monitor and manage climate-related risks and oppor - tunities over the short- (1 year), medium- (2–5 years) and long-term (5–20 years). They fall into two major categories: risks related to the physical impacts of climate change and risks related to the transition towards a low-carbon economy, which are already present to some extent. As global temperatures rise, acute physical risks will become more likely and may be - come more severe. New additional risks may also emerge. Long-term climate risks and opportunities are assessed in our analyses of science-based climate and emissions scenarios. These help us to understand how our global emissions in our value chain must progress over the coming 10, 15 and 20 years, and serves as a basis for assessing options and costs, and for setting long-term targets. Physical risks Physical risks are direct effects from cli - mate change and can result in extreme weather events such as hurricanes or floods or in long-term chronic climate conditions like sustained higher tem - peratures leading to rising sea levels or more severe heat waves. These risks can have financial implications through dam - age to assets, reduced availability of re - sources or disruption of operations and supply chains. For example, ABB sites around the world are vulnerable to water-related incidents caused by extreme weather events, such as flooding from heavy rain, storms or hurricanes. These events may cause dis - turbances or interrupt production for several months at a time. They can also affect our supply chain. If the produc - tion of key suppliers is interrupted as has happened in the past due to severe flooding in South-East Asia, our own pro - duction and revenues may be impacted as well. Upstream risks related to climate change are business continuity risks that are typically part of the ongoing dialogue that ABB has with its suppliers. Transitional risks As the world tries to move towards a lower-carbon economy, the increas - ing challenge of climate change may lead to significant changes in the exter - nal environment in which we are operat - ing. Measures to mitigate and adapt to climate change may lead to significant policy, legal, technological and market changes that would affect our finan - cial position, strategic decisions and the way we operate. An example of emerging regulation would be carbon pricing mechanisms. Today, ABB is already paying carbon taxes in several countries, particularly in Europe, and carbon tax legislation and the carbon price are likely to increase in the coming years. The higher our scope 1 emissions, the more carbon tax we pay. Therefore, reducing our GHG emissions is not only good for the environment, but also for our business. Climate-related opportunities Climate change can also represent oppor - tunities for growth, improvements and value creation. With our purpose, strategy and operating model, we believe that ABB is best positioned to help the world mitigate and adapt to climate change and create financial value at the same time. By increasing energy efficiency, switch - ing to renewable energy sources and — Climate-related strategy — Climate-related risks and opportunities 97 ≡ Table of contents Previous chapter Next chapter moving toward circular business models, we are able to reduce costs and improve resilience even in times of crisis. With our leading technologies, we can make an even bigger impact in our customers’ op - erations. By helping them reduce energy and resource consumption and avoid emissions, we make them more sustain - able while driving further demand for our products, solutions and services. To help our customers reduce GHG emis - sions, we have identified products and solutions from our portfolio that deliver emissions reductions. These include en - ergy-efficient electric motors and drives and advanced automation, digital and electrification solutions for energy- intensive industries. As many customers lack expertise in energy management, ABB offers an end-to-end approach and one-stop-shop for building automation and smart energy management solu - tions. These include the ABB Ability™ Building Ecosystem, NeoGear low-voltage switchgear solutions and the ABB Abil - ity™ Energy and Asset Manager. Crucially, we also support the energy transition with technologies that integrate power from intermittent renewable sources into the electricity grid. For ABB, this rep - resents a huge opportunity both in the short- and medium-term. We assess the impact of climate-related risks on ABB and its value chain and what they could mean in terms of finan - cial costs, as well as how we can mitigate them. At the same time, we also con - sider the opportunities that such risks create for us as a business to drive value creation. The identification of climate- related business impacts and effects is also part of our strategic planning pro - cess as ABB has clearly identified climate change as a long-term, global challenge that requires low-carbon, high efficiency solutions. Our business strategy is sup - ported by our long-term commitment to innovation and technology leadership in areas such as high-efficiency electrifica - tion, automation and control systems, robotics and motion solutions, and tech - nologies to capture the full potential of renewable energies. Through our sustain - ability strategy 2030 and by joining the “Business Ambition for 1.5°C” pledge, we are committed to achieving carbon neu - trality by 2030 in our own operations and to net-zero value chain GHG emissions by no later than 2050. We can significantly contribute towards a low-carbon society through our prod - ucts, systems and services that help our customers reduce GHG emissions. The — Impact on our business and strategy → More information on EU Taxonomy can be found in our Sustain - ability Report 2022. related market opportunities, which in - clude smart building solutions, urban infrastructure, clean energy, energy ef - ficiency and mobility systems, are pro - jected to be worth more than $5 trillion by 2030 (Business and Sustainable Devel - opment Commission, January 2017). ABB has also identified water and waste - water as a growth segment that also plays an important role in climate discus - sions. In 2022, approx. 3 percent of our revenues came from this growth seg - ment. In addition, we continuously invest in improving our energy and climate per - formance, which makes our operations more sustainable and resilient. In 2021, we started to assess the extent to which our activities are reflected in the Euro - pean Union’s common classification sys - tem for sustainable economic activities, known as the “EU Taxonomy” and con - tinued with the alignment assessment in 2022. The following table provides an overview of some of the main risks and opportuni - ties that we have identified through our risk management processes (see more under “Risk and opportunity manage - ment”), what they mean for us and how we deal with them: 98 ABB INTEGRATED REPORT 2022 RISKS AND OPPORTUNITIES Category Where it impacts our value chain Time horizon Likelihood Severity 1 (Potential) Impact Measures taken RISKS PHYSICAL Acute Floods Direct operations Short-term (current) Likely Medium Decreased revenues due to reduced pro - duction capacity Risk mitigation and emergency response program through ongoing Business Continuity Planning Upstream Decreased revenues due to reduced pro - duction capacity fol - lowing a supply chain disruption We maintain comprehensive engage - ment with our suppliers including con - sideration of sustainability and climate related issues. Chronic Droughts Direct operations Long-term (emerging) Likely Medium Sustained higher tem - peratures may lead to droughts and in - creased water stress in certain regions. While the majority of our manu- facturing processes are not water- intensive, we work on minimizing the water impacts of ABB’s operations through the use of the World Resources Institute’s Aqueduct global water risk tool. TRANSITIONAL Policy and legal risk Carbon pricing Direct operations Medium- term (emerging) Likely Medium Increased direct costs Investments in energy efficiency and emission reduction Market risk Supply chain discruption Direct opera - tions/ Upstream Medium- term (emerging) Likely Medium Based on the geo - graphic location of our suppliers, com - modity risk exists, which can result in limited supply of products or increased purchase prices. We proactively identify, assess and address sustainability issues at our high-risk suppliers through our SSBM. Reputation risk Stakeholder expectations Direct operations Medium- term (emerging) Low Medium Loss of reputation if we fail to meet climate-related regu - lations or stakeholder expectations. Our Purpose, strategy and operating model help us build a sustainable busi - ness. We directly engage with our stakeholders, build partnerships and actively support and disclose trans - parently according to climate related initiatives such as TCFD and CDP. OPPORTUNITIES Products and services Low emission goods and services Downstream Medium- term (current/ emerging) Certain High Increased revenues resulting from in - creased demand for products and services R&D investments in offerings that help customers reduce GHG emissions, marketing Carbon pricing Downstream Medium- term (emerging) Likely High Customers facing in - creased costs due to carbon pricing, are keen to reduce their GHG emissions by buying and using our offering. R&D investments in offerings that help customers reduce GHG emissions, marketing Resource efficiency Energy and emissions reduction Direct operations Short-term (current) Certain Medium Reduced direct costs Investments in energy efficiency measures in our own operations (e.g., HVAC systems, energy efficient light - ing, compressed air systems, building improvements, specific manufacturing process improvements). 1 Scale: low, medium, high. 99 ≡ Table of contents Previous chapter Next chapter Category Where it impacts our value chain Time horizon Likelihood Severity 1 (Potential) Impact Measures taken Energy source Shifting towards renewable energy sources Direct operations Medium- term (current) Certain Medium Reduced direct costs and stable energy supply We are working towards 100% renew - able electricity, which increases the share of renewable energy sources and reduces our dependence on fossil energy. Markets and technology Transition to a lower-carbon economy Direct operations Short- to long-term (current/ emerging) Certain High Matching our customer offering with market and technology trends Technology development related to cli - mate change is a big opportunity for ABB. Examples are electric motors and drives for highest energy efficiency in line with Ecodesign Regulation (EU 2019/1781) or the rapid develop - ment of EV-charging for electric vehi - cles as the road transport sector is shifting away from fossil fuels. ABB has reviewed the various RCP (Rep - resentative Concentration Pathway) sce - narios of the IPCC (Intergovernmental Panel on Climate Change) to inform our understanding of physical risks linked to our operations and to our 2030 sustain - ability strategy. We have based our as - sessment of our climate-related physical risks on RCP 4.5, which is an intermediate scenario likely to result in a global tem - perature rise of 2–3°C by 2100. In this sce - nario, sea levels are expected to rise and extreme weather events, including heavy precipitation, drought and heat waves, to become more frequent. Our sites are prepared for emergencies to keep our people safe and maintain business conti - nuity. These analyses feed into our busi - ness continuity plans and preparations. For example, we use the World Resources Institute’s (WRI) Aqueduct global water risk tool to assess our facilities accord - ing to the level of baseline water stress of the local watershed. Of the 332 ABB locations mapped in 2022, 36 face an ex - tremely high level of water stress, 58 face a high level and 39 face a medium-to-high level. The tool not only helps us assess water stress at our sites, but also the lev - els of groundwater depletion, flood risk and seasonal variability of water avail - ability at our sites, which is extremely useful for our work in managing water risk. ABB has also used different scenarios to understand the speed at which we need to decarbonize our own operations to be in line with scientific estimates. This helped us set science-based targets in line with the 1.5°C trajectory of the Paris Agreement, in which ABB commits to re - duce absolute scope 1 and 2 GHG emis - sions by at least 80 percent between 2019 and 2030. Many of ABB’s technologies directly ad - dress the causes of climate change and our market opportunity and value proposition assessments and product/ systems development roadmaps, rely di - rectly or indirectly on climate-related sce - nario analysis and expectations linked to climate-related policy and standards development. For longer-term trends, the analysis shows that ABB is well posi - tioned in very attractive markets. We will further intensify our work on climate risk modelling in the coming year to be able to provide an even more comprehensive analysis including financial quantification of risks and opportunities. — Business resilience and scenario analysis 100 ABB INTEGRATED REPORT 2022 RISKS AND OPPORTUNITIES ABB includes climate-related risks in its company-wide Enterprise Risk Manage - ment (ERM) process. This holistic risk management process supports the iden - tification, assessment and mitigation of climate-related risks and considers their potential negative impact for us in achieving our business objectives and creating value. Climate risks are also con - sidered in terms of their potential effects on our suppliers and customers across the value chain. ABB has well-developed emergency response programs to manage poten - tial impacts from climate change, such as storms, floods or threats to the wa - ter supply. These include, for example, ABB’s facility and workplace emergency preparedness, protocols for unexpected emergencies and ABB’s mandatory busi - ness continuity plans for our sites. Our Insurance Risk Management function works closely with our global insurance providers to identify risks to our assets and operations. Reviews of facilities are conducted annually or biennially, depend - ing on the value of the asset. Incentive and penalty programs are in place to pro - mote implementation of best practices and risk mitigation and avoidance rec - ommendations. All facilities are required to develop, implement and test business continuity plans. Our risk management approach also covers upstream business continuity risks related to climate change, such as extreme weather conditions affecting our suppliers. This includes comprehen - sive monitoring and development of our supply base to ensure sustainability, both in terms of materials and processes used and is typically part of the ongoing dialogue that ABB has with its suppliers. We operate a worldwide supply chain management network with employees dedicated to this function in our busi - ness areas, divisions and in key countries. Upstream climate change risks and op - portunities are also considered and an - alyzed in our assessment of upstream scope 3 emissions, where we identify the climate impact of all relevant scope 3 categories. With our Sustainable Sup - ply Base Management (SSBM) program, we have a comprehensive approach in place, which includes surveillance of the sustainability performance of our suppli - ers. It involves supplier screening, train - ing, on-site assessment, monitoring and follow-up until all identified non- conformities are closed. We aim to ad - dress sustainability topics and perfor - mance at each stage of supplier lifecycle management as part of our “beyond au - dit” approach and have at least 80 per - cent of our supply spend in focus coun - tries covered by SSBM by 2030. For mitigating transitional risks linked to our exposure to current and potential carbon taxes, as well as realizing oppor - tunities linked to cost savings, we invest in energy efficiency and emissions re - ductions throughout our operations. We have committed to electrifying our fleet of more than 10,000 vehicles by 2030 and to continue deploying energy manage - ment systems at the company’s sites. Our substantial annual investments in en - ergy efficiency and emissions reduction projects frequently come along with fa - vorable break-even time. This includes in - vestments in low-carbon energy sources, compressed air systems, heating, venti - lation and cooling systems. The largest part of the investment was made in energy-efficient lighting. → For more informa - tion see chapter “Risk and opportunity management”. — Climate risk management 101 ≡ Table of contents Previous chapter Next chapter Through our sustainability strategy 2030 and by joining the “Business Ambi - tion for 1.5°C” pledge, we are committed to achieving carbon neutrality by 2030 (scope 1 and 2 GHG emissions) and net- zero value chain GHG emissions before 2050. These targets are validated and approved by the Science Based Target initiative. By 2030, we will reduce our own emis - sions by at least 80 percent and work with our customers and suppliers to re - duce their emissions and implement sus - tainable practices across our value chain. By 2030, we aim to cover at least 80 per - cent of ABB’s portfolio of products and solutions with a circularity approach and send zero waste to landfill while taking measures to prevent waste generation. We track our scope 1, 2 and 3 emissions, as well as waste generation and wa - ter withdrawal, especially from water- stressed areas. We also aim to increase the share of our economic activities related to turnover, Opex and Capex that are classified as sustainable in accordance with the EU Taxonomy, especially through their con - tribution towards the environmental ob - jectives of climate change mitigation and adaptation. — Climate-related metrics and targets → Additional informa - tion can be found in our Sustainability Re - port 2022. 102 ABB INTEGRATED REPORT 2022 RISKS AND OPPORTUNITIES 103 103 ≡ Table of contents Previous chapter Next chapter ≡ Table of contents Performance 104 ABB INTEGRATED REPORT 2022 PERFORMANCE 106 We deliver financial performance 124 We create value through world-class technology 132 We enable a low-carbon society 140 We preserve resources 146 We promote social progress 156 We create a culture of integrity and transparency along the extended value chain PERFORMANCE 03 105 ≡ Table of contents Previous chapter Next chapter — We deliver financial performance 106 ABB INTEGRATED REPORT 2022 PERFORMANCE ABB’s financial framework mirrors the company’s ambition for improved performance and reflects increased accountability, transparency and speed in deci- sion making. Through our focused portfolio around sustainability and resource efficiency, improvement of the quality of revenues and exposure to high-growth markets in our decentralized divisions, we generate increasing growth rates. Strong finan - cial performance allows for solid and at - tractive shareholder returns and sustains our long-term value creation for all of our stakeholders. . 107 ≡ Table of contents Previous chapter Next chapter → For additional infor- mation and analysis about individual business area revenues and order performance, refer to the relevant sections of “Business analysis” in our Financial Report 2022. 1 For non-GAAP measures see chap - ter “Alternative per - formance measures”. — Orders and revenues In 2022, total orders increased 7 percent compared with 2021 (16 percent compa - rable1). All business areas contributed to the robust order growth due to strong demand across all regions and most cus - tomer segments. A favorable trend was noted for the product and project busi - ness as well as service. In addition to strong underlying markets, the order in - take was additionally supported in the first half of the year by customers placing some orders early in an effort to secure deliveries in an environment with gener - ally tight supply chains. As supply chain constraints progressively eased during the latter part of the year, customer or - der patterns normalized. For the year in total, both volumes and pricing contri- buted to the robust growth development, more than offsetting the negative im - pact from exchange rate fluctuations and portfolio changes. The main contribution to increased orders derived from strong order growth in the Electrification and Robotics & Discrete Automation busi - ness areas. Both Process Automation and Motion contributed with low-single digit growth, with the former impacted by the Accelleron (formerly Turbocharging divi - sion) spin-off in October 2022, while the latter was impacted by the divestment of the Mechanical Power Transmission busi - ness in November 2021. Customer activity was strong across all regions. Order intake in the Americas in - creased by 19 percent (28 percent com - parable) driven by the United States. Or - ders in Europe developed basically flat at -1 percent (up 13 percent comparable), supported by most larger markets in the region. The Asia, Middle East and Africa region reported an increase of 3 percent (10 percent comparable), in - cluding growth of 1 percent (5 percent comparable) in China. In 2022, revenues increased by 2 per - cent (12 percent comparable). During the first half of the year, revenues were ham - pered as component constraints some - what hindered customer deliveries. Sup - ply chains, however, progressively eased throughout the year, triggering higher revenue growth rates in the latter part of the year, when excluding the negative impact from exchange rate fluctuations and portfolio changes. All business ar - eas benefitted from increased volumes and strong pricing execution. Electrifica - tion was the largest contributor to ABB’s revenue growth with a 7 percent increase (14 percent comparable). Motion and Pro - cess Automation both declined 3 percent (up 14 percent and 7 percent comparable, respectively) due to the adverse impact from the divestment of the Mechanical Power Transmission business in Novem - ber 2021 on the former and the Accel - leron (formerly Turbocharging division) spin-off in October 2022 on the latter. Ro - botics & Discrete Automation reported a moderate revenue decline of 4 percent (up 4 percent comparable), with growth benefiting in the second half of the year as component constraints eased. Overall, the strong order intake for ABB coupled with revenues that were somewhat ham - pered by a strained supply chain, resulted in a positive book-to-bill ratio of 1.15 for the year. 108 ABB INTEGRATED REPORT 2022 PERFORMANCE GROWTH Change year-on-year FY 2022 Orders FY 2022 Revenues Comparable 16% 12% FX -6% -7% Portfolio changes -3% -3% Total 7% 2% ORDERS BY REGION ($ in millions, unless otherwise indicated) FY 2022 FY 2021 Change US$ Comparable 1 Europe 11,778 11,857 -1% 13% Americas 11,825 9,940 19% 28% Asia, Middle East and Africa 10,385 10,071 3% 10% ABB Group 33,988 31,868 7% 16% REVENUES BY REGION ($ in millions, unless otherwise indicated) FY 2022 FY 2021 Change US$ Comparable 1 Europe 10,286 10,529 -2% 12% Americas 9,572 8,686 10% 19% Asia, Middle East and Africa 9,588 9,730 -1% 6% ABB Group 29,446 28,945 2% 12% 35,000 30,000 25,000 20,000 % $ in millions 2020 2021 2022 2019 2018 ORDERS 35,000 30,000 25,000 20,000 20 10 0 -10 % $ in millions 2020 2021 2022 2019 2018 REVENUES Orders Comparable growth % Revenues Comparable growth % 20 10 0 -10 109 ≡ Table of contents Previous chapter Next chapter — Earnings Gross profit Gross profit increased by 3 percent (11 percent in constant currency 1) to $9,710 million in 2022, supported by a gross margin improvement of 30 basis points to 33.0 percent. Increases were noted in three out of four business areas, while Robotics & Discrete Automation declined. Income from operations Income from operations in 2022 amoun- ted to $3,337 million down from $5,718 million in the prior year. Results included a charge triggered by the exit of the leg - acy full-train retrofit business in non-core operations as well as a provision related to the legacy Kusile project in South Afri- ca awarded in 2015. Results in 2021 in - cluded a book gain of $2.2 billion related to the divestment of the Mechanical Power Transmission business. Operational EBITA 2 In 2022, Operational EBITA improved by 9 percent (18 percent in constant cur - rency) to $4,510 million and the Opera - tional EBITA margin2 increased by 110 ba - sis points to 15.3 percent, achieving the margin target of at least 15 percent one year earlier than expected. Performance was driven by the positive impacts from strong pricing execution and higher vol - umes, which more than offset cost infla - tion in raw materials, freight and labor. Additionally, Corporate and Other Opera - tional EBITA improved by $169 million to -$169 million, partly due to higher real es - tate gains and a better non-core result. Net finance expenses and non-opera- tional pension credits The net finance expenses declined $39 million to $58 million in 2022. Non-operational pension credits declined $51 million to $115 million compared to the same period last year. Income tax Income tax expense was $757 million with a tax rate of 22.3 percent up from 18.3 percent in 2021, due primarily to the adverse impacts from non-deductible non-operational charges as well as a positive impact related to a release of a valuation allowance on deferred tax as - sets due to the improved business per - formance mainly related to the US. In 2021, the tax impacts related to the sale of the Dodge business reduced the effec - tive tax rate by approximately 5 percent. Net income and earnings per share Net income attributable to ABB was $2,475 million and decreased by 46 per - cent. Basic earnings per share was $1.30 and decreased by 43 percent. Both mea - sures were adversely impacted by the charges triggered by the exit of the leg - acy full-train retrofit business in non- core operations as well as the provision related to the legacy Kusile project in the current year and include a book gain re - lated to the divestment of the Mechani - cal Power Transmission business in 2021. 1 Constant currency (not adjusted for portfolio changes). 2 For non-GAAP measures see chap - ter “Alternative per - formance measures”. 110 ABB INTEGRATED REPORT 2022 PERFORMANCE 10,000 9,000 8,000 7,000 6,000 5,000 35 33 31 29 27 25 2020 2021 2022 2019 2018 GROSS PROFIT & GROSS MARGIN % $ in millions Gross profit Gross margin % BASIC EPS 3.00 2.50 2.00 1.50 1.00 0.50 0.00 $ per share 2020 2021 2022 2019 2018 6,000 4,000 2,000 0 20 15 10 5 % $ in millions 2020 2021 2022 2019 2018 INCOME FROM OPERATIONS & OPERATIONAL EBITA Operational EBITA Income from operations Operational EBITA margin % 111 ≡ Table of contents Previous chapter Next chapter — Balance sheet and cash flow Net working capital Net working capital amounted to $3,216 million, increasing year-on-year from $2,303 million. The increase mainly re - flects the impact from higher inventories. Net working capital as a percentage of revenues1 increased from 8. 1 percent at the end of 2021 to 11.1 percent at the end of 2022. Capital expenditures Purchases of property, plant and equip - ment and intangible assets amounted to $762 million in 2022 compared to $820 million the year before. Cash flows Cash flows from operating activities in continuing operations in 2022 provided net cash of $1,287 million, a decrease of 61 percent compared to 2021 of which 7 percent was due to movements in ex - change rates. In addition, in 2022, we had lower cash effective net income partially due to costs associated with business transformation activities and payments of approximately $315 million in rela - tion to regulatory penalties for the Kusile project. In 2022, an increase in both busi - ness volumes and inflation driven cost and price changes resulted in growth in our working capital. Free cash flow1 was $652 million, 75 percent lower on a year-on-year ba - sis, and FCF conversion to net income1 27 percent. Return on Capital Employed The Group’s benchmark for the measure - ment of returns is Return on Capital Employed (ROCE)1. The Group’s ROCE significantly increased into the 15 to 20 percent target range to 16.5 percent from 14.9 percent in 2021. The improvement was driven by a higher Operational EBITA compared to 2021. The Group’s ROCE was negatively impacted by approximately 130 basis points due to the 19.9 percent ownership interest in Hitachi Energy. Net debt 1 Net debt amounted to $2,779 million at the end of 2022 and increased from a net cash position of $98 million, year-on- year. Net debt to EBITDA ratio increased to 0.67 from (0.01) last year, due primarily to lower cash generation from operating activities in 2022, while we increased our total cash payments to shareholders in the form of dividends and purchases of treasury stock. 1 For non-GAAP measures, see the “Alternative perfor - mance measures”. $ in millions, unless otherwise indicated Dec. 31 2022 Dec. 31 2021 Short-term debt and current maturities of long-term debt 2,535 1,384 Long-term debt 5,143 4,177 Total debt 7,678 5,561 Cash & equivalents 4,156 4,159 Restricted cash - current 18 30 Marketable securities and short-term investments 725 1,170 Restricted cash - non-current – 300 Cash and marketable securities 4,899 5,659 Net debt (cash) 2,779 (98) 112 ABB INTEGRATED REPORT 2022 PERFORMANCE 1 2022, 2021, 2020 and 2019 are not compa - rable to 2018 due to the adoption of the new lease accounting standard in 2019. 3 2 1 0 300 200 100 0 % % USD bn 2020 2021 2022 2019 2018 FREE CASH FLOW AND CONVERSION RATE 20 18 16 14 12 10 8 2020 2021 2022 2019 2018 Return on Capital employed ROCE 1 Impact of PG JV ownership interest Target range 15–20% Free cash flow % of net income Net debt, $ bn Net debt/EBITDA ratio RETURN ON CAPITAL EMPLOYED 5 4 3 2 1 0 2.0 1.6 1.2 0.8 0.4 0.0 2018 2019 2020 2021 2022 NET DEBT $ in billions 113 ≡ Table of contents Previous chapter Next chapter — Performance of business areas ELECTRIFICATION KEY FIGURES $ in millions, unless otherwise indicated Change FY 2022 FY 2021 US$ Comparable Orders 15,901 14,381 11% 17% Order backlog 6,933 5,458 27% 33% Revenues 14,105 13,187 7% 14% Operational EBITA 2,328 2,121 10% as % of operational revenues 16.5% 16.1% +0.4 pts Cash flow from operating activities 1,887 2,181 -13% No. of employees (FTE equiv.) 52,300 50,800 3% Strong financial performance for ABB Group in full-year 2022 supported by improvements in all business areas. Operational EBITA Income from operations Operational EBITA margin % Orders Revenues ORDERS AND REVENUES 16,000 13,000 10,000 $ in millions $ in millions 2018 INCOME FROM OPERATIONS & OPERATIONAL EBITA 4,000 2,000 0 20% 15% 10% 2019 2020 2022 2021 2018 2019 2020 2022 2021 114 ABB INTEGRATED REPORT 2022 PERFORMANCE MOTION KEY FIGURES $ in millions, unless otherwise indicated Change FY 2022 FY 2021 US$ Comparable Orders 7,896 7,616 4% 20% Order backlog 4,726 3,749 26% 34% Revenues 6,745 6,925 -3% 14% Operational EBITA 1,163 1,183 -2% as % of operational revenues 17.3% 17.1% +0.2 pts Cash flow from operating activities 853 1,362 -37% No. of employees (FTE equiv.) 21,100 20,100 5% Operational EBITA Income from operations Operational EBITA margin % Orders Revenues ORDERS AND REVENUES 8,000 7,000 6,000 $ in millions $ in millions 2018 INCOME FROM OPERATIONS & OPERATIONAL EBITA 4,000 2,000 0 20% 16% 12% 2019 2020 2022 2021 2018 2019 2020 2022 2021 115 ≡ Table of contents Previous chapter Next chapter PROCESS AUTOMATION KEY FIGURES $ in millions, unless otherwise indicated Change FY 2022 FY 2021 US$ Comparable Orders 6,825 6,779 1% 11% Order backlog 6,229 6,079 2% 16% Revenues 6,044 6,259 -3% 7% Operational EBITA 848 801 6% as % of operational revenues 14.0% 12.8% +1.2 pts Cash flow from operating activities 675 1,062 -36% No. of employees (FTE equiv.) 20,100 22,000 -8% Operational EBITA Income from operations Operational EBITA margin % Orders Revenues ORDERS AND REVENUES 7,000 6,000 5,000 $ in millions $ in millions 2018 INCOME FROM OPERATIONS & OPERATIONAL EBITA 2,000 1,000 0 15% 10% 5% 2019 2020 2022 2021 2018 2019 2020 2022 2021 116 ABB INTEGRATED REPORT 2022 PERFORMANCE ROBOTICS & DISCRETE AUTOMATION KEY FIGURES $ in millions, unless otherwise indicated Change FY 2022 FY 2021 US$ Comparable Orders 4,116 3,844 7% 15% Order backlog 2,679 1,919 40% 48% Revenues 3,181 3,297 -4% 4% Operational EBITA 340 355 -4% as % of operational revenues 10.7% 10.8% -0.1 pts Cash flow from operating activities 214 374 -43% No. of employees (FTE equiv.) 10,700 10,600 0% Operational EBITA Income from operations Operational EBITA margin % Orders Revenues ORDERS AND REVENUES 4,500 3,500 2,500 $ in millions $ in millions 2018 INCOME FROM OPERATIONS & OPERATIONAL EBITA 600 300 0 -300 15% 10% 5% 0 2019 2020 2022 2021 2018 2019 2020 2022 2021 117 ≡ Table of contents Previous chapter Next chapter — Acquisitions and divestments During 2022 we accelerated the pace of strategic partnerships as well as bolt-on acquisitions driven by the divisions. Mo - tion announced their first two acquisi - tions in over a decade at combined reve - nues of approximately $125 million. Both the Siemens low voltage NEMA motor business and the PowerTech Converter acquisition will help the respective di - visions to further cement their leading market positions. We have also driven minority investments through our divi - sional lens. Both the InCharge Energy and Numocity majority acquisitions made earlier this year are good exam - ples that these minority investments can later also become acquisition tar - gets. As part of our future strategy, we continue to aim to complete five or more bolt-on acquisitions each year. Active portfolio management continues to be part of our performance culture. On the back of systematic portfolio re - views we ascertain whether, ultimately, ABB is the best owner of the different businesses. We continued to make strong progress in aligning our business port - folio with our purpose and fully focus on the areas of electrification and automa - tion. We completed the spin-off of the Turbocharging division in October, and sold the remaining 19.9 percent interest in Hitachi Energy to Hitachi in December 2022. The net cash received from the sale further strengthened our balance sheet, giving us additional flexibility in our cap - ital allocation decisions. After the end of the year, we also reached an agreement in January 2023 to sell our Power Conver - sion division to AcBel Polytech Inc. for $505 million in cash. The transaction is subject to regulatory approvals and is expected to be completed in the second half of 2023. At the same time, we remain commit - ted to our strategy to separately list our E-mobility business subject to construc - tive market conditions. In the meantime, we received gross proceeds of approxi - mately CHF 200 million through a pri - vate placement of shares in ABB E-Mobil - ity Holding Ltd in November 2022. After the end of the year, we increased the amount of funding raised through the private placement, increasing the total by an additional CHF 325 million in Febru - ary 2023. We remain a committed partner to ABB E-mobility with a shareholding of approximately 81 percent. — Acquisitions — Divestments 118 ABB INTEGRATED REPORT 2022 PERFORMANCE DIVISIONS ACCOUNTABLE TO DRIVE ACQUISITION STRATEGY PACE ACCELERATING IN 2022 Product whitespace Filling a technology gap New segments Complement offering for high growth segments Ambition is a run-rate of ≥5 small to mid-size bolt-ons per year Market access New geographic market opportunities Economies of scale Market consolidation January March April May June July August September November December October Morrow Batteries MO Traction YKC Charging EL E-mobility Mavenoid EL Smart Buildings Numocity EL E-mobility Revenues 1 : <$1 mn Siemens LV NEMA motor business 2 MO NEMA motors Revenues 1 : ∼$63 mn Tallarna EL Smart Power Okto EL Service Viking Analytics EL Distribution Solutions Hydrogen Optimized PA Process Industries PowerTech Converter MO Traction Revenues 1 : ∼€60 mn Samotics MO Service ASKI Energy EL Smart Power Revenues 1 : ∼$2 mn Scalable Robotics RA Robotics Zaphiro EL Distribution Solutions InCharge Energy EL E-mobility Revenues 1 : ∼$16 mn ChargeLab EL E-mobility Cassia Networks MO Service Majority acquisitions Minority investments 1 Represents the estimated annual revenues for the last fiscal year prior to the announcement of the respective acquisition. 2 Announced, expected to close in Q2 2023. 119 ≡ Table of contents Previous chapter Next chapter 1 Proposed by the Board of Directors and subject to ap - proval by sharehold - ers at the Annual General Meeting on March 23, 2023. 2 Calculation based on weighted-aver - age number of shares outstanding. 3 Calculation based on the number of shares outstanding at De - cember 31. 4 Dividend per share (converted to U.S. dollars at year-end exchange rates) divided by basic earn - ings per share. — Share developments During 2022, the price of ABB Ltd shares listed on the SIX Swiss Exchange de- creased 17 percent, while the Swiss Mar - ket Index decreased 17 percent. The price of ABB Ltd shares on NASDAQ Stock - holm decreased 5 percent, compared to the OMX Stockholm 30 Index, which de - creased 16 percent. The price of ABB Ltd American Depositary Shares traded on the New York Stock Exchange decreased 16 percent, compared to the S&P 500 In - dex, which decreased 19 percent. Total shareholder return (including dividends) of ABB Ltd shares listed on the SIX Swiss Exchange was -14 percent during 2022. KEY DATA FY 2022 FY 2021 FY 2020 Dividend per share (CHF) 0.841 0.82 0.80 Votes per share 1 1 1 Basic earnings per share (USD)2 1.30 2.27 2.44 Total ABB stockholders’ equity per share (USD)3 6.85 7.96 7.72 Dividend payout ratio (%)4 70% 40% 37% Weighted-average number of shares outstanding (in millions) 1,899 2,001 2,111 120 ABB INTEGRATED REPORT 2022 PERFORMANCE Zurich Average daily traded number of shares: 4.21 millions CHF 24 25 26 27 28 29 30 31 32 33 34 35 Jan 2022 Feb 2022 Mar 2022 Apr 2022 May 2022 Jun 2022 Jul 2022 Aug 2022 Sep 2022 Oct 2022 Nov 2022 Dec 2022 Jan 2022 Feb 2022 Mar 2022 Apr 2022 May 2022 Jun 2022 Jul 2022 Aug 2022 Sep 2022 Oct 2022 Nov 2022 Dec 2022 Stockholm Average daily traded number of shares: 0.89 millions SEK 260 240 280 300 320 340 360 ABB Swiss Market Index Rebased ABB OMX Stockholm 30 Index Rebased Year end: 316.2 High: 341.3 Low: 255.6 High: 34.54 Year end: 28.06 Low: 24.10 USD Jan 2022 Feb 2022 Mar 2022 Apr 2022 May 2022 Jun 2022 Jul 2022 Aug 2022 Sep 2022 Oct 2022 Nov 2022 Dec 2022 New York Average daily traded number of shares: 2.06 millions 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 High: 37.10 Year end: 30.46 Low: 24.14 Source: FactSet. Data prior to October 3, 2022, has been adjusted for the Accelleron spin-off. 121 ≡ Table of contents Previous chapter Next chapter 5% 4% 3% 2% 1% 0% 2006 2008 2010 2012 2014 2016 2018 2020 2022 DPS (CHF) Dividend yield 1 2013–2022 $17 bn Dividend $11 bn Buybacks 1.00 0.80 0.60 0.40 0.20 0.00 1 Calculated based on the share price at December 31. >$28 BN CASH RETURNED TO SHAREHOLDERS OVER LAST 10 YEARS — Dividends and share buybacks During 2022, ABB distributed a dividend of CHF 0.82 per share to shareholders, totaling $1,700 million. With respect to the year ended December 31, 2022, ABB’s Board of Directors has proposed to dis - tribute a dividend to shareholders in the amount of CHF 0.84 per share. This is subject to approval by shareholders at ABB Ltd’s 2023 Annual General Meeting. The proposal is in line with the our divi - dend policy to pay a rising, sustainable dividend per share over time. In April 2022, we launched a new share buyback program of up to $3 billion. As part of this program, we completed the return of the remaining $1.2 billion out of the $7.8 billion of cash proceeds from the Power Grids divestment. Together with the prior share buyback program, which ran from April 2021 to March 2022, we spent approximately a combined $2.8 bil - lion during the year 2022. We plan to con - tinue our share buybacks for the full-year of 2023 in line with our capital allocation priorities to return excess cash to share - holders through buybacks. 122 ABB INTEGRATED REPORT 2022 PERFORMANCE — Outlook In full-year 2023, despite current mar - ket uncertainty, we anticipate compara - ble revenue growth to be above 5% and we expect to again achieve our long-term target of Operational EBITA margin of at least 15%. 123 ≡ Table of contents Previous chapter Next chapter — We create value through world-class technology To create value for all our stake- holders, we aim to maximize our social, environmental and financial performance, taking into account the interlinkages among the different performance categories. For this purpose, we have defined ambitious targets and report our holistic performance against these targets following the six outcomes as shown in our value creation model. We continuously evolve our offering in order to remain a relevant and trusted partner to our customers. Technology and innovation are key to our stake - holder value creation and long-term success and we invest heavily into world-class technology through research and development and can count on a highly-skilled and motivated workforce. We are committed to staying ahead to help our customers address the world’s energy challenges, transform industries to reach new levels of performance and embed sustainability in everything we do so we can leave behind a healthier and more prosperous world for future generations. 124 ABB INTEGRATED REPORT 2022 PERFORMANCE 125 ≡ Table of contents Previous chapter Next chapter At ABB, our research and development is focused on developing and commer - cializing technologies that are of stra - tegic importance to our future growth. Every year, we invest a significant pro - portion of our revenues in R&D. As of De - cember 31, 2022, we had approximately 7,500 employees working in R&D centers across more than 30 countries in 6 con - tinents, of which about 60 percent were focused on digital and software develop- ment. 13.5 percent of our R&D profes - sionals are women, an increase of 0.2 percentage points since December 2021, in line with our strategy to increase the share of women in our workforce, includ - ing in technical areas (see also chapter “We promote social progress”). In 2022, we invested $1,166 million or approxi - mately 4.0 percent of our 2022 consoli - dated revenues, in R&D activities in our continuing operations. We also spent $48 million or approximately 0.2 percent of our 2022 consolidated revenues, on or - der-related development activities. These are customer- and project-specific efforts that we undertake to develop or adapt equipment and systems to the unique needs of our customers in connection with specific orders or projects. We make sig - nificant investments in future-oriented activities and opportunities and spend it wisely according to individual business’ needs. Since 2016, we have invested more than $7.8 billion in R&D representing an an - nual average of 4-5 percent of revenues. R&D spend by division ranges from 1 to 11 percent of revenues, as each division is different and has different investment needs to secure future growth. — Our approach to R&D 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 1,400 1,200 1,000 800 600 400 200 0.0 2016 2017 2018 2019 2020 2021 2022 R&D spend in million USD R&D as % of revenues OUR R&D INVESTMENTS OVER THE PAST YEARS 126 ABB INTEGRATED REPORT 2022 PERFORMANCE In addition to continuous product development and order-related engineer - ing work, our R&D laboratories develop platforms for technology applications in our businesses. Our main digital platform is ABB Ability™, which is also the brand name of our digital solutions offerings. We seek to maintain a balance between short- and long-term R&D programs and optimize our return on investment. We keep control of our innovations by hold - ing patents, copyrights and other intel - lectual property protections. To complement our business-focused product development, our businesses in - vest jointly in collaborative research activ - ities covering multiple technology areas including artificial intelligence, software, sensors, control and optimization, mecha - tronics and robotics, power electronics, communication technologies, materials and manufacturing, electrodynamics and electrical switching technologies. In this way, we advance technologies that are used in our products and common tech - nology platforms and apply them to mul - tiple product lines. Universities are incubators of future technology and one task of our R&D teams is to transform university research projects into industry-ready technology platforms. We collaborate with multiple universities and research institutions to build research networks and foster new technologies. We believe these collabo - rations shorten the amount of time re - quired to turn basic ideas into viable products. They also help us to recruit and train new personnel. Our university col - laborations include long-term, strategic relationships with leading institutions in the United States, the United Kingdom, Sweden, Germany, Switzerland, Poland, India and China. To enhance our innovation efforts and gain speed, we partner with other leading companies which have complementary competencies and we invest in and col - laborate with start-ups around the world through our venture capital arm, ABB Technology Ventures, and our start-up collaboration hub, SynerLeap. We act as a catalyst to push innovative entrepreneurs to success and bring benefits to ABB cus - tomers and society in the wider sense. In - Charge Energy is a good example, of how initial investments through ABB Techno- logy Ventures can even turn into signifi - cant R&D driven acquisitions. As of Jan - uary 2022 it was incorporated into the ABB family, leveraging synergies for both sides. 127 ≡ Table of contents Previous chapter Next chapter — Patents and trademarks Intellectual property rights are crucial to protect the assets of our business. Over the past ten years, we have added a substantial number of new applications to our existing first patent filings and we will continue to seek patent protection for our technologies, products and solu - tions. As of December 31, 2022, we have a portfolio of approximately 25,000 pend - ing patent applications and granted pa- tents, of which approximately 5,500 are pending applications. This portfolio in - cludes approximately 3,500 utility mod - els and design rights, of which approxi - mately 200 are pending applications. In 2022, we filed close to 500 priority pa- tents, utility model and design applica - tions, each covering a unique invention or unique angle on an invention. Based on our existing intellectual property stra- tegy, we believe that we have adequate control over our core technologies. The “ABB” trademarks and logo are protected in all countries in which we operate. We proactively assert our intellectual pro- perty rights to safeguard the reputation associated with the ABB technology and brand. While these intellectual property rights are fundamental to all our busi - nesses, no business is dependent on any single patent, utility model or design application. 128 ABB INTEGRATED REPORT 2022 PERFORMANCE 129 ≡ Table of contents Previous chapter Next chapter SACE Infinitus: launched an innovative solid-state circuit breaker that makes ships safer and more energy efficient. SACE Infinitus detects and clears short circuit faults 100 times faster than a traditional cir - cuit breaker – and lasts 100 times longer. Terra 360: honored by Time Magazine as one of the best inventions of 2022, this charging sta - tion is not only one of the fastest electric car chargers in the world, but even more impor - tantly also the most flexible one. It can fully charge a car in 15 minutes at a highway hub for example or be used overnight for fleet owners. The Terra 360 can charge up to four vehicles at once. DCS880 converter mod - ules for hydrogen produc - tion: hydrogen has tre - mendous potential as an energy source in the clean energy future. Production of hydrogen however re - quires a lot of energy. — Cutting-edge technology: innovations in 2022 We have fostered our global market leadership thanks to our world-class technology. As in previous years, we launched important innovations in 2022 to remain the relevant and trusted partner of our customers. Digital Powertrain Energy Appraisal: energy ap - praisals are an important way of identifying poten - tial energy savings. With this new digital service, ABB has a new way to boost the power of data. Data is measured from fleets of digitally con - nected motor-driven ap - plications to show where and how much energy can be saved by upgrad - ing to the latest high- efficiency technologies or re-dimensioning the motor(s), among others, allowing industrial opera - tors to make better deci - sions about their technol - ogy investment priorities. — Electrification — Motion By extending the ABB DCS880 drives series with the H8 Turbo (HT8) which is specially de - signed for the hydrogen market, we further ex - panded our offering to enable safe, sustainable and efficient production and use of hydrogen. 130 ABB INTEGRATED REPORT 2022 PERFORMANCE Digital services and soft - ware: we have 80 percent of our employees work - ing in the software area with approximately $500 million in orders, growing at a double-digit rate. One of the new innovative solutions launched in 2022 is the fleet support center OVERSEA, devel - oped by ABB Marine & Ports and Wallenius Ma - rine. This pioneering digi - tal offering combines fleet management exper - tise with advanced ana - lytics to improve a ves - sel’s operational sustainability, efficiency and safety. ABB RobotStudio®: the world’s most used offline simulation tool is now available online thanks to cloud tech - nology. The interface is greatly simplified, en - abling users with lit - tle engineering exper - tise to benefit from the programming tool with ease. ABB’s engineering and programing tool is unique, we are the first to move into cloud. GLA533-NG Sensi+™: this high-tech instru - ment provides natural gas producers and dis - tribution networks with automated, fast and ac - curate monitoring of gas streams in relation to excessive levels of contaminants. Delta robot IRB 365: the newest generation of our delta robots has the fastest pick rates in its class. It can pick, reorient and place 118 items of 1 kg per minute. — Process Automation — Robotics & Discrete Automation Integrated into an explosion-proof en - closure, it is ideal for even the most demand - ing applications in re - mote and/or hazardous locations. 131 ≡ Table of contents Previous chapter Next chapter — We enable a low-carbon society The need for action on climate change is becoming ever more urgent. The hottest years on record have all oc - curred since 1998 and they are increasing in frequency. At the same time, overuse of the earth’s resources and environ - mental degradation are jeopardizing the health and future prospects of huge numbers of people around the world. We are actively helping to reduce green - house gas (GHG) emissions. Our tech - nologies target industry, buildings and transport – sectors that together ac - count for three quarters of global energy consumption. Since the introduction of our ambitious 2030 sustainability tar - gets to enable a low-carbon society, we have already made considerable prog - ress. In 2022, we added mid-term tar - gets 2025 for increased accountability. 132 ABB INTEGRATED REPORT 2022 PERFORMANCE 133 Previous chapter Next chapter ≡ Table of contents We aim to reduce our own emissions (scope 1 and 2) by at least 80 percent by 2030, a target that has been confirmed by the Science Based Targets initiative (SBTi) as being in line with Paris Agree - ment goal to limit global warming to 1.5°C. Our greenhouse gas accounting methodology is based on the globally accepted GHG Protocol. Considering the complete life cycle of our products and services, the biggest environmental footprint lies within our extended value chain. Life-cycle assess - ments (LCAs) help us evaluate the car - bon footprint of our products. The big - gest impact is in our downstream value ENABLING A LOW-CARBON SOCIETY Targets 2030 Mid-term targets 2025 2019 baseline 1 2022 status Achieve carbon neutrality in our own operations by 2030; reduce own scope 1 and 2 emissions by at least 80%2 Reduce own scope 1 and 2 emissions by at least 70% 639 kilotons CO2e (adjusted for portfolio changes in 2022) 65% since baseline and 43% in 2022 alone Work with main tier-one suppliers3 to reduce their scope 1 and 2 CO 2e emissions by 50% Work with main tier-one suppliers3 to reduce their scope 1 and 2 CO2e emissions by 20% Measurement in process Measurement in process 1 Where a baseline applies. 2 Carbon offsets of re - maining 20% CO 2e emissions as a last resort. 3 Suppliers covering 70% of our annual procurement spend. chain, which is when our products are in use by our customers, followed by our suppliers’ footprint in the upstream value chain. Therefore, our ambition is also to help our customers and sup - pliers reduce their GHG emissions. We work intensively on screening, measur - ing and reducing our so-called scope 3 emissions, which represent indirect GHG emissions occurring in our value chain. Examples include emissions from pur - chased goods, business travel or com - muting. Please refer to our Sustainability Report 2022 for more information. 134 ABB INTEGRATED REPORT 2022 PERFORMANCE 135 Previous chapter Next chapter ≡ Table of contents — Climate action in our own operations In 2022, we made considerable prog - ress towards our goal of achieving car - bon neutrality in our own operations by 2030. To achieve carbon neutrality, we have committed to three initiatives of the Climate Group of global companies with the aim of reducing our absolute emis - sions as much as possible. By 2030, we will completely electrify our vehicle fleet (EV100 initiative), source 100 percent of our electricity from renewable energy sources (RE100 initiative) and improve energy efficiency and productivity across our operations (EP100 initiative). These actions will help us achieve our scope 1 and 2 GHG emissions reduction target of at least 80 percent by 2030. We are ex - ploring further solutions for reducing the remaining 20 percent, with carbon offsets as the last resort. In 2022, we re - duced our total energy consumption by 15 percent compared with 2019. Con - sidering the increased energy costs due to the energy crisis that hit in 2022, this represents also an important cost saving. At the end of 2022, 52 percent of our en - ergy consumption and 81 percent of our electricity was sourced from renewables. Since our baseline year 2019, we have re - duced our scope 1 and 2 emissions by 65 percent. 136 ABB INTEGRATED REPORT 2022 PERFORMANCE 800 600 400 200 0 2500 2000 1500 1000 500 0 2020 2019 2021 2022 GWh kilotons CO 2 e Total energy used (GWh) Total Scope 1 and 2 GHG emissions (kilotons CO 2 e) percent of our electricity from renewables 223 1,417 1,505 390 1,542 1,672 528 639 to 34% in 2020 to 53% in 2021 to 81% in 2022 from 24% in 2019 SHARE OF RENEWABLE ELECTRICITY TOTAL ENERGY USED AND TOTAL SCOPE 1 & 2 GHG EMISSIONS Figures in the graphs are adjusted for portfolio changes. 137 Previous chapter Next chapter ≡ Table of contents — Supplier emissions We announced a new emissions target for our supply chain in 2022. We aim to work with our main tier-one suppliers to achieve a 50 percent reduction in their scope 1 and 2 GHG emissions by 2030 compared to 2019. The target covers 70 percent of our annual procurement spend. The new target will make an im - portant contribution to our goal of en - abling a low-carbon society as well as our overall scope 3 emissions reductions be - cause, in many cases, our suppliers have a bigger footprint than ABB itself. In 2022, we also continued to strengthen ABB’s capacity to conduct life-cycle as - sessments (LCAs). These are effective tools for identifying and prioritizing ac - tions with suppliers because they quan - tify how much of the overall emissions footprints of our products are accounted for by raw material sourcing. → Further information about how we help to enable a low-carbon society can be found in Sustainability Report 2022. Measures to reach our target include: • incorporating more recycled materials into our products, • shifting to lower-carbon primary materials, and • using lower-carbon transport throughout the supply chain, including between different tiers of our direct and indirect suppliers. As part of achieving our supplier target, we will encourage our suppliers to have their emissions targets approved by the Science Based Targets initiative and to have their GHG emissions data validated or assured by a third party. 138 ABB INTEGRATED REPORT 2022 PERFORMANCE Our biggest contribution to a low-carbon society comes from technologies that re - duce and/or avoid energy consumption and emissions at our customers’ opera - tions. As we intend to have our targets validated against the Science Based Tar - gets initiative’s new Net-Zero Standard, we are no longer focusing on a limited amount of cases linked to the 100 mega - tons emissions’ avoidance but rather on our complete portfolio of offerings. More and more companies are trying to make a positive impact on society and the environment beyond their own op - erations. However, calculating the re - lated impact of a company’s activities or offerings is a challenge, particularly when it comes to avoided emissions, which is a relatively new concept and one in which practices and methodologies vary given the absence of a generally ac - cepted framework. Efforts at harmoni - zation and standardization are currently underway (see the website of GHG Proto - col for more information). Therefore, we are reviewing our approach with the aim of establishing more robust and standar- dized methodologies, based on interna - tional scientific research, to calculate the impact of our products. We will trans- parently communicate about our sta - tus on a regular basis. As part of that process, we are assessing examples of products, services and solutions to help — Customer emissions → For specific exam - ples of products that contribute towards our ambition of sup - porting customers in avoiding GHG emis - sions, see our Sus - tainability Report 2022. us achieve our ambition of supporting customers in their GHG emissions re - duction and avoidance. We collaborate closely with our customers to leverage the full benefits of our products and ser - vices. One of the tools we use for these engagements is the EnergySave Calcula - tor, which helps customers calculate how much energy and money they could save by using ABB drives compared to tradi - tional flow control methods in different applications such as pumps, fans and compressors. 139 Previous chapter Next chapter ≡ Table of contents — We preserve resources 140 ABB INTEGRATED REPORT 2022 PERFORMANCE Over the coming decades, the pressure on our environment will increase: today’s global pop- ulation of 7.8 billion is expected to expand to 9.7 billion by 2050 according to projections by the United Nations. Some 80 per- cent of people will live in cities, placing enormous burdens on already stretched water, food, energy and transport systems. To underpin our commitment to preserve resources, we work closely with customers and suppliers and aim to embed circularity across our value chain. Our solutions reduce waste, in - crease recycling and foster reusability. 141 ≡ Table of contents ≡ Table of contents Previous chapter Next chapter The following overview shows our 2022 progress against our 2030 targets to preserve resources: PRESERVING RESOURCES Targets 2030 2019 baseline 1 2022 status Cover at least 80% of ABB’s portfolio of products and solutions with circularity approach n/a We aim to revise our circularity approach towards clear align- ment with regula- tions in 2023. Send zero waste to landfill while taking measures to prevent waste generation2 17.1 kilotons, equivalent to 8.8% of total waste (adjusted for port- folio changes) 11.6 kilotons, equivalent to 6.7% of total waste 1 Where a baseline applies. 2 Where compatible with local conditions. 142 ABB INTEGRATED REPORT 2022 PERFORMANCE Responsible end-of-life Take-back Recycling PARTNERSHIP AND CULTURE WHAT WE DO ABB CIRCULAR OPERATIONS WHAT WE ENABLE CIRCULAR CUSTOMER SOLUTIONS Optimized use phase Lifetime Efficiency Resource efficient operations Packaging & logistics Operations Circular design & sourcing Design Sourcing We are working towards aligning our circularity framework with the evolution of external reporting frameworks and regulations, including the EU Taxonomy for sustainable activities, the Corporate Sustainability Reporting Directive (CSRD) and GRI Standards. Our goal is to develop a robust, objective, quantitative, measu- rable and auditable framework that cap - tures the true circularity credentials of our product portfolio and we believe that considering external standards will enable us to better meet the needs of our stake - holders in this respect. In June 2022, we launched the ABB EcoSolutions label to satisfy our cus - tomers’ appetite for externally validated, transparent information on our products’ circularity performance. We are steadily increasing the number of environmental product declarations covering selected major product lines. — Circular economy ABB CIRCULARITY APPROACH 143 Previous chapter Next chapter ≡ Table of contents We aim to refine our circularity approach in line with external regulations in 2023. Thereafter, we will measure our baseline revenue covered by our circularity ap - proach and strengthen our focus on cir - cularity in our strategy. Our comprehensive circularity approach is built on a framework that drives circular - ity in our own operations, and suppports and enables our suppliers and customers to become more circular. By 2030, we aim to innovate towards new circular business models covering all stages of the product life cycle: • We consider the entire product life cycle at the design and sourcing stage. Our goal is to develop products and solutions that can be produced in a resource-efficient manner that minimizes the use of virgin or hazardous materials. At the same time, we ensure that our product design takes circularity into account, such as extended lifetime, repairability, modularity and recyclability. • In the production phase, we work to eliminate or recycle any waste generated by our processes and packaging and implement resource- efficient operations. • During the use phase of our products, we help our customers maximize the efficiency and lifetime of their equipment. • At the end of the product lifecycle, we seek to ensure that products can be refurbished whenever possible or dismantled and recycled. Most of the materials used in our products are reclaimable at the end of a product’s life and we design our products with this in mind. 144 ABB INTEGRATED REPORT 2022 PERFORMANCE — Reducing waste For more than a decade, ABB has been launching intensive waste-reduction and recycling programs at its sites around the world. During 2022, we reduced the amount of waste that ABB generates by 4.8 kilotons to 182 kilotons compared to the previous year. We implemented nearly 60 recycling and waste reduction projects in 2022, that reduced the waste we gener - ate annually by an estimated 700 tons. 86 percent of our waste in 2022 was recycled and 6.7 percent sent to landfill, down from 7.0 percent in the previous year. We now have 159 sites that don’t send any waste to landfill, bringing us closer to reaching our target of having zero waste from our operations disposed of in landfills, wher - ever this is compatible with local condi - tions and regulations. → Further information about how we pre - serve resources can be found in our Sus - tainability Report 2022. 145 Previous chapter Next chapter ≡ Table of contents — We promote social progress 146 ABB INTEGRATED REPORT 2022 PERFORMANCE We take care of our employees and promote social progress around the world. We build safe, fair and inclusive work - ing environments where our people can succeed and develop. At the same time, we engage and support communities in which our employees and customers live and work, and promote social progress across our extended value chain. 147 Previous chapter Next chapter ≡ Table of contents With respect to our 2030 targets to pro - mote social progress, we have achieved the following performance so far: PROMOTING SOCIAL PROGRESS Targets 2030 2019 baseline 1 2022 status Zero harm is caused to our people and contractors – we aim for a yearly reduction in lost time from incidents (LTIFR value = 0) 0.246 0.143 Increase proportion of women in senior management roles to 25% 11.7% 17.8% Reach a top-tier employee engagement score (out of 100) 71 76 Extend common programs for community engagement n/a Guidance for emer - gency and disaster relief aligned with the new operating model 1 Where a baseline applies. 148 ABB INTEGRATED REPORT 2022 PERFORMANCE 0 0.10 0.20 0.30 LTIFR 0.05 0.15 0.25 0.159 2020 0.142 2021 0.143 2022 0.246 2019 — Occupational health and safety Since 2014, ABB has recorded a signifi - cant downward trend in the total num - ber of serious incidents, which shows that our business areas’ safety pro - grams are highly effective at reducing or eliminating risky conditions. In 2022, ABB recorded zero workplace related em - ployee fatalities and zero workplace re - lated contractor fatalities. Following our decentralized approach, the divisions take full ownership of their respective SAFETY AT ABB LOST-TIME INJURY FREQUENCY RATE (LTIFR) safety programs. Since 2019, the re - corded lost-time injury frequency rate (LTIFR), defined as work-related injuries that result in at least one day away from work per 200,000 hours worked (equiva - lent to 100 full-time employees per year), has dropped from 0.246 to 0.143. In part, this is due to Covid-19, which resulted in reduced in-person activities. 149 Previous chapter Next chapter ≡ Table of contents — Diversity and employee engagement At ABB, we are convinced that the di - versity of our workforce and our inclu - sive culture have a positive impact on both our company and the communities in which we operate. We aim to increase diversity across all dimensions, includ - ing gender, LGBTQ+, abilities, ethnicity and generations so that we attract the broadest pool of talent and offer envi - ronments in which everyone can succeed and develop for the long-term success of our people, our business and society as a whole. Global roadmaps and execu - tive sponsorships have been established across all these dimensions to ensure high level commitment and progress. Our diversity & inclusion (D&I) strategy 2030 is based on three pillars: • governance that enables an environment of diversity, inclusion and equal opportunities; • inclusive leadership & culture; and • partnerships to create awareness and engage with stakeholders both in and outside of ABB. Our approach goes hand-in-hand with our ABB values of courage, care, curiosity and collaboration. As part of our global D&I strategy 2030, we aim to increase the proportion of women in senior management to 25 per - cent, which would be a doubling from a 2019 baseline. To improve gender diver - sity across the company, we are work - ing on increasing the share of women in our early talent hires. In recent years, we were able to increase the proportion of women in senior management positions and the workforce overall. To foster a more diverse, fair and inclu - sive workplace, we also supported the growth of Employee Resource Groups (ERGs), which are voluntary, employee- led groups that champion diversity initia - tives at ABB. As part of our commitment to further promote social progress and diversity and inclusion, in 2022, ABB adopted the United Nations (UN) Women’s Empower- ment Principles, adding to our broad partnerships to embrace difference and foster inclusion. As announced in 2022, ABB will be strengthening gender diversity on its Board of Directors by proposing one ad - ditional female member for election to the Board at its annual general meeting 2023. 150 ABB INTEGRATED REPORT 2022 PERFORMANCE 30 25 20 15 10 5 0 % 2019 2020 2021 2022 30 25 20 15 10 5 0 % 2019 2020 2021 2022 WOMEN ON THE BOARD WOMEN IN TOTAL WORKFORCE WOMEN IN SENIOR MANAGEMENT 1 (%) 1 At ABB, senior managers are defined as employees with Hay grades 1–7. → All numbers on this page are as of De - cember 31 and cal - culated using head - count data. 16.3 17.8 2021 2022 13.5 2020 11.7 2019 151 Previous chapter Next chapter ≡ Table of contents WOMEN’S EMPOWERMENT PRINCIPLES ESTABLISHED BY UN WOMEN AND THE UN GLOBAL COMPACT OFFICE Establish high-level corporate leadership for gender equality. Promote education, training and professional development for women. Treat all women and men fairly at work – respect and support human rights and non-discrimination. Implement enterprise development, supply chain and marketing practices that empower women. Ensure the health, safety and well-being of all women and men workers. Promote equality through community initiatives and advocacy. Measure and publicly report on progress to achieve gender equality. 1 2 3 4 5 6 7 → More information about the UN Wom - en’s Empowerment - Principles and ABB’s engagement can be found on the ABB website. 152 ABB INTEGRATED REPORT 2022 PERFORMANCE To drive and support an inclusive corpo - rate culture, we conduct a continuous and open dialogue with our employees through various initiatives and engage - ments, such as Pride Month and our ABB Sustainability Changemaker Award (see below). In ABB’s 2022 employee Engagement Sur - vey, our employee engagement score was 76 out of 100, compared with scores of 74 in 2021, 75 in 2020 and 71 in 2019. The response rate reached a record high level of 82 percent with 85,878 employees tak - ing part, thanks largely to engaging more production employees. One way in which we engaged our employees was to give them the oppor - tunity to play a part in driving and sup - porting sustainable development at ABB. In 2021, the ABB Sustainability Change - maker Award invited employees to sub - mit ideas or innovations to help us meet our sustainability goals. In total, 223 en - tries were received from teams around the world. In a semifinalist preselection, 12 innovative projects covering all of our four sustainability pillars were assessed. The winners were announced at ABB’s an - nnual gathering of senior managers, the Group Leadership Forum, in June 2022. Named “Sustainable/circular plastic solu - tions for products and their packaging”, — ABB Sustainability Changemaker Award the winning entry was chosen for its approach of substituting conventional plastics with recycled or bio-based ma - terials. The solution has the potential to reduce emissions attributed to plastics in ABB products and packaging by two thirds. In addition to the award, the win - ning team will receive all necessary sup - port from ABB to realize the solution. Over 10 use cases related to various products and their packaging are being worked on in close collaboration with our divisions. Some have already successfully passed the pilot phase and in one case related to 100 percent recycled PET, it has already been implemented. We partner with Glint Inc. to benchmark ourselves against our peers. Our aim is to achieve a top-tier engagement score. Overall, we have made steady progress since the survey’s launch in 2019, when many of our scores were significantly be - low the benchmark. In 2022, we scored 1 point above benchmark. We received strong scores for safety, integrity, role clarity, communication and accountabil - ity. We received a lot of comments and constructive feedback through the sur - vey. To drive engagement, we will con - tinue to empower our divisions and focus on making ABB an even better place to work. 153 Previous chapter Next chapter ≡ Table of contents ABB places great emphasis on respecting human rights in its business as well as in the extended value chain. In 2022, as part of our five-year human rights plan until 2025, we re-assessed our salient human rights risks and conducted a high level, system - atic review of our human rights due dili - gence framework. This will be followed in 2023 by business specific reviews of risks and due diligence processes as well as ex - ternal stakeholder engagement to validate our conclusions. Based on the results of our 2021 pilot program, we also updated our human rights self-assessment protocol and continued to conduct self-assessments at selected ABB sites. In total, 58 sites in 25 countries undertook assessments in 2022. We also continued to train our employees on human rights topics to make sure that awareness, identification, mitigation and avoidance of human rights risks are em - bedded in our daily operations. In total, 4,687 employees completed general human rights e-learning courses, and we provided targeted trainings for management and job roles specifically exposed to human rights risks. For the past several years, we have also is - sued a yearly Modern Slavery Statement pursuant to the U.K. Modern Slavery Act 2015 and the Australian Modern Slavery Act 2018. Risks related to modern slavery and human trafficking are specifically ad - dressed in our training programs and as - sessment protocols. During 2022, three cases of working conditions that could in - volve modern slavery at ABB suppliers were reported via our business ethics helpline. No allegations have been substantiated; two of these cases were still under investi - gation at the close of the year. → Further information about how we pro - mote social progress can be found in our Sustainability Report 2022. → Further information about how we en - sure sustainability across our extended value chain can be found in the chapter “ Third-party manage - ment and responsible sourcing”. ABB has well-established internal report - ing and allegation management processes to deal with alleged violations of our Code of Conduct, including matters relating to human rights. Our allegation management team aims to listen attentively and respond swiftly to employee concerns and manage a fair justice adjudication process aligned with our values. Work continues to enhance employee trust in our integrity and re - porting program for concerns of potential non-compliance with our Code of Conduct to be reported in a timely manner. Following the introduction of our ABB Way operating model in 2020, various workplace enhancements were launched, including an open job market, new leadership learn - ing ecosystems, innovations in our integrity learning and speak-up culture, and messag - ing regarding the use of our business eth - ics helpline to report suspected cases of non-compliance with our Code of Conduct. Following this progress, in 2021 we launched “Straight Talk”, a learning plat - form that uses real cases that we have faced and continue to face as an organi - zation to share knowledge and continu - ous learning to strengthen our culture of integrity. Among the key messages that were im - parted to employees, were the necessity of reporting all potential cases of non- compliance with the Code of Conduct to our business ethics helpline, and a focus on driving safety in reporting to build confi - dence in our zero tolerance for retaliation risk. As a result, we have seen greater employee engagement in the use of our learning tools intended to drive heightened integrity awareness. — Human rights 154 ABB INTEGRATED REPORT 2022 PERFORMANCE — Community engagement As part of our 2030 sustainability strategy, we provide impactful sup - port for community-building initiatives around the world, focused on: educa - tion, diversity and inclusion, and care in the community. In 2022, we supported more than 400 projects and charities in 40 countries with over $10 million of donations and 4,050 person days of vol - unteer work. To support the humani - tarian effort in Ukraine, we contributed more than CHF 2.2 million in employee and Group donations to the response campaign of the International Commit - tee of the Red Cross. Some ABB employ - ees travelled to the borders of Ukraine to transport people fleeing the country to a safe place, while others donated es - sentials like food and warm clothing to refugees through company-organized evacuations and aid initiatives. In 2022, we also continued our strong focus on science, technology, engineer - ing, and mathematics (STEM) education through a variety of projects across the world. These included providing finan - cial support for underprivileged stu - dents, promoting diversity and inclu - sion in STEM education and enhancing technical skills through training courses and access to the latest technology. ABB employees in many regions also volunteered their time for mentoring programs to support students from ele- mentary school through to university level. COMMUNITY ENGAGEMENT HIGHLIGHTS: OUR EMPLOYEES AND OUR BUSINESS AREAS SUPPORTED OUR COMMUNITIES countries worldwide million donated person-days volunteered community projects and charities 40 $10.2 4,050 400+ 155 Previous chapter Next chapter ≡ Table of contents — We create a culture of integrity and transparency along the extended value chain 156 ABB INTEGRATED REPORT 2022 PERFORMANCE Integrity and transparency are core to our operating model. Having evolved far beyond pure legal compliance, we aim to embed integrity in everything we do. 157 Previous chapter Next chapter ≡ Table of contents We drive accountability for sustainable business practices by keeping aware - ness high. We manage our third-party risk proactively. We measure integrity performance through data analytics. By increasing the scope and quality of our reporting in line with international sus - tainability reporting standards such as the “GRI Standards”, we commit to con - tinuous enhancement. As we iterate our Global Integrity Program, we updated two targets which were set in 2020 to more accurately re - flect how we further embed integrity into our operating model to drive sustain - able business practices, and to better align with our overall mission. Our 2030 targets for creating a culture of integ - rity and transparency along the extended value chain are: CREATING A CULTURE OF INTEGRITY AND TRANSPARENCY Targets 2030 2019 baseline 1 2022 status Global framework for assessing and mitigating third-party integrity risks through risk-based due diligence and lifecycle monitoring2 n/a This target measures the implementation of a global framework for assessing third-party integrity risks. It is an ongoing and critical organization- wide, integrity-based enhancement, which enhances how we onboard and manage the life cycle of our relationships with suppliers, sales channels and customers. Suppliers (buy-side) In January 2022, we launched various integrity due diligence and risk management enhancements within our global supplier onboarding process. Sales Channels (sell-side) In 2022, we finalized the design of various integrity due diligence and risk management enhancements within our onboarding process for new sales channels. The process was launched in selected ABB locations in October and November 2022, with the global launch planned for March 2023. 1 Where a baseline applies. 2 Targets have been adjusted in 2022. 3 This target was moved from the pil - lar “Promoting social progress” to the pillar “Creating a culture of integrity and trans - parency” as com - pared to our Sustain - ability Report 2021, to better reflect our strategic approach. 4 Argentina, Brazil, Bul - garia, China, Colom - bia, India, Indone - sia, Malaysia, Mexico, Peru, Poland, Saudi Arabia, South Africa, Thailand, Turkiye, Vietnam. 158 ABB INTEGRATED REPORT 2022 PERFORMANCE Targets 2030 2019 baseline 1 2022 status Global Integrity Program underpinned by accountability for integrity and an adaptive risk management strategy gained from insights through targeted learnings, transparent reporting and monitoring2 n/a This target measures the implementation and effectiveness of our Global Integrity Program through how we drive individual accountability for integrity and adapt our risk management strategy to real-time data insights gained from integrity-based learnings, reporting and monitoring. 1. Trust KPI – The rate of severity level 1 and 2 investigations where the reporter disclosed their identity: • Year 1 (January 1, 2021 to December 31, 2021): 57% of reporters • Year 1 & 2 (January 1, 2021 - December 31, 2022): 60% of reporters. 2. Engagement KPI – The volume of employees with online access on the Integrity Awareness Portal (IAP) for integrity learnings: • Year 1 (January 1, 2021, to December 31, 2021): 25.46% of employees with online access. • Year 1 & 2 (January 1, 2021, to December 31, 2022): 69.86% of employees with online access. At least 80% of supply spend in focus countries4 covered by Sustainable Supply Base Management (SSBM)3 n/a Using a risk-based approach, an interim 2025 target has been set, focusing on high-risk suppliers in focus countries4. Mid-term target for 2025: At least 80% of spend on high-risk suppliers in focus countries4 covered by SSBM n/a 22% Management sustainability incentive with yearly target n/a The individual component of the Annual Incentive Plan (AIP) for Executive Committee (EC) members, with a weight of 20 percent, consists of a combination of up to 3 quantitative and qualitative goals, of which at least 2 are sustainability-related (e.g. GHG emissions, safety or female leadership goals). 159 Previous chapter Next chapter ≡ Table of contents We behave and do business in an ethical way We protect ABB’s assets and reputation We work in a safe and sustainable way We speak up and do not retaliate We build trust with all stakeholders 1 2 3 4 5 — Integrity Our culture of integrity and transpa- rency is anchored in our ABB Code of Conduct, which explains the behavior that ABB expects of every employee and stakeholder around the world. It is built on our five integrity principles: → Download the ABB Code of Conduct on the ABB website. The Integrity & Regulatory Affairs team, which sits within the Legal & Integrity function, is responsible for driving core enhancements across ABB, which collec - tively form our ongoing integrity trans - formation under our ABB Way operat - ing model. These enhancements extend across all ABB functions and our four business areas, setting an integrity pro - gram which is comprehensive, adaptive to risk in real time and overall fit-for-pur - pose. At its core, ABB’s Global Integrity Program has three objectives. Firstly, to appropriately and thoroughly reme - diate integrity-related risks identified through root-cause analysis and test - ing and monitoring activities. Secondly, to enhance our internal controls, with emphasis on our anti-bribery and anti- corruption program and to verify the efficacy of our controls through test - ing. Thirdly, to assess and enhance our workplace culture through on-going and targeted integrity-focused self-learn - ing and awareness to drive behavior accountability. As part of this self-learning and aware - ness process, we continue to promote on a monthly basis our “Straight Talk” case library, a dedicated internal plat - form where we share integrity learnings, both successes and failures, from real - life cases that ABB (or another major or - ganization) has faced. We complement these learnings with readily available data on active or recent investigations, giving greater transparency to what our investigations portfolio looks like in terms of risks and trends, the types of reports made, the geographies con - cerned and the methods of reporting used by employees. 160 ABB INTEGRATED REPORT 2022 PERFORMANCE The allegations reported in 2022 were categorized into the following categories (as well as more detailed subcategories within each of these) to ensure appro - priate attention, resourcing and internal escalation: • Antitrust & Fair Competition • Bribery benefiting ABB • Commercial integrity & Regulatory • Fraud: Non-Self-Dealing • Fraud: Self-Dealing • HSE & Security • Human Resources • Non-Integrity Issue • Other Integrity Issue ABB’s antitrust compliance program is an established program which is evalu - ated on a regular basis to respond to le - gal and regulatory developments, to ad - vances in globally recognized compliance “best practices” and to learnings from ABB’s own investigations. It is supported by ABB’s Board of Directors and senior executives and driven by a team of ded - icated antitrust experts. The program’s rules are set forth in a suite of policies, procedures, and internal controls specif - ically addressing ABB’s antitrust risks. These are integrated into ABB’s culture and internal controls through dedicated training of legal and business communi - ties, the provision of specific expert an - titrust advice as well as regular internal — Antitrust compliance program In 2022, the following employment actions – in addition to myriad, non- disciplinary remedial actions – resulted from integrity violations pursuant to ABB’s root-cause analysis and account - ability processes: • 36 verbal warnings • 116 written warnings • 135 employment separations • 4 demotions, suspensions or other financial penalties Our internal investigations framework re - quires that investigations follow due pro - cess and that any employment actions are measured, appropriate, and reached in consultation with appropriate ABB management. exchange forums to raise awareness of antitrust topics of relevance to our operations. Our antitrust experts work closely with our colleagues responsible for ABB’s business ethics helpline to facilitate the identification, investigation and reme - diation of any antitrust concerns. Im - portantly, a strong antitrust ethos per - meates ABB’s mergers & acquisitions activity, including through the perfor - mance of due diligence prior to invest - ments, acquisitions or joint ventures, to support healthy and compliant company growth. 161 Previous chapter Next chapter ≡ Table of contents ABB has a “zero tolerance” policy towards unethical business behavior. Whether it is bribery, corruption, forced labor or other improper business practices, our Code of Conduct is clear: improper payments and arrangements are illegal and we do not accept or tolerate these business prac - tices, whether with public officials or with private sector business partners. In 2022, we rolled out new Anti-Bribery & Anti-Corruption (ABAC) upskilling for em - ployees in gatekeeper functions and cus - tomer facing roles across ABB to enhance core ABAC competencies and to highlight the crucial role these employees play in ensuring ABB’s sustainable and compet - itive future. We also launched version 2.0 of our Integrity Gateway, a global and now centralized tool for all employee- related requests for Gifts, Travel & Hos - pitality, Donations & Sponsorships and the disclosure and management of Con - flicts of Interest. These enhancements are significant developments in the way we monitor and manage ABAC risks that third parties pose to ABB. On December 2, 2022, we announced that ABB had reached a full and final settle - ment with the National Director of Pub - lic Prosecution in South Africa, the U.S. Department of Justice, the U.S. Securi - ties and Exchange Commission, and the Office of the Attorney General of Swit - zerland, for their investigations into im - proper business practices by ABB on the legacy Kusile project in South Africa awarded in 2015. We have taken, and continue to take, ex - tensive actions to enhance our culture of integrity, including: • Comprehensively remediating the root causes of the conduct, firstly through internal control enhancements at the local level where they occurred, and secondly through global process enhancements; • Applying learnings to drive company- wide cultural changes and individual accountability for integrity; and • Innovating ABB’s monitoring and testing activities and the platforms/ tools we use for strong risk management and integrity assurance. Our work does not stop here; we con - tinue to work, innovate and enhance our integrity program, to have controls, pro - cesses and a culture that are effective de - terrents of bribery and corruption. Integ - rity is not a static concept and nor is our integrity program which underpins it. — Anti-Bribery and Anti-Corruption 162 ABB INTEGRATED REPORT 2022 PERFORMANCE REPORTING CHANNELS FOR INTEGRITY CONCERNS Member of Legal & Integrity Human Resources ABB Business Ethics Helpline Code of Conduct mobile app and Web Submission Manager Integrity Team at HQ A speak-up culture is critical for a sus - tainable business. It is led by our tone from the top, which enables us to drive regular communications and awareness to all employees that reporting integ - rity concerns must be championed and encouraged. We do this through multiple internal platforms, including quarterly integrity topics shared in team meetings, sharing learnings from cases past and present and having middle and senior management delivering this messaging via various media. We have five estab - lished reporting channels for integrity concerns and actively promote these across all four of our business areas. — Reporting channels for integrity related concerns 163 Previous chapter Next chapter ≡ Table of contents — Third-party management and responsible sourcing The standard that we expect from our third parties is simple – that they share our ethical standards. We continue to advance ABB’s commitment to having a supply base that is sustainable and that sustainability as a whole remains firmly at the center of our approach to how we conduct business. In 2022, we launched an enhanced “Third Party Management” (TPM) program and associated global roll-out of enhanced on - boarding and monitoring processes across ABB. Focusing initially on our suppliers (buy-side) and sales channels (sell-side), these enhancements take a risk-based ap - proach to due diligence and selecting ap - propriate third parties that we do business with or that act on our behalf, to enable more effective oversight and monitoring of their activities and overall performance and business value to ABB. During the course of 2023, we will extend the appli - cation of the enhanced TPM program and processes to our existing third party popu - lation further enhancing our ongoing man - agement of third-party risk. With respect to our supply chain, 22 percent of our spend on high-risk suppliers in focus countries was covered by our Sustainable Supply Base Management program by the end of 2022, and 87 percent of identified risks were closed. Plans are in place to achieve our medium-term target by 2025. As part of our longstanding program to monitor the supplier sustainability perfor - mance, in 2022 we assessed 58 suppliers on site and mitigated 87 percent of identified risks. These often relate to working prac - tices and safety, lack of risk management, controls and reporting, and sub-suppliers management. In 7 cases, ABB had to termi - nate the relationships with suppliers in 2022 due to unsatisfactory progress on their cor - rective action plans. Three cases of work - ing conditions that could involve modern slavery at ABB suppliers were reported via our business ethics helpline. No allegations have been substantiated; two of these cases were still under investigation at the close of the year. During the year, we rolled out an updated supplier onboarding process that better embeds sustainability and hu - man rights topics in supplier selection and qualification procedures. We also completed the review of our Supplier Code of Conduct to clarify our commitments in certain key areas and to address changes in the regula - tory environment since the last revision. The updated Code will be rolled out in early 2023 along with other enhancements to supplier qualification processes. In other activities related to responsible sourcing, we trained 26 ABB employees and 54 suppliers in the course of the year on applying the principles of the ABB Supplier Code of Conduct. Special focus is also given to responsible sourcing of minerals, underpinned by the ABB Policy on Conflict Minerals. We are a member of the Responsible Minerals Initia - tive (RMI) which works to encourage smelt - ers and refiners to undergo audits aligned with OECD guidelines to increase the trans - parency of conflict minerals in our supply chain. On an annual basis, we report on this critical worldwide sustainability issue in our Conflict Minerals Report. — Sustainable supply chain → Read more about ABB’s priciples on conducting busi - ness that respects employees, society and the environment in the ABB Supplier Code of Conduct . 164 ABB INTEGRATED REPORT 2022 PERFORMANCE Sustainability goals are linked to senior management variable pay to help incen - tivize and recognize the achievements of our sustainability targets. This in turn contributes to employee engagement and their identification with our purpose, as well as closer alignment with the ex - pectations of our other stakeholders, in - cluding investors, regulators, customers and suppliers. Beginning in 2022, all Executive Com - mittee (EC) members had at least two sustainability-related goals (e.g., GHG emissions reduction, safety, female lead - ership) in the individual component of the Annual Incentive Plan (AIP), while a corporate sustainability goal with a weighting of 20 percent has been added to the Long-Term Incentive Plan (LTIP), which is offered to all EC members and senior management population of around 100 employees. The goal applied to the LTIP for the performance period 2022–2024 relates to scope 1 and scope 2 GHG emission reductions, compared to a 2019 baseline. — Sustainability incentives → Further information about remuneration and incentives can be found in the “Com - pensation summary” in this report and in the separate Com - pensation Report 2022. → More information about how we create a culture of integ - rity and transparency along the extended value chain can be found in our Sustain - ability Report 2022. 165 Previous chapter Next chapter ≡ Table of contents Corporate Governance summary 166 ABB INTEGRATED REPORT 2022 CORPORATE GOVERNANCE SUMMARY CORPORATE GOVERNANCE SUMMARY 168 Governance 170 Board of Directors 176 Executive Committee 04 167 ≡ Table of contents Previous chapter Next chapter — Governance ABB is committed to the highest international standards of corpo- rate governance. This is reinforced in its structure, processes and rules, as outlined in more detail in ABB’s Corporate Governance Report. ABB complies with all relevant frame - works, including the Swiss Code of Obli - gations, the Swiss Code of Best Practice for Corporate Governance and the rules of the capital markets where its shares are listed. Governance principles are also anchored in various ABB corporate docu - ments, such as its Articles of Incorpora - tion and its Board Governance Rules. Strong corporate governance is not only necessary to ensure compliance with ap - plicable legal requirements, but also rep - resents a solid basis for creating sus - tainable value. We are convinced that our established governance culture helps ABB successfully manage its business and realize opportunities for the benefit of all of its shareholders. This applies in particular to sustainability. ABB has a ro - bust sustainability governance structure from its Board of Directors through to its operating divisions. → More information about our sustain - ability governance structure can be found in our Sustain - ability Report 2022. 168 ABB INTEGRATED REPORT 2022 CORPORATE GOVERNANCE SUMMARY ABB GOVERNANCE STRUCTURE Board of Directors Governance and Nomination Committee Executive Committee Compensation Committee Finance, Audit and Compliance Committee 169 ≡ Table of contents Previous chapter Next chapter ABB’s Board of Directors is re- sponsible for the strategy of the company. It is a truly diverse board: seven of its ten members have been elected in the past six years and all of them represent a broad variety of geographical, business, management and cultural experience. While the Board takes decisions as a whole, its three committees – the Finance, Audit and Compliance Com - mittee, the Governance and Nomina - tion Committee and the Compensation Committee – support it with high-level — Board of Directors expertise and by ensuring an efficient mode of operation. Special attention is paid to sustainability aspects: oversight of ABB’s corporate social responsibility (including health, safety and environment as well as sustainability) is the responsi - bility of the Governance and Nomination Committee. The Compensation Commit - tee ensures that sustainability-related key performance indicators are embed - ded in the compensation schemes for ABB’s Executive Committee. Ultimate responsibility for ABB’s sustainability strategy, its sustainability targets and its annual Sustainability Report lies with the entire Board of Directors. 170 ABB INTEGRATED REPORT 2022 CORPORATE GOVERNANCE SUMMARY 171 ≡ Table of contents Previous chapter Next chapter — Our Board members PETER R. VOSER Chairman of ABB’s Board of Directors since 2015 Chairman of the Governance and Nomination Committee Swiss citizen JACOB WALLENBERG Member of ABB’s Board of Directors since 1999 and Vice-Chairman since 2015 Member of the Governance and Nomination Committee Swedish citizen GUNNAR BROCK Member of ABB’s Board of Directors since 2018 Member of the Finance, Audit and Compliance Committee Swedish citizen DAVID CONSTABLE Member of ABB’s Board of Directors since 2015 Member of the Compensation Committee Canadian and U.S. citizen FREDERICO FLEURY CURADO Member of ABB’s Board of Directors since 2016 Chairman of the Compensation Committee Brazilian and Portuguese citizen 172 ABB INTEGRATED REPORT 2022 CORPORATE GOVERNANCE SUMMARY LARS FÖRBERG Member of ABB’s Board of Directors since 2017 Member of the Governance and Nomination Committee Swedish and Swiss citizen JENNIFER XIN-ZHE LI Member of ABB’s Board of Directors since 2018 Member of the Governance and Nomination Committee and Compensation Committee Canadian citizen GERALDINE MATCHETT Member of ABB’s Board of Directors since 2018 Member of the Finance, Audit and Compliance Committee Swiss, British and French citizen DAVID MELINE Member of ABB’s Board of Directors since 2016 Chairman of the Finance, Audit and Compliance Committee U.S. and Swiss citizen SATISH PAI Member of ABB’s Board of Directors since 2016 Member of the Finance, Audit and Compliance Committee Indian citizen 173 ≡ Table of contents Previous chapter Next chapter MEMBERS OF THE BOARD (2022–2023 BOARD TERM) Board experience Corporate officer experience Other business experience Board member ABB Board tenure (years) Other public board experience CEO CFO Operations Risk manage- ment Sustainability Digital / technology Global experience Country of origin / nationality Gender Non-executive Independent Peter Voser 8 • • • • • • • • CH M Yes Yes Jacob Wallenberg 24 • • • • • • • SE M Yes Yes Gunnar Brock 5 • • • • • • SE M Yes Yes David Constable 8 • • • • • • CA, US M Yes Yes Frederico Curado 7 • • • • • • • BR, PT M Yes Yes Lars Förberg 6 • • • • • SE, CH M Yes Yes Jennifer Xin-Zhe Li 5 • • • • • • • CN, CA F Yes Yes Geraldine Matchett 5 • • • • • CH, UK, FR F Yes Yes David Meline 7 • • • • US, CH M Yes Yes Satish Pai 7 • • • • • • • IN M Yes Yes 174 ABB INTEGRATED REPORT 2022 CORPORATE GOVERNANCE SUMMARY 175 Previous chapter Next chapter ≡ Table of contents — Executive Committee Each member of the Executive Committee is appointed by the Board of Directors. The Board has delegated the executive manage- ment of ABB to the CEO, who – together with the other members of the Executive Committee – is responsible for the company’s operational business. In line with the Board’s leading example, ABB’s Executive Committee strives to be equally diverse, not only in business and management experience, but also when it comes to geographical and cultural backgrounds. 176 ABB INTEGRATED REPORT 2022 CORPORATE GOVERNANCE SUMMARY 177 ≡ Table of contents Previous chapter Next chapter BJÖRN ROSENGREN Chief Executive Officer since 2020 Swedish citizen — Our Executive Committee members TIMO IHAMUOTILA Chief Financial Officer since 2017 Finnish citizen CAROLINA GRANAT Chief Human Resources Officer since 2021 Swedish citizen ANDREA ANTONELLI General Counsel and Secretary to the Board of Directors since 2022 Italian citizen KARIN LEPASOON Chief Communi - cations and Sus - tainability Officer since 2022 Swedish citizen 178 ABB INTEGRATED REPORT 2022 CORPORATE GOVERNANCE SUMMARY MORTEN WIEROD President of the Electrification business area since 2022 (President of the Motion busi - ness area from 2019 to 2022) Norwegian citizen PETER TERWIESCH President of the Process Automation business area since 2015 German and Swiss citizen TARAK MEHTA President of the Motion busi - ness area since 2022 (President of the Electrifica - tion business area from 2019 to 2022; member of the Executive Commit - tee since 2010) U.S. and Swiss citizen SAMI ATIYA President of the Robotics & Dis - crete Automation business area since 2019 (member of the Executive Com - mittee since 2016) German citizen 179 ≡ Table of contents Previous chapter Next chapter Compensation summary 180 ABB INTEGRATED REPORT 2022 COMPENSATION SUMMARY COMPENSATION SUMMARY 182 Extracts from Compensation Committee Chair Letter 184 Board compensation 185 Executive Committee compensation 190 Sustainability considerations in ABB’s compensation 191 Employee remuneration 05 181 Previous chapter Next chapter ≡ Table of contents — Extracts from Compensation Committee Chair Letter Our focus at the Compensation Committee remains to ensure that the compensation structure at ABB drives value creation for our shareholders, represents a motivating package for our executives, and ensures alignment with best-practice corporate governance standards and with ABB’s sustainability strategy. pay and performance that we seek to en - sure at ABB. Termination Provisions under the AIP For new joiners to the Executive Committee (EC), we also plan to amend the termina - tion provisions under our AIP to be broadly aligned with the termination provisions un - der the LTIP. This will specifically include, in the event of resignation, the full forfeiture of the AIP award if the last day of employ - ment is prior to the end of the performance period (i.e., 31 December of the relevant performance year). Disclosure As in previous years, the Compensation Comittee has listened carefully to inputs and suggestions from our stakeholders re - lated to potential improvements to disclo - sure and has progressively moved to adopt - ing leading market practices. In response to this feedback, the Annual In - centive Plan (AIP) targets for the CEO, start - ing in 2023, will be retrospectively disclosed in the following year’s Compensation Re - port (thus for the first time in 2024). This will represent a relevant additional level of transparency on the alignment between — Summary of changes for 2023 — Sustainability impact in executive compensation Following valuable stakeholder feedback, we will maintain the strong link between our sustainability strategy and compen - sation programs, such that all EC mem - bers will continue to have a sustainability measure in their Long-Term Incentive Plan (LTIP), with a material weighting of 20 percent. In addition, all EC members shall continue to have at least two sustain - ability related goals in the individual com - ponent of their AIP. The sustainability targets for both the 2022 and 2023 LTIP relate to our long-term greenhouse gas (GHG) emissions reduc - tion ambitions, which are prospectively dis - closed in the Compensation Report 2022. 2022 was a year of solid performance, de - spite supply chain, logistics and labor chal - lenges, rising inflation and the energy cri - sis in Europe. Overall, most key financial, sustainability and operational targets were met or excelled. ABB delivered a strong Board of Directors: the aggregate Board compensation for the 2022–2023 term (CHF 4.38 million) is in line with the maximum amount (CHF 4.4 million) ap - proved at the 2022 Annual General Meeting (AGM). There has been no change to the in - dividual Board fees since 2015. Executive Committee: the aggregate EC total compensation was CHF 36.0 million in 2022, compared to CHF 39.2 million in 2021, and in line with the maximum amount (CHF 40 million) approved at the 2021 AGM. Five of the nine EC members in place re - ceived a salary adjustment in March 2022, which ranged from 2.1 to 12.5 percent, for exceptional performance, market adjust - ment or broadening of responsibilities. This corresponded to an average 3.25 percent increase on the annual aggregate — 2022 performance and results — Compensation policy outcomes — Governance operational EBITA margin, increased its rev - enues and orders, and improved productiv - ity in 2022. In addition, the company made significant progress in reducing its envi - ronmental footprint and contributing to a more sustainable environment. base salaries for EC members in post in March 2022. The average award for the current EC mem - bers under the AIP for 2022 was 118.3 percent (out of a maximum 150 percent), compared to 143.4 percent in 2021. This outcome was driven by a strong perfor - mance from the majority of the businesses as well as strong progress on sustainability related and other strategic targets. The average weighted achievement level of the 2019 LTIP, which vested in 2022, was 121.0 percent (out of a maximum 200 percent), driven primarily by a maximum vesting under the Total Shareholder Return (TSR) performance measure. At the annual general meeting (AGM) on March 23, 2023, shareholders will be asked to vote on the maximum aggregate com - pensation for the Board for its 2023–2024 term and on the maximum aggregate com - pensation for the EC in 2024. The former is again unchanged compared to the prior year, while the latter shows a reduction from the level requested for last year due to lower potential vesting related costs from the 2021 LTIP award, as well as the lower compensation levels applied to new EC members compared to plan. The Compensation Report 2022 will also be submitted for a non-binding, consultative vote by shareholders. 183 Previous chapter Next chapter ≡ Table of contents EXHIBIT 2: BOARD MEMBERS SHAREHOLDING (AT DECEMBER 31, 2022) IN % OF 2022 TOTAL COMPENSATION 0% 100% 200% 300% 400% 500% 600% 700% 800% Peter Voser Jacob Wallenberg Gunnar Brock David Constable Frederico Curado Lars Förberg Jennifer Xin-Zhe Li Geraldine Matchett David Meline Satish Pai April 2015 June 1999 March 2018 April 2015 April 2016 April 2017 March 2018 March 2018 April 2016 April 2016 ƏƢ ##! Board appointment — Board compensation The aggregate Board compensation for the 2022–2023 term of office (CHF 4,380,000) was within the maxi - mum amount (CHF 4,400,000) approved at the 2022 AGM. — Compensation for the 2022–2023 term of office EXHIBIT 1: BOARD COMPENSATION (IN CHF) FOR THE 2022–2023 TERM OF OFFICE Aggregate compensation 4,380,000 Approved compensation amount 4,400,000 There has been no change to the indi - vidual Board fees since 2015. Further de - tails including the Board fee structure can be found in ABB’s Compensation Re - port 2022. * Based on share price of CHF 32.48, the 2022 Long-Term In - centive Plan (LTIP) reference price, and shares held at December 31, 2022. All Board members held ABB shares at December 31, 2022, worth at least 300 percent of their 2022 Board compensation. — Shareholding of Board members 184 ABB INTEGRATED REPORT 2022 COMPENSATION SUMMARY — Executive Committee compensation EXHIBIT 3: EC COMPENSATION STRUCTURE AS FROM 2022 Fixed compensation – base salary and benefits Variable compensation – short term incentive (AIP) Variable compensation – long term incentive (LTIP) Wealth at risk/ Share ownership Purpose and link to strategy Facilitates attraction and retention of talented EC members; base salary com - pensates for the role and relevant experience; bene - fits protect against risks Rewards annual com - pany, business area, functional and individual performance; Aligned with the company’s An - nual Performance Plan Rewards company performance over a three-year period and en - courages creation of long-term, sustainable value for sharehold - ers; Aligned with the company’s Long-term Performance Plan Aligns individual’s personal wealth at risk directly to the ABB share price, and EC members’ interests with those of shareholders in or - der to maintain focus on ABB’s long-term success Operation Salary in cash, benefits in kind, and pension contribution Annual awards, payable in cash after a one-year performance period Annual grants in shares which may vest after three years, and are subject to performance conditions Individuals are equired to hold ABB shares Opportunity level (as % of annual base salary) Based on scope of responsi - bilities, personal experience and skillset Performance indicators Changes to base salary take into account individual per - formance, future potential, broadening of responsibili - ties, and external benchmarking Exposure to ABB share price CEO Minimum Target Maximum 0% 100% 300% Other EC members Minimum Target Maximum 0% 150% 300% CEO 500% of annual salary (net of taxes) Other EC members 400% of annual salary (net of taxes) Minimum Target Maximum 0% 100% 150% CEO and corporate officers 80% Group financial results 20% Individual results Business area Presidents 20% Group financial results 60% Business area financial results 20% Individual results All EC members 50% Average EPS 30% Relative TSR 20% Sustainability * New for 2022 The elements of the EC members’ com - pensation structure, including the pur - pose, the link to strategy as well as ap - plicable performance indicators are summarized in the following table: — Compensation structure * EC members with legacy employment contracts have a target LTIP grant of 100 percent, and Max LTIP opportunity of 200 percent. The higher LTIP opportunity for the newer EC members is largely offset by lower fixed benefit costs. 185 Previous chapter Next chapter ≡ Table of contents The aggregate EC compensation for 2022 (CHF 36,035,073) was within the maximum amount approved at the 2021 AGM (CHF 40,000,000). — Total EC compensation for 2022 EXHIBIT 4: EC COMPENSATION (IN CHF) FOR 2022 Effective aggregate compensation 36,035,073 Approved aggregate compensation 40,000,000 The larger portion of the CEO’s 2022 total compensation was delivered via variable compensation (56 percent represented by short-term incentive and long-term incentive). For the other EC members, on an aggregate level, variable compen - sation represented 51 percent of their 2022 compensation. The following chart shows the composition of the 2022 total compensation for EC members as of December 31, 2022. Details on each EC member’s compensa - tion for 2022 can be found in ABB’s Com - pensation Report 2022. EXHIBIT 5: 2022 TOTAL COMPENSATION MIX FOR THE CEO AND OTHER EC MEMBERS ON AGGREGATE LEVEL IN CHF CEO Other EC members 8,074,656 25,924,453 21.9% Base salary 9.4% Pension benefits 12.2% Other benefits 26.5% Short-term incentive 29.9% Long-term incentive V ariable c ompensation 5 6% Fixed compensation 44% Variable compensation 51% Fixed compensation 49% 22,6% Base salary 12.2% Pension benefits 14.0% Other benefits 27.3% Short-term incentive 23.8% Long-term incentive * Sum of per - centage figures may differ from 100 percent due to rounding with one decimal. 186 ABB INTEGRATED REPORT 2022 COMPENSATION SUMMARY Target achievement level Realized achievement level Maximum achievement level EXHIBIT 7: 2019 LTIP OUTCOME COMPARED TO TARGET Relative TSR (50% of total) Average EPS (50% of total) LTIP vesting (total) 0% 25% 50% 75% 100% 125% 150% 175% 200% 200% 200% 200% 200% 100% 100% 100% 121% 42% Target AIP award Realized AIP award Maximum AIP award EXHIBIT 6: 2022 AIP OUTCOME COMPARED TO TARGET CEO Other EC members * 0 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 8,000,000 9,000,000 120% CHF 2,142,000 150% 150% 118% CHF 7,082,773 → Target AIP cor - responds to 100 percent of base salary. * Individual out - comes range from 67 to 150 percent. Realized variable compensation considers the AIP award and the LTIP award at the end of their respective performance cy - cles, reflecting actual AIP payment and LTIP vesting, based on achievement of the respective plan performance measures. — Realized variable compensation in 2022 The outcome of the 2022 AIP was above the target for most of the current EC members (118.3 percent on average), and the LTIP that vested in 2022 (2019 LTIP) exceeded the target level, with a final vesting level of 121.0 percent of target. 187 Previous chapter Next chapter ≡ Table of contents Target total compensation Realized total compensation EXHIBIT 8: REALIZED TOTAL COMPENSATION IN 2022 COMPARED TO TARGET TOTAL COMPENSATION CEO Other EC members 0 5,000,000 10,000,000 15,000,000 20,000,000 25,000,000 30,000,000 120% CHF 9,846,423 CHF 8,183,864 123% CHF 27,306,484 CHF 22,255,269 Considering the stated variable compo - nents above, the realized total compen - sation in 2022 was above the target total compensation for all EC members, driven by strong performance in 2022. — Realized total compensation in 2022 Further details related to the realized compensation of each EC member and each compensation component are spec - ified in the Compensation Report 2022 (Exhibit 44). 188 ABB INTEGRATED REPORT 2022 COMPENSATION SUMMARY EXHIBIT 9: EC SHAREHOLDING COMPARED TO SHARE OWNERSHIP GUIDELINE 0% 200% 400% 600% 800% 1000% 1200% 1400% 1600% Björn Rosengren Timo Ihamuotila Carolina Granat Andrea Antomelli Karin Lepasoon Sami Atiya Tarak Mehta Peter Terwiesch Morten Wierod January 2020 April 2017 January 2021 March 2022 October 2022 June 2016 October 2010 January 2017 April 2019 CEO shareholding requirement (500%) Other EC members shareholding requirement (400%) EC appointment Held shares Granted, but unvested shares Shareholding requirement EC members may not sell their shares (except to meet tax and social security costs) until they achieve the required shareholding level. Four out of nine EC members have al - ready met and exceeded their share own - ership requirement. Two other members are close to achieving their requirement, while three members have been ap - pointed to the EC in the last two years. When considering the number of granted, but unvested, ABB shares of cur - rent EC members as per December 31, 2022, it is expected that most will meet or exceed their share ownership require - ment in 2023, after vesting of the 2020 LTIP grant. — Shareholding of EC members * Based on share price of CHF 32.48, the 2022 LTIP reference price, and shares held at Decem - ber 31, 2022. Future al - location of granted, but unvested, shares is based on target achievement level and relevant plan specific settlement: de - fault settlement of the final 2020 LTIP, 2021 LTIP and 2022 LTIP awards is 100 percent in shares. Default settlement of replacement shares is 65 percent in shares (re - cipient may elect to re - ceive 100 percent of the vested award in shares). The value of shares is compared against the annual base salary net of taxes, at December 31, 2022. 189 Previous chapter Next chapter ≡ Table of contents There are several sustainability related considerations, that play an important role in our compensation philosophy, of which one is to foster the link between and other corporate officers had a social goal, on top of the environment goal. In regard to the LTIP granted to ABB’s senior management, including the EC, a sustainability measure with a weighting of 20 percent forms part of the perfor - mance measures. • For the 2022 LTIP, the sustainability measure was the company’s scope 1 and 2 GHG emissions reduction at the end of the three-year performance period (2022–2024), compared to the 2019 baseline. • The 2022 sustainability measure has also been applied to 2023 LTIP, namely scope 1 and 2 GHG emissions reduction at the end of the three-year performance period (2023–2025), compared to the 2019 baseline. • Details of the long-term GHG emissions reduction targets can be found in the Sustainability Report 2022. One of the main subjects of the Com - pensation Committee’s recent decisions was to reinforce the link of ABB’s sustain - ability strategy – and its associated am - bitious targets for 2030 – to ABB’s key variable compensation programs AIP and LTIP. These decisions resulted in a suite of changes which we believe keep ABB in line with leading compensation market practices and reinforce our commitment towards sustainability and long-term value creation. With regard to the AIP, ABB recently en - larged the mandatory inclusion of sus - tainability performance measures in the individual component of the relevant AIP for its executives and further employees in the organization. All EC members have two or more sustainability related goals (out of maximum three) in the individ - ual component of their AIP. While all EC members had an environment target in 2022, business area Presidents had a safety goal, the CFO a governance goal — Impact of sustainability performance on variable compensation the sustainability performance measures under our sustainability strategy and the variable compensation for our EC and se - nior management. — Sustainability considerations in ABB’s compensation 190 ABB INTEGRATED REPORT 2022 COMPENSATION SUMMARY ABB applies a holistic total remuneration approach, generally consisting of fixed base salary, variable performance-linked pay, pension contributions and benefits. The key programs of ABB’s compensation structure and their strategic links to our employee value proposition and sustain - ability strategy are summarized in the Exhibit 10 below. — Employee remuneration EXHIBIT 10: COMPENSATION STRUCTURE FOR EMPLOYEES Program Operation and purpose Link to ABB’s employee value proposition and sustainability strategy Base Salary Offered to all employees, compensating for the role and relevant experience of the employee while changes to base salary take into account individual performance, future potential and external benchmarking. Facilitating attraction and retention of qualified employees. Short-Term Incentive Offered to ca. 80 percent of ABB’s work - force, rewarding annual performance. Helping to establish strong alignment with the company’s Annual Performance Plan, which may include financial and/or sustainability targets. Annual Incentive Plan (AIP) Offered to ca. 45 percent of ABB’s work - force (employees outside of the Sales & Marketing functions and Production areas). Rewarding participants, where appropri - ate, for the achievement of financial and sustainability targets at Group and busi - ness level, and other organizational and individual goals. Production Plans Offered to ca. 25 percent of ABB’s work - force (employees of Production areas). Rewarding participants for the achieve - ment of productivity and other opera - tional targets at local business level. Sales Incentive Plans Offered to ca. 10 percent of ABB’s work - force (employees of the Sales & Marketing functions). Rewarding participants for the achieve - ment of financial targets at a local busi - ness and individual level. Long-Term Incentive Offered to ca. 800 executives and senior leaders of ABB. Encouraging the creation of long-term, sustainable value for shareholders, and delivery of long term strategic goals. Long-Term Incentive Plan (LTIP) with perfor - mance conditions Offered to ca. 100 executives, who sig - nificantly impact ABB’s performance and long-term success of the business. After completion of a three-year plan period and subject to the achievement of the plan specific performance measures, the award is earned and delivered. Aligning with the company’s Long-Term Performance Plan, and facilitating reten - tion of senior executives. Restricted Shares without performance conditions Offered to ca. 700 senior leaders and key talent who influence ABB’s performance and long-term success of the business. After completion of a three-year plan pe - riod, the award is earned and delivered. Facilitating retention of senior managers. Supports aligning employees’ interests with the interests of external sharehold - ers and maintaining focus on the long- term success of the company. 191 Previous chapter Next chapter ≡ Table of contents Program Operation and purpose Link to ABB’s employee value proposition and sustainability strategy Employee Share Acquisition Plan Offered to ca. 100,000 employees in over 60 countries, providing the opportunity to purchase shares in ABB one year after the start of a plan, at a price which will be fixed at the beginning of each annual plan cycle, and become ABB shareholders. Supports aligning employees’ interests with the interests of external share- holders and maintaining focus on the long-term success of the company. Benefits (selection) Offered to all employees by country, sub - ject to the relevant local market practice. Protecting against risks, and help facilitating the attraction and retention of employees. Risk Benefits These generally include retirement, insur - ance and healthcare plans. Providing support for the employees and their dependents in case of retirement, disability or death. Parental Leave A global and gender-neutral program, offered to all employees, on the birth or adoption of a new child, which sets out a minimum standard on paid parental leave that supports all family types. The primary caregivers receive 12 weeks of paid leave and the secondary caregivers 4 weeks. Aligning with the ABB value of “Care”. Employee Assistance A global program, offered to all em- ployees. The program supports the employee’s emotional, practical and physical well-being by offering paid counseling on emotional health, family concerns and workplace concerns. Aligning with the ABB value of “Care”. Car or Transportation Allowance Offered to selected employees based on business need or market practice, with any car provision being progressively mi - grated to e-vehicles or transportation al - lowances which can be used to contribute to public transport, cycle or other trans - port needs. Addressing changed needs related to mobility by providing greater flexibility to opt for more environmentally friendly solutions. 192 ABB INTEGRATED REPORT 2022 COMPENSATION SUMMARY 193 Previous chapter Next chapter ≡ Table of contents Appendix 194 ABB INTEGRATED REPORT 2022 APPENDIX APPENDIX 06 196 Consolidated financial information 200 Alternative performance measures 204 Key terms 195 ≡ Table of contents Previous chapter Next chapter — Consolidated financial information The following is an extract from the Consolidated Financial Statements included in the Financial Report 2022. ABB LTD CONSOLIDATED INCOME STATEMENTS Year ended December 31 ($ in millions, except per share data in $) 2022 2021 2020 Sales of products 24,471 23,745 21,214 Sales of services and other 4,975 5,200 4,920 Total revenues 29,446 28,945 26,134 Cost of sales of products (16,804) (16,364) (15,229) Cost of services and other (2,932) (3,114) (3,027) Total cost of sales (19,736) (19,478) (18,256) Gross profit 9,710 9,467 7,878 Selling, general and administrative expenses (5,132) (5,162) (4,895) Non-order related research and development expenses (1,166) (1,219) (1,127) Impairment of goodwill — — (311) Other income (expense), net (75) 2,632 48 Income from operations 3,337 5,718 1,593 Interest and dividend income 72 51 51 Interest and other finance expense (130) (148) (240) Losses from extinguishment of debt — — (162) Non-operational pension (cost) credit 115 166 (401) Income from continuing operations before taxes 3,394 5,787 841 Income tax expense (757) (1,057) (496) Income from continuing operations, net of tax 2,637 4,730 345 Income (loss) from discontinued operations, net of tax (43) (80) 4,860 Net income 2,594 4,650 5,205 Net income attributable to noncontrolling interests and redeemable noncontrolling interests (119) (104) (59) Net income attributable to ABB 2,475 4,546 5,146 Amounts attributable to ABB shareholders: Income from continuing operations, net of tax 2,517 4,625 294 Income (loss) from discontinued operations, net of tax (42) (79) 4,852 Net income 2,475 4,546 5,146 Basic earnings per share attributable to ABB shareholders: Income from continuing operations, net of tax 1.33 2.31 0.14 Income (loss) from discontinued operations, net of tax (0.02) (0.04) 2.30 Net income 1.30 2.27 2.44 Diluted earnings per share attributable to ABB shareholders: Income from continuing operations, net of tax 1.32 2.29 0.14 Income (loss) from discontinued operations, net of tax (0.02) (0.04) 2.29 Net income 1.30 2.25 2.43 Weighted-average number of shares outstanding (in millions) used to compute: Basic earnings per share attributable to ABB shareholders 1,899 2,001 2,111 Diluted earnings per share attributable to ABB shareholders 1,910 2,019 2,119 196 ABB INTEGRATED REPORT 2022 APPENDIX ABB LTD CONSOLIDATED BALANCE SHEETS December 31 ($ in millions, except share data) 2022 2021 Cash and equivalents 4,156 4,159 Restricted cash 18 30 Marketable securities and short-term investments 725 1,170 Receivables, net 6,858 6,551 Contract assets 954 990 Inventories, net 6,028 4,880 Prepaid expenses 230 206 Other current assets 505 573 Current assets held for sale and in discontinued operations 96 136 Total current assets 19,570 18,695 Restricted cash, non-current — 300 Property, plant and equipment, net 3,911 4,045 Operating lease right-of-use assets 841 895 Investments in equity-accounted companies 130 1,670 Prepaid pension and other employee benefits 916 892 Intangible assets, net 1,406 1,561 Goodwill 10,511 10,482 Deferred taxes 1,396 1,177 Other non-current assets 467 543 Total assets 39,148 40,260 Accounts payable, trade 4,904 4,921 Contract liabilities 2,216 1,894 Short-term debt and current maturities of long-term debt 2,535 1,384 Current operating leases 220 230 Provisions for warranties 1,028 1,005 Other provisions 1,171 1,386 Other current liabilities 4,323 4,367 Current liabilities held for sale and in discontinued operations 132 381 Total current liabilities 16,529 15,568 Long-term debt 5,143 4,177 Non-current operating leases 651 689 Pension and other employee benefits 719 1,025 Deferred taxes 729 685 Other non-current liabilities 2,085 2,116 Non-current liabilities held for sale and in discontinued operations 20 43 Total liabilities 25,876 24,303 Commitments and contingencies Redeemable noncontrolling interest 85 — Stockholders’ equity: Common stock, CHF 0.12 par value (1,965 million and 2,053 million shares issued at December 31, 2022 and 2021, respectively) 171 178 Additional paid-in capital 141 22 Retained earnings 20,082 22,477 Accumulated other comprehensive loss (4,556) (4,088) Treasury stock, at cost (100 million and 95 million shares at December 31, 2022 and 2021, respectively) (3,061) (3,010) Total ABB stockholders’ equity 12,777 15,579 Noncontrolling interests 410 378 Total stockholders’ equity 13,187 15,957 Total liabilities and stockholders’ equity 39,148 40,260 197 ≡ Table of contents Previous chapter Next chapter ABB LTD CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended December 31 ($ in millions) 2022 2021 2020 Operating activities: Net income 2,594 4,650 5,205 Loss (income) from discontinued operations, net of tax 43 80 (4,860) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 814 893 915 Impairment of goodwill — — 311 Changes in fair values of investments (33) (123) (99) Pension and other employee benefits (125) (216) 50 Deferred taxes (344) (289) (280) Losses from extinguishment of debt — — 162 Loss from equity-accounted companies 102 100 66 Net loss (gain) from derivatives and foreign exchange (23) 49 (2) Net gain from sale of property, plant and equipment (84) (38) (37) Net loss (gain) from sale of businesses 7 (2,193) 2 Other 66 117 90 Changes in operating assets and liabilities: Trade receivables, net (831) (142) (100) Contract assets and liabilities 416 29 186 Inventories, net (1,599) (771) 196 Accounts payable, trade 395 659 (13) Accrued liabilities 136 454 (92) Provisions, net (70) (48) 243 Income taxes payable and receivable (94) 117 (76) Other assets and liabilities, net (36) 10 8 Net cash provided by operating activities – continuing operations 1,334 3,338 1,875 Net cash used in operating activities – discontinued operations (47) (8) (182) Net cash provided by operating activities 1,287 3,330 1,693 Investing activities: Purchases of investments (321) (1,528) (5,933) Purchases of property, plant and equipment and intangible assets (762) (820) (694) Acquisition of businesses (net of cash acquired) and increases in cost- and equity-accounted companies (288) (241) (121) Proceeds from sales of investments 697 2,272 4,341 Proceeds from maturity of investments 73 81 11 Proceeds from sales of property, plant and equipment 127 93 114 Proceeds from sales of businesses (net of transaction costs and cash disposed) and cost- and equity-accounted companies 1,541 2,958 (136) Net cash from settlement of foreign currency derivatives (166) (121) 138 Changes in loans receivable, net 320 (19) (3) Other investing activities (14) (4) 11 Net cash provided by (used in) investing activities – continuing operations 1,207 2,671 (2,272) Net cash provided by (used in) investing activities – discontinued operations (226) (364) 9,032 Net cash provided by investing activities 981 2,307 6,760 198 ABB INTEGRATED REPORT 2022 APPENDIX Year ended December 31 ($ in millions) 2022 2021 2020 Financing activities: Net changes in debt with maturities of 90 days or less 1,366 (83) (587) Increase in debt 3,849 1,400 343 Repayment of debt (2,703) (1,538) (3,459) Delivery of shares 394 826 412 Purchase of treasury stock (3,553) (3,708) (3,048) Dividends paid (1,698) (1,726) (1,736) Cash associated with the spin-off of the Turbocharging division (172) — — Dividends paid to noncontrolling shareholders (99) (98) (82) Proceeds from issuance of subsidiary shares 216 — — Other financing activities 6 (41) (49) Net cash used in financing activities – continuing operations (2,394) (4,968) (8,206) Net cash provided by financing activities – discontinued operations — — 31 Net cash used in financing activities (2,394) (4,968) (8,175) Effects of exchange rate changes on cash and equivalents and restricted cash (189) (81) 79 Net change in cash and equivalents and restricted cash (315) 588 357 Cash and equivalents and restricted cash, beginning of period 4,489 3,901 3,544 Cash and equivalents and restricted cash, end of period 4,174 4,489 3,901 Supplementary disclosure of cash flow information: Interest paid 90 132 189 Income taxes paid 1,188 1,292 905 199 ≡ Table of contents Previous chapter Next chapter — Alternative performance measures The following are definitions of key fi - nancial measures used to evaluate ABB’s operating performance. These financial measures are referred to in this Annual Report and are not defined under United States generally accepted accounting principles (U.S. GAAP). While ABB’s management believes that the non-GAAP financial measures herein are useful in evaluating ABB’s operating results, this information should be con - sidered as supplemental in nature and not as a substitute for the related finan - cial information prepared in accordance with U.S. GAAP. Comparable growth rates Growth rates for certain key figures may be presented and discussed on a “com - parable” basis. The comparable growth rate measures growth on a constant cur - rency basis. Since we are a global com - pany, the comparability of our operating results reported in U.S. dollars is affected by foreign currency exchange rate fluc - tuations. We calculate the impacts from foreign currency fluctuations by trans - lating the current-year periods’ reported key figures into U.S. dollar amounts using the exchange rates in effect for the com - parable periods in the previous year. Comparable growth rates are also ad - justed for changes in our business port - folio. Adjustments to our business port - folio occur due to acquisitions, divestments, or by exiting specific busi - ness activities or customer markets. The adjustment for portfolio changes is cal - culated as follows: where the results of any business acquired or divested have not been consolidated and reported for the entire duration of both the current and comparable periods, the reported key figures of such business are adjusted to exclude the relevant key figures of any corresponding quarters which are not comparable when computing the com - parable growth rate. Certain portfolio changes which do not qualify as divest - ments under U.S. GAAP have been treated in a similar manner to divestments. Changes in our portfolio where we have exited certain business activities or cus - tomer markets are adjusted as if the rele- vant business was divested in the period when the decision to cease business ac - tivities was taken. We do not adjust for portfolio changes where the relevant business has annualized revenues of less than $50 million. → For a full recon - ciliation of ABB’s non-GAAP measures, please refer to “Sup - plemental Reconcilia - tions and Definitions” in the “ABB Q4 2022 Financial Informa - tion” (https://global. abb/group/en/inves - tors/results-and-re - ports/2022). 200 ABB INTEGRATED REPORT 2022 APPENDIX Operational EBITA margin Operational EBITA margin Operational EBITA margin is Operational EBITA as a percentage of Operational revenues. Operational EBITA Operational earnings before interest, taxes and acquisition-related amortiza - tion (Operational EBITA) represents In - come from operations excluding: • acquisition-related amortization (as defined below), • restructuring, related and implementation costs (as defined below), • changes in the amount recorded for obligations related to divested businesses occurring after the divestment date (changes in obligations related to divested businesses), • changes in estimates relating to opening balance sheets of acquired businesses (changes in pre-acquisition estimates), • gains and losses from sale of businesses (including fair value adjustment on assets and liabilities held for sale), • acquisition- and divestment-related expenses and integration costs, • other income/expense relating to the Power Grids joint venture, • certain other non-operational items, as well as • foreign exchange/commodity timing differences in income from operations consisting of: (a) unrealized gains and losses on derivatives (foreign exchange, commodities, embedded derivatives), (b) realized gains and losses on derivatives where the underlying hedged transaction has not yet been realized, and (c) unrealized foreign exchange movements on receivables/ payables (and related assets/liabilities). Certain other non-operational items gen - erally includes: certain regulatory, compli - ance and legal costs, certain asset write downs/impairments (including impair - ment of goodwill) and certain other fair value changes, as well as other items which are determined by management on a case-by-case basis. Operational EBITA is our measure of seg - ment profit but is also used by manage - ment to evaluate the profitability of the Company as a whole. Acquisition-related amortization Amortization expense on intangibles arising upon acquisitions. Restructuring, related and implemen- tation costs Restructuring, related and implementa - tion costs consists of restructuring and other related expenses, as well as internal and external costs relating to the imple - mentation of group-wide restructuring programs. Other income/expense relating to the Power Grids joint venture Other income/expense relating to the Power Grids joint venture consists of amounts recorded in Income from con - tinuing operations before taxes relating to the divested Power Grids business including the income/loss under the equity method for the investment in Hitachi Energy Ltd. (Hitachi Energy), amortization of deferred brand income as well as changes in value of other obli - gations relating to the divestment. Operational revenues We present Operational revenues solely for the purpose of allowing the com - putation of Operational EBITA margin. Operational revenues are total reve - nues adjusted for foreign exchange/ 201 ≡ Table of contents Previous chapter Next chapter commodity timing differences in total revenues of: (i) unrealized gains and losses on derivatives, (ii) realized gains and losses on derivatives where the underlying hedged transaction has not yet been realized, and (iii) unrealized foreign exchange movements on receiv - ables (and related assets). Operational revenues are not intended to be an alter - native measure to Total Revenues, which represent our revenues measured in accordance with U.S. GAAP. Net working capital as a percent- age of revenues Net working capital as a percentage of revenues Net working capital as a percentage of revenues is calculated as Net working capital divided by Adjusted revenues for the trailing twelve months. Net working capital Net working capital is the sum of (i) receivables, net, (ii) contract assets, (iii) inventories, net, and (iv) prepaid ex - penses; less (v) accounts payable, trade, (vi) contract liabilities (including non- current amounts) and (vii) other current liabilities (excluding primarily: (a) income taxes payable, (b) current derivative liabilities, (c) pension and other em - ployee benefits, (d) payables under the share buyback program, (e) liabilities related to certain other restructuring- related activities and (f) liabilities related to the divestment of the Power Grids business); and including the amounts related to these accounts which have been presented as either assets or liabilities held for sale but excluding any amounts included in discontinued operations. Adjusted revenues for the trailing twelve months Adjusted revenues for the trailing twelve months includes total revenues recorded by ABB in the twelve months preceding the relevant balance sheet date adjusted to eliminate revenues of divested busi - nesses and the estimated impact of annualizing revenues of certain acquisitions which were completed in the same trailing twelve-month period. Free cash flow conversion to net income Free cash flow conversion to net income Free cash flow conversion to net income is calculated as free cash flow divided by Adjusted net income attributable to ABB. Adjusted net income attributable to ABB Adjusted net income attributable to ABB is calculated as net income attributable to ABB adjusted for: (i) impairment of goodwill, (ii) losses from extinguishment of debt, and (iii) gains arising on the sale of the equity-accounted investment in Hitachi Energy Ltd., the Mechanical Power Transmission division (Dodge) and the Power Grids business, the latter being included in discontinued operations. Free cash flow Free cash flow is calculated as net cash provided by operating activities adjusted for: (i) purchases of property, plant and equipment and intangible assets, and (ii) proceeds from sales of property, plant and equipment. 202 ABB INTEGRATED REPORT 2022 APPENDIX Return on Capital employed (ROCE) Return on Capital employed Return on Capital employed is calculated as Operational EBITA after tax, divided by the average of the period’s opening and closing Capital employed, adjusted to reflect impacts from the timing of signif - icant acquisitions/divestments occurring during the period. Capital employed Capital employed is calculated as the sum of Adjusted total fixed assets and Net working capital (as defined above). Adjusted total fixed assets Adjusted total fixed assets is the sum of (i) property, plant and equipment, net, (ii) goodwill, (iii) other intangible assets, net, (iv) investments in equity-accounted companies, and (v) operating lease right- of-use assets, less (vi) deferred tax liabili - ties recognized in certain acquisitions. Notional tax on Operational EBITA The Notional tax on Operational EBITA is computed using an adjusted group effective tax rate multiplied by Opera - tional EBITA. Adjusted Group effective tax rate The Adjusted Group effective tax rate is computed by dividing an adjusted income tax expense by an adjusted pre- tax income. Certain amounts recorded in income before taxes and the related income tax expense (primarily due to gains and losses from sale of businesses and in 2022, regulatory penalties in con - nection with the Kusile project) are removed from the reported amounts when computing these adjusted amounts. Certain other amounts recorded in income tax expense are also excluded from the computation to determine the Adjusted Group effective tax rate. Net debt Net debt Net debt is defined as Total debt less Cash and marketable securities. Total debt Total debt is the sum of Short-term debt and current maturities of long-term debt, and Long-term debt. Cash and marketable securities Cash and marketable securities is the sum of Cash and equivalents, Restricted cash (current and non-current) and Marketable securities and short-term investments. Net debt/EBITDA ratio Net debt/EBITDA ratio Net debt/EBITDA ratio is defined as Net debt (as defined aboce) divided by EBITDA. EBITDA EBITDA is defined as Income from operations for the trailing twelve months preceding the balance sheet date before depreciation and amortization for the same trailing twelve-month period. Net finance expenses Net finance expenses is calculated as Interest and dividend income less Interest and other finance expense. Book-to-bill ratio Book-to-bill ratio is calculated as Orders received divided by Total revenues. 203 ≡ Table of contents Previous chapter Next chapter A ABB Way The ABB Way is the common operating model for our divisions, business ar - eas and lean corporate center. It defines “how” we create value. It is built around our purpose and consists of four ele - ments: business model, people & culture, brand and governance. B Business areas ABB has a decentralized business model with of 20 divisions grouped into four business areas: Electrification, Motion, Process Automation and Robotics & Discrete Automation. They complement each other, cooperate and find synergies to create competitive advantages and best serve our customers. C Capitals We rely on six types of resources and re - lationships, the so-called “capitals” as referenced in the Integrated Reporting () Framework, to run our business and be successful: financial capital, in - tellectual capital, natural capital, man - ufactured capital, human capital, and social & relationship capital. They are the inputs that enable us to create value in the short, medium and long term. Through our business activities, we cre - ate outputs and outcomes, which in turn increase, decrease or transform the capi - tals. Because the capital flows are inter - connected, we seek to balance and in - crease them overall. Circular economy In contrast to a linear “take-make-waste” model of production and consumption, the circular economy aims to keep resources in use by designing products for durability, reusability and recyclabil - ity. At ABB, circular economy approaches are at the center of the second pillar of our sustainability strategy, “Preserving resources”. By 2030, we aim to have at least 80 percent of ABB’s products and solutions covered by our circularity approach and evaluated against a clear set of key performance indicators (KPIs), corresponding to each stage of the prod - uct lifecycle. Creating a culture of integrity & transparency along the extended value chain The fourth pillar of our sustainability strategy 2030 aims to embed integrity and transparency across our value chain. Our Code of Conduct is binding on all employees and forms the basis for inter - actions with projects and counterparties. As well as our global integrity program, we have defined targets for mitigating third-party and supplier risks and we are including our sustainability targets in our senior management incentives. — Key terms 204 ABB INTEGRATED REPORT 2022 APPENDIX D Divisions Our 20 divisions represent the highest level of operating decisions within ABB with full ownership and accountability for their respective strategies, performance and resources, as they are closest to the markets. They are grouped into four busi - ness areas. E Enabling a low-carbon society The first pillar of our sustainability strat - egy 2030 is where we can make the big - gest contribution to a more sustainable society. We have set 2030 and 2025 tar - gets to reduce GHG emissions along our value chain. G Greenhouse gas emissions GHG emissions refer to all emissions that have a warming effect on the earth’s sur - face by trapping heat in the atmosphere. The Kyoto Protocol defines the follow - ing six greenhouse gases: carbon diox - ide (CO2), methane (CH4), nitrous oxide (N2O), the so-called F-gases (hydroflu - orocarbons and perfluorocarbons) and sulfur hexafluoride (SF6). CO2, methane and nitrous oxide are released during the combustion of fossil fuels, such as coal, oil or natural gas. All GHG emissions can be calculated as CO2-equivalents (CO2e), which is the metric measure that we use at ABB to calculate our overall emissions and progress towards our emissions re - duction targets. H Headcount Headcount represents the number of people employed at ABB and is notably used in social reporting. It differs from FTE (or Full-Time Equivalent) which rep - resents the number of worked hours compared to a full-time employee; FTE is notably used in financial reporting. For example, a full-time employee is considered as 1 headcount and 1 FTE whereas a part-time employee is consid - ered as 1 headcount and less than 1 FTE. M Materiality/material topics Materiality refers to the process of iden - tifying the most important topics to be managed and included in reporting. ABB’s material sustainability topics were identified in 2020 through a compre - hensive stakeholder engagement pro - cess. Based on this analysis, we present an overview of material topics for value creation in the chapter “Material topics”. We are currently working on further en - hancing our double materiality approach through stakeholder engagement by con - sidering both the impact that ABB has on the environment and society, and the im - pact that material topics have on ABB’s business success. 205 ≡ Table of contents Previous chapter Next chapter N Net-zero vs. carbon neutral “Net-zero” means that any carbon diox - ide released into the atmosphere is bal - anced by an equivalent amount being removed. “Carbon neutral” means that carbon emissions can be offset by a re - duction in emissions or a removal of car - bon from the atmosphere, for instance through carbon sinks, which absorb more carbon than they emit. To achieve net-zero or carbon neutrality, companies can buy carbon credits to cover the emis - sions they cannot eliminate. At ABB, we aim to achieve carbon neutrality in our own operations by 2030, and net-zero value chain GHG emissions by 2050. P Preserving resources The second pillar of our sustainability strategy 2030 aims to preserve resources by moving to circular business models that cut waste, increase recyclability and reusability, and make our products more durable. We work closely with customers and suppliers and aim to embed circular - ity across our value chain. Promoting social progress The third pillar of our sustainability strat - egy 2030 is centered on promoting social progress in the workplace and beyond. We build safe, fair and inclusive working environments where our people can suc - ceed and develop while promoting social progress across our value chain. We aim at being a top-tier employer and care for the communities where we live and work. Purpose ABB’s purpose is to enable a more sus - tainable and resource-efficient future with our technology leadership in electri - fication and automation. This is why we are in business and is the guiding star for ABB’s direction and strategy. It is based on the five themes of: creating success for all our stakeholders, addressing the world’s energy challenges, transform - ing industries, embedding sustainabil - ity in everything we do and leading with technology. S Scope 1 GHG emissions Direct emissions from company-owned and controlled resources, for example, emissions from combustion in owned or controlled boilers, furnaces, vehicles, etc. Scope 2 GHG emissions Indirect emissions from the generation of purchased energy (electricity, steam, heat, cooling), from a utility provider. Scope 3 GHG emissions All other indirect emissions not included in scope 2 that occur in the value chain, both upstream and downstream. Ac - cording to the GHG protocol, scope 3 emissions are separated into 15 catego - ries, and include for example purchased goods and services, business travel and commuting or use of sold products. 206 ABB INTEGRATED REPORT 2022 APPENDIX Sustainability Sustainability or sustainable develop - ment can be defined as “meeting the needs of the present without compro - mising the ability of future generations to meet their own needs” (Brundtland Report, 1987). Sustainability is commonly based on three dimensions: economic sustainability, environmental sustain - ability and social sustainability. At ABB, we strive to embed sustainability in ev - erything we do. Sustainability is at the center of our company purpose, strat - egy, operating model (the ABB Way) and objectives, and is a key part of the value that we create for our stakeholders. Sustainability strategy 2030 In 2020, ABB defined a clear strategy to contribute to a more sustainable soci - ety. The key pillars of our sustainability strategy 2030 are: enabling a low-carbon society, preserving resources, promot - ing social progress and creating a culture of integrity & transparency along the ex - tended value chain. V Value creation The process that results in increases, decreases or transformations of “the capitals” and related outputs and out - comes caused by our business activi - ties in the short, medium and long term. We not only focus on maximizing share - holder value but work holistically to cre - ate financial and sustainability-linked value for all our stakeholders, for ABB, society and the environment. We are con - vinced that this is not only the right thing to do, but also in the interest of our long- term business success. 207 ≡ Table of contents Previous chapter Next chapter 208 ABB INTEGRATED REPORT 2022 APPENDIX Caution concerning forward-looking statements The Integrated Report 2022 includes “forward-looking state - ments” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We have based these forward-looking statements largely on current expectations, estimates and projections about the factors that may affect our future performance, including global economic conditions as well as the economic conditions of the regions and the industries that are major markets for ABB. The words “believe,” “may,” “will,” “estimate,” “continue,” “target,” “anticipate,” “intend,” “expect”, “plan” and similar words and the express or implied discussion of strategy, plans or intentions are intended to identify for - ward-looking statements. These forward- looking statements are subject to risks, uncertainties and assumptions, including among other things, the following: (i) business risks related to the global volatile economic environment; (ii) costs associated with compliance activities; (iii) difficulties encountered in operating in emerging markets; (iv) risks inherent in large, long term projects served by parts of our business; (v) the timely development of new products, technologies, and ser - vices that are useful for our customers; (vi) our ability to antic - ipate and react to technological change and evolving industry standards in the markets in which we operate; (vii) changes in interest rates and fluctuations in currency exchange rates; (viii) changes in raw materials prices or limitations of supplies of raw materials; (ix) the weakening or unavailability of our intellectual property rights; (x) industry consolidation result - ing in more powerful competitors and fewer customers; (xi) effects of competition and changes in economic and market conditions in the product markets and geographic areas in which we operate; (xii) effects of, and changes in, laws, regulations, governmental policies, taxation, or accounting standards and practices and (xiii) other factors described in documents that we may furnish from time to time with the US Securities and Exchange Commission, including our Annual Reports on Form 20-F. Although we believe that the expecta - tions reflected in any such forward-looking statements are based on reasonable assumptions, we can give no assurance that they will be achieved. We undertake no obligation to update publicly or revise any forward-looking statements because of new information, future events or otherwise. In light of these risks and uncertainties, the forward-looking information, events and circumstances might not occur. Our actual results and performance could differ substantially from those anticipated in our forward-looking statements. 209 ≡ Table of contents Previous chapter Next chapter — All rights reserved. Governance Report 2022 4 Chairman’s letter 6 Summary of corporate governance approach 6 Board of Directors 12 Executive Committee 14 Shares 16 Shareholders 20 Independent external auditors 21 Other governance information 4 ABB CORPORATE GOVERNANCE REPORT 2022 — Chairman’s letter Dear Shareholders, The events of 2022 will have a lasting impact on society. The war in Ukraine has fundamentally altered the balance of power in the world and triggered upheavals that are affecting us all, from the energy crisis to higher inflation, with all its related economic effects. For ABB, the war has had a direct impact on our business through our decision to exit the Russian market, which accounted for 1–2 percent of our global revenues. However, it has not affected our financial performance, which we improved signi- ficantly in 2022, nor our pursuit of our sustain- ability goals, where we also made good progress. This strong execution shows that our strategy and business model, with its focus on performance and accountability, are the right ones for ABB. Looking ahead, we expect global economic growth to weaken further in 2023 as inflation reduces busi- nesses’ and households’ spending power. ABB is well-prepared for further market turbulence – our order book is at a very high level and our decentral- ized business model allows us to respond quickly to changing conditions. To help our people deal with the rapid rises in the cost of living, we have already increased salaries in several regions, especially for blue-collar workers in the lower salary bands, and will follow suit in others in 2023. Integrated Report I am very pleased to present for the first time an integrated annual report, which brings together the most important material information about our company’s financial and sustainability performance. The report explains how our company purpose guides our direction and strategy and enables us to create value for all our stakeholders. In addition to our performance highlights in 2022, it provides an overview of the external environment in which we are operating and how we intend to meet our tar- gets in the short-, medium- and long-term. Finally, it contains summaries of our Corporate Governance and Compensation reports. I encourage you to look through it. Progress on sustainability In 2022, with many governments in crisis mode, little progress was made at the COP27 climate conference and greenhouse gas (GHG) emissions continued to rise above pre-pandemic levels. In that context, we at ABB see it as more important than ever that we live up to our purpose of enabling a more sustainable and resource-efficient future with our technology leadership in electrification and automation, espe- cially when it comes to tackling climate change. Over the course of the year, we focused in particular on the first pillar of our 2030 sustainability strategy – enabling a low-carbon society. We reduced GHG emissions from our own operations by 42 percent and helped our customers reduce and avoid emis- sions with our energy-saving and emissions-re- ducing technologies. We also set a new target for our main tier-1 suppliers to reduce their GHG emis- sions by 50 percent by 2030. And to improve our accountability, in addition to our 2030 targets, we set mid-term targets, to be met by 2025, for reduc- ing emissions in our own and our suppliers’ opera- tions. You can read more about these in our Sustain- ability Report 2022. Beyond our emissions goals, we made good prog- ress on gender diversity, increasing the number of women in senior management positions to 17.8 per- cent, up from 16.3 percent a year ago. Finally, to ensure appropriate leadership focus on our sustain- ability strategy, we incorporated sustainability- related performance measures into senior leaders’ incentive plans. Moving forward, as we progress towards our sustainability goals, we will aim to involve our shareholders in a continuing dialogue about this important topic. Strengthening our portfolio Last year, we took important steps to strengthen our portfolio. Our Motion business area announced the acquisition of Siemens’ low-voltage NEMA mo- tors business, which will strengthen our presence in North America, and it acquired PowerTech Conver- ter, a leading supplier of auxiliary power conver- ter solutions for light rail vehicles and metros, with operations in Germany and the United States. Our Electrification business boosted its Smart Power division by acquiring ASKI Energy, a leader in energy automation and control systems, serving customers in Germany, Austria and Switzerland. To further strengthen our leadership in electric- vehicle charging, we acquired controlling stakes in two EV charging companies – Incharge Energy in the United States and Numocity in India. Our E-mobility business also raised approximately CHF 525 million 5 ABB CORPORATE GOVERNANCE REPORT 2022 in a private placement, the second and final part of which was completed in February 2023. The proceeds will be used to invest in expanding the business both organically and through value-adding acquisitions in a fast-growing market. ABB retains an 80 percent shareholding in ABB E-mobility, and we will remain a majority shareholder once the busi- ness is listed on the SIX Swiss stock exchange, which we plan to do once market conditions are more favorable. In line with our portfolio management strategy of divesting businesses that no longer fit with our strategic focus, we spun off our successful Turbo- charging division, Accelleron, with a listing on the SIX Swiss stock exchange on October 3. Our share- holders approved the spin-off in September at an extraordinary general meeting, which we were able to hold in person thanks to the improved COVID-19 situation. The spin-off enables our shareholders to realize the full value of that business while allowing ABB to focus on our core electrification and automa- tion portfolio. As an independent company, Accelle- ron is able to play even better to its strengths and is a true gem of Swiss industry. And, earlier than expected, we divested to Hitachi ABB’s remaining 19.9 percent equity stake in the Hitachi Energy joint venture that was formed from our Power Grids business in 2020. Stronger integrity culture in the wake of the Kusile case In December 2022, we reached a full and final settle- ment with the relevant authorities in South Africa, the United States and Switzerland related to the le- gacy Kusile project in South Africa. The settlement resolves investigations into a contract that ABB was awarded in 2015 to provide equipment for the Kusile power plant. We remain committed to fulfill- ing our contractual obligations on the Kusile project to achieve successful and sustainable project completion. We hope to reach a final resolution with German authorities in the near future. The settlements total $327 million, were already accounted for in ABB’s third quarter 2022 financial results and include the expected exposure to the German case. The corre- sponding negative cash flow impact is expected to be split with approximately 75 percent in the fourth quarter 2022 with the remainder in the first quarter 2023. Since the Kusile matter was reported, ABB has co- operated fully with all authorities and spent consid- erable time and effort – including launching a new code of conduct, educating employees and imple- menting an enhanced control system – to prevent something similar from happening again. ABB has a systematic approach designed to prevent, detect, and resolve potential integrity concerns in line with our zero-tolerance approach to violations. Revision of Swiss corporate law We are very much looking forward to welcoming shareholders in person at our annual general meet- ing 2023. Among the proposals for which we will be seeking your approval is the amendment of our Articles of Incorporation to reflect changes in Swiss corporate law, which has been revised to strengthen shareholder rights and update various processes, among other changes. The proposal will, as part of a separate vote, also include the option to hold vir- tual shareholder meetings, which participants would attend using an online meeting platform. If a virtual meeting were to be held, shareholders would be able to exercise all their rights electronically, including the right to speak, to request information, and to vote and elect. Board assessment and diversity Earlier this year, the Board of Directors conducted an internal assessment in which each member as- sessed the Board’s composition, processes, culture and relationship with executive management, as well as its responsibilities, performance and the role of the Chairman. This is a regular process that is com- plemented periodically by external reviews. At our AGM in March, we will be proposing a new board member for election: We are proud to intro- duce Denise Johnson, President at Caterpillar Inc., with responsibility for Resources Industries, to our shareholders. Denise has a strong background in advanced automation and technology for heavy industries and is the ideal candidate to advise ABB on our ongoing efforts to support customers with their energy transition. Having Denise on the Board of Directors would also strengthen its gender diversity. In line with our process in ABB’s Board governance rules for members reaching the age limit, the Board has decided to propose Gunnar Brock for re-election for an additional term. Since he joined the Board in 2018, Gunnar has made a significant contribution to the Board and the Finance, Audit and Compliance Committee, and we would like to continue to benefit from his considerable business leadership experience. Finally, we will be saying goodbye to Satish Pai, who has decided not to stand for re-election in 2023. I want to thank Satish for his valuable contributions to the Board and to ABB over the past six years and wish him continued success in his future endeavors. On behalf of the Board of Directors, I would like to thank you for your continued trust and support. Peter Voser Chairman of the Board of Directors Zurich, February 23, 2023 6 ABB CORPORATE GOVERNANCE REPORT 2022 — Summary of corporate governance approach Corporate governance – general principles ABB is committed to the highest international standards of corporate governance and this is reinforced in its structure, processes and rules as outlined in this report. In line with this, ABB com- plies with the general principles as set forth in the Swiss Code of Best Practice for Corporate Gover- nance, as well as those of the capital markets where its shares are listed and traded. In addition to the provisions of the Swiss Code of Obliga- tions, ABB’s key principles and rules on corporate governance are laid down in ABB’s Articles of Incorporation, the ABB Ltd Board Governance Rules (which include the governance rules of ABB’s Board committees and the ABB Ltd Related Party Transaction Policy, which was prepared based on the Swiss Code of Best Practice for Corporate Governance and the independence criteria set forth in the corporate governance rules of the New York Stock Exchange), and the ABB Code of Conduct. These documents are available on ABB’s website at https://new.abb.com/about/ corporate-governance. It is the duty of ABB’s Board of Directors (the Board) to review and amend or propose amendments to those docu- ments from time to time to reflect the most recent developments and practices, as well as to ensure compliance with applicable laws and regulations. Shareholders and other interested parties may communicate with the Chairman of the Board or the independent directors by writing to ABB Ltd (Attn: Chairman of the Board/indepen- dent directors), at Affolternstrasse 44, CH-8050 Zurich, Switzerland. Swiss corporate law has been revised, effective as of January 1, 2023. The main objectives of the revision are to strengthen shareholder rights, im- prove corporate governance and modernize cor- porate law in general. Swiss corporations are re- quired to amend their articles of incorporation for compliance with the new law by the end of 2024 at the latest. ABB will propose the necessary chan- ges to its Articles of Incorporation for approval by shareholders at its Annual General Meeting in March 2023. These changes will impact certain of the provisions referred to in this report. Compensation governance and Board and EC compensation Information about ABB’s compensation gover- nance as well as Board and Executive Committee (EC) compensation and shareholdings is provided in the Compensation Report 2022. — Board of Directors Board and Board committees (2022–2023 Board term) Board of Directors Chairman: Peter R. Voser Gunnar Brock Jennifer Xin-Zhe Li Vice‑Chairman: Jacob Wallenberg David Constable Geraldine Matchett Frederico Fleury Curado David Meline Lars Förberg Satish Pai Finance, Audit and Compliance Committee Governance and Nomination Committee Compensation Committee David Meline (chairman) Peter R. Voser (chairman) Frederico Fleury Curado (chairman) Gunnar Brock Lars Förberg David Constable Geraldine Matchett Jennifer Xin-Zhe Li Jennifer Xin-Zhe Li Satish Pai Jacob Wallenberg 7 ABB CORPORATE GOVERNANCE REPORT 2022 Board governance The Board The Board defines the ultimate direction of the business of ABB and issues the necessary instruc- tions. It determines the organization of the ABB Group and appoints, removes and supervises the persons entrusted with the executive manage- ment and representation of ABB. The internal or- ganizational structure and the definition of the areas of responsibility of the Board, as well as the information and control instruments vis-à-vis the Executive Committee are set forth in the ABB Ltd Board Governance Rules (available at https://new. abb.com/about/corporate-governance). The Board takes decisions as a whole, supported by its three committees: the Finance, Audit and Compliance Committee (FACC), the Governance and Nomination Committee (GNC), and the Com- pensation Committee (CC). These committees assist the Board in its tasks and report regularly to the Board. The Board and its committees meet regularly throughout the year. The directors and officers of a Swiss corporation are bound, as specified in the Swiss Code of Obli- gations, to perform their duties with all due care, to safeguard the interests of the corporation in good faith and to extend equal treatment to share- holders in like circumstances. Prior to proposing new candidates for election to the Board, checks are performed to ensure that they are indepen- dent and that there are no conflicts of interest. The Swiss Code of Obligations does not specify what standard of due care is required of the direc- tors of a corporate board. However, it is generally held by Swiss legal scholars and jurisprudence that the directors must have the requisite capabil- ity and skills to fulfill their function, and must de- vote the necessary time to the discharge of their duties. Moreover, the directors must exercise all due care that a prudent and diligent director would have taken in like circumstances. Finally, the directors are required to take actions in the best interests of the corporation and may not take any actions that may be harmful to the corporation. Although the Swiss Code of Obligations does not discuss specifically conflicts of interest for board members, the ABB Ltd Board Governance Rules (available at https://new.abb.com/about/ corporate-governance) state that Board members shall avoid entering into any situation in which their personal or financial interests may conflict with the interests of ABB. Chairman of the Board The Chairman is elected by the shareholders to represent their interests in creating sustainable value through effective governance. In addition, the Chairman (1) takes provisional decisions on behalf of the Board on urgent matters where a reg- ular Board decision cannot be obtained, (2) calls for Board meetings and sets the related agendas, (3) interacts with the CEO and other EC members on a more frequent basis outside of Board meet- ings and (4) represents the Board internally and in the public sphere. Vice‑Chairman of the Board The Vice-Chairman is elected by the Board and handles the responsibilities of the Chairman to the extent the Chairman is unable to do so or would have a conflict of interest in doing so. He also acts as counselor/advisor to the Chairman on any matters that are Company or Board rele- vant and as appropriate or as the Chairman may require and with a particular focus on strategic aspects related to the Company and its business in general. In addition, the Vice-Chairman takes such other actions as may be decided by the Board or requested by the Chairman. Finance, Audit and Compliance Committee The FACC is responsible for overseeing (1) the integrity of ABB’s financial statements, (2) ABB’s compliance with legal, tax and regulatory require- ments, (3) the external auditors’ qualifications and independence, (4) the performance and role of ABB’s internal audit function and the perfor- mance of the external auditors, (5) ABB’s capital structure, funding requirements and financial and risk policies, and (6) ABB’s implementation and maintenance of an integrity program and internal controls designed to mitigate integrity risk. The FACC must comprise three or more indepen- dent directors who have a thorough understan- ding of finance and accounting. The Chairman of the Board and, upon invitation by the committee’s chairman, the CEO or other members of the Exe- cutive Committee may participate in the commit- tee meetings, provided that any potential conflict of interest is avoided and confidentiality of the discussions is maintained. In addition, the chief integrity officer, the head of internal audit and the external auditors participate in the meetings as appropriate. The Board has determined that each member of the FACC is an audit committee finan- cial expert as such term is defined in Form 20-F. 8 ABB CORPORATE GOVERNANCE REPORT 2022 Governance and Nomination Committee The GNC is responsible for (1) overseeing corpo- rate governance practices within ABB, (2) over- seeing corporate social responsibility (including health, safety and environment as well as sustain- ability), (3) nominating candidates for the Board, the role of the CEO and other positions on the Executive Committee, and (4) succession planning and employment matters relating to the Board and the Executive Committee. The GNC is also responsible for maintaining an orientation pro- gram for new Board members and an ongoing education program for existing Board members. The GNC must comprise three or more indepen- dent directors. Upon invitation by the committee’s chairman, the CEO or other members of the Executive Committee may participate in the committee meetings, provided that any potential conflict of interest is avoided and confidentiality of the discussions is maintained. Compensation Committee The CC is responsible for compensation matters relating to the Board and the Executive Committee. The CC must comprise three or more directors who are elected by the shareholders. The Chair- man of the Board and, upon invitation by the committee’s chairman, the CEO or other members of the Executive Committee may participate in the committee meetings, provided that any potential conflict of interest is avoided and confidentiality of the discussions is maintained. Board membership Board composition In proposing individuals to be elected to the Board, the Board seeks to align the composition and skills of the Board with the Company’s stra- tegic needs, business portfolio, geographic reach and culture. The Board strives for diversity in all aspects including gender, nationalities, geogra- phic/regional experience and business experi- ence. In addition, the average tenure of the mem- bers of the Board should be well-balanced. The Board also considers the number of other man- dates of each Board member to ensure that he/ she will have sufficient time to dedicate to his/her role as an ABB Board member. Elections and term of office The members of the Board of Directors and the Chairman of the Board as well as the members of the Compensation Committee are elected by the shareholders at the general meeting of sharehold- ers for a term of office extending until completion of the next ordinary general meeting of share- holders. Members whose terms of office have expired shall be immediately eligible for re-elec- tion. ABB’s Articles of Incorporation (available at https://new.abb.com/about/ corporate-governance) do not provide for the retirement of directors based on their age. How- ever, an age limit for members of the Board is set forth in the ABB Ltd Board Governance Rules (available at https://new.abb.com/about/ corporate-governance), although waivers are possible and subject to Board discretion. If the office of the Chairman of the Board of Directors or any position on the Compensation Committee becomes vacant during a Board term, the Board Members of the Board (2022–2023 Board term) Board Member Board Experience Corporate Officer Experience Other Business Experience Global Experience Country of Origin / Nationality Gender Non‑Executive Independent ABB Board Tenure (years) Other Public Board Experience CEO CFO Operations Risk Management Sustainability Digital / Technology Peter R. Voser 8 CH M Yes Yes Jacob Wallenberg 24 SE M Yes Yes Gunnar Brock 5 SE M Yes Yes David Constable 8 CA, US M Yes Yes Frederico Fleury Curado 7 BR, PT M Yes Yes Lars Förberg 6 SE, CH M Yes Yes Jennifer Xin-Zhe Li 5 CN, CA F Yes Yes Geraldine Matchett 5 CH, UK, FR F Yes Yes David Meline 7 US, CH M Yes Yes Satish Pai 7 IN M Yes Yes 9 ABB CORPORATE GOVERNANCE REPORT 2022 of Directors may appoint (shall appoint in the case of the Chairman of the Board) another individual from among its members to that position for the remainder of that term. The Board of Directors shall consist of no less than 7 and no more than 13 members. Members of the Board (2022–2023 Board term) Peter R. Voser has been a member and Chairman of ABB’s Board of Directors since April 2015. He was also ABB’s Chief Executive Officer from April 2019 to February 2020. He is a member of the board of directors of IBM Corporation (U.S.). He is also a member of the board of directors of Temasek Holdings (Private) Limited (Singapore) as well as chairman of the board of PSA International Pte Ltd (Singapore), one of its subsidiaries. In addition, he is the chair- man of the board of trustees of the St. Gallen Foundation for International Studies. He was pre- viously the chief executive officer of Royal Dutch Shell plc (The Netherlands). Mr. Voser was born in 1958 and is a Swiss citizen. Jacob Wallenberg has been a member of ABB’s Board of Direc- tors since June 1999 and Vice- Chairman since April 2015. He is the chairman of the board of Investor AB (Sweden). He is vice-chairman of the boards of Telefonaktiebolaget LM Ericsson, FAM AB and Patricia Industries (all Sweden). He is also a mem- ber of the board of directors of the Knut and Alice Wallenberg Foundation as well as a member of the nomination committee of SAS AB (both Sweden). Through June 2022, he was a member of the board of directors of Nasdaq, Inc. (U.S.). Mr. Wal- lenberg was born in 1956 and is a Swedish citizen. Gunnar Brock has been a member of ABB’s Board of Directors since March 2018. He is the chairman of the boards of directors of Neptunia Invest AB and Stena AB (both Swe- den) and a member of the boards of directors of Investor AB and Patricia Industries (both Sweden). Through July 2022, he was the chairman of the board of directors of Mölnlycke Health Care AB (Sweden). He was formerly president and chief executive officer of Atlas Copco AB (Sweden). Mr. Brock was born in 1950 and is a Swedish citizen. David Constable has been a mem- ber of ABB’s Board of Directors since April 2015. He is the chairman of the board of directors and chief executive officer of Fluor Corpora- tion (U.S.). He was formerly the chief executive officer and president as well as a member of the board of diretors of Sasol Limited (South Africa). He joined Sasol after more than 29 years with Fluor Corporation (U.S.). Mr. Constable was born in 1961 and is a Canadian and U.S. citizen. Frederico Fleury Curado has been a member of ABB’s Board of Directors since April 2016. He is a member of the boards of directors of Ultrapar S.A. (Brazil), Transocean Ltd. (Switzerland) and LATAM Airlines Group S.A. (Chile). He was formerly the chief executive officer of Ultrapar S.A. and Embraer S.A. (both Brazil). Mr. Curado was born in 1961 and is a Brazilian and Portuguese citizen. Lars Förberg has been a member of ABB’s Board of Directors since April 2017. He is co-founder and managing partner of Cevian Capital. Mr. Förberg was born in 1965 and is a Swedish and Swiss citizen. Jennifer Xin‑Zhe Li has been a mem- ber of ABB’s Board of Directors since March 2018. She is a member of the boards of directors of SAP SE (Germany), Kone Oy (Finland) and Full Truck Alliance Co. Ltd. (Cayman Islands/ P.R.C.). Through August 2022, she was a member of the board of directors of Flex Ltd (Singapore/ U.S.). Ms. Li is a founder and general partner of Changcheng Investment Partners (P.R.C.), a private investment fund. From 2008 to 2018, she served as chief financial officer of Baidu Inc. (P.R.C.) and chief executive officer of Baidu Capi- tal (P.R.C.). Prior to that, Ms. Li spent 14 years with General Motors, holding various senior finance positions, including chief financial officer of GM China and corporate controller for GMAC North American Operations. Ms. Li was born in 1967 and is a Canadian citizen. Geraldine Matchett has been a member of ABB’s Board of Directors since March 2018. She is the co-chief executive officer, the chief financial officer and a member of the manag- ing board of Royal DSM N.V. (The Netherlands). She was previously the chief financial officer of SGS Ltd (Switzerland). Prior to joining SGS she worked as an auditor at Deloitte Ltd (Switzerland) and KPMG LLP (U.K.). Ms. Matchett was born in 1972 and is a Swiss, British and French citizen. 10 ABB CORPORATE GOVERNANCE REPORT 2022 David Meline has been a member of ABB’s Board of Directors since April 2016. From 2011 through 2022, he held chief financial officer roles at Moderna Inc. (U.S.), Amgen Inc. (U.S.) and the 3M Company (U.S.). From 2008 through 2011 he was the corporate controller and chief accounting officer of the 3M Company (U.S.). Prior to joining 3M, Mr. Meline worked for more than 20 years for General Motors Company (U.S.). Mr. Meline was born in 1957 and is a U.S. and Swiss citizen. Satish Pai has been a member of ABB’s Board of Directors since April 2016. He is the managing director and a member of the board of direc- tors of Hindalco Industries Ltd. (India). He joined Hindalco in 2013 after 28 years with Schlumberger Limited (U.S.). Mr. Pai was born in 1961 and is an Indian citizen. As of December 31, 2022, none of the Board members held any official functions or political posts. Further information on ABB’s Board mem- bers can be found on ABB’s website under the ABB Board of Directors link (available at https://new. abb.com/about/corporate-governance). Board meetings and attendance The Board and its committees have regularly scheduled meetings throughout the year. These meetings are supplemented by additional meet- ings (either in person or by conference call), as necessary. Board meetings are convened by the Chairman or upon request by any other Board member or the CEO. Documentation covering the various items of the agenda for each Board meeting is sent out in advance to each Board member in order to allow each member time to study the covered matters prior to the meetings. Each Board meeting has a private session without management or others being present. Decisions made at the Board meetings are recorded in written minutes of the meetings. Some decisions are also taken by circular resolution. The table below shows the number of meetings held during 2022 by the Board and its commit- tees, their average duration, as well as the attendance of the individual Board members. The Board meetings shown include a strategic retreat attended by the members of the Board and the EC. Mandates of Board members outside the ABB Group No member of the Board may hold more than ten additional mandates, of which no more than four may be in listed companies. Certain types of mandates, such as those in our subsidiaries, those in the same group of companies and those in non-profit and charitable institutions, are not subject to those limits. Additional details can be found in Article 38 of ABB’s Articles of Incorpora- tion (available at https://new.abb.com/about/ corporate-governance). 2022 Board and Board Committee Meetings Meetings and attendance Pre annual general meeting 2022 Post annual general meeting 2022 Board FACC GNC CC Board FACC GNC CC Mtg. Conf. Call Mtg. Conf. Call Average duration (hours) 7.5 1.5 2 1.25 1.25 8.25 1.5 3 1 1.25 Number of meetings 1 1 2 2 2 4 2 5 4 5 Meetings attended: Peter R. Voser 1 1 2 4 2 4 Jacob Wallenberg 1 1 2 4 2 3 Gunnar Brock 1 1 2 4 2 5 David Constable 1 2 4 1 5 Frederico Fleury Curado 1 1 2 4 2 5 Lars Förberg 1 1 2 4 2 4 Jennifer Xin-Zhe Li 1 1 2 2 4 1 4 5 Geraldine Matchett 1 1 4 2 5 David Meline 1 1 2 4 2 5 Satish Pai 1 1 2 4 2 5 11 ABB CORPORATE GOVERNANCE REPORT 2022 Business relationships between ABB and its Board members This section describes important business rela- tionships between ABB and its Board members, or companies and organizations represented by them. Fluor Corporation (Fluor) is an important cus- tomer of ABB. ABB sells primarily electrical switchgears, control systems and electrical solutions through its Electrification and Process Automation business areas to Fluor. David Con- stable is the chairman of the board of directors and CEO of Fluor. After reviewing the level of business with Fluor, the Board has determined that ABB’s business relationship with Fluor is not unusual in its nature or conditions and does not constitute a material business relationship. As a result, the Board concluded that all members of the Board are independent. These determinations were made in accordance with ABB Ltd’s Related Party Transaction Policy, which was prepared based on the Swiss Code of Best Practice for Corporate Governance and the independence criteria set forth in the corporate governance rules of the New York Stock Exchange. This policy is contained in the ABB Ltd Board Governance Rules (available at https://new.abb. com/about/corporate-governance). Information and control systems of the Board vis‑à‑vis the Execu‑ tive Committee Information from the Executive Committee In accordance with the ABB Board Governance Rules (available at https://new.abb.com/about/ corporate-governance), the CEO reports regularly to the Board about ABB’s overall business and when circumstances require on any extraordinary events that may arise. This includes: • Reports on financial results (including profit and loss, balance sheet and cash flows); • Changes in key members of management; • Information that may affect the supervisory or monitoring function of the Board (including on matters of strategy and compliance); and • Significant developments in legal matters. At each Board meeting, Board members are briefed by the Chairman, CEO, CFO and other EC members on ABB’s business performance and on material developments affecting ABB. Outside of Board meetings, Board members generally chan- nel any requests for information through the Chairman. Board members also obtain informa- tion through offsite retreats with the Executive Committee and visits to ABB sites. In addition, Board members obtain information through the Board committees in which they participate and which are also attended by relevant EC members and management representatives from human resources, finance, legal and the business. Internal Audit ABB has an Internal Audit team that provides independent objective assurance and other services to help ensure that ABB operates in accordance with applicable laws as well as inter- nal policies and procedures. Internal Audit reports to the FACC and to the CFO. The FACC reviews and approves the internal audit plan, and material changes to the plan. Investigations of potential fraud and inappropriate business conduct are an integral part of the internal audit process. De- pending on circumstances, Internal Audit may act together with ABB’s Integrity Investigations and Monitoring department, which is part of ABB’s integrity function. Internal Audit reports on a regular basis its main observations and recom- mendations to the relevant members of the EC and to the FACC as appropriate. Risk Management ABB has an enterprise risk management program (ERM) in place which takes into account ABB’s size and complexity. ERM provides the EC and the Board with a comprehensive and holistic view of the risks facing the business. ERM involves man- aging the acceptance of risk to achieve the objectives of the business. The ERM process is typically cyclical in nature, conveying the idea of continuous refinement of the risk management approach in a dynamic business environment. Furthermore, ABB runs a mitigation process for the identified risks that is key to the success of this process. ERM assessments are both top down and bottom up. They cover strategic, financial, and operational risks, both current and long term. Key risks identified and managed in 2022 were those related to the war in Ukraine, to continued constraints in global supply chains and to the planned initial public offering in Switzerland of ABB’s electric-vehicle charging business. ERM results are reported to the FACC and the entire Board. This information becomes part of the overall strategic and risk discussions by the Board to help create value for stakeholders. 12 ABB CORPORATE GOVERNANCE REPORT 2022 — Executive Committee Composition of the Executive Committee (at December 31, 2022) Björn Rosengren Chief Executive Officer CORPORATE OFFICERS BUSINESS AREA PRESIDENTS Timo Ihamuotila Chief Financial Officer Morten Wierod Electrification Carolina Granat Chief Human Resources Officer Peter Terwiesch Process Automation Andrea Antonelli General Counsel Tarak Mehta Motion Karin Lepasoon Chief Communications and Sustainability Officer Sami Atiya Robotics & Discrete Automation Executive Committee responsibilities and organization The Board has delegated the executive manage- ment of ABB to the CEO. The CEO and, under his direction, the other members of the Executive Committee are responsible for ABB’s overall business and affairs and day-to-day manage- ment. The CEO reports to the Board regularly, and whenever extraordinary circumstances so require, on the course of ABB’s business and financial performance and on all organizational and personnel matters, transactions and other issues material to the Group. Each member of the Executive Committee is appointed and dis- charged by the Board. Members of the Executive Com‑ mittee (at December 31, 2022) Björn Rosengren was appointed Chief Executive Officer and mem- ber of the Executive Committee effective March 2020. He is a member of the board of directors of the World Childhood Foundation (Sweden). Before joining ABB, he was the president and chief executive officer of Sandvik AB (Sweden) since 2015. Prior to that, Mr. Rosengren was the chief executive officer of Wärtsilä Corporation (Finland) from 2011 to 2015. He held a variety of management roles at Atlas Copco AB (Sweden) from 1998 to 2011. Mr. Rosengren was born in 1959 and is a Swedish citizen. Timo Ihamuotila was appointed Chief Financial Officer and member of the Executive Committee effec- tive April 2017. He is a member of the board of directors of Software- ONE Holding AG and Hitachi Energy Ltd (both Switzerland). From 2009 to 2016, Mr. Ihamuotila was chief financial officer and an executive vice president of the Nokia Corporation (Finland). From 1999 to 2009, he held various senior roles with Nokia. Mr. Ihamuotila was born in 1966 and is a Finnish citizen. Carolina Granat was appointed Chief Human Resources Officer and member of the Executive Committee effective January 2021. She joined ABB in 2020 as Head of People Development. Prior to that, she was glob- ally responsible for human resources at the machining solutions business area of Sandvik AB (Sweden). Ms. Granat was born in 1972 and is a Swedish citizen. Andrea Antonelli was appointed General Counsel and member of the Executive Committee effective March 2022. From 2020 to 2022 he was General Counsel of both ABB’s Electrification and Robotics & Discrete Automa- tion business areas. Prior to joining ABB, Mr. An- tonelli was at the Tetra Pak Group, where he held various positions as regional general counsel for different regions as well as vice president legal affairs of global commercial operations. He has also worked for General Electric and Fluor Corpo- ration, as well as in private practice at DLA Piper London offices. Mr. Antonelli was born in 1974 and is an Italian citizen. 13 ABB CORPORATE GOVERNANCE REPORT 2022 Karin Lepasoon was appointed Chief Communications and Sus- tainability Officer and member of the Executive Committee effective October 2022. She joined ABB from Vattenfall, where she served as head of group communications and public & regulatory affairs and member of the company’s group executive management team. Prior to that, Ms. Lepasoon also served as head of global marketing and com- munications at SEB, director of sustainability, communications and HR at Nordic Capital, head of strategy and chief of staff at Skanska, and held various other roles in the area of communications. Ms. Lepasoon was born in 1968 and is a Swedish citizen. Morten Wierod was appointed President of the Electrification business area effective April 2022 and has been a member of the Executive Committee since April 2019, when he was appointed President of the Motion business area. From 2015 until April 2019 he was the Managing Director of the drives busi- ness unit in the Robotics and Motion division. Dur- ing 2011 to 2015, Mr. Wierod was the Managing Director of the control products business unit in the Low Voltage Products division. Between 1998 to 2011, he held various management roles with ABB. Mr. Wierod was born in 1972 and is a Norwe- gian citizen. Peter Terwiesch was appointed President of the Process Automa- tion business area and member of the Executive Committee effective January 2015 (Process Automation known as Industrial Automation from 2017 until 2020). He is a member of the board of directors of Hilti AG (Liechtenstein). From 2011 to 2014, Mr. Terwiesch was Head of ABB’s Central Europe region. He was ABB’s Chief Technology Officer from 2005 to 2011. From 1994 to 2005, he held several positions with ABB. Mr. Terwiesch was born in 1966 and is a German and Swiss citizen. Tarak Mehta was appointed Presi- dent of the Motion business area effective April 2022 and has been a member of the Executive Committee since October 2010. He is a member of the board of directors of Prysmian S.p.A. (Italy). He was President of the Electrification business area since April 2019 and President of the Electrifi- cation Products division from 2016 to 2019. From October 2010 through December 2015, he was Pre- sident of the Low Voltage Products division. From 2007 to 2010, he was Head of ABB’s transformers business. Between 1998 and 2006, he held several management positions with ABB. Mr. Mehta was born in 1966 and is a U.S. and Swiss citizen. Sami Atiya was appointed Presi- dent of the Robotics & Discrete Automation business area effective April 2019 and has been a member of the Executive Committee since June 2016. He is a member of the board of direc- tors of SGS SA (Switzerland). He had previously been President of the Robotics and Motion divi- sion since January 2017. From June to December 2016 he was President of the Discrete Automation and Motion division. Prior to joining ABB, Mr. Atiya held senior roles at Siemens in Germany from 1997 to 2015, including as chief executive officer of the mobility and logistics division in the infrastruc- ture and cities sector from 2011. Mr. Atiya was born in 1964 and is a German citizen. Further information about the members of the Executive Committee can be found on ABB’s website under the Executive Committee link (available at https://new.abb.com/about/ corporate-governance). Mandates of EC members out‑ side the ABB Group No member of the EC may hold more than five additional mandates, of which no more than one may be in a listed company. Certain types of mandates, such as those in our subsidiaries, those in the same group of companies and those in non-profit and charitable institutions, are not subject to those limits. Additional details can be found in Article 38 of ABB’s Articles of Incorpora- tion (available at https://new.abb.com/about/ corporate-governance). Business relationships between ABB and its EC members This section describes important business relation- s hips between ABB and its EC members, or com- panies and organizations represented by them. Until December 28, 2022, ABB had a minority stake in Hitachi Energy Ltd (Hitachi Energy), the holding company of ABB’s former power grids business. Hitachi Energy is both an important supplier to and customer of ABB. Timo Ihamuotila is a director of Hitachi Energy. After reviewing the level of business with Hitachi Energy, the Board has determined that ABB’s business relationship with Hitachi Energy is not unusual in its nature or conditions. These determinations were made in accordance with ABB Ltd’s Related Party Transaction Policy, 14 ABB CORPORATE GOVERNANCE REPORT 2022 which was prepared based on the Swiss Code of Best Practice for Corporate Governance and the independence criteria set forth in the corporate governance rules of the New York Stock Exchange. This policy is contained in the ABB Ltd Board Governance Rules (available at https://new.abb. com/about/corporate-governance). — Shares Share capital of ABB At December 31, 2022, ABB’s ordinary share capital (including treasury shares) as registered with the commercial register amounted to CHF 235,769,409.00, divided into 1,964,745,075 fully paid registered shares with a par value of CHF 0.12 per share. ABB Ltd’s shares are listed on the SIX Swiss Exchange, the NASDAQ OMX Stockholm Exchange and the New York Stock Exchange (where its shares are traded in the form of American deposi- tary shares (ADS) – each ADS representing one registered ABB share). At December 31, 2022, ABB Ltd had a market capitalization based on outstanding shares (total number of outstanding shares: 1,865,003,331) of approximately CHF 52 billion ($57 billion, SEK 590 billion). The only consolidated subsidiary in the ABB Group with listed shares is ABB India Limited, Bangalore, India, which is listed on the BSE Ltd. (Bombay Stock Exchange) and the National Stock Exchange of India. At December 31, 2022, ABB Ltd, Switzer- land, directly or indirectly owned 75 percent of ABB India Limited, Bangalore, India, which at that time had a market capitalization of approximately INR 569 billion. Stock exchange listings (at December 31, 2022) Stock exchange Security Ticker symbol ISIN code SIX Swiss Exchange ABB Ltd, Zurich, share ABBN CH0012221716 SIX Swiss Exchange ABB Ltd, Zurich, share buyback (second trading line) ABBNE CH0357679619 NASDAQ OMX Stockholm Exchange ABB Ltd, Zurich, share ABB CH0012221716 New York Stock Exchange ABB Ltd, Zurich, ADS ABB US0003752047 BSE Ltd. (Bombay Stock Exchange) ABB India Limited, Bangalore, share ABB(1) INE117A01022 National Stock Exchange of India ABB India Limited, Bangalore, share ABB INE117A01022 (1) Also called Scrip ID. Share repurchases and cancella‑ tion At ABB’s Annual General Meeting 2022, sharehold- ers approved the proposal to cancel 88,403,189 shares repurchased under ABB’s 2020/21 and 2021/22 share buyback programs. These shares were cancelled in June 2022, resulting in a reduced total number of issued ABB Ltd shares of 1,964,745,075. 15,283,500 shares repurchased under ABB’s 2021/22 share buyback program are remaining for cancellation. In April 2022, ABB launched a follow-up share buyback program of up to $3 billion. The main purpose of this program was to complete the return of $7.8 billion cash proceeds from the Power Grids divestment to shareholders. Under that share buyback program, ABB repur- chased a total of 59,956,000 shares as per December 31, 2022, and a total of 64,615,000 shares as per February 15, 2023. ABB intends to use the capital band, which it will propose at the Annual General Meeting 2023 to its shareholders for introduction (see “Authorized share capital” below), for cancellation of shares repurchased under the share buyback programs 2021/22 and 2022/23. Further information on ABB’s share buyback programs can be found at https://global.abb/ group/en/investors/investor-and-shareholder- resources/share-buybacks. In addition, ABB repurchased a total of 20,000,000 shares as per December 31, 2022, primarily for use in connection with employee share programs. Further information can be found at https://www.abb.com/investorrelations. 15 ABB CORPORATE GOVERNANCE REPORT 2022 Changes to the ordinary share capital Except for the share cancellations described above and in ABB’s Annual Report 2021, there were no other changes to ABB’s ordinary share capital during 2022, 2021 and 2020. Convertible bonds and options ABB does not have any bonds outstanding that are convertible into ABB shares. For information about options on shares issued by ABB, please refer to “Note 19 – Stockholders’ equity” to ABB’s Consolidated Financial Statements. Contingent share capital At December 31, 2022, ABB’s share capital may be increased by an amount not to exceed CHF 24,000,000 through the issuance of up to 200,000,000 fully paid registered shares with a par value of CHF 0.12 per share through the exer- cise of conversion rights and/or warrants granted in connection with the issuance on national or international capital markets of newly or already issued bonds or other financial market instru- ments. If this contingent share capital were fully issued this would increase the existing share capital by approximately 10.2 percent. The contin- gent share capital has not changed during the last three years. At December 31, 2022, ABB’s share capital may be increased by an amount not to exceed CHF 1,200,000 through the issuance of up to 10,000,000 fully paid registered shares with a par value of CHF 0.12 per share through the exercise of warrant rights granted to its shareholders. If this contingent share capital were fully issued this would increase the existing share capital by approximately 0.5 percent. This contingent share capital has not changed during the last three years. The Board may grant warrant rights not taken up by shareholders for other purposes in the interest of ABB. The pre-emptive rights of the shareholders are excluded in connection with the issuance of convertible or warrant-bearing bonds or other financial market instruments or the grant of warrant rights. The then current owners of con- version rights and/or warrants will be entitled to subscribe for new shares. The conditions of the conversion rights and/or warrants will be deter- mined by the Board. The acquisition of shares through the exercise of warrants and each subsequent transfer of the shares will be subject to the restrictions of ABB’s Articles of Incorporation (see “Limitations on transferability of shares and nominee registra- tion” in the Shareholders section below) (available at https://new.abb.com/about/corporate- governance). In connection with the issuance of convertible or warrant-bearing bonds or other financial market instruments, the Board is authorized to restrict or deny the advance subscription rights of share- holders if such bonds or other financial market instruments are for the purpose of financing or refinancing the acquisition of an enterprise, parts of an enterprise, participations or new invest- ments or an issuance on national or international capital markets. If the Board denies advance subscription rights, the convertible or warrant- bearing bonds or other financial market instru- ments will be issued at the relevant market condi- tions and the new shares will be issued pursuant to the relevant market conditions taking into account the share price and/or other comparable instruments having a market price. Conversion rights may be exercised during a maximum ten-year period, and warrants may be exercised during a maximum seven-year period, in each case from the date of the respective issuance. The advance subscription rights of the shareholders may be granted indirectly. At December 31, 2022, ABB’s share capital may be increased by an amount not to exceed CHF 11,284,656 through the issuance of up to 94,038,800 fully paid shares with a par value of CHF 0.12 per share to employees. If this contin- gent share capital were fully issued this would increase the existing share capital by approxi- mately 4.8 percent. This contingent share capital has not changed during the last three years. The pre-emptive and advance subscription rights of ABB’s shareholders are excluded. The shares or rights to subscribe for shares will be issued to employees pursuant to one or more regulations to be issued by the Board, taking into account performance, functions, level of responsibility and profitability criteria. ABB may issue shares or subscription rights to employees at a price lower than that quoted on a stock exchange. The acqui- sition of shares within the context of employee share ownership and each subsequent transfer of the shares will be subject to the restrictions of ABB’s Articles of Incorporation (see “Limitations on transferability of shares and nominee registra- tion” in the Shareholders section below). Authorized share capital At December 31, 2022, ABB had an authorized share capital in the amount of up to CHF 24,000,000 through the issuance of up to 16 ABB CORPORATE GOVERNANCE REPORT 2022 200,000,000 fully paid registered shares with a par value of CHF 0.12 each, which is valid through March 25, 2023. If the authorized share capital were fully issued, this would increase the existing share capital by approximately 10.2 percent. Aside from renewal at the 2021 AGM, the authorized share capital has not changed during the last three years. The Board is authorized to determine the date of issue of new shares, the issue price, the type of payment, the conditions for the exercise of pre-emptive rights and the beginning date for dividend entitlement. In this regard, the Board may issue new shares by means of a firm underwriting through a banking institu- tion, a syndicate or another third party with a subsequent offer of these shares to the share- holders. The Board may permit pre-emptive rights that have not been exercised by shareholders to expire or it may place these rights and/or shares as to which pre-emptive rights have been granted but not exercised at market conditions or use them for other purposes in the interest of the Company. Furthermore, the Board is authorized to restrict or deny the pre-emptive rights of shareholders and allocate such rights to third parties if the shares are used (1) for the acquisi- tion of an enterprise, parts of an enterprise, or participations, or for new investments, or in case of a share placement, for the financing or refi- nancing of such transactions; or (2) for the pur- pose of broadening the shareholder constituency in connection with a listing of shares on domestic or foreign stock exchanges. The subscription and the acquisition of the new shares, as well as each subsequent transfer of the shares, will be subject to the restrictions of ABB’s Articles of Incorpora- tion (available at https://new.abb.com/about/ corporate-governance). In line with the revised provisions of the Swiss Code of Obligations effective since January 1, 2023, ABB will propose to the Annual General Meeting 2023 to replace the then expiring authorized share capital with a capital band ranging from CHF 212,192,469 (lower limit) to CHF 259,346,349 (upper limit), i.e. from 90 per- cent to 110 percent of the share capital currently entered in the commercial register. Within this capital band, the Board of Directors shall be authorized to increase or reduce the share capital once or several times until March 23, 2028, or until an earlier expiry of the capital band. ABB intends to use the capital band for cancellation of shares repurchased under the share buyback programs 2021/22 and 2022/23 (see “Share repurchases and cancellation” above). — Shareholders Shareholder structure At December 31, 2022, the total number of share- holders directly registered with ABB Ltd was approximately 90,000 and another 549,000 shareholders held shares indirectly through nominees. In total, as of that date, ABB had ap- proximately 639,000 shareholders. Significant shareholders Under the Swiss Financial Market Infrastructure Act, shareholders and groups of shareholders acting in concert who directly or indirectly acquire or sell shares of a listed Swiss corporation or rights based thereon and thereby reach, exceed or fall below the thresholds of 3 percent, 5 percent, 10 percent, 15 percent, 20 percent, 25 percent, 33¹/₃ percent, 50 percent or 66²/₃ percent of the voting rights of the corporation must notify the corporation and the SIX Swiss Exchange of such holdings. Based on the disclosure notifications made to ABB and the SIX Swiss Exchange, the following shareholders hold or control voting rights of 3 percent or more of ABB Ltd’s issued shares. Except where indicated otherwise, the shareholdings described below are based on the notices provided to ABB and the SIX Swiss Ex- change and do not reflect any subsequent changes in shareholdings and share capital and votes. Investor AB, Sweden, disclosed to ABB and the SIX Swiss Exchange that as per November 9, 2015, it owned 232,165,142 ABB Ltd shares and controlled 10.03 percent of the voting rights in ABB Ltd (refer to https://www.ser-ag.com/en/resources/ notifications-market-participants/significant- shareholders.html#/shareholder-details/ TBFBH00013). In its latest quarterly financial report, Investor AB, Sweden, disclosed that as per December 31, 2022, it owned 265,385,142 ABB Ltd shares and controlled 13.5 percent of the voting rights in ABB Ltd. The number of shares held by Investor AB does not include shares held by Mr. Jacob Wallenberg, the chairman of Investor AB and a director of ABB, in his individual capacity. 17 ABB CORPORATE GOVERNANCE REPORT 2022 BlackRock, Inc., U.S.A., disclosed to ABB and the SIX Swiss Exchange that as per November 16, 2022, it owned 80,226,133 ABB Ltd shares and controlled 4.97 percent of the voting rights in ABB Ltd (refer to https://www.ser-ag.com/en/ resources/notifications-market-participants/ significant-shareholders.html#/shareholder- details/TAMBH00029). Cevian Capital II GP Limited, Jersey, disclosed to ABB and the SIX Swiss Exchange that as per July 30, 2020, it owned 107,344,554 ABB Ltd shares and controlled 4.95 percent of the voting rights in ABB Ltd (refer to https://www.ser-ag.com/en/ resources/notifications-market-participants/ significant-shareholders.html#/shareholder- details/TBK8400016). The Capital Group Companies, Inc., USA, disclosed to ABB and the SIX Swiss Exchange that as per July 1, 2022, it owned 69,725,960 ABB Ltd shares and controlled 4.02 percent of the voting rights in ABB Ltd (refer to https://www.ser-ag.com/en/ resources/notifications-market-participants/ significant-shareholders.html#/shareholder- details/TAM75000B6). At December 31, 2022, to the best of ABB’s knowl- edge, no other shareholder held 3 percent or more of ABB’s total share capital and voting rights as registered in the commercial register on that date. ABB Ltd has no cross shareholdings in excess of 5 percent of capital, or voting rights with any other company. Announcements related to disclosure notifications made by shareholders during 2022 can be found via the search facility on the platform of the Disclo- sure Office of the SIX Swiss Exchange: https://www.ser-ag.com/en/resources/ notifications-market-participants/significant- shareholders.html#/. Under ABB’s Articles of Incorporation (available at https://new.abb.com/about/corporate- governance), each registered share represents one vote. Significant shareholders do not have differ- ent voting rights. To our knowledge, we are not directly or indirectly owned or controlled by any government or by any other corporation or person. Shareholders’ rights Shareholders have the right to receive dividends, to vote and to execute such other rights as granted under Swiss law and the Articles of Incorporation (available at https://new.abb.com/ about/corporate-governance). Right to vote ABB has one class of shares and each registered share carries one vote at the general meeting. Voting rights may be exercised only after a share- holder has been registered in the share register of ABB as a shareholder with the right to vote, or with Euroclear Sweden AB (Euroclear), which main- tains a subregister of the share register of ABB. A shareholder may be represented at the Annual General Meeting by its legal representative, by another shareholder with the right to vote or by the independent proxy elected by the sharehold- ers (unabhängiger Stimmrechtsvertreter). If the Company does not have an independent proxy, the Board of Directors shall appoint the indepen- dent proxy for the next General Meeting of Shareholders. All shares held by one shareholder may be represented by one representative only. For practical reasons shareholders must be registered in the share register no later than 6 business days before the general meeting in order to be entitled to vote. Except for the cases de- scribed under “Limitations on transferability of shares and nominee registration” below, there are no voting rights restrictions limiting ABB’s share- holders’ rights. Annual General Meeting/Extraordinary General Meeting/COVID‑19 ABB’s top priority is protecting the health of its shareholders and employees. Therefore, due to the extraordinary circumstances and in accor- dance with applicable Swiss COVID-19 legislation, shareholders were not able to attend ABB’s Annual General Meeting 2022 in person, but could exercise their shareholder rights via the indepen- dent proxy only. In addition, ABB offered share- holders the opportunity to address questions on agenda items to the Board of Directors in writing ahead of the meeting. Thanks to the improved COVID-19 situation, ABB was able to hold an Extra- ordinary General Meeting in September 2022 with shareholders present in person. Powers of General Meeting The Ordinary General Meeting of Shareholders must be held each year within 6 months after the close of the fiscal year of the Company; the busi- ness report, the compensation report and the auditors’ reports must be made available for inspection by the shareholders at the place of incorporation of the Company by no later than 20 days prior to the meeting. Each shareholder is entitled to request immediate delivery of a copy of these documents. 18 ABB CORPORATE GOVERNANCE REPORT 2022 The following powers shall be vested exclusively in the General Meeting of Shareholders: • Adoption and amendment of the Articles of Incorporation; • Election of the members of the Board of Directors, the Chairman of the Board of Directors, the members of the Compensation Committee, the auditors and the independent proxy; • Approval of the annual management report and consolidated financial statements; • Approval of the annual financial statements and decision on the allocation of profits shown on the balance sheet, in particular with regard to dividends; • Approval of the maximum compensation of the Board of Directors and of the Executive Com- mittee pursuant to Article 34 of the Articles of Incorporation; • Granting discharge to the members of the Board of Directors and the persons entrusted with management; • Passing resolutions as to all matters reserved to the authority of the General Meeting by law or under the Articles of Incorporation or that are submitted to the General Meeting by the Board of Directors, subject to Article 716a of the Swiss Code of Obligations. Resolutions and elections at General Meetings Shareholders’ resolutions at general meetings are approved with an absolute majority of the votes represented at the meeting, except for those matters described in Article 704 of the Swiss Code of Obligations and for resolutions with respect to restrictions on the exercise of the right to vote and the removal of such restric- tions, which all require the approval of two-thirds of the votes represented at the meeting. At December 31, 2022, shareholders representing shares of a par value totaling at least CHF 48,000 may require items to be included in the agenda of a general meeting. Any such request must be made in writing at least 40 days prior to the date of the general meeting and specify the items and the motions of such shareholder(s). ABB’s Articles of Incorporation do not contain provisions on the convocation of the general meeting of shareholders that differ from the applicable legal provisions. Shareholders’ dividend rights The unconsolidated statutory financial state- ments of ABB Ltd are prepared in accordance with Swiss law. Based on these financial statements, dividends may be paid only if ABB Ltd has suffi- cient distributable profits from previous years or sufficient free reserves to allow the distribution of a dividend. Swiss law requires that ABB Ltd retain at least 5 percent of its annual net profits as legal reserves until these reserves amount to at least 20 percent of ABB Ltd’s share capital. Any net profits remaining in excess of those reserves are at the disposal of the shareholders’ meeting. Under Swiss law, ABB Ltd may only pay out a dividend if it has been proposed by a shareholder or the Board of Directors and approved at a gene- ral meeting of shareholders, and the auditors confirm that the dividend conforms to statutory law and ABB’s Articles of Incorporation. In prac- tice, the shareholders’ meeting usually approves dividends as proposed by the Board of Directors. Dividends are usually due and payable no earlier than 2 trading days after the shareholders’ resolu- tion and the ex-date for dividends is normally 2 trading days after the shareholders’ resolution approving the dividend. Dividends are paid out to the holders that are registered on the record date. Euroclear administers the payment of those shares registered with it. Under Swiss law, dividends not collected within 5 years after the due date accrue to ABB Ltd and are allocated to its other reserves. As ABB Ltd pays cash dividends, if any, in Swiss francs (subject to the exception for certain shareholders in Sweden described below), ex- change rate fluctuations will affect the U.S. dollar amounts received by holders of ADSs upon conver- sion of those cash dividends by Citibank, N.A., the depositary, in accordance with the Amended and Restated Deposit Agreement dated May 7, 2001. For shareholders who are residents of Sweden, ABB has established a dividend access facility (for up to 600,004,716 shares). With respect to any annual dividend payment for which this facility is made available, shareholders who register with Euroclear may elect to receive the dividend from ABB Norden Holding AB in Swedish krona (in an amount equivalent to the dividend paid in Swiss francs) without deduction of Swiss withholding tax. For further information on the dividend access facility, see ABB’s Articles of Incorporation. Limitations on transferability of shares and nominee registration ABB may decline a registration with voting rights if a shareholder does not declare that it has acquired the shares in its own name and for its own account. If the shareholder refuses to make such declaration, it will be registered as a share- holder without voting rights. A person failing to expressly declare in its registration/application that it holds the shares for its own account (a nominee), will be entered in the share register 19 ABB CORPORATE GOVERNANCE REPORT 2022 with voting rights, provided that such nominee has entered into an agreement with ABB con- cerning its status, and further provided that the nominee is subject to recognized bank or financial market supervision. In special cases, the Board may grant exemptions. There were no exemptions granted in 2022. The limitation on the transfer- ability of shares may be removed by an amend- ment of ABB’s Articles of Incorporation by a shareholders’ resolution requiring two-thirds of the votes represented at the meeting. No restriction on trading of shares No restrictions are imposed on the transferability of ABB shares. The registration of shareholders in the ABB share register, Euroclear and the ADS register kept by Citibank does not affect transfer- ability of ABB shares or ADSs. Registered ABB shareholders or ADR holders may therefore pur- chase or sell their ABB shares or ADRs at any time, including before a General Meeting regardless of the record date. The record date serves only to determine the right to vote at a General Meeting. Duty to make a public tender offer ABB’s Articles of Incorporation do not contain any provisions raising the threshold (opting up) or waiving the duty (opting out) to make a public tender offer pursuant to Article 135 of the Swiss Act on Financial Market Infrastructures and Market Conduct in Securities and Derivatives Trading. 20 ABB CORPORATE GOVERNANCE REPORT 2022 — Independent external auditors Duration of the mandate and term of office of the auditors On March 24, 2022, shareholders at the Annual General Meeting of ABB Ltd approved the ap- pointment of KPMG AG (KPMG) to be the auditors of the Company for the 2022 financial year. KPMG are the auditors of ABB’s statutory and consolidated financial statements. KPMG, Swit- zerland, assumed the sole auditing mandate of the consolidated financial statements of the ABB Group beginning in the year ended Decem- ber 31, 2018. The auditor in charge and responsi- ble for the mandate, Hans-Dieter Krauss, began serving in this capacity in respect of the financial year ended December 31, 2018. Pursuant to ABB’s Articles of Incorporation (available at https://new. abb.com/about/corporate-governance), the term of office of ABB’s auditors is one year. Information to the Board and the Finance, Audit and Compliance Committee Supervisory and control instruments vis‑à‑vis the auditors Our auditors, KPMG, attend each meeting of the FACC and each meeting includes a private session between the auditors and the FACC without management being present. In 2022, the FACC had 7 meetings (either in person or via tele- phone call). On at least an annual basis, the FACC reviews and discusses with the external auditors all significant relationships that the auditors have with the Company that could impair their inde- pendence. The FACC reviews the auditor engage- ment letter and the audit plan including discus- sion of scope, staffing, locations and general audit approach. The FACC also reviews and evalu- ates the auditors’ judgment on the quality and appropriateness of the Company’s accounting principles as applied in the financial reporting. In addition, the FACC approves in advance any non-audit services to be performed by the auditors. At least annually, the FACC obtains and re- views a report by the auditors that includes discussion on: • The Company’s internal control procedures; • Material issues, if any, raised by the most recent internal quality control review; • Critical accounting policies and practices of the Company; • All alternative accounting treatments of financial information that were discussed between the auditors and management as well as the related ramifications; and • Material communications between the auditors and management such as any management letter or schedule of audit differences. Taking into account the opinions of management, the FACC evaluates the qualifications, indepen- dence and performance of the auditors. The FACC reports the material elements of its supervision of the auditors to the Board and on an annual basis recommends to the Board the auditors to be proposed for election at the shareholders meeting. Audit and additional fees paid to the auditors The audit fees charged by KPMG for the legally prescribed audit amounted to $36.6 million in 2022. Audit services are defined as the standard audit work performed each fiscal year necessary to allow the auditors to issue an opinion on the consolidated financial statements of ABB and to issue an opinion on the local statutory financial statements. This classification may also include services that can be provided only by the auditors, such as pre-issuance reviews of quarterly financial results and comfort letters delivered to underwriters in connection with debt and equity offerings. In- cluded in the 2022 audit fees were approximately $2.8 million related to audits from 2021 and earlier, which were not agreed until after the Com- pany had filed its annual report on Form 20-F with the SEC on February 25, 2022. In addition, KPMG charged $9.1 million for non- audit services during 2022. Non-audit services include primarily carve-out financial statement audits in relation to transactional activities, service organization attestation procedures, agreed-upon procedure reports, accounting consultations, audits of pension and benefit plans, accounting advisory services and other attest services related to financial reporting that 21 ABB CORPORATE GOVERNANCE REPORT 2022 are not required by statute or regulation, income tax and indirect tax compliance services as well as tax advisory services. In accordance with the requirements of the U.S. Sarbanes Oxley Act of 2002 and rules issued by the SEC, we utilize a procedure for the review and pre-approval of any services performed by KPMG. — Other governance information ABB Group organizational structure ABB Ltd, Switzerland, is the ultimate parent company of the ABB Group. It is the sole shareholder of ABB Asea Brown Boveri Ltd which directly or indirectly owns the other companies in the ABB Group. The table in the appendix to this Corporate Governance Report sets forth, as of December 31, 2022, the name, place of incorporation, ownership interest and share capital of the significant direct and indirect subsidiaries of ABB Ltd. In addition, ABB Ltd also owned 19.9 percent of Hitachi Energy Ltd until December 28, 2022. ABB’s operational group structure is described in ABB’s Financial Report 2022. Management contracts There are no management contracts between ABB and companies or natural persons not belonging to the ABB Group. Change of control clauses Board members, Executive Committee members, and other members of senior management do not receive any special benefits in the event of a change of control. However, the conditional grants under the Long-Term Incentive Plan (LTIP) and the Management Incentive Plan (MIP) may be subject to accelerated vesting in the event of a change of control. From 2021, the rules for the LTIP have been amended to no longer provide for accelerated vesting upon a change in control. No further grants are made under the MIP. Employee participation programs In order to align its employees’ interests with the business goals and financial results of the Company, ABB operates a number of incentive plans, linked to ABB’s shares, such as the Em- ployee Share Acquisition Plan, the MIP and the LTIP. For a more detailed description of these incentive plans, please refer to “Note 18 – Share- based payment arrangements” to ABB’s Consoli- dated Financial Statements. General blackout periods for trading ABB securities During the 30 days prior to the day of publication of the ABB Group’s quarterly financial results, as well as on such day, the members of the Board of Directors and the Executive Committee as well as certain employees of ABB, as specified in ABB’s internal policies, are prohibited from trading in ABB Ltd securities and any related financial instruments. Governance differences from NYSE Standards According to the New York Stock Exchange’s corporate governance standards (the Standards), ABB is required to disclose significant ways in which its corporate governance practices differ from the Standards. ABB has reviewed the Standards and concluded that its corporate governance practices are generally consistent with the Standards, with the following significant exceptions: • Swiss law requires that the external auditors be elected by the shareholders at the Annual General Meeting rather than by the audit committee or the board of directors. • The Standards require that all equity compensation plans and material revisions thereto be approved by the shareholders. Consistent with Swiss law such matters are decided by our Board. However, the shareholders decide about the creation of new share capital that can be used in connection with equity compensation plans. 22 ABB CORPORATE GOVERNANCE REPORT 2022 • Swiss law requires that the members of the compensation committee are elected by the shareholders rather than appointed by our Board. • Swiss law requires shareholders to approve the maximum aggregate Board compensation and the maximum aggregate Executive Committee compensation. — Information policy ABB, as a publicly traded company, is committed to communicating in a timely and consistent way to shareholders, potential investors, financial analysts, customers, suppliers, the media and other interested parties. ABB is required to disseminate material information pertaining to its businesses in a manner that complies with its obligations under the rules of the stock exchanges where its shares are listed and traded. ABB publishes an annual reporting suite that provides audited financial statements and information about ABB including our business results, strategy, products and services, corporate governance and executive compensation. ABB also submits an annual report on Form 20-F to the Securities and Exchange Commission (SEC). In addition, ABB publishes its results on a quarterly basis as press releases, distributed pursuant to the rules and regulations of the stock exchanges on which its shares are listed and traded. Press releases relating to financial results and material events are also filed with the SEC on Form 6-K. An archive containing annual reports, Form 20-F reports, quarterly results releases and related presentations can be found in the “Financial results and presentations” section at https://www.abb.com/ investorrelations. The quarterly results press releases contain unaudited financial information prepared in accordance with or reconciled to U.S. GAAP. To subscribe to important press releases, please click on the “Contacts and Services” and choose “Subscribe to updates” at https://www. abb.com/investorrelations. Ad-hoc notices can also be found in the press releases section at https://www.abb.com/news. ABB’s official means of communication is the Swiss Official Gazette of Commerce (https:// www.shab.ch). The invitation to the Company’s Annual General Meeting is sent to registered shareholders by mail. Inquiries may also be made to ABB Investor Relations: Affolternstrasse 44 CH-8050 Zurich, Switzerland Telephone: +41 43 317 7111 E-Mail: investor.relations@ch.abb.com www.abb.com Further information on corporate governance The list below contains references to additional information concerning the corporate governance of ABB (available at https://new.abb.com/about/ corporate-governance). • Articles of Incorporation • ABB Ltd Board Governance Rules, which include: – Governance Rules of the Finance, Audit and Compliance Committee – Governance Rules of the Governance and Nomination Committee – Governance Rules of the Compensation Committee – Related Party Transaction Policy • ABB Code of Conduct • Comparison of ABB’s corporate governance practices to the New York Stock Exchange rules • Summary of differences of shareholder rights under Swedish and Swiss law applicable to ABB • CVs of the Board members • CVs of the Executive Committee members ABB’s corporate calendar can be found at https://new.abb.com/investorrelations/ calendar-events-and-publications/ financial-calendar. 23 ABB CORPORATE GOVERNANCE REPORT 2022 Appendix – ABB Ltd’s significant subsidiaries Company name/location Country ABB interest % Share capital in thousands Currency ABB Australia Pty Limited, Moorebank Australia 100.00 131,218 AUD ABB Group Holdings Pty. Ltd., Moorebank Australia 100.00 552,982 AUD ABB Group Investment Management Pty. Ltd., Moorebank Australia 100.00 505,312 AUD ABB AG, Wiener Neudorf Austria 100.00 15,000 EUR B&R Holding GmbH, Eggelsberg Austria 100.00 35 EUR B&R Industrial Automation GmbH, Eggelsberg Austria 100.00 1,240 EUR ABB N.V., Zaventem Belgium 100.00 4,000 EUR ABB Automacao LTDA, Soracaba Brazil 100.00 191,039 BRL ABB Eletrificacao LTDA, Soracaba Brazil 100.00 268,759 BRL ABB Bulgaria EOOD, Sofia Bulgaria 100.00 65,110 BGN ABB Electrification Canada ULC, Edmonton Canada 100.00 — (2) CAD ABB Inc., Saint-Laurent Canada 100.00 — (2) CAD ABB S.A., Santiago Chile 100.00 5,484,348 CLP ABB (China) Investment Limited, Beijing China 100.00 95,000 USD ABB (China) Ltd., Beijing China 100.00 140,000 USD ABB Beijing Drive Systems Co. Ltd., Beijing China 90.00 5,000 USD ABB Beijing Switchgear Limited, Beijing China 60.00 16,500 USD ABB Electrical Machines Ltd., Shanghai China 100.00 14,400 USD ABB Engineering (Shanghai) Ltd., Shanghai China 100.00 40,000 USD ABB LV Installation Materials Co. Ltd. Beijing, Beijing China 85.70 17,100 USD ABB Shanghai Free Trade Zone Industrial Co., Ltd., Shanghai China 100.00 6,500 CNY ABB Shanghai Motors Co. Ltd., Shanghai China 75.00 11,217 USD ABB Xiamen Low Voltage Equipment Co. Ltd., Xiamen China 100.00 15,800 USD ABB Xiamen Switchgear Co. Ltd., Xiamen China 66.52 29,500 USD ABB Xinhui Low Voltage Switchgear Co. Ltd., Xinhui China 90.00 6,200 USD ABB s.r.o., Prague Czech Republic 100.00 400,000 CZK ABB A/S, Skovlunde Denmark 100.00 100,000 DKK ABB for Electrical Industries (ABB ARAB) S.A.E., Cairo Egypt 100.00 353,479 EGP Asea Brown Boveri S.A.E., Cairo Egypt 100.00 166,000 USD ABB AS, Jüri Estonia 100.00 1,663 EUR ABB Oy, Helsinki Finland 100.00 10,003 EUR ABB France, Cergy Pontoise France 99.84 25,778 EUR ABB SAS, Cergy Pontoise France 100.00 45,921 EUR ABB AG, Mannheim Germany 100.00 167,500 EUR ABB Beteiligungs- und Verwaltungsges. mbH, Mannheim Germany 100.00 61,355 EUR ABB Stotz-Kontakt GmbH, Heidelberg Germany 100.00 7,500 EUR ABB Striebel & John GmbH, Sasbach Germany 100.00 1,050 EUR B + R Industrie-Elektronik GmbH, Bad Homburg Germany 100.00 358 EUR Busch-Jaeger Elektro GmbH, Lüdenscheid Germany 100.00 1,535 EUR ABB Engineering Trading and Service Ltd., Budapest Hungary 100.00 436,281 HUF ABB Global Business Services and Contracting India Private Limited, Bangalore India 100.00 5,200,100 INR ABB Global Industries and Services Private Limited, Bangalore India 100.00 366,923 INR ABB India Limited, Bangalore India 75.00 423,817 INR ABB E-mobility S.p.A., Milan Italy 91.56 20,000 EUR ABB S.p.A., Milan Italy 100.00 110,000 EUR ABB K.K., Tokyo Japan 100.00 1,000,000 JPY ABB Ltd., Seoul Korea, Republic of 100.00 23,670,000 KRW ABB Electrical Control Systems S. de R.L. de C.V., Monterrey Mexico 100.00 712,463 MXN ABB Mexico S.A. de C.V., San Luis Potosi Mexico 100.00 1,135,752 MXN Asea Brown Boveri S.A. de C.V., San Luis Potosi Mexico 100.00 667,686 MXN ABB B.V., Rotterdam Netherlands 100.00 9,200 EUR ABB E-mobility B.V., Delft Netherlands 91.56 1 EUR ABB Finance B.V., Rotterdam Netherlands 100.00 20 EUR ABB Holdings B.V., Rotterdam Netherlands 100.00 363 EUR ABB AS, Fornebu Norway 100.00 134,550 NOK 24 ABB CORPORATE GOVERNANCE REPORT 2022 Company name/location Country ABB interest % Share capital in thousands Currency ABB Electrification Norway AS, Skien Norway 100.00 60,450 NOK ABB Holding AS, Fornebu Norway 100.00 240,000 NOK ABB Business Services Sp. z o.o., Warsaw Poland 99.94 24 PLN ABB Industrial Solutions (Klodzko) Sp. z o.o., Klodzko Poland 99.94 50 PLN ABB Sp. z o.o., Warsaw Poland 99.94 245,461 PLN Industrial C&S of P.R. LLC, San Juan Puerto Rico 100.00 — (2) USD ABB Electrical Industries Co. Ltd., Riyadh Saudi Arabia 65.00 181,000 SAR ABB Pte. Ltd., Singapore Singapore 100.00 32,797 SGD ABB Holdings (Pty) Ltd., Modderfontein South Africa 100.00 217,758 ZAR ABB Investments (Pty) Ltd, Modderfontein South Africa 51.00 185,978 ZAR ABB South Africa (Pty) Ltd., Modderfontein South Africa 74.91 261,000 ZAR Asea Brown Boveri S.A., Madrid Spain 100.00 33,318 EUR ABB AB, Västerås Sweden 100.00 200,000 SEK ABB Electrification Sweden AB, Västerås Sweden 100.00 10,000 SEK ABB Norden Holding AB, Västerås Sweden 100.00 2,344,783 SEK ABB Asea Brown Boveri Ltd, Zurich Switzerland 100.00 2,767,880 CHF ABB Canada EL Holding GmbH, Zurich Switzerland 100.00 1,000 CHF ABB Capital AG, Zurich Switzerland 100.00 100 CHF ABB E-mobility Holding Ltd, Baden Switzerland 91.56 1,003 CHF ABB Information Systems Ltd., Zurich Switzerland 100.00 500 CHF ABB Management Services Ltd., Zurich Switzerland 100.00 571 CHF ABB Schweiz AG, Baden Switzerland 100.00 55,000 CHF ABB Ltd., Taipei Taiwan (Chinese Taipei) 100.00 195,000 TWD ABB Elektrik Sanayi A.S., Istanbul Turkiey 99.99 240,076 TRY ABB Industries (L.L.C.), Dubai United Arab Emirates 49.00(1) 5,000 AED ABB Holdings Limited, Warrington United Kingdom 100.00 226,014 GBP ABB Limited, Warrington United Kingdom 100.00 120,000 GBP ABB E-mobility Inc., Wilmington, DE United States 91.56 — USD ABB Finance (USA) Inc., Wilmington, DE United States 100.00 1 USD ABB Holdings Inc., Cary, NC United States 100.00 2 USD ABB Inc., Cary, NC United States 100.00 1 USD ABB Installation Products Inc., Memphis, TN United States 100.00 1 USD ABB Motors and Mechanical Inc., Fort Smith, AR United States 100.00 — (2) USD ABB Treasury Center (USA), Inc., Wilmington, DE United States 100.00 1 USD Edison Holding Corporation, Wilmington, DE United States 100.00 — (2) USD Industrial Connections & Solutions LLC, Cary, NC United States 100.00 — (2) USD (1) Company consolidated as ABB exercises full management control. (2) Shares without par value. 25 ABB CORPORATE GOVERNANCE REPORT 2022 Caution concerning forward‑looking statements The Corporate Governance Report 2022 includes “for- ward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We have based these forward-looking statements largely on current expectations, estimates and projections about the factors that may affect our future performance, including global economic conditions as well as the economic conditions of the regions and the industries that are major markets for ABB. The words “believe,” “may,” “will,” “estimate,” “continue,” “target,” “anticipate,” “intend,” “expect”, “plan” and similar words and the express or implied discussion of strategy, plans or intentions are intended to identify forward-looking statements. These forward- looking statements are subject to risks, uncertainties and assumptions, including among other things, the following: (i) business risks related to the global volatile economic environment; (ii) costs associated with compliance activities; (iii) difficulties encountered in operating in emerging markets; (iv) risks inherent in large, long term projects served by parts of our business; (v) the timely development of new products, technologies, and services that are useful for our customers; (vi) our ability to anticipate and react to technological change and evolving industry standards in the markets in which we operate; (vii) changes in interest rates and fluctuations in currency exchange rates; (viii) changes in raw materials prices or limitations of supplies of raw materials; (ix) the weakening or unavailability of our intellectual property rights; (x) industry consolidation resulting in more powerful competitors and fewer customers; (xi) effects of competition and changes in economic and market conditions in the product markets and geographic areas in which we operate; (xii) effects of, and changes in, laws, regulations, governmental policies, taxation, or accounting standards and practices and (xiii) other factors described in documents that we may furnish from time to time with the US Securities and Exchange Commission, including our Annual Reports on Form 20-F. Although we believe that the expectations reflected in any such forward-looking statements are based on reasonable assumptions, we can give no assurance that they will be achieved. We undertake no obligation to update publicly or revise any forward-looking statements because of new information, future events or otherwise. In light of these risks and uncertainties, the forward-looking information, events and circumstances might not occur. Our actual results and performance could differ substantially from those anticipated in our forward-looking statements. — ABB Ltd Corporate Communications Affolternstrasse 44 8050 Zurich Switzerland Tel: +41 (0)43 317 71 11 Fax: +41 (0)43 317 79 58 — Compensation Report 2022 4 Letter from the Chairman of the Compensation Committee 6 Compensation at a glance 9 Compensation governance 11 Sustainability related considerations in ABB’s compensation 12 Employee remuneration 13 Board compensation policy 13 Implementation of Board compensation policy 14 Executive Committee compensation policy 20 Implementation of EC compensation policy 29 Changes applicable to EC members 29 Votes on compensation at the 2023 AGM 31 Compensation tables and share ownership tables 40 Report of the statutory auditor 4 ABB COMPENSATION REPORT 2022 — Letter from the Chairman of the Compensation Committee Dear Shareholders, On behalf of the Board of Directors (Board) and the Compensation Committee (CC), I am pleased to present the ABB Compensation Report (Report) for 2022. Our focus at the CC remains to ensure that the compensation structure at ABB drives value creation for our shareholders, represents a moti- vating package for our executives, and ensures alignment with best-practice corporate gover- nance standards and with ABB’s sustainability strategy. We have retained the broad structure of last year’s Report to help stakeholder navigation, and have focused on streamlining the Report to eliminate unnecessary duplication of information. The compensation structure for the EC, its purpose and links to our Company strategy and associated performance measures, valid as of 2022, are set out in Exhibit 3 of the Report, in the section “Compensation at a glance”. ABB will disclose an Integrated Report (IR) for the first time in 2023, for its financial year 2022. One of the chapters of ABB’s IR is a “Compensation Summary”, which includes extracts from the now stand-alone Report, this CC Chairman’s letter, the “Compensation at a glance” section and the sections showing how sustainability is addressed in compensation across ABB. We welcome your feedback to this approach. Summary of changes for 2023 Disclosure As in previous years, the CC has listened carefully to inputs and suggestions from our stakeholders related to potential improvements to disclosure and has progressively moved to adopting leading market practices. In response to this feedback, the Annual Incentive Plan (AIP) targets for the CEO, starting in 2023, will be retrospectively disclosed in the following year’s Report (thus for the first time in 2024). This will represent a relevant additional level of trans- parency on the alignment between pay and performance that we seek to ensure at ABB. Termination Provisions under the AIP For new joiners to the Executive Committee (EC), we also plan to amend the termination provisions under our AIP to be broadly aligned with the termination provisions under the Long-Term Incentive Plan (LTIP). This will specifically include, in the event of resignation, the full forfeiture of the AIP award if the last day of employment is prior to the end of the performance period (i.e., 31 December of the relevant performance year). Sustainability impact in executive compensation Following valuable stakeholder feedback, we will maintain the strong link between our sustainabil- ity strategy and compensation programs, such that all EC members will continue to have a sus- tainability measure in their LTIP, with a material weighting of 20 percent. In addition, all EC mem- bers shall continue to have at least two sustainability related goals in the individual component of their AIP. The sustainability targets for both the 2022 and 2023 LTIP relate to our long-term greenhouse gas (GHG) emissions reduction ambitions, which are prospectively disclosed in the Report. 2022 performance outcomes 2022 was a year of solid performance, despite supply chain, logistics and labor challenges, rising inflation and the energy crisis in Europe. Overall, most key financial, sustainability and operational targets were met or excelled. ABB deliv- ered a strong operational EBITA margin, increased its revenues and orders, and improved productiv- ity in 2022. In addition, the Company made significant progress in reducing its environmental footprint and contributing to a more sustainable environment. For more information on ABB’s 2022 performance please refer to ABB’s Integrated Report 2022. Compensation policy outcomes Board of Directors: the aggregate Board compen- sation for the 2022-2023 term (CHF 4.38 million) is in line with the maximum amount (CHF 4.4 mil- lion) approved at the 2022 Annual General Meeting (AGM). There has been no change to the individual Board fees since 2015. 5 ABB COMPENSATION REPORT 2022 Executive Committee: the aggregate EC total compensation was CHF 36.0 million in 2022, compared to CHF 39.2 million in 2021, as summa- rized in Exhibit 21, and presented in detail in Exhibits 38 and 39. Five of the nine EC members in place re- ceived a salary adjustment in March 2022, which ranged from 2.1 to 12.5 percent, for exceptional performance, market adjustment or broadening of responsibilities. This corresponded to an average 3.25 percent increase on the annual aggregate base salaries for EC members in post in March 2022. The average award for the current EC members under the AIP for 2022 was 118.3 percent (out of a maximum 150 percent), compared to 143.4 percent in 2021. This outcome was driven by a strong performance from the majority of the businesses as well as strong progress on sustain- ability related and other strategic targets. The average weighted achievement level of the 2019 LTIP, which vested in 2022, was 121.0 percent (out of a maximum 200 percent), driven primarily by a maximum vesting under the Total Share- holder Return (TSR) performance measure. Governance At the AGM on March 23, 2023, you will be asked to vote on the maximum aggregate compensation for the Board for its 2023–2024 term and on the maximum aggregate compensation for the EC in 2024. The former is again unchanged compared to the prior year, while the latter shows a reduction from the level requested for last year due to lower potential vesting related costs from the 2021 LTIP award, as well as the lower compensation levels applied to new EC members compared to plan. This Report will also be submitted for a non-binding, consultative vote by shareholders. We encourage and pursue an open and regular dialogue with all of our stakeholders. Your con- structive input is highly valued and appreciated as we continue to improve our compensation system. On behalf of the Compensation Commit- tee, I thank you for your continued trust in ABB and for your consistently supportive feedback. Frederico Fleury Curado Chairman of the Compensation Committee Zurich, February 23, 2023 6 ABB COMPENSATION REPORT 2022 — Compensation report Compensation at a glance Board compensation Compensation for the 2022-2023 term of office The aggregate Board compensation for the 2022-2023 term of office (CHF 4,380,000) was within the maximum amount (CHF 4,400,000) approved at the 2022 Annual General Meeting (AGM). Exhibit 1: Board compensation (in CHF) for the 2022-2023 term of office Aggregate compensation 4,380,000 Approved compensation amount 4,400,000 Shareholding of Board members All Board members held ABB shares at December 31, 2022, worth at least 300 percent of their 2022 Board compensation. Exhibit 2: Board members shareholding (at December 31, 2022) in % of 2022 total compensation * Based on share price of CHF 32.48, the 2022 Long-Term Incentive Plan (LTIP) reference price, and shares held at December 31, 2022. Peter Voser Jacob Wallenberg Gunnar Brock David Constable Frederico Curado Lars Förberg Jennifer Xin-Zhe Li Geraldine Matchett David Meline Satish Pai April 2015 June 1999 March 2018 April 2015 April 2016 April 2017 March 2018 March 2018 April 2016 April 2016 Board appointment 300% 400% 500% 600% 200% 100% 0 at 1775% 700% 800% 7 ABB COMPENSATION REPORT 2022 CEO and corporate officers 80% Group financial results 20% Individual results Business area Presidents 20% Group financial results 60% Business area financial results 20% Individual results All EC members 50% Average EPS 30% Relative TSR 20% Sustainability * New for 2022 EC compensation Compensation structure as from 2022 Exhibit 3: EC compensation structure as from 2022 Fixed compensation - base salary and benefits Variable compensation – short-term incentive (AIP) Variable compensation – long-term incentive (LTIP) Wealth at risk/ Share ownership Purpose and link to strategy Facilitates attraction and retention of talented EC members; base salary compensates for the role and relevant experience; benefits protect against risks Rewards annual Company, business area, functional and individual performance. Aligned with the Company’s Annual Performance Plan Rewards Company performance over a three- year period and encourages creation of long-term, sustainable value for shareholders. Aligned with the Company’s Long-term Performance Plan Aligns individual’s personal wealth at risk directly to the ABB share price, and EC members’ interests with those of shareholders in order to maintain focus on ABB's long-term success Operation Salary in cash, benefits in kind, and pension contribution Annual awards, payable in cash after a one-year performance period Annual grants in shares which may vest after three years, and are subject to performance conditions Individuals are required to hold ABB shares Opportunity level (as % of base salary) Based on scope of responsibilities, personal experience and skillset * EC members with legacy employment contracts have a Target LTIP grant of 100 percent, and Max LTIP opportunity of 200 percent. The higher LTIP opportunity for the newer EC members is largely offset by lower fixed benefit costs. CEO 500% of annual salary (net of taxes) Other EC members 400% of annual salary (net of taxes) Performance indicators Changes to base salary take into account individual performance, future potential, broadening of responsibilities, and external benchmarking Exposure to ABB share price Total EC compensation for 2022 The aggregate EC compensation for 2022 (CHF 36,035,073) was within the maximum amount approved at the 2021 AGM (CHF 40,000,000). Exhibit 4: EC compensation (in CHF) for 2022 Effective aggregate compensation 36,035,073 Approved aggregate compensation 40,000,000 The larger portion of the CEO’s 2022 total com- pensation was delivered via variable compensation (56 percent represented by short-term incentive and long-term incentive). For the other EC members, on an aggregate level, variable compensation represented 51 percent of their 2022 compensation. The following chart shows the composition of the 2022 total compen- sation for the EC members as of December 31, 2022. Minimum Target Maximum 0% 100% 150% CEO Minimum Target Maximum 0% 150% 300% Other EC Members Minimum Target Maximum 0% 150% 300% 8 ABB COMPENSATION REPORT 2022 Realized variable compensation in 2022 Realized variable compensation considers the AIP award and the LTIP award at the end of their respective performance cycles, reflecting actual AIP payment and LTIP vesting, based on achieve- ment of the respective plan performance measures. The outcome of the 2022 AIP was above the target for most of the current EC members (118.3 per- cent on average), and the LTIP that vested in 2022 (2019 LTIP) exceeded the target level, with a final vesting level of 121.0 percent of target. 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 8,000,000 9,000,000 0 CEO 150% 118% CHF 7,082,773 150% 120% CHF 2,142,000 Other EC members Target AIP award Realized AIP award Maximum AIP award Exhibit 6: 2022 AIP outcome compared to target Target AIP award corresponds to 100% of base salary. * individual outcomes range from 67 to 150 percent. Realized total compensation in 2022 Considering the stated variable components above, the realized total compensation in 2022 was above the target total compensation for all EC members, driven by strong performance in 2022. Exhibit 5: 2022 total compensation mix for the CEO and other EC members on aggregate level in CHF * Sum of percentage figures may differ from 100 percent due to rounding with one decimal. CEO Other EC members 8,074,656 25,924,453 21.9% Base salary 9.4% Pension benefits 12.2% Other benefits 26.5% Short-term incentive 29.9% Long-term incentive Variable compensation 56% Fixed compensation 44% Variable compensation 51% Fixed compensation 49% 22.6% Base salary 12.2% Pension benefits 14.0% Other benefits 27.3% Short-term incentive 23.8% Long-term incentive 100% Exhibit 7: 2019 LTIP outcome compared to target 0% 25% 50% 75% 100% 125% 150% 175% 200% 100% 100% 121% 42% 200% 200% 200% 200% Relative TSR (50% of total) Average EPS (50% of total) LTIP vesting (total) Target achievement level Realized achievement level Maximum achievement level 9 ABB COMPENSATION REPORT 2022 Further details related to the realized compensa- tion of each EC member and each compensation component are specified in Exhibit 44. Shareholding of EC members EC members may not sell their shares (except to meet tax and social security costs) until they achieve the required shareholding level. Four out of nine EC members have already met and exceeded their share ownership requirement. Two other members are close to achieving their requirement, while three members have been appointed to the EC in the last two years. When considering the number of granted, but unvested, ABB shares of current EC members as per December 31, 2022, it is expected that most will meet or exceed their share ownership require- ment in 2023, after vesting of the 2020 LTIP grant. Compensation governance The Compensation Report is prepared in accor- dance with the Ordinance against Excessive Remuneration in Listed Stock Corporations, the Directive on Information relating to Corporate Governance of the SIX Exchange Regulation, the rules of the stock markets of Sweden and the United States, where ABB shares are also listed, and the principles of the Swiss Code of Best Practice for Corporate Governance of economiesuisse. ABB’s Articles of Incorporation ABB’s Articles of Incorporation, approved by its shareholders, contain provisions on compensation which govern and outline the principles of compensation relating to our Board of Directors and Executive Committee. They can be found on ABB’s Corporate Governance website new.abb.com/about/corporate-governance and are summarized below: • Compensation Committee (Articles 28 to 31): The Compensation Committee (CC) is composed of a minimum of three members of the Board and are elected individually by the shareholders at the Annual General Meeting for a period of one year. It supports the Board in establishing and reviewing the compensation strategy, principles and programs, in preparing Exhibit 8: Realized total compensation in 2022 compared to target total compensation CEO 5,000,000 0 10,000,000 15,000,000 20,000,000 30,000,000 120% CHF 9,846,423 CHF 22,255,269 123% CHF 27,306,484 CHF 8,183,864 Other EC members Target total compensation Realized total compensation 25,000,000 600% 800% 1000% 1600% 1200% 1400% 400% 200% 0% Exhibit 9: EC shareholding compared to share ownership guideline * Based on share price of CHF 32.48, the 2022 LTIP reference price, and shares held at December 31, 2022. Future allocation of granted, but un- vested, shares is based on target achievement level and relevant plan specific settlement: default settlement of the final 2020 LTIP, 2021 LTIP and 2022 LTIP awards is 100 percent in shares. Default settlement of replacement shares is 65 percent in shares (recipient may elect to receive 100 percent of the vested award in shares). The value of shares is compared against the annual base salary net of taxes, at December 31, 2022. Other EC members shareholding requirement (400%) Held shares in % of net salary Shareholding requirement Björn Rosengren Timo Ihamuotila Carolina Granat Andrea Antonelli Karin Lepasoon Sami Atiya Tarak Mehta Peter Terwiesch Morten Wierod EC appointment January 2020 April 2017 January 2021 March 2022 October 2022 June 2016 October 2010 January 2017 April 2019 Granted, but unvested shares CEO shareholding requirement (500%) 10 ABB COMPENSATION REPORT 2022 the proposals to the AGM on compensation matters and in determining the compensation of the Board and of the EC. The responsibilities of the CC are defined in more detail in the Board Regulations and Corporate Governance guidelines, which are also available on ABB’s Corporate Governance website. • Compensation principles (Article 33): Compensation of the members of the Board consists of fixed compensation only, which is delivered in cash and shares (with an option to elect for shares only). Compensation of the members of the EC consists of fixed and variable compensation. Variable compensation may comprise short-term and long-term elements. Compensation may be paid in cash, shares or other benefits. • “Say-on-pay” vote (Article 34): Shareholders approve the maximum aggregate amount of compensation of the Board for the following Board term and of the EC for the following financial year. • Supplementary amount for new EC members (Article 35): If the maximum approved aggregate compensation amount is not sufficient to also cover the compensation of newly promoted/hired EC members, up to 30 percent of the last maximum approved aggregate amount shall be available as a supplementary amount to cover the compensation of such new EC members. • Loans (Article 37): Loans may not be granted to members of the Board or of the EC. Authority levels in compensation matters The CC acts in an advisory capacity while the Board retains the decision authority on compen- sation matters, except for the maximum aggregate compensation amounts of the Board and of the EC, which are subject to the approval of shareholders at the AGM. The authority levels of the different bodies on compensation matters are detailed in Exhibit 10. Shareholders also have a consultative vote on the prior year’s Com- pensation Report at the AGM and a binding vote on the maximum aggregate amount of compensa- tion of the Board for the following Board term and of the EC for the following financial year. Exhibit 10: Authority levels in compensation matters CEO CC Board AGM Compensation policy including incentive plans Maximum aggregate compensation amount for the EC CEO compensation Individual compensation of other EC members Performance target setting and assessment of the CEO Performance target setting and assessment of other EC members Shareholding requirements for CEO and other EC members Maximum aggregate compensation amount for the Board Individual compensation of Board members Compensation Report Consultative vote Proposal Recommendation Approval Activities of the CC in 2022 The CC meets as often as business requires but at least four times a year. In 2022, the CC held seven meetings and performed the activities described in Exhibit 11. The CEO, the Chief Human Resources Officer (CHRO) and the Head of Performance and Reward also attend all or part of the CC meetings in an advisory capacity. The Chairman of the CC may decide to invite other executives upon consultation with the CEO, as appropriate. Executives do not attend the meetings or the parts of the meetings in which their own compensation and/or performance are being discussed. Details on meeting attendance of the individual CC members (number of meetings held during 2022, their average duration, as well as the attendance of the individual members) are provided in the section “Board of Directors – Meetings and attendance” of ABB’s Corporate Governance Report 2022. 11 ABB COMPENSATION REPORT 2022 Exhibit 11: CC activities during 2022 Strategy Review of Short-Term Incentive plan (Annual Incentive Plan / AIP) Continued monitoring of link between sustainability and compensation EC Compensation Review of compensation benchmarking for EC members (bi-annual activity) Review of recommendations on individual compensation for EC members Review of the share ownership of EC members Review and approval of compensation for new and departing EC members Performance – relating to past performance cycle Assessment of AIP awards for 2022 Assessment of achievement of performance targets for LTIP awards vesting in 2022 Performance – relating to forthcoming performance cycle Setting of AIP design, measures and targets for 2022 Consideration of forecast AIP outcomes for 2022 Consideration of preliminary AIP measures and targets for 2023 Setting of performance targets for LTIP grants in 2022 Consideration of forecast achievement against performance targets for unvested LTIP grants Compliance Review of CC annual plan Review of feedback from Stakeholder Engagement meetings Regulatory and market updates Review of the Compensation Report for publication Preparation of maximum aggregate compensation for the Board to be submitted for AGM vote Preparation of maximum aggregate compensation for the EC to be submitted for AGM vote The Chairman of the CC reports to the full Board after each CC meeting. The minutes of the CC meetings are available to the members of the Board. The CC retains independent, external advisors for compensation matters. In 2022 PricewaterhouseCoopers (PwC) was mandated to provide consulting services related to executive compensation matters. In addition to its CC advisory role, PwC also provides human re- sources, tax and advisory services to ABB. Sustainability related considerations in ABB’s compensation There are several sustainability related consider- ations that play an important role in our compensation philosophy, of which one is to foster the link between the sustainability perfor- mance measures under our sustainability strategy and the variable compensation for our EC and senior management. Impact of sustainability performance on variable compensation One of the main subjects of the CC’s recent decisions was to reinforce the link of ABB’s sus- tainability strategy - and its associated ambitious targets for 2030 - to ABB’s key variable compensa- tion programs AIP and LTIP. These decisions resulted in a suite of changes which we believe keep ABB in line with leading compensation market practices and reinforce our commitment towards sustainability and long-term value creation. With regard to the AIP, ABB recently enlarged the mandatory inclusion of sustainability perfor- mance measures in the individual component of the relevant AIP for its executives and further employees in the organization. All EC members have two or three sustainability goals (out of maximum of three) in the individual component of their AIP. While all EC members had an environ- ment target in 2022, business area Presidents had a safety target, the CFO a governance target and other corporate officers a social target. In regard to the LTIP granted to ABB’s senior management, including the EC, a sustainability measure with a weighting of 20 percent forms part of the performance measures. • For the 2022 LTIP, the sustainability measure is the Company’s scope 1 and 2 greenhouse gas (GHG) emissions reduction at the end of the three-year performance period (2022-2024), compared to the 2019 baseline . 12 ABB COMPENSATION REPORT 2022 • The 2022 sustainability measure has also been applied to the 2023 LTIP, namely scope 1 and 2 GHG emissions reduction at the end of the three-year performance period (2023-2025), compared to the 2019 baseline. • Details of the long-term GHG emissions reduction targets can be found in ABB’s Sustainability Report 2022. Employee remuneration ABB applies a holistic total remuneration ap- proach, generally consisting of fixed base salary, variable performance-linked pay, pension contri- butions and benefits. The key programs of ABB’s compensation structure and their strategic links to our employee value proposition and sustain- ability strategy are summarized in the Exhibit 12 below. Exhibit 12: Compensation structure for employees Program Operation and purpose Link to ABB’s employee value proposition and sustainability strategy Base Salary Offered to all employees, compensating for the role and relevant experience of the employee while changes to base salary take into account individual performance, future potential and external benchmarking. Facilitating attraction and retention of employees. Short-Term Incentive Offered to ca. 80 percent of ABB’s workforce, rewarding annual performance. Helping to establish strong alignment with the Company’s Annual Performance Plan, which may include financial and/or sustainability targets. Annual Incentive Plan (AIP) Offered to ca. 45 percent of ABB’s workforce (employees outside of the Sales & Marketing functions and Production areas). Rewarding participants, where appropriate, for the achievement of financial and sustainability targets at Group and business level, and other organizational and individual goals. Production Plans Offered to ca. 25 percent of ABB’s workforce (employees of Production areas). Rewarding participants for the achievement of productivity and other operational targets at local business level. Sales Incentive Plans Offered to ca. 10 percent of ABB’s workforce (employees of the Sales & Marketing functions). Rewarding participants for the achievement of financial targets at a local business and individual level. Long-Term Incentive Offered to ca. 800 executives and senior leaders of ABB. Encouraging the creation of long-term, sustainable value for shareholders, and delivery of long-term strategic goals. Long-Term Incentive Plan (LTIP) with performance conditions Offered to ca. 100 executives, who significantly impact ABB’s performance and long-term success of the business. After completion of a three-year plan period and subject to the achievement of the plan specific performance measures, the award is earned and delivered. Aligning with the Company’s Long-Term Performance Plan, and facilitating retention of senior executives. Restricted Shares without performance conditions Offered to ca. 700 senior leaders and key talent who influence ABB’s performance and long-term success of the business. After completion of a three-year plan period, the award is earned and delivered. Facilitating retention of senior managers. Supports aligning employees’ interests with the interests of external shareholders and maintaining focus on the long-term success of the Company. Employee Share Acquisition Plan Offered to ca. 100,000 employees in over 60 countries, providing the opportunity to purchase shares in ABB one year after the start of a plan, at a price which will be fixed at the beginning of each annual plan cycle, and become ABB shareholders. Supports aligning employees’ interests with the interests of external shareholders and maintaining focus on the long-term success of the Company. Benefits (selection) Offered to all employees by country, subject to the relevant local market practice. Protecting against risks, and help facilitating the attraction and retention of employees. Risk Benefits These generally include retirement, insurance and healthcare plans. Providing support for the employees and their dependents in case of retirement, disability or death. Parental Leave A global and gender-neutral program, offered to all employees, on the birth or adoption of a new child, which sets out a minimum standard on paid parental leave that supports all family types. The primary caregivers receive 12 weeks of paid leave and the secondary caregivers 4 weeks. Aligning with the ABB value of “Care”. Employee Assistance A global program, offered to all employees. The program supports the employee’s emotional, practical and physical wellbeing by offering paid counseling on emotional health, family concerns and workplace concerns. Aligning with the ABB value of “Care”. Car or Transportation Allowance Offered to selected employees based on business need or market practice, with any car provision being progressively migrated to e-vehicles or transportation allowances which can be used to contribute to public transport, cycle or other transport needs. Addressing changed needs related to mobility by providing greater flexibility to opt for more environmentally friendly solutions. 13 ABB COMPENSATION REPORT 2022 Board compensation policy The compensation policy for the members of the Board is designed to attract and retain experi- enced people to the Board of Directors. Compensation takes into account the responsibil- ities, time and effort required to fulfill their roles on the Board and its Committees, and it is gener- ally positioned at levels similar to other Swiss listed companies of comparable size and complexity. Compensation structure A fixed fee is payable for the Chairman, Vice-Chairman and members of the Board, and additional fees are payable for chairing or mem- bership of a Board Committee, except for the Chairman and Vice-Chairman. Board members are paid for their service over an annual Board term that starts with their election at the AGM. Pay- ment of fees is made in semi-annual installments in arrears. Each fee is delivered in cash and shares. Board members are required to take 50 percent of their compensation in shares, but they may elect to receive all their fees in shares. The number of shares delivered is calculated prior to each semi-annual payment by dividing the monetary amount to which the Board members are entitled by the average closing price of the ABB share over a predefined 30-day period. The shares are subject to a three-year restriction period during which they cannot be sold, transferred or pledged. Any restricted shares are unblocked when the Board member leaves the Board. Implementation of Board compensation policy Board fees by role As mentioned above, the levels and mix of Board members’ compensation are regularly compared against the compensation of non-executive Board members from a cross-section of publicly traded companies in Switzerland that are part of the Swiss Market Index (i.e., Adecco, Alcon, Geberit, Givaudan, Holcim, Lonza, Richemont, SGS, Sika, Swisscom, Swiss Life, Zurich Insurance). Such a review was last undertaken in 2020, and there was no adjustment made to Board fees for the term of office from the 2022 AGM to the 2023 AGM, as set out in Exhibit 13. There has been no change to the individual Board fees since 2015. Exhibit 13: Board fees (in CHF) for the current term of office Chairman of the Board (1) 1,200,000 Vice-Chairman of the Board (1) 450,000 Member of the Board 290,000 Additional committee fees: Chairman of FACC (2) 110,000 Chairman of CC or GNC (2) 60,000 Member of FACC (2) 40,000 Member of CC or GNC (2) 30,000 (1) The Chairman and the Vice-Chairman do not receive any additional committee fees. (2) CC: Compensation Committee, FACC: Finance, Audit and Compliance Committee, GNC: Governance and Nomination Committee. Total Board compensation The compensation paid to the Board members for the calendar year 2022 and for the term of office from the 2022 AGM to the 2023 AGM are disclosed in Exhibit 14 below and in Exhibits 35 and 36, respectively, in the section “Compensation tables and share ownership tables”. At the 2022 AGM, the shareholders ap- proved a maximum aggregate compensation amount of CHF 4.4 million for the 2022-2023 Board term. This amount equals the approved amount for the previous Board term, as the compensation per Board member remained unchanged. The Board compensation to be paid for the 2022-2023 Board term is CHF 4.38 million and is therefore within the amount approved by the shareholders. Exhibit 14: Board compensation (in CHF) Board of Directors Board term 2022–2023 2021–2022 Number of members 10 10 Total compensation 4,380,000 4,380,000 Maximum aggregate compensation amount approved at previous AGM 4,400,000 4,400,000 Compensation of former Board members In 2022, no payment was made to any former Board member. Compensation for services rendered In 2022, ABB did not pay any fees or compensation to the members of the Board for services ren- dered to ABB other than those disclosed in this Compensation Report. 14 ABB COMPENSATION REPORT 2022 Shareholding of Board members The members of the Board collectively owned less than 1 percent of ABB’s total shares outstanding at December 31, 2022. Exhibit 37 in the section “Compensation tables and share ownership tables” shows the number of ABB shares held by each Board member at December 31, 2022, and 2021. Except as described in this Exhibit, no member of the Board and no person closely linked to a member of the Board held any shares of ABB or options in ABB shares. Shares delivered to Board members as part of their compensation are blocked for a period of three years. Exhibit 2 in the section “Compensation at a glance” shows the wealth at risk for each Board member, comparing the value of shares held at December 31, 2022, with the total compen- sation for the 2022-2023 term of office. At December 31, 2022, all Board members held ABB shares worth at least 300 percent of their 2022 total ABB Board compensation. Executive Committee compensation policy The EC compensation policy reflects ABB’s com- mitment to attract, motivate and retain people with the talent necessary to strengthen its posi- tion as a leading global technology company. Compensation structure The compensation structure is designed to be competitive, based on performance, and to encourage executives to deliver outstanding results and create sustainable shareholder value without taking excessive risks. The EC compensa- tion framework therefore balances fixed and variable compensation. Variable compensation is provided through short-term and long-term incentives based on strategic, financial and sustainability related targets, recognizing Group, business area and corporate function perfor- mance as well as individual performance. This structure is linked to our strategy and is illustrated in Exhibit 3 in the section “Compensa- tion at a glance”. A significant portion of total compensation depends on variable pay components, which require the achievement of challenging perfor- mance targets, in alignment with ABB Annual and Long-Term Performance Plans. The target AIP award is defined as a percentage of base salary, currently 100 percent for all EC members. There is no award under the AIP if performance is below threshold on all financial and individual performance measures. When performance exceeds targets, the maximum award is capped at 150 percent of the tar- geted amount. The target LTIP grant size is defined as a percent- age of base salary, currently 150 percent for the CEO and 100 to 150 percent for all other EC mem- bers. There will be no award under the LTIP if performance is below threshold for all applicable measures. When performance exceeds targets, the maximum award is capped at 200 percent of the conditional grant. From 2022, the policy for the mix of fixed and variable target compensation elements for new EC members has been adjusted to provide a greater emphasis on variable pay. This is achieved by increasing the target LTIP grant size from 100 percent to 150 percent of base salary, while reducing the level of pension contributions and other benefits. The reduction of pension contributions and other benefits substantially offsets the increase of the LTIP component, and represents a shift from guaranteed pay elements to pay at risk. Fixed compensation for new EC members represents 40 percent of their target total compensation, in comparison to 50 percent for long-standing EC members. Exhibit 15 below illustrates the policy change for new EC entrants (excluding the CEO), applying an entry level salary of CHF 700,000 and an incumbent age of 50 years to reflect the pension benefits. Exhibit 15: Policy for mix of target compensation for EC members (excluding CEO) appointed prior to and after 2022 * Note that, by exception, the new mix of target compensation has not been applied to the newly appointed Chief Communications and Sustainability Officer. Current Other EC Members New Other EC Members 25% 15% 10% 25% 25% 24% 9% 7% 24% 36% Base salary Pension benefits Other benefits Short-term incentive Long-term incentive 15 ABB COMPENSATION REPORT 2022 Competitive positioning of compensation The Board considers competitive market data when setting the compensation policy for the EC. It is also one of several factors in positioning the target compensation for individual EC members which include: • individual profile of the EC member in terms of experience and skills; • individual performance and potential; • market value of the role (compensation benchmarking). EC compensation benchmark reviews are per- formed every other year. The CC conducted a comprehensive compensation benchmarking review in 2022, based on the three peer groups, similar to those which were used in 2020. While each of these peer groups match the size, scope and complexity of ABB, and exclude compa- nies from the financial services sector, the use of a specific peer group depends on the nature of the role and the source of relevance. For exam- ple, a stronger emphasis is placed on the Global Industry peer group for operational roles and in compensation design, and on the Pan-European Market peer group for functional roles. In all cases, the other two peer groups are used to stress test the findings of the primary peer group (see the summary in Exhibit 16 below). 16 ABB COMPENSATION REPORT 2022 Exhibit 16: Peer groups for EC compensation benchmarking Peer Group Composition Companies Rationale Global Industry A tailored group of 16 global industry peer companies, matching the scale and complexity of ABB AB SKF, Alstom, Airbus, Atlas Copco, Denso, Eaton, Emerson Electric, Honeywell, Mitsubishi Electric, Mitsubishi Heavy Industries, Schneider Electric, Schindler, Siemens, Thermo Fisher Scientific, Toshiba, Traton Focus for business area roles and benchmarking compensation design Pan-European Market A panel of 50 cross-industry European companies, matching the scale and complexity of ABB See footnote (1) Focus for Corporate roles; continuity and stability of data points Swiss Market A panel of 16 Swiss headquartered companies, matching the scale and complexity of ABB Adecco, Geberit, Givaudan, Glencore, Kuehne & Nagel, Holcim, Nestle, Novartis, Richemont, Roche, Schindler, SGS, Sika, STMicroelectronics, Swatch, Swisscom Swiss location of headquarters (1) AB InBev, Adidas, Air Liquide, Associated British Foods, AstraZeneca, BAE Systems, Bayer, Bouygues, British American Tobacco, Compass Group, Continental, CRH, Danone, Endesa, EssilorLuxottica, Fresenius, Fresenius Medical Care, GlaxoSmithKline, HeidelbergCement, Heineken, Henkel, Hennes & Mauritz, Holcim, Iberdrola, Imperial Brands, Industria de Diseno Textil, Jeronimo Martins SGPS, Kuehne & Nagel, Linde, L’Oreal, Michelin, National Grid, Naturgy Energy Group, Nokia, Novartis, Novo Nordisk, OMV, Philips, Rio Tinto, Safran, Saint Gobain, Sanofi, SAP, Schneider Electric, Telefonaktiebolaget LM Ericsson, Thales, Umicore, Veolia Environment, Vinci and Vodafone. It is the intention to position target compensa- tion for individual EC members between median and upper quartile of the relevant peer group(s) considering the other factors referenced above (e.g., the EC member’s skills, experience, perfor- mance, potential). The comparison of ABB to its compensation benchmarking peer groups shown in Exhibit 17 below is based on the latest review in 2022. This data shows that ABB is typically positioned at the median of key comparator indicators (market capitalization, revenues, and number of employ- ees) against the Global Industry and Pan-European Market peer groups, and at the upper quartile of the Swiss Market peer group. Exhibit 17: Comparison of ABB to compensation benchmarking peer groups (1) Market capitali- zation (2)(3)(4) Revenues (2)(4)(5) Number of employees (5)(6) ABB 58.8 27.5 104,400 Global Industry Upper Quartile 78.5 36.3 133,924 Median 49.0 31.1 98,118 Lower Quartile 16.6 17.0 77,017 Pan-European Market Upper Quartile 75.4 40.0 124,435 Median 32.6 27.9 89,012 Lower Quartile 20.2 22.7 62,660 Swiss Market Upper Quartile 65.1 38.2 85,017 Median 32.0 16.4 58,635 Lower Quartile 20.1 9.1 30,348 (1) Data for market capitalization, revenues and number of employees are sourced from Thomson Reuters. (2) Market capitalization and revenues are in CHF millions. (3) Market capitalization is averaged over a period of three months (June 20, 2022, until September 20, 2022). (4) All currencies have been converted to CHF, where needed, applying full-year average currency exchange rates based on the period from July 1, 2021, to June 30, 2022. (5) Revenues and number of employees as per last financial year prior to October 2022. (6) Number of employees in full-time equivalent (FTE) unless FTE information was not available, then in total number of employees. 17 ABB COMPENSATION REPORT 2022 Compensation elements Exhibit 3 in the section “Compensation at a glance” sets out the purpose and link to strategy, the operation, the opportunity level and the performance measures. In addition, this section provides further details for each compen- sation element. Fixed compensation - base salary and benefits Purpose and link to strategy Facilitate the attraction and retention of talented EC members; base salary compensates for the role and relevant experience; benefits protect against risks. Base salary is paid in cash. Benefits consist primarily of retirement, insurance and healthcare plans that are designed to provide a reasonable level of support for the employees and their dependents in case of retirement, disability or death. Opportunity levels Base salary is set with reference to the scope of responsibilities, personal experience and skills, and competitive market data. Benefit plans are set in line with the local compet- itive and legal environment and are, at a minimum, in accordance with the legal requirements of the respective country. Performance measures and weighting Base salary is adjusted considering the factors set out under opportunity levels above, the execu- tive’s performance as well as their future potential. Variable compensation - Annual Incentive Plan (AIP) Purpose and link to strategy The AIP is designed to reward EC members for the Group’s results, the results of their business area or corporate function and their individual perfor- mance over a time horizon of one year, and is aligned with the Annual Performance Plan ap- proved by the Board. Opportunity levels The AIP opportunity levels for the EC are 100 percent of base salary at target with a maximum opportunity of 150 percent. Performance measures and weighting The AIP structure is designed to incentivize operational delivery and underpin our perfor- mance culture. As such, it is focused on key priorities, with a maximum of five measures. • A common Group financial measure with a 20 to 25 percent weighting. • Up to three Group or business area financial measures, with a 55 to 60 percent weighting. • An individual measure with a 20 percent weighting. This individual component is informed by two or three goals which may include a combination of quantitative and qualitative goals. – From 2022, at least two of these goals relate to sustainability. – The final outcome against this individual mea- sure is a discretionary judgment based on the combined performance against all individual goals. A summary of the composition and total weight- ing of the measures for all EC members is set out in Exhibit 18. Exhibit 18: Composition and weighting of AIP measures for EC members CEO and corporate officers (1) Business area Presidents Common Group financial measure 25% 20% Other Group financial measures Up to three measures 55% n.a. Business area financial measures n.a. Up to three measures 60% Individual measure Includes up to three goals (minimum two sustainability related) 20% 20% Total 100% 100% (1) Corporate officers include Chief Financial Officer, Chief Human Resources Officer, General Counsel and Chief Communications and Sustainability Officer. Other design features For each performance measure, a target will be set corresponding to the expected level of perfor- mance that will generate a target (100 percent) award. For each measure except the individual measure, a minimum level of performance, below which there is no award (threshold) and a maxi- mum level of performance, above which the award is capped at 150 percent of the target (maximum), will also be defined. The payment schedule for financial AIP measures is calculated mathematically as summarized in the following Exhibit 19. For Group and business area financial measures, the award percentage achievements between threshold and target, as well as between target and maximum are deter- mined by linear interpolations between these award points. 18 ABB COMPENSATION REPORT 2022 Exhibit 19: Payment schedule for the AIP of EC members Level of performance Below threshold Threshold Target Maximum Award achievement per financial measure 0% >0% 100% 150% The outcomes of the financial AIP measures are subject to appropriate discretionary upward or downward adjustments by the CC for non-operational items and other adjustment principles agreed with the Board, if and to the extent the CC considers this appropriate. In addition, the CC/Board have discretionary authority to adjust the results and/or the AIP award. This specifically includes a downwards adjustment based on safety performance, includ- ing fatalities. Variable compensation - Long-Term Incentive Plan (LTIP) Purpose and link to strategy Rewards the achievement of predefined perfor- mance targets over a three-year period. Encourages the creation of long-term, sustainable shareholder value creation and is aligned with the Company’s Long-Term Performance Plan ap- proved by the Board. Opportunity levels For the CEO, the LTIP opportunity levels are 150 percent of base salary at target, with a maximum opportunity of 300 percent of base salary. As per the policy change announced in last year’s Compensation Report, the target and maximum opportunity levels for EC members newly ap- pointed from 2022 are 150 percent and 300 percent of base salary, respectively. This is de- signed to provide an increased focus on variable, performance related compensation and is mostly offset by a reduction in costs related to pension and other benefits. The LTIP opportunity levels for EC members appointed prior to 2022 are 100 percent of base salary at target, with a maximum opportunity of 200 percent of base salary. This has also been applied, by exception, to the newly appointed Chief Communications and Sustainability Officer in line with external market data, reflecting the scope of the role. The previously existing discretionary option to increase or decrease individual target grants under the LTIP for EC members, except the CEO, has been discontinued as from 2022, except for the option to make no grants in certain circumstances. Performance measures and weighting The LTIP has, from 2022, three performance measures: Earnings Per Share (EPS) • Achievement against this measure is determined by ABB’s average EPS over a three-year period. The average EPS result is calculated from the sum of EPS for each of the three relevant years, divided by three. • EPS is defined as “Diluted earnings per share attributable to ABB shareholders, calculated using Income from continuing operations, net of tax, unless the Board elects to calculate using Net income for a particular year”. • Appropriate threshold (zero), target (100 percent) and maximum (200 percent) award points are reviewed by the CC on an annual basis. • Performance target and award points are set using the Company’s Long-term Performance Plan and are calibrated with an independent “outside-in” view, taking into account the growth expectations, risk profile, investment levels and profitability levels that are typical for the industry. • Adjustments to the outcome of the EPS achievement level may be considered for items which are not part of, or the result of, the normal course of business operation and/or which were not considered, either by way of inclusion or exclusion, for the target-setting of a specific LTIP launch. Only the net impact of such adjustments over the vesting period of the respective LTIP grant will be considered. Total Shareholder Return (TSR) • Achievement against this measure is determined by ABB’s relative TSR performance against a defined peer group. • The constituents of the peer group and the appropriate threshold (zero), target (100 percent) and maximum (200 percent) award points are reviewed by the CC on an annual basis. • The TSR calculations are made for the reference period beginning in the year of the conditional grant of the shares and ending three years later. The evaluation is performed by an independent third party. • For grants from 2022, the award curve for the TSR measure has been adjusted to become more challenging. The threshold point for awards, above which vesting starts, has been moved from the 25th percentile to the 50th percentile (P50) of the TSR peer group, i.e., there is no vesting for performance below P50. • Vesting for P50 achievement remains at 100 percent of target, and vesting for a 75th 19 ABB COMPENSATION REPORT 2022 percentile (P75) achievement level remains at 200 percent of target (capped). There is a linear vesting for an achievement between P50 and P75 (100 to 200 percent of target). Sustainability • The Board determines on an annual basis the LTIP specific sustainability measure(s), as well as related target(s) and award points, to incentivize material progress towards our 2030 sustainability strategy commitments. • Appropriate threshold (zero), target (100 percent) and maximum (200 percent) award points are reviewed and approved by the CC on an annual basis. • Adjustments to the outcome of the sustainability achievement may be considered for items which are not part of, or the result of the normal course of business operation and/or which were not considered, either by way of inclusion or exclusion, for the target-setting of a specific LTIP launch. Only the net impact of such adjustments over the vesting period of the respective LTIP grant will be considered. The relative weighting of measures for the LTIP is as follows: • EPS measure: 50 percent • TSR measure: 30 percent • Sustainability measure: 20 percent Other design features The number of shares to be granted is determined by dividing the grant value by the average share price over the period of 20 trading days prior, and 20 trading days after, the date of publication of ABB’s full year financial results. Settlement of the LTIP is three years after grant, subject to achieve- ment of performance conditions, defined prior to grant. The actual settlement of shares awarded will vary between zero and 200 percent of the shares conditionally granted, according to achievement against the performance measures stated above. The vesting schedule for the LTIP is shown in the following Exhibit 20. The award percentage achievements between threshold and target, as well as between target and maximum, are deter- mined by linear interpolations between these award points. Exhibit 20: Vesting schedule for the LTIP of EC members* Level of performance Below threshold Threshold Target Maximum Award achievement per measure 0% >0% 100% 200% * For the TSR measure, the threshold point equals the target point. The CC has the discretion to adjust the formulaic LTIP vesting outcome, to reflect the overall per- formance of ABB over the performance period. Default settlement of the final LTIP award is 100 percent in shares, and beginning with grants made conditionally in 2020, an automatic sell-to-cover is in place for employees who are subject to withholding taxes. LTIP shares are subject to malus and clawback rules, which include illegal activities, any financial misstatement and reputational damage that have a material impact on ABB Ltd or one of its subsidiaries. This means that the Board may decide not to award any unsettled or unvested incentive compensation (malus), or may seek to recover long-term incentive compensation that has been settled in the past (clawback). Clawback applies for a period of up to five years following the originally scheduled plan specific vesting date. The CC also has the ability to suspend the delivery of awards if it is likely that the Board will deter- mine that the malus or clawback provisions may potentially apply (e.g., if the employee is subject to an external investigation). For LTIP grants from 2021, there is no automatic accelerated vesting of awards in the event of a change of control. For LTIP grants from 2022, participants are enti- tled to receive a cash amount (a “dividend equivalent payment”) on each vested award share that is equal to the total dividends per share paid by the Company on the ABB Ltd share between the grant date and the delivery date of the vested award. This is offset by reducing other benefits by a similar level over the life of the share grant. Total wealth at risk / Share ownership Purpose and link to strategy To align EC members’ personal wealth directly with the interests of shareholders in order to maintain focus on the long-term success of the Company. Share ownership program EC members are required to retain all shares vested from the Company’s LTIP and any other share-based compensation until their share 20 ABB COMPENSATION REPORT 2022 ownership requirement is met. In circumstances where there is a withholding tax obligation, the number of shares received will be considered to be the number of shares vested minus the shares sold under the default sell-to-cover facility. The share ownership requirement is equivalent to a multiple of the EC member’s annual base salary, net of taxes (see Exhibit 3 in the section “Compensation at a glance”). These share owner- ship requirements are aligned with market practice and result in a wealth at risk for each EC member which is aligned with shareholder interests. Only vested shares owned by an EC member and their spouse count for the comparison of the actual share ownership against the share owner- ship requirement. The CC reviews the status of EC share ownership on an annual basis. It also reviews the required shareholding amounts annually, based on salary and expected share price developments. Notice period, severance provisions and non- competition clauses Employment contracts for EC members include a notice period of 12 months, during which they are entitled to their annual base salary, short-term incentive and benefits. In accordance with Swiss law and ABB’s Articles of Incorpora- tion, the contracts for the EC members do not allow for any severance payment. Non-compete agreements have been entered into with the CEO and all other EC members for a period of 12 months after their employment. Compensation for such agreements, if any, may not exceed the EC member’s last total annual cash remuneration (comprising of base salary, short-term incentive and benefits). Implementation of EC compensation policy Overview EC members received total compensation of CHF 36.0 million in 2022, compared with CHF 39.2 million in 2021, as summarized in Exhibit 21 below and presented in detail in Exhibits 38 and 39. At the 2021 AGM, the shareholders ap- proved a maximum aggregate compensation amount of CHF 40 million for the EC for the year 2022. The EC total compensation for 2022 amounted to CHF 36.0 million and is therefore within the approved amount (see Exhibit 21). Exhibit 21: Total compensation of EC members (monetary values in CHF) (1) Calendar year 2022 2021 Number of active EC members 9 9 Base salaries 8,341,720 8,713,406 Pension benefits 4,334,281 4,795,259 Other benefits 4,894,480 4,819,803 Total fixed compensation 17,570,481 18,328,468 Short-term incentives 9,879,882 12,144,280 Long-term incentives (fair value at grant) 8,584,710 8,684,298 Total variable compensation 18,464,592 20,828,578 Total compensation 36,035,073 39,157,046 Maximum aggregate compensation approved at AGM 40,000,000 39,500,000 (1) For an overview of compensation by individual and component, please refer to Exhibits 38 and 39 in the section “Compensation tables and share ownership tables” below. An overview of 2022 realized compensation by individual is provided in Exhibit 44 in the same section. The total compensation for the EC in 2022 de- creased by 8.0 percent compared to 2021. This mainly reflects the impact of the lower 2022 AIP awards compared to 2021. The overall lower pension benefits for 2022 compared to 2021 are informed by the application of our new compen- sation structure for new EC members where pension benefits and other benefits have been lowered and replaced by an increased LTIP grant size level, to provide higher emphasis on perfor- mance instead of guaranteed compensation. 21 ABB COMPENSATION REPORT 2022 Compensation mix The ratio of fixed to variable components in any given year depends on the performance of the Company and individual EC members against predefined performance targets. Exhibit 5 in the section “Compensation at a glance” shows the composition of the 2022 total annual compensation for the CEO and for other current EC members on an aggregate level, specifying the split of its five compensation components. In 2022, the variable compensation of the CEO was 56 percent of his total annual compensation (previous year: 61 percent). For the other EC members, the variable compensation was 51 percent on average (previous year: 54 percent). The reductions in 2022 from the prior year reflect the lower variable pay awards. Note that compensation paid in 2022 for former EC members is not included in Exhibit 5. This can be found in Exhibit 38. Compensation elements – 2022 highlights Base salary The salaries of the EC members have been re- viewed as part of the regular compensation review. As a result, the Board and the CC decided to increase the salaries of five of the nine EC members in place in March 2022. The base salary of Björn Rosengren was increased by 5.0 percent to CHF 1,785,000, Timo Ihamuotila by 2.1 percent to CHF 990,000, Carolina Granat by 3.6 percent to CHF 725,000, Peter Terwiesch by 3.8 percent to CHF 830,000 and Morten Wierod by 12.5 percent to CHF 900,000. These salary changes were made to reward exceptional performance of these EC members, ensure their total compensation oppor- tunity does not fall behind their relevant target market position, and in the case of Morten Wierod, to reflect a broadening of responsibilities. Considering that the other four EC members in place in March 2022 had no salary adjustments, this corresponded to a 3.25 percent increase on annual base salaries for the EC members post March 2022. Annual Incentive Plan (AIP) - design Under the AIP, all members of the EC had a common Group measure, with a 20 to 25 percent weighting. In 2022, this was Group Opera- tional EBITA margin, applied to create a greater focus on profitability. In addition to the common Group measure, the CEO and the corporate officers shared the same Group measures, including Revenues, Free Cash Flow and Productivity growth, with a total weight- ing of 55 percent. For business area Presidents, up to three mea- sures were tailored to business imperatives, with a total weighting of 60 percent. While all business area Presidents shared one measure (Operational EBITA margin, with 25 to 30 percent), the second and third measure varied, including Productivity growth, Revenues, Operational Free Cash Flow, Order Gross Margin and Operational revenues gross profit productivity growth, for the remaining 25 to 30 percent. Exhibit 22 on the next page shows the composi- tion and weighting of the financial measures applied in 2022 for all EC members under their AIP, specified by their roles. Definitions of the finan- cial measures applied for all EC members are set out in the Exhibit 23. 22 ABB COMPENSATION REPORT 2022 Exhibit 22: Composition and weighting of 2022 AIP measures for EC members Focus of measure CEO and corporate officers (1) President Electrification President Motion President Process Automation President Robotics & Discrete Automation Common Group financial measure Bottom line earnings Op EBITA margin 25% Op EBITA margin 20% Op EBITA margin 20% Op EBITA margin 20% Op EBITA margin 20% Other Group financial measures Top line output Revenues 25% Cash generation Free Cash Flow 20% Bottom line output Productivity growth 10% Business area financial measures Bottom line earnings Op EBITA margin 30% Op EBITA margin 25% Op EBITA margin 30% Op EBITA margin 30% Cash generation Op Free Cash Flow 20% Top line input Revenues 25% Revenues 20% Bottom line profit Order Gross Margin 20% Bottom line output Operational revenues gross profit producti- vity growth 10% Bottom line output Productivity growth 10% Productivity growth 10% Productivity growth 10% Individual measure CO 2 emissions, Female leaders, Cost discipline, Safety, Strategy implementation, Internal controls Function- specific 20% CO 2 emissions, Safety, Female graduate recruitment, M&A, Digital revenue growth, Strategy implementation Business- specific 20% Business- specific 20% Business- specific 20% Business- specific 20% Total 100% 100% 100% 100% 100% (1) Corporate officers include Chief Financial Officer, Chief Human Resources Officer, General Counsel and Chief Communications and Sustainability Officer. 23 ABB COMPENSATION REPORT 2022 Exhibit 23: Definition of quantitative measures, applied in 2022 Measure Description Operational EBITA margin (%) (1) Operational EBITA, which is Operational earnings before interest, tax and acquisition-related amortization, as a percentage of Operational revenues, which is total revenues adjusted for foreign exchange/commodity timing differences in total revenues Revenues Amount of consolidated revenues recognized during the year in accordance with USGAAP Free Cash Flow (FCF) (1) Free Cash Flow is calculated as net cash provided by operating activities adjusted for: (i) purchases of property, plant and equipment and intangible assets, and (ii) proceeds from sales of property, plant and equipment Productivity growth (%) Productivity is calculated as 12-month rolling revenues over the average number of total workforce in the last three months. Growth is the change of productivity over the same period a year earlier, represented as a percentage change Operational Free Cash Flow (OFCF) Cash flows from operating activities excluding cash paid for interest and taxes and including (i) purchases of property, plant and equipment and intangible assets, and (ii) proceeds from sales of property, plant and equipment Order Gross Margin (%) Gross profit on orders (calculated by deducting total costs to complete the order from the total revenue value of the order) divided by the total revenue value of the order as calculated in the final contract offering to the customer Operational revenues gross profit productivity growth (%) Operational revenues gross profit productivity is calculated as the 12-month rolling operational revenues gross profit divided by the average number of total workforce in the last three months. Where operational revenues gross profit is calculated as gross profit (as defined under USGAAP) adjusted for the following non-operational items to the extent that they are included within the USGAAP gross profit amount: (i) foreign exchange/commodity timing differences, (ii) acquisition-related amortization, (iii) restructuring, related and implementation costs, (iv) changes in obligations related to divested businesses, (v) changes in pre-acquisition estimates, (vi) acquisition- and divestment-related expenses and integration costs, (vii) other income/expense relating to the Power Grids joint venture and (viii) certain other non- operational items. Growth is the change in productivity over the same period a year earlier, represented as a percentage change (1) Full definition can be found in the section “Alternative performance measures” in ABB’s Integrated Report 2022. All EC members also had an individual measure with a 20 percent weighting. This individual component was informed by up to three goals, which included a combination of quantitative and qualitative goals. From 2022, at least two of these goals relate to sustainability, e.g., GHG emissions, safety or female leader targets. The final outcome against the individual measure was based on a discretionary judgment of the combined performance against all three goals. • In 2022, all the EC had a common environmental goal – namely the reduction of GHG emissions. For the CEO and the corporate officers, this related to Group level and for business area Presidents to their respective business areas. • For the CEO and corporate officers, the other goals were linked to the level of Female leaders, Cost discipline, Safety, Strategy implementation, or Internal controls. • Business area Presidents continued to have a Safety goal. Their other goals related to Female graduate recruitment, M&A, Digital revenue growth, or Strategy implementation. Outcomes were subject to appropriate adjust- ments for some non-operational items and other adjustment principles agreed with the Board. 2022 Annual Incentive Plan – achievements The average award for the current EC members under the AIP for 2022 was 118.3 percent (out of a maximum 150 percent), compared to 143.4 percent in 2021. The 2022 AIP outcomes were net of the application of adjustments for some non-operational items, aligned with adjustment principles agreed with the Board. These led to adjustments of awards for three EC members, ranging from a five percent decrease to a 15 percent increase of awards. Common Group measure Achievement against the 2022 Group Operational EBITA margin measure, which applied to all EC members, with a weighting of 20 percent for the business areas Presidents and 25 percent for the CEO and corporate officers, was 150 percent (2021: 150 percent). Therefore the weighted achievement related to the common Group mea- sure was 30.0 percent for the business area Presidents, and 37.5 percent for the CEO and the corporate officers. Other Group measures The outcome related to the other three Group measures, applied to the CEO and corporate officers, was at 95.5 percent. Achievement against the Group Revenue target, with a 25 percent weighting, was 150 percent (2021: n.a.). Achievement against the Free Cash Flow target, with a weighting 20 percent, was zero percent (2021: 150 percent). Achievement against the Productivity growth target, with a weighting of 10 percent, was 150 percent (2021: 150 percent). Therefore the compound achievement related to these three Group measures was 52.5 percent. Business area measures Up to three quantitative business measures were applied to the business area Presidents, with weightings from 10 to 30 percent, and the 24 ABB COMPENSATION REPORT 2022 outcomes ranged from zero to 150 percent of target (2021: 119 to 150 percent). Achievement against the Operational EBITA margin measure ranged from zero to 150 percent for all business areas (2021: 119 to 150 percent), Revenues 49.1 to 150 percent for the two business areas applicable (2021: n.a.), Operational Free Cash Flow 40.5 percent (2021: 150 percent), Order Gross Margin 150 percent (2021: n.a.), Productiv- ity growth zero to 150 percent for three business areas applicable (2021: 150 percent) and Opera- tional revenues gross profit productivity growth 150 percent (2021: n.a.). Therefore the compound weighted achievement related to these business area measures ranged from 12.4 to 90.0 percent (2021: 80.8 to 90.0 percent). Individual measure The assessed achievement of the goals informing the outcome of the individual component for EC members, with a weighting of 20 percent, inclu- sive of the achievement of the sustainability goals (Safety, Female leader and emissions targets), ranged from 100 to 150 percent (2021: 100 to 150 percent). These outcomes are summarized in Exhibit 24. Exhibit 24: 2022 AIP outcomes for the CEO and the corporate officers (rounded) Category Measure (and weighting) Target and award points and actual achievement levels Threshold (0%) Target (100%) Maximum (150%) Common Group financial measure 25% Group Op EBITA margin 25% Other Group financial measures 55% Revenues 25% Free Cash Flow 20% Productivity growth 10% Individual measure 20% CO 2 emissions, Female leaders, Cost discipline, Safety, Strategy implementation, Internal controls 20% 150% 150% 0% 150% 100–150% 2022 AIP outcomes for the business area Presidents (rounded) Category Measure (and weighting) Target and award points and actual achievement levels Threshold (0%) Target (100%) Maximum (150%) Common Group financial measure 20% Group Op EBITA margin 20% Business area financial measures 60% Op EBITA margin 25-30% Revenues 0–25% Op Free Cash Flow 0–20% Order Gross Margin 0–20% Productivity growth 10% Op revenues gross profit productivity growth 10% Individual measure 20% CO 2 emissions, Safety, Female graduate recruitment, M&A, Digital revenue growth, Strategy implementation 20% Actual achievement (dot) or range of actual achievements (line between minimum and maximum dot) Median achievement for the applicable range 150% 40% 49–150% 150% 0–150% 26–150% 150% 125–150% 25 ABB COMPENSATION REPORT 2022 Overall outcomes The overall average award under the 2022 AIP for the entire current EC was 118.3 percent of target (2021: 143.4 percent) with a range from 67.4 percent (lowest achievement) to 150 percent of target (highest achievement). This compared to a range of 140.0 to 145.0 percent in 2021. Exhibit 25 provides information related to the overall actual 2022 AIP outcomes, in comparison to the target 2022 AIP for all current EC members. Exhibit 25: Overview of targeted and realized 2022 AIP values Common Group measure Other Group measures Business area measures Individual measure Total AIP outcome percentage (in % of target) Target AIP award (in CHF) Actual AIP award (in CHF) (3) Achievement Weighting Outcome Achievement Weighting Outcome Achievement Weighting Outcome Achievement Weighting Outcome Björn Rosengren 150.0% 25.0% 37.5% 95.5% 55.0% 52.5% n.a. n.a. n.a. 150.0% 20.0% 30.0% 120.0% 1,785,000 2,142,000 Timo Ihamuotila 150.0% 25.0% 37.5% 95.5% 55.0% 52.5% n.a. n.a. n.a. 150.0% 20.0% 30.0% 120.0% 990,000 1,188,000 Carolina Granat 150.0% 25.0% 37.5% 95.5% 55.0% 52.5% n.a. n.a. n.a. 150.0% 20.0% 30.0% 120.0% 725,000 870,000 Andrea Antonelli (1) 150.0% 25.0% 37.5% 95.5% 55.0% 52.5% n.a. n.a. n.a. 125.0% 20.0% 25.0% 115.0% 583,334 670,833 Karin Lepasoon (2) 150.0% 25.0% 37.5% 95.5% 55.0% 52.5% n.a. n.a. n.a. 100.0% 20.0% 20.0% 110.0% 150,000 165,000 Sami Atiya 150.0% 20.0% 30.0% n.a. n.a. n.a. 20.6% 60.0% 12.4% 125.0% 20.0% 25.0% 67.4% 800,000 539,200 Tarak Mehta 150.0% 20.0% 30.0% n.a. n.a. n.a. 139.7% 60.0% 83.8% 150.0% 20.0% 30.0% 143.8% 930,000 1,337,340 Peter Terwiesch 150.0% 20.0% 30.0% n.a. n.a. n.a. 150.0% 60.0% 90.0% 150.0% 20.0% 30.0% 150.0% 830,000 1,245,000 Morten Wierod 150.0% 20.0% 30.0% n.a. n.a. n.a. 106.0% 60.0% 63.6% 125.0% 20.0% 25.0% 118.6% 900,000 1,067,400 Total 7,693,334 9,224,773 (1) EC member as of March 1, 2022. Target and Actual AIP awarded are prorated for the time employed in year 2022. (2) EC member as of October 1, 2022. Target and Actual AIP awarded are prorated for the time employed in year 2022. (3) Represents accrued AIP award for the year 2022, which will be paid in 2023, after the publication of ABB’s financial results. Long-Term Incentive Plan (LTIP) 2022 LTIP grants The estimated value at grant of the share-based grants to EC members under the 2022 LTIP was CHF 8.6 million, compared with CHF 8.7 million in 2021. The reference price for the 2022 LTIP grant which was used to determine the number of shares granted to participants was CHF 32.48. The 2022 LTIP is based on three performance measures: ABB’s EPS, ABB’s TSR and a sustainabil- ity measure. Targets and award points under the EPS measure are considered as commercially sensitive informa- tion and will only be disclosed retrospectively after the end of the relevant LTIP perfor- mance period. As in the previous year, ABB made the achieve- ment of the EPS threshold point more challenging by further decreasing the range between the EPS target and award points (range reduced from plus/minus 14 percent of target for 2021 LTIP to plus/minus 11 percent of target for the 2022 LTIP) to reflect the perceived EPS volatility during the performance period. The peer companies approved by the Board to determine ABB’s relative TSR performance for the 2022 LTIP were: 3M, Danaher, Eaton, Emerson Electric, General Electric, Honeywell Intl., Holcim, Legrand, Mitsubishi Electric, Raytheon Technologies, Rockwell, Rolls Royce, Schneider Electric, Siemens and Yokogawa. These were selected as they are comparable in their size, scope and complexity to ABB and compete in markets that are key to ABB. They also provide an appropriate and very challenging set of peers, and influenced the vesting point setting accordingly. For 2022, the sustainability measure was the Company’s scope 1 and 2 GHG emissions reduc- tion at the end of the three-year performance period (2022-2024), compared to the 2019 base- line, which was defined without the divested Power Grids business. The approved sustainabil- ity target and award points for the 2022 LTIP are illustrated in Exhibit 26 below. Exhibit 26: Sustainability target and award points for the 2022 LTIP Measure Weigh- ting Thresh- old Target Maximum ABB scope 1&2 CO 2 equivalent emissions reduction compared to 2019 baseline 20% 60% 70% 80% Below threshold point: no award; At target point: 100 percent award; At or above maximum point: capped at 200 percent award; Linear interpolations between award points. The 2022 LTIP target and award points are illus- trated in Exhibit 27. 26 ABB COMPENSATION REPORT 2022 Exhibit 27: 2022 LTIP target and award points Measure Weigh- ting Threshold Target Maximum Average EPS 50% Target point -11% Disclosed after per- formance period Target point +11% Relative TSR 30% 50th percentile 75th percentile Reduction of scope 1&2 CO 2 equivalent emissions compared to 2019 baseline 20% 60.0% 70.0% 80.0% Below threshold point: no award; At target point: 100 percent award; At or above maximum point: capped at 200 percent award; Linear interpolations between award points; The average EPS target is not prospectively disclosed for reasons of commercial sensitivity. 2023 LTIP grants The sustainability measure applied to the 2022 LTIP will also be applied in 2023, namely the scope 1 and 2 GHG emissions reduction at the end of the three-year performance period (2023-2025), compared to the 2019 baseline. Details of the long-term GHG emissions reduction targets can be found in ABB’s Sustainability Report 2022. The targets and award points have been struc- tured to reflect ABB’s progress to date, its long-term ambitions, and that as the targets get higher, the overall stretch to achieve them is even more challenging. • The threshold value of 75.0 percent emissions reduction versus the 2019 baseline is above the mid-term target of 70 percent. • The target value of 77.5 percent is in line with ABB’s long-term forecast for 2025. • The maximum value of 80.0 percent is in line with our 2030 Sustainability Strategy target. If it is achieved in 2025, it would mean we have delivered our target five years ahead of our commitment. Exhibit 28: Sustainability target and award points for the 2023 LTIP Measure Weigh- ting Threshold Target Maximum ABB scope 1&2 CO 2 equivalent emissions reduction compared to 2019 baseline 20% 75.0% 77.5% 80.0% Below threshold point: no award; At target point: 100 percent award; At or above maximum point: capped at 200 percent award; Linear interpolations between award points. 2019 LTIP achievements The final number of shares vesting under the 2019 LTIP grant in 2022 was determined based on the achievement level against the predefined TSR and EPS targets. The relative ranking of ABB’s TSR measure against the predefined peer group of companies for the 2019 LTIP set on the 86th percentile, which led to a vesting level of 200.0 percent (previous year: 114.8 percent) out of a potential of 200 percent. The three-year average EPS amounted to USD 0.86, which led to a vesting level of 42.0 percent (previous year: zero percent) out of a potential 200 percent, net of adjustments for items consid- ered outside the normal course of business operation and/or which were not considered in the target setting of the 2019 LTIP. On this occa- sion, adjustments were made for the impact of divestments, M&A related integration costs and restructuring costs. In line with our commitment to retrospectively disclose the EPS performance targets for vested LTIP awards, the three target and award points (threshold, target and maximum) and the actual achievement for the adjusted 2019 EPS perfor- mance measure are shown in Exhibit 29 below. The average weighted achievement level of the two performance measures under the 2019 LTIP was 121.0 percent (out of a maximum 200 per- cent), as specified in Exhibit 29. Overview of disclosed and realized 2019 LTIP value The following table compares the previously disclosed “fair value” of the grant to each EC member and the actual value of the grant at the time of vesting. The following Exhibit 30 shows such comparison for the 2019 LTIP, that vested in 2022. Exhibit 29: Target and award points and achievement levels of 2019 LTIP performance measures Measure Weighting Threshold Target Maximum Actual Relative TSR 50% 25th percentile 50th percentile 75th percentile 86th percentile Achievement level 0% 100% 200% 200% Average EPS (USD) 50% 0.75 1.00 1.25 0.86 Achievement level 0% 100% 200% 42% Award as percentage of target (capped at 200%) 121.0% 27 ABB COMPENSATION REPORT 2022 Exhibit 30: Realized value of 2019 LTIP grant for current EC members Grant date Number of shares granted related to the TSR measure (1) Shares granted related to the EPS measure (2) Total number of shares granted Disclosed grant fair value (CHF) (3) Vesting date Vesting percent- age Number of vested shares Realized value (CHF) (4) Björn Rosengren n.a. n.a. Timo Ihamuotila May 16, 2019 24,536 24,535 49,071 836,661 May 16, 2022 121.0% 59,377 1,680,963 Carolina Granat n.a. n.a. Andrea Antonelli n.a. n.a. Karin Lepasoon n.a. n.a. Sami Atiya May 16, 2019 24,794 24,793 49,587 845,459 May 16, 2022 121.0% 60,002 1,698,657 Tarak Mehta May 16, 2019 22,211 22,211 44,422 757,396 May 16, 2022 121.0% 53,751 1,521,691 Peter Terwiesch May 16, 2019 20,662 20,661 41,323 704,559 May 16, 2022 121.0% 50,002 1,415,557 Morten Wierod May 16, 2019 18,079 18,079 36,158 616,494 May 16, 2022 121.0% 43,752 1,238,619 Total 3,760,569 7,555,487 (1) Actual achievement level of the TSR measure was 200.0 percent. (2) Actual achievement level of the EPS measure was 42.0 percent. (3) Valued at CHF 17.05, the grant fair value of the ABB share on the day of grant. (4) Valued at CHF 28.31, the closing price of the ABB share on the day of vesting. The values presented are gross and before pay- ment of any applicable taxes owing by the recipient. This indicates the average gross realized LTIP value was 200.9 percent of the disclosed grant fair value. LTIP vesting outcomes in the last five years The historical LTIP vesting outcomes for the prior five years are shown in Exhibit 31 below. Over the last five years vesting has averaged at 84.9 percent of target and 49.3 percent of the maxi- mum award. Exhibit 31: LTIP historical actual vesting percentages( 1) (1) According to plan-specific relative weighting of relevant performance measures. 80.5% 53.7% 2015 LTIP 120% 80% 40% 0% 2016 LTIP 2017 LTIP 2018 LTIP 2019 LTIP 92.5% 61.7% 57.4% 28.7% 73.0% 41.7% 121.0% 60.5% Vesting in % of target award Vesting in % of maximum potential award Realized total compensation - 2022 We disclose the realized total compensation for each EC member. Realized compensation relates to the AIP award and the LTIP award at the end of their respective performance cycles, reflecting actual payment and settlement, based on achieve- ments of the plan specific performance measures. Such transparency on realized compensation is designed to aid stakeholder’s understanding of ABB’s link between pay and performance. The following Exhibit 32 sets out a high-level comparison of realized and target total compen- sation for each EC member. A detailed summary table is given in Exhibit 44 in the section “Com- pensation tables and share ownership tables“. 28 ABB COMPENSATION REPORT 2022 Target total compensation Realized total compensation 0 1.000.000 2.000.000 3.000.000 4.000.000 5.000.000 6.000.000 7.000.000 8.000.000 9.000.000 10.000.000 Björn Rosengren Timo Ihamuotila Carolina Granat Andrea Antonelli Karin Lepasoon Sami Atiya Tarak Mehta Peter Terwiesch Morten Wierod 120% 126% 107% 106% 104% 116% 134% 124% 132% Exhibit 32: Realized 2022 total compensation (in CHF) compared to target total compensation Other compensation - 2022 Members of the EC are eligible to participate in the Employee Share Acquisition Plan (ESAP), a savings plan based on stock options, which is open to employees around the world. Five mem- bers of the EC participated in the 19th annual ESAP launch of the plan in 2022. EC members who participated will, upon vesting, each be entitled to acquire up to 360 ABB shares at CHF 27.99 per share, the market share price at the start of the 2022 launch. For a more detailed description of the ESAP, please refer to “Note 18 – Share-based payment arrangements” in our Consolidated Financial Statements. In 2022, ABB did not pay any fees or compensation to the members of the EC for services rendered to ABB other than those disclosed in this Compensa- tion Report. Except as disclosed in the section “Executive Committee – Business relationships between ABB and its EC members” in ABB’s Corporate Governance Report 2022, the Company did not pay any additional fees or compensation in 2022 to persons closely linked to a member of the EC for services rendered to ABB. Shareholding of EC members Four out of nine EC members have exceeded their share ownership requirement. Two further mem- bers are close to achieving their requirement, while three members have been newly appointed to the EC in the last two years. The individual shareholding in comparison to the relevant own- ership requirement is shown in Exhibit 9 in the section “Compensation at a glance”. The EC members collectively owned less than 1 percent of ABB’s total shares outstanding at December 31, 2022. At December 31, 2022, EC members held ABB shares and conditional rights to receive shares, as shown in Exhibit 42 in the section “Compensation tables and share ownership tables” below. Their holdings at December 31, 2021, are shown in Exhibit 43 in the same section. As previously communicated, as from 2020, grants under the Management Incentive Plan (MIP), a stock option plan without performance conditions, have been discontinued, and no further grants were made. Any MIP instruments held by EC members were awarded prior to their appointment as EC members. For a more detailed description of MIP, please refer to “Note 18 – Share-based payment arrangements” in our Consolidated Financial Statements. Except as described in Exhibits 42 and 43, no member of the EC and no person closely linked to a member of the EC held any shares of ABB or options on ABB shares at December 31, 2022, and 2021. Accelleron equity restoration In October 2022, ABB shareholders received a dividend in kind in Accelleron shares at the spin-off date. Granted but unvested, Performance Share Units (PSU) and Restricted Share Units (RSU) held by ABB employees at the time of the spin-off date, including members and former members of the EC, were not entitled to receive the dividend in kind distribution. As contemplated by the terms of the LTIP rules, to ensure equal treatment of PSU and RSU holders relative to ABB shareholders, ABB increased the previously granted number of shares by 3.7 per- cent to reflect the impact of the Accelleron 29 ABB COMPENSATION REPORT 2022 spin-off, to ensure that ABB employees including EC members are not disadvantaged by the spin-off relative to ABB shareholders. The total value related to the additional shares granted for the EC was CHF 0.9 million. The amount was equivalent to the estimated reduc- tion in value of the ABB share as a result of the dividend in kind related to the spin-off and as such are not considered by the CC to be additional compensation. Changes applicable to EC members Terms of appointment for new EC members The new General Counsel & Company Secretary, Andrea Antonelli, was appointed to the EC effec- tive from March 1, 2022, with an annual base salary of CHF 700,000, a target short-term incen- tive of 100 percent of annual base salary and a target long-term incentive of 150 percent of annual base salary. Andrea Antonelli is eligible for standard EC benefits as per the policy announced in last year’s Compensation Report. The new Chief Communications & Sustainability Officer (CCSO), Karin Lepasoon, was appointed to the EC effective from October 1, 2022, with an annual base salary of CHF 600,000, a target short-term and target long-term incentive of 100 percent of annual base salary respectively. Karin Lepasoon is eligible for standard EC benefits as per the policy announced in last year’s Compensa- tion Report and received standard relocation benefits. Terms of departure for EC members The previous General Counsel & Company Secre- tary, Maria Varsellona, resigned from ABB and departed on March 31, 2022. She received com- pensation and benefits up to the point of her departure. This includes a contractually agreed pro-rata short-term incentive payment of CHF 181,985 for the period January 1 to March 31, 2022. All her unvested LTIP share grants and the unvested second tranche of her replacement share grant were forfeited. The previous CCSO, Theodor Swedjemark, re- signed from ABB and stepped down from the EC as per October 31, 2022. He will depart from ABB on February 28, 2023. He is entitled to receive compensation and benefits up to the point of his departure. This includes a contractually agreed short-term incentive payment of CHF 473,124 for 2022 and a pro-rata short-term incentive payment of CHF 78,854 for the period January 1 to February 28, 2023. All his unvested LTIP share grants were forfeited. Compensation of former EC members In 2022, certain former EC members received contractual compensation for the period after leaving the EC, as shown in Exhibit 38, footnote (5). Votes on compensation at the 2023 AGM As illustrated in Exhibit 33, the Board’s proposals to shareholders at the 2023 AGM will relate to Board compensation for the 2023–2024 term of office and EC compensation for the calendar year 2024. There will also be a non-binding consulta- tive vote on the Compensation Report 2022. 30 ABB COMPENSATION REPORT 2022 The voting results at ABB’s past AGM in 2022 were as follows: • Maximum aggregate Board compensation for the 2022–2023 term of office – 99.08 percent • Maximum aggregate EC compensation for 2023 – 92.32 percent • Consultative vote on the Compensation Report 2021 – 91.32 percent In determining the proposed maximum aggregate EC compensation for 2024, the Board takes into consideration the criteria illustrated in Exhibit 34. Given the variable nature of a major portion of the compensation components, the proposed maxi- mum aggregate EC compensation will almost normally be higher than the actual compensation paid or awarded, as it must cover the potential maximum value of each component of compensation. The decrease in maximum aggregate EC compen- sation for 2024 compared to 2023 is mainly influenced by the potential vesting related costs from the 2021 LTIP award, as well as the lower compensation levels applied to new EC members compared to plan. Exhibit 34: Overview of key factors affecting the determination of maximum aggregate EC compensation 2020 2021 2022 2023 2024(1) Aggregate EC compensation in CHF (millions) Maximum (approved at 2019 AGM) Maximum (approved at 2020 AGM) Actual Target Maximum (approved at 2021 AGM) Maximum (approved at 2022 AGM) Maximum (to be requested at 2023 AGM) Assumptions AIP award percentage 150% 150% 114%(2) 100% 150% 150% 150% Adjustment of LTIP grant size 12.5% 12.5% 0% 0% 12.5% n.a. n.a. Number of LTIP shares vested or potentially vesting in year (3) 266,104 147,979 n.a. n.a. 220,561 354,869 301,476 Number of EC members 12 9 9 9 9 9 9 (1) Figure will be provided in the AGM invitation. (2) Outcome without the allocation of former EC members, but including previous General Counsel & Company Secretary and previous CCSO. For a full description, see previous section “Compensation elements – 2022 highlights”. (3) For example, 301,476 LTIP shares were granted in 2021 that potentially vest in 2024, subject to performance conditions. 36.0 34.4 40.0 45.9 xx.x 39.5 55.5 Compen- sation report Binding vote on maximum aggregate Board compen- sation for 2023–2024 term of office Binding vote on maximum aggregate EC compensation for 2024 Non-binding vote on Compensation Report 2022 March AGM March AGM March AGM Exhibit 33: Shareholders will have three separate votes on compensation at the 2023 AGM 2022 2023 2024 Compensation period Date of vote EC Compen- sation Board Comp- ensation 31 ABB COMPENSATION REPORT 2022 Compensation tables and share ownership tables Exhibit 35: Board compensation in 2022 and 2021 (audited) Name Paid in 2022 Paid in 2021 November Board term 2022–2023 May Board term 2021–2022 Total compensation paid in 2022(3) November Board term 2021-2022 May Board term 2020-2021 Total compensation paid in 2021(3) Settled in cash (1) Settled in shares – number of shares received (2) Settled in cash (1) Settled in shares – number of shares received (2) Settled in cash (1) Settled in shares – number of shares received (2) Settled in cash (1) Settled in shares – number of shares received (2) CHF CHF CHF CHF CHF CHF Peter Voser, Chairman (4) — 21,565 — 18,296 1,200,000 — 17,209 — 20,089 1,200,000 Jacob Wallenberg (5) 112,500 3,257 112,500 2,763 450,000 112,500 2,599 112,500 3,033 450,000 Matti Alahuhta (6) — — — — — — — — 3,615 160,000 Gunnar Brock (7) 82,500 2,388 82,500 2,026 330,000 82,500 1,906 — 4,542 330,000 David Constable (8) 80,000 2,316 80,000 1,964 320,000 80,000 1,848 87,500 2,359 335,000 Frederico Curado (9) — 4,799 — 4,075 350,000 — 3,829 — 4,090 335,000 Lars Förberg (10) — 5,736 — 4,870 320,000 — 4,577 — 5,347 320,000 Jennifer Xin-Zhe Li (11) 87,500 2,338 87,500 1,986 350,000 87,500 1,866 80,000 1,993 335,000 Geraldine Matchett (12) 82,500 3,121 82,500 2,647 330,000 82,500 2,490 82,500 2,906 330,000 David Meline (13) 100,000 2,895 100,000 2,456 400,000 100,000 2,310 100,000 2,696 400,000 Satish Pai (14) — 4,523 82,500 1,872 330,000 82,500 1,759 82,500 2,055 330,000 Total 545,000 52,938 627,500 42,955 4,380,000 627,500 40,393 545,000 52,725 4,525,000 (1) Represents gross amounts paid, prior to deductions for social security, withholding tax etc. (2) Number of shares per Board member is calculated based on net amount due after deductions for social security, withholding tax etc. (3) In addition to the Board remuneration stated in the above table, in 2022 and 2021 the Company paid CHF 248,489 and CHF 231,287, respectively, in related mandatory social security payments. (4) Chairman of the ABB Ltd Board for the 2020-2021, 2021-2022 and 2022-2023 board terms and Chairman of the Governance and Nomination Committee for the 2021-2022 and 2022-2023 board terms; is receiving 100 percent of his compensation in the form of ABB shares. (5) Vice-Chairman of the ABB Ltd Board for the 2020-2021, 2021-2022 and 2022-2023 board terms; Chairman of the Governance and Nomination Committee for the 2020-2021 board term and member of that committee for the 2021-2022 and 2022-2023 board terms; is receiving 50 percent of his compensation in the form of ABB shares. (6) Member of the Governance and Nomination Committee for the 2020-2021 board term; received 100 percent of his compensation in the form of ABB shares for the 2020-2021 board term. Did not stand for election in 2021. (7) Member of the Finance, Audit and Compliance Committee for the 2020-2021, 2021-2022 and 2022-2023 board terms; received 100 percent of his compensation in the form of ABB shares for the 2020-2021 board term and is receiving 50 percent of his compensation in the form of ABB shares for the 2021-2022 and 2022-2023 board terms. (8) Chairman of the Compensation Committee for the 2020-2021 board term and member of that committee for the 2021-2022 and 2022-2023 board terms; is receiving 50 percent of his compensation in the form of ABB shares. (9) Member of the Compensation Committee for the 2020-2021 board term and Chairman of that committee for the 2021-2022 and 2022-2023 board terms; is receiving 100 percent of his compensation in the form of ABB shares. (10) Member of the Governance and Nomination Committee for the 2020-2021, 2021-2022 and 2022-2023 board terms; is receiving 100 percent of his compensation in the form of ABB shares. (11) Member of the Compensation Committee for the 2020-2021, 2021-2022 and 2022-2023 board terms and member of the Governance and Nomination Committee for the 2021-2022 and 2022-2023 board terms; is receiving 50 percent of her compensation in the form of ABB shares. (12) Member of the Finance, Audit and Compliance Committee for the 2020-2021, 2021-2022 and 2022-2023 board terms; is receiving 50 percent of her compensation in the form of ABB shares. (13) Chairman of the Finance, Audit and Compliance Committee for the 2020-2021, 2021-2022 and 2022-2023 board terms; is receiving 50 percent of his compensation in the form of ABB shares. (14) Member of the Finance, Audit and Compliance Committee for the 2020-2021, 2021-2022 and 2022-2023 board terms; received 50 percent of his compensation in the form of ABB shares for the 2020-2021 and 2021-2022 board terms and is receiving 100 percent of his compensation in the form of ABB shares for the 2022-2023 board term. 32 ABB COMPENSATION REPORT 2022 Exhibit 36: Board compensation for the Board terms 2022-2023 and 2021-2022 (audited) Name Specific Board roles Board term 2022-2023 Board term 2021-2022 CHF CHF Peter Voser Chairman of the Board and Chairman GNC for 2021-2022 and 2022-2023 terms 1,200,000 1,200,000 Jacob Wallenberg Vice-Chairman of the Board and Member GNC for 2021-2022 and 2022- 2023 terms 450,000 450,000 Gunnar Brock Member FACC for 2021-2022 and 2022-2023 terms 330,000 330,000 David Constable Member CC for 2021-2022 and 2022-2023 terms 320,000 320,000 Frederico Curado Chairman CC for 2021-2022 and 2022-2023 terms 350,000 350,000 Lars Förberg Member GNC for 2021-2022 and 2022-2023 terms 320,000 320,000 Jennifer Xin-Zhe Li Member CC and Member GNC for 2021-2022 and 2022-2023 terms 350,000 350,000 Geraldine Matchett Member FACC for 2021-2022 and 2022-2023 terms 330,000 330,000 David Meline Chairman FACC for 2021-2022 and 2022-2023 terms 400,000 400,000 Satish Pai Member FACC for 2021-2022 and 2022-2023 terms 330,000 330,000 Total 4,380,000 4,380,000 Key: CC: Compensation Committee FACC: Finance, Audit and Compliance Committee GNC: Governance and Nomination Committee Exhibit 37: Board ownership of ABB shares (audited as part of the financial statement stand-alone audit) Name Total number of shares held December 31, 2022 December 31, 2021 Peter Voser (1) 231,807 191,946 Jacob Wallenberg 245,898 239,878 Gunnar Brock 37,813 33,399 David Constable 42,465 38,185 Frederico Curado 49,175 40,301 Lars Förberg 70,522 59,916 Jennifer Xin-Zhe Li 41,904 37,580 Geraldine Matchett 30,964 25,196 David Meline (2) 43,131 37,780 Satish Pai 34,827 28,432 Total 828,506 732,613 (1) Includes 2,000 shares held by the spouse. (2) Includes 3,150 shares held by the spouse. 33 ABB COMPENSATION REPORT 2022 Exhibit 38: EC compensation in 2022 (audited) Name Cash Compensation Estimated value of share-based grants under the LTIP in 2022(4) 2022 Total compensation (incl. conditional share-based grants)(5 ) Base salary Short-term incentive (1) Pension benefits Other benefits (2) 2022 Total cash-based compensation (3) CHF CHF CHF CHF CHF CHF CHF Björn Rosengren 1,770,840 2,142,000 762,478 988,084 5,663,402 2,411,254 8,074,656 Timo Ihamuotila 986,672 1,188,000 527,648 720,953 3,423,273 891,570 4,314,843 Carolina Granat 720,843 870,000 427,903 352,848 2,371,594 652,920 3,024,514 Andrea Antonelli (EC member as of March 1, 2022) 583,334 670,833 198,164 245,754 1,698,085 945,595 2,643,680 Karin Lepasoon (EC member as of October 1, 2022) 150,000 165,000 62,360 38,987 416,347 540,336 956,683 Sami Atiya 800,009 539,200 487,247 599,994 2,426,450 747,485 3,173,935 Tarak Mehta 930,009 1,337,340 513,481 604,563 3,385,393 837,546 4,222,939 Peter Terwiesch 825,001 1,245,000 485,152 536,952 3,092,105 747,485 3,839,590 Morten Wierod 875,006 1,067,400 471,432 523,912 2,937,750 810,519 3,748,269 Total Executive Committee members at December 31, 2022 7,641,714 9,224,773 3,935,865 4,612,047 25,414,399 8,584,710 33,999,109 Maria Varsellona (EC member until March 31, 2022) 200,002 181,985 114,896 79,223 576,106 — 576,106 Theodor Swedjemark (EC member until October 31, 2022) 500,004 473,124 283,520 203,210 1,459,858 — 1,459,858 Total departing Executive Committee members 700,006 655,109 398,416 282,433 2,035,964 — 2,035,964 Total 8,341,720 9,879,882 4,334,281 4,894,480 27,450,363 8,584,710 36,035,073 (1) Represents accrued short-term variable compensation for the year 2022, which will be paid in 2023, after the publication of ABB’s financial results. Short-term variable compensation is linked to the targets and goals defined in each EC member’s Annual Incentive Plan. Upon full achievement of these targets and goals, the short-term variable compensation of the EC members represents 100 percent of their respective base salary. Maria Varsellona received a short-term variable compensation payment in March 2022 related to her termination period, in accordance with the contractual obligations of ABB. (2) Other benefits mainly comprise payments related to social security, health insurance, children’s education, transportation, tax advice and compensation for foregone dividends on replacement share grants and certain other items. (3) Prepared on an accrual basis. (4) The estimated value of the share-based LTIP grants is based on the price of ABB shares on the grant date. On the day of vesting (April 25, 2025), the value of the share-based awards granted under the LTIP may vary from the above amounts due to changes in ABB’s share price and the outcome of the performance factors. (5) Payments totaling CHF 1,324,301 were made in 2022 on behalf of certain other former EC members, representing social security premium payments due on the 2019 LTIP vesting and tax advisory services for the period when they have been active EC members. 34 ABB COMPENSATION REPORT 2022 Exhibit 39: EC compensation in 2021 (audited) Name Cash Compensation Estimated value of share-based grants under the LTIP in 2021(4) Estimated value of replacement share-based grant in 2021 2021 Total compensation (incl. conditional share-based grants)(5 ) Base salary Short-term incentive (1) Pension benefits Other benefits (2) 2021 Total cash-based compensation (3) CHF CHF CHF CHF CHF CHF CHF CHF Björn Rosengren 1,700,012 2,465,000 744,770 807,000 5,716,782 2,530,828 — 8,247,610 Timo Ihamuotila 966,675 1,358,000 518,063 570,546 3,413,284 962,708 — 4,375,992 Carolina Granat (EC member as of January 1, 2021) 700,000 980,000 417,382 399,334 2,496,716 694,744 — 3,191,460 Maria Varsellona 800,009 1,160,000 455,000 511,824 2,926,833 793,997 — 3,720,830 Theodor Swedjemark 500,004 725,000 274,535 263,567 1,763,106 397,012 — 2,160,118 Sami Atiya 800,009 1,160,000 482,662 481,598 2,924,269 793,997 — 3,718,266 Tarak Mehta 925,008 1,348,500 507,646 476,481 3,257,635 923,018 — 4,180,653 Peter Terwiesch 800,009 1,160,000 473,441 422,542 2,855,992 793,997 — 3,649,989 Morten Wierod 791,676 1,126,400 443,506 362,112 2,723,694 793,997 — 3,517,691 Total current Executive Committee members at December 31, 2021 7,983,402 11,482,900 4,317,005 4,295,004 28,078,311 8,684,298 — 36,762,609 Sylvia Hill (EC member until December 31, 2020) 730,004 661,380 478,254 524,799 2,394,437 — — 2,394,437 Total departing Executive Committee members (6) 730,004 661,380 478,254 524,799 2,394,437 — — 2,394,437 Total 8,713,406 12,144,280 4,795,259 4,819,803 30,472,748 8,684,298 — 39,157,046 (1) Represents accrued short-term variable compensation for the year 2021, which was paid in 2022, after the publication of ABB’s financial results. Short-term variable compensation is linked to the targets and goals defined in each EC member’s Annual Incentive Plan. Upon full achievement of these targets and goals, the short-term variable compensation of the EC members represents 100 percent of their respective base salary. Sylvia Hill received a short-term variable compensation payment in December 2021 related to her termination period, in accordance with the contractual obligations of ABB. (2) Other benefits mainly comprise payments related to social security, health insurance, children’s education, transportation, tax advice and compensation for foregone dividends on replacement share grants and certain other items. (3) Prepared on an accrual basis. (4) The estimated value of the share-based LTIP grants was based on the price of ABB shares on the grant date, adjusted for expected foregone dividends during the vesting period. On the day of vesting (April 26, 2024), the value of the share-based awards granted under the LTIP may vary from the above amounts due to changes in ABB’s share price and the outcome of the performance factors. (5) Payments totaling CHF 296,004 were made in 2021 on behalf of certain other former EC members, representing social security premium payments due on the 2018 LTIP vesting and tax advisory services for the period when they have been active EC members. (6) Ulrich Spiesshofer received non-compete payments for the period January 1, 2021, to April 30, 2021, and a vesting of the 2018 LTIP, with related social security payments, totaling to CHF 1,726,896. 35 ABB COMPENSATION REPORT 2022 Exhibit 40: LTIP grants in 2022 (audited) Name Reference number of shares under the EPS performance factor of the 2022 launch of the LTIP (1)(4) Total estimated value of share-based grants under the EPS performance factor of the 2022 launch of the LTIP( 2)(3) Reference number of shares under the TSR performance factor of the 2022 launch of the LTIP(1)(4) Total estimated value of share-based grants under the TSR performance factor of the 2022 launch of the LTIP( 2)(3) Reference number of shares under the sustainability performance factor of the 2022 launch of the LTIP(1)(4) Total estimated value of share-based grants under the sustainability performance factor of the 2022 launch of the LTIP( 2)(3) Total number of shares granted under the 2022 launch of the LTIP(1)( 2)(4) Total estimated value of share-based grants under the LTIP in 2022( 2)(3) CHF CHF CHF CHF Björn Rosengren (5) 42,743 1,205,627 25,646 723,353 17,098 482,274 85,487 2,411,254 Timo Ihamuotila 15,804 445,770 9,482 267,462 6,323 178,338 31,609 891,570 Carolina Granat 11,574 326,460 6,944 195,858 4,630 130,602 23,148 652,920 Andrea Antonelli (EC member as of March 1, 2022) 16,762 472,797 10,057 283,667 6,706 189,131 33,525 945,595 Karin Lepasoon (EC member as of October 1, 2022)(5 ) 9,578 270,153 5,747 162,075 3,832 108,108 19,157 540,336 Sami Atiya 13,250 373,728 7,950 224,231 5,301 149,526 26,501 747,485 Tarak Mehta (5) 14,847 418,773 8,908 251,258 5,939 167,515 29,694 837,546 Peter Terwiesch (5) 13,250 373,728 7,950 224,231 5,301 149,526 26,501 747,485 Morten Wierod (5) 14,368 405,259 8,620 243,156 5,748 162,104 28,736 810,519 Total Executive Committee members at December 31, 2022 152,176 4,292,295 91,304 2,575,291 60,878 1,717,124 304,358 8,584,710 (1) Vesting date April 25, 2025. (2) The reference number of shares of the EPS, TSR and sustainability performance factors are valued using the fair value of the ABB shares on the grant date. (3) Default settlement of the final LTIP award is 100 percent in shares, with an automatic sell-to-cover in place for employees who are subject to withholding taxes. The plan foresees a maximum award of 200 percent of the number of reference shares granted based on the achieve- ment against the predefined average EPS, relative TSR and sustainability performance targets. Participants are also entitled to receive a dividend equivalent payment at the time of vesting for each awarded share. (4) The initial granted number of shares has been increased by 3.7 percent to reflect the impact of the Accelleron spin-off. (5) In addition to the above awards, five members of the EC participated in the 19th launch of the ESAP in 2022, which will allow them to save over a 12-month period and, in November 2023, use their savings to acquire ABB shares under the ESAP. Each EC member who participated in ESAP will, upon vesting, be entitled to acquire up to 360 ABB shares at an exercise price of CHF 27.99 per share. 36 ABB COMPENSATION REPORT 2022 Exhibit 41: LTIP grants in 2021 (audited) Name Reference number of shares under the EPS performance factor of the 2021 launch of the LTIP (1) Total estimated value of share-based grants under the EPS performance factor of the 2021 launch of the LTIP( 2)(3) Reference number of shares under the TSR performance factor of the 2021 launch of the LTIP (1) Total estimated value of share-based grants under the TSR performance factor of the 2021 launch of the LTIP( 2)(3) Total number of shares granted under the 2021 launch of the LTIP (1)(2) Total estimated value of share-based grants under the LTIP in 2021( 2)(3) CHF CHF CHF Björn Rosengren 47,950 1,265,401 47,951 1,265,427 95,901 2,530,828 Timo Ihamuotila (4) 18,240 481,354 18,240 481,354 36,480 962,708 Carolina Granat (EC member as of January 1, 2021) 13,163 347,372 13,163 347,372 26,326 694,744 Maria Varsellona 15,043 396,985 15,044 397,012 30,087 793,997 Theodor Swedjemark (4) 7,522 198,506 7,522 198,506 15,044 397,012 Sami Atiya 15,043 396,985 15,044 397,012 30,087 793,997 Tarak Mehta (4) 17,488 461,509 17,488 461,509 34,976 923,018 Peter Terwiesch 4) 15,043 396,985 15,044 397,012 30,087 793,997 Morten Wierod (4) 15,043 396,985 15,044 397,012 30,087 793,997 Total Executive Committee members at December 31, 2021 164,535 4,342,082 164,540 4,342,216 329,075 8,684,298 (1) Vesting date April 26, 2024. (2) The reference number of shares of the EPS and TSR performance factors are valued using the fair value of the ABB shares on the grant date adjusted for expected foregone dividends during the vesting period. (3) Default settlement of the final LTIP award is 100 percent in shares, with an automatic sell-to-cover in place for employees who are subject to withholding taxes. The plan foresees a maximum award of 200 percent of the number of reference shares granted based on the achieve- ment against the predefined average EPS and relative TSR targets. (4) In addition to the above awards, five members of the EC participated in the 18th launch of the ESAP in 2021, which allowed them to save over a 12-month period and, in November 2022, use their savings to acquire ABB shares under the ESAP. Each EC member who participated in ESAP was entitled to acquire up to 330 ABB shares at an exercise price of CHF 30.32 per share. 37 ABB COMPENSATION REPORT 2022 Exhibit 42: EC shareholding overview at December 31, 2022 (audited as part of the financial statement stand-alone audit) Name Total number of shares held at December 31, 2022 Unvested at December 31, 2022 Reference number of shares deliverable under the 2020 performance factors (EPS and TSR) of the LTIP(1 )(2) Reference number of shares deliverable under the 2021 performance factors (EPS and TSR) of the LTIP (1)(2) Reference number of shares deliverable under the 2022 performance factors (EPS, TSR, sustain - ability) of the LTIP (1)(2) Replacement share grant for foregone benefits from former employer (2)(3) (vesting 2023) (vesting 2024) (vesting 2025) (vesting 2023) Björn Rosengren 94,597 136,589 99,450 85,487 19,604 Timo Ihamuotila 189,034 50,887 37,830 31,609 — Carolina Granat (4) 5,200 — 27,301 23,148 — Andrea Antonelli (EC member as of March 1, 2022) — — 7,021 33,525 — Karin Lepasoon (EC member as of October 1, 2022) — — — 19,157 — Sami Atiya 90,473 42,852 31,201 26,501 — Tarak Mehta 152,993 48,209 36,271 29,694 — Peter Terwiesch 132,940 42,852 31,201 26,501 — Morten Wierod 64,777 40,174 31,201 28,736 — Total Executive Committee members at December 31, 2022 730,014 361,563 301,476 304,358 19,604 (1) The final 2020 LTIP, 2021 LTIP and 2022 LTIP awards will be settled 100 percent in shares, with an automatic sell-to-cover in place for employees who are subject to withholding taxes. (2) Initial number of shares granted have been increased by 3.7 percent to reflect the impact of the spin-off of the Accelleron business. (3) It is expected that the replacement share grants will be settled 65 percent in shares and 35 percent in cash. However, the participant has the possibility to elect to receive 100 percent of the vested award in shares. (4) This includes 1,200 shares held by the spouse. 38 ABB COMPENSATION REPORT 2022 Exhibit 43: EC shareholding overview at December 31, 2021 (audited as part of the financial statement stand-alone audit) Name Total number of shares held at Decem - ber 31, 2021 Vested at December 31, 2021 Unvested at December 31, 2021 Number of vested options held under the MIP Number of unvested options held under the MIP Reference number of shares deliverable under the 2019 performance factors (EPS and TSR) of the LTIP(1 ) Reference number of shares deliverable under the 2020 performance factors (EPS and TSR) of the LTIP (1) Reference number of shares deliverable under the 2021 performance factors (EPS and TSR) of the LTIP (1) Replacement share grant for foregone benefits from former employer (2) Replacement share grant for foregone benefits from former employer (2) (vesting 2022) (vesting 2022) (vesting 2023) (vesting 2024) (vesting 2022) (vesting 2023) Björn Rosengren 10,000 — — — 131,715 95,901 130,150 18,904 Timo Ihamuotila 150,440 — — 49,071 49,071 36,480 — — Carolina Granat (EC member as of January 1, 2021)(3 ) 1,200 — — — — 26,326 — — Maria Varsellona (4) 26,006 — — — — — — — Theodor Swedjemark (3)(5) 1,360 — 148,750 — 6,209 15,044 — — Sami Atiya 51,472 — — 49,587 41,323 30,087 — — Tarak Mehta 118,056 — — 44,422 46,488 34,976 — — Peter Terwiesch 100,440 — — 41,323 41,323 30,087 — — Morten Wierod (6) 21,025 — — 36,158 38,740 30,087 — — Total Executive Committee members at December 31, 2021 479,999 — 148,750 220,561 354,869 298,988 130,150 18,904 (1) The final 2019 LTIP award will be settled 65 percent in shares and 35 percent in cash. This applies to both performance factors (EPS and TSR). However, the participants have the possibility to elect to receive 100 percent of the vested award in shares. The final 2020 LTIP and 2021 LTIP awards will be settled 100 percent in shares, with an automatic sell-to-cover in place for employees who are subject to withhold- ing taxes. (2) It is expected that the replacement share grant will be settled 65 percent in shares and 35 percent in cash. However, the participant has the possibility to elect to receive 100 percent of the vested award in shares. (3) This includes shares held by the spouse. (4) Unvested share grants were forfeited as a result of the resignation provided and removed from the shareholding overview. (5) In addition, his spouse holds unvested shares and options granted in connection with her role in the Company. (6) The disclosed total number of shares held at December 31, 2021, was adjusted to reflect the correct year-end 2021 balance. 39 ABB COMPENSATION REPORT 2022 Exhibit 44: Targeted and realized EC total compensation in 2022 Target compensation (in CHF) Base salary Pension benefits Other benefits (1) Target short-term incentive (2) Grant fair value of 2019 LTIP (3) Grant fair value of 2020 replace- ment share grant (4) Target total variable compen- sation Target total compen- sation Björn Rosengren 1,770,840 762,478 963,201 1,785,000 n.a. 2,902,345 1,785,000 8,183,864 Timo Ihamuotila 986,672 527,648 707,152 990,000 836,661 n.a. 1,826,661 4,048,133 Carolina Granat 720,843 427,903 342,742 725,000 n.a. n.a. 725,000 2,216,488 Andrea Antonelli (EC member as of March 1, 2022) 583,334 198,164 239,655 583,334 n.a. n.a. 583,334 1,604,487 Karin Lepasoon (EC member as of October 1, 2022) 150,000 62,360 37,942 150,000 n.a. n.a. 150,000 400,302 Sami Atiya 800,009 487,247 618,172 800,000 845,459 n.a. 1,645,459 3,550,887 Tarak Mehta 930,009 513,481 576,171 930,000 757,396 n.a. 1,687,396 3,707,057 Peter Terwiesch 825,001 485,152 508,027 830,000 704,559 n.a. 1,534,559 3,352,739 Morten Wierod 875,006 471,432 512,244 900,000 616,494 n.a. 1,516,494 3,375,176 Total 7,641,714 3,935,865 4,505,306 7,693,334 3,760,569 2,902,345 11,453,903 30,439,133 Realized compensation (in CHF) Base salary Pension benefits Other benefits (1)(5) Short-term incentive 2022 (6) Realized value of 2019 LTIP (7) Realized value of 2020 replace- ment share grant (8) Total variable compen- sation Total compen- sation Björn Rosengren 1,770,840 762,478 988,084 2,142,000 n.a. 4,183,021 2,142,000 9,846,423 Timo Ihamuotila 986,672 527,648 720,953 1,188,000 1,680,963 n.a. 2,868,963 5,104,236 Carolina Granat 720,843 427,903 352,848 870,000 n.a. n.a. 870,000 2,371,594 Andrea Antonelli (EC member as of March 1, 2022) 583,334 198,164 245,754 670,833 n.a. n.a. 670,833 1,698,085 Karin Lepasoon (EC member as of October 1, 2022) 150,000 62,360 38,987 165,000 n.a. n.a. 165,000 416,347 Sami Atiya 800,009 487,247 599,994 539,200 1,698,657 n.a. 2,237,857 4,125,107 Tarak Mehta 930,009 513,481 604,563 1,337,340 1,521,691 n.a. 2,859,031 4,907,084 Peter Terwiesch 825,001 485,152 536,952 1,245,000 1,415,557 n.a. 2,660,557 4,507,662 Morten Wierod 875,006 471,432 523,912 1,067,400 1,238,619 n.a. 2,306,019 4,176,369 Total 7,641,714 3,935,865 4,612,047 9,224,773 7,555,487 4,183,021 16,780,260 37,152,907 Realized achievement level Base salary Pension benefits Other benefits (1) Short-term incentive (6) Realized value of 2019 LTIP in % (7) Realized value of 2020 replace- ment share grant in % (8) Total variable compen- sation Total compen- sation Björn Rosengren 100.0% 100.0% 102.6% 120.0% n.a. 144.1% 120.0% 120.3% Timo Ihamuotila 100.0% 100.0% 102.0% 120.0% 200.9% n.a. 157.1% 126.1% Carolina Granat 100.0% 100.0% 102.9% 120.0% n.a. n.a. 120.0% 107.0% Andrea Antonelli (EC member as of March 1, 2022) 100.0% 100.0% 102.5% 115.0% n.a. n.a. 115.0% 105.8% Karin Lepasoon (EC member as of October 1, 2022) 100.0% 100.0% 102.8% 110.0% n.a. n.a. 110.0% 104.0% Sami Atiya 100.0% 100.0% 97.1% 67.4% 200.9% n.a. 136.0% 116.2% Tarak Mehta 100.0% 100.0% 104.9% 143.8% 200.9% n.a. 169.4% 132.4% Peter Terwiesch 100.0% 100.0% 105.7% 150.0% 200.9% n.a. 173.4% 134.4% Morten Wierod 100.0% 100.0% 102.3% 118.6% 200.9% n.a. 152.1% 123.7% Average 100.0% 100.0% 102.5% 118.3% 200.9% 144.1% 139.2% 118.9% (1) Other benefits comprise payments related to social security, health insurance, children’s education, transportation, tax advice and certain other items. (2) Target short-term incentive corresponds to 100 percent of the latest applicable annual base salary. (3) Represents the 2019 LTIP grant date fair value as per May 16, 2019, as disclosed in our 2019 Annual Report. (4) Represents the 2020 grant fair value related to the first tranche (out of two tranches) of the replacement share grant, as disclosed in our 2020 Annual Report. (5) Differences between realized and target values due to higher social security payments related to AIP awards above target values. (6) Represents accrued STI for the year 2022, which will be paid in 2023, after the publication of ABB’s financial results. STI is linked to the targets and goals defined in each EC member’s Annual Incentive Plan. (7) Valued at CHF 28.31, the closing price of the ABB share on the day of vesting. (8) Valued at CHF 32.14, the closing price of the ABB share on the day of vesting. 40 ABB COMPENSATION REPORT 2022 Statutory Auditor’s Report To the General Meeting of ABB Ltd, Zurich Report on the Audit of the Compensation Report Opinion We have audited the Compensation Report of ABB Ltd (the Company) for the year ended December 31, 2022. The audit was limited to the information on remuneration, loans and advances pursuant to Art. 14-16 of the Ordinance against Excessive Remuneration in Listed Companies Limited by Shares (Verordnung gegen übermässige Vergütungen bei börsenkotierten Aktiengesellschaften, VegüV) in the tables marked “audited” on pages 31 to 38 of the Compensation Report. In our opinion, the information on remuneration, loans and advances in the attached Compensation Report complies with Swiss law and Art. 14-16 VegüV. Basis for Opinion We conducted our audit in accordance with Swiss law and Swiss Standards on Auditing (SA-CH). Our responsibilities under those provisions and standards are further described in the “Auditor’s Responsibilities for the Audit of the Compensation Report” section of our report. We are independent of the Company in accordance with the provisions of Swiss law and the requirements of the Swiss audit profession, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Other Information in the ABB Annual Reporting Suite The Board of Directors is responsible for the other information. The other information comprises the information included in the ABB Annual Reporting Suite (consisting of the Integrated Report, the Financial Report, the Corporate Governance Report and the Compensation Report), but does not include the consolidated financial statements, the stand-alone financial statements and the compensation report of the Company and our auditor’s reports thereon. Our opinion on the Compensation Report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the Compensation Report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the audited financial information in the Compensation Report or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Board of Directors' Responsibilities for the Compensation Report The Board of Directors is responsible for the preparation of a Compensation Report in accordance with the provisions of Swiss law and the Company's articles of incorporation, and for such internal control as the Board of Directors determines is necessary to enable the preparation of a Compensation Report that is free from material misstatement, whether due to fraud or error. The Board of Directors is also responsible for designing the remuneration system and defining individual remuneration packages. 41 ABB COMPENSATION REPORT 2022 KPMG AG, Badenerstrasse 172, CH-8036 Zurich © 2023 KPMG AG, a Swiss corporation, is a subsidiary of KPMG Holding AG, which is a member of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. Auditor’s Responsibilities for the Audit of the Compensation Report Our objectives are to obtain reasonable assurance about whether the information on remuneration, loans and advances pursuant to Art. 14-16 VegüV is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Swiss law and SA-CH will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this Compensation Report. As part of an audit in accordance with Swiss law and SA-CH, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:  Identify and assess the risks of material misstatement in the Compensation Report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.  Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.  Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made. We communicate with the Board of Directors or its relevant committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the Board of Directors or its relevant committee with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. KPMG AG Hans -Dieter Krauss Licensed Audit Expert Auditor in Charge Mohammad Nafeie Zurich, Switzerland February 23, 2023 Caution concerning forward-looking statements The Compensation Report 2022 includes “forward-looking statements” within the meaning of Section 27A of the Secu- rities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We have based these forward-looking statements largely on current expectations, estimates and projections about the factors that may affect our future performance, including global economic conditions as well as the economic conditions of the regions and the industries that are major markets for ABB. The words “believe,” “may,” “will,” “estimate,” “continue,” “target,” “anticipate,” “intend,” “expect”, “plan” and similar words and the express or implied discussion of strategy, plans or intentions are intended to identify for- ward-looking statements. These forward- looking statements are subject to risks, uncertainties and assumptions, including among other things, the following: (i) business risks related to the global volatile economic environment; (ii) costs associated with compliance activities; (iii) difficulties encountered in operating in emerging markets; (iv) risks inherent in large, long term projects served by parts of our business; (v) the timely development of new products, technologies, and ser- vices that are useful for our customers; (vi) our ability to antic- ipate and react to technological change and evolving industry standards in the markets in which we operate; (vii) changes in interest rates and fluctuations in currency exchange rates; (viii) changes in raw materials prices or limitations of supplies of raw materials; (ix) the weakening or unavailability of our intellectual property rights; (x) industry consolidation result- ing in more powerful competitors and fewer customers; (xi) effects of competition and changes in economic and market conditions in the product markets and geographic areas in which we operate; (xii) effects of, and changes in, laws, regulations, governmental policies, taxation, or accounting standards and practices and (xiii) other factors described in documents that we may furnish from time to time with the US Securities and Exchange Commission, including our Annual Reports on Form 20-F. Although we believe that the expecta- tions reflected in any such forward-looking statements are based on reasonable assumptions, we can give no assurance that they will be achieved. We undertake no obligation to update publicly or revise any forward-looking statements because of new information, future events or otherwise. In light of these risks and uncertainties, the forward-looking information, events and circumstances might not occur. Our actual results and performance could differ substantially from those anticipated in our forward-looking statements. — ABB Ltd Corporate Communications Affolternstrasse 44 8050 Zurich Switzerland Tel: +41 (0)43 317 71 11 Fax: +41 (0)43 317 79 58 04 Financial Review of ABB Group 58 Consolidated Financial Statements of ABB Group 138 ABB Ltd Statutory Financial Statements Financial review of ABB Group 01 FINANCIAL REVIEW OF ABB GROUP 06 Operating and financial review and prospects 6 FINANCIAL REPORT 2022 — About ABB ABB is a technology leader in electrification and automation, enabling a more sustainable and resource- efficient future. The company’s solutions connect engineering know-how and software to optimize how things are manufactured, moved, powered and operated. Building on more than 130 years of excellence, ABB’s approximately 105,000 employees are committed to driving innovations that accelerate industrial transformation. — Organizational structure We operate in over 100 countries across three regions: Europe, the Americas, and Asia, Middle East and Africa, and generate revenues in numerous currencies. We are headquartered in Zurich, Switzerland and we govern our company through our four Business Areas: Electrification, Motion, Process Automation, and Robotics & Discrete Automation. For a breakdown of our consolidated revenues (i) by Business Area, (ii) by geographic region, and (iii) by product type, see “Analysis of results of operations— Revenues” and “Note 23 - Operating segment and geographic data” to our Consolidated Financial Statements. Until June 30, 2020, we also operated the Power Grids business, which is reported as discontinued operations in the Consolidated Financial Statements (see “Discontinued operations” section below). On July 1, 2020, we completed the divestment of 80.1 percent of the Power Grids business to Hitachi Ltd (Hitachi). We retained a 19.9 percent ownership interest through our investment in Hitachi Energy Ltd, (Hitachi Energy) which beneficially owns or controls all the subsidiaries of the Power Grids business until December 2022, when we sold the remaining investment in Hitachi Energy to Hitachi. Our principal corporate offices are located at Affolternstrasse 44, CH 8050 Zurich, Switzerland, telephone number +41 43 317 7111. Our agent for U.S. federal securities law purposes is ABB Holdings Inc., located at 305 Gregson Drive, Cary, North Carolina 27511. Our internet address is www.abb.com or global.abb. The information contained on or accessible from our Web site is not incorporated into this annual report, and you should not consider it to be a part of this annual report. The United States Securities and Exchange Commission (SEC) maintains a website at www.sec.gov which contains in electronic form each of the reports and other information that we have filed electronically with the SEC. — Employees A breakdown of our employees by geographic region is as follows: December 31, 2022 2021 2020 Europe 49,700 50,000 49,200 The Americas 26,400 25,600 27,600 Asia, Middle East and Africa 29,000 28,800 28,800 Total 105,100 104,400 105,600 The proportion of our employees that are represented by labor unions or are subject to collective bargaining agreements varies based on the labor practices of each country in which we operate. FINANCIAL REPORT 2022 7 — History of the ABB Group The ABB Group was formed in 1988 through a merger between Asea AB and BBC Brown Boveri AG. Initially founded in 1883, Asea AB was a major participant in the introduction of electricity into Swedish homes and businesses and in the development of Sweden’s railway network. In the 1940s and 1950s, Asea AB expanded into the power, mining and steel industries. Brown Boveri and Cie. (later renamed BBC Brown Boveri AG) was formed in Switzerland in 1891 and initially specialized in power generation and turbines. In the early to mid ‑ 1900s, it expanded its operations throughout Europe and broadened its business operations to include a wide range of electrical engineering activities. In January 1988, Asea AB and BBC Brown Boveri AG each contributed almost all of their businesses to the newly formed ABB Asea Brown Boveri Ltd, of which they each owned 50 percent. In 1996, Asea AB was renamed ABB AB and BBC Brown Boveri AG was renamed ABB AG. In February 1999, the ABB Group announced a group reconfiguration designed to establish a single parent holding company and a single class of shares. ABB Ltd was incorporated on March 5, 1999, under the laws of Switzerland. In June 1999, ABB Ltd became the holding company for the entire ABB Group. This was accomplished by having ABB Ltd issue shares to the shareholders of ABB AG and ABB AB, the two companies that formerly owned the ABB Group. The ABB Ltd shares were exchanged for the shares of those two companies, which, as a result of the share exchange and certain related transactions, became wholly ‑ owned subsidiaries of ABB Ltd. As described above, on July 1, 2020, we divested 80.1 percent of our ownership in the Power Grids business to Hitachi, and in December 2022, Hitachi purchased the remaining 19.9 percent of Hitachi Energy. ABB Ltd shares are currently listed on the SIX Swiss Exchange, the NASDAQ OMX Stockholm Exchange and the New York Stock Exchange (in the form of American Depositary Shares). — ABB today As a global technology leader in electrification and automation enabling sustainability and resource efficiency, our offering is relevant for the global transition towards low-carbon energy, increased energy efficiency, and the transition to more adaptive manufacturing and automation, putting us right in the center of long-term secular trends. The ABB Purpose ABB's purpose is to enable a more sustainable and resource-efficient future with our technology leadership in electrification and automation. Our core competencies Our leadership in resource efficiency is based on our core competencies, each of which constitutes a barrier to entry: decades-long domain expertise, cutting-edge technology and innovation as well as the ability to scale operations and distribution. With its long history, ABB not only invented or pioneered many power and automation technologies but has retained technology and market leadership in many of these areas. Being present in various vertical markets for decades with close long-term relationships with customers and channel partners has resulted in our unique deep domain expertise, enabling a thorough understanding of customers’ needs and operations. We continuously evolve our offering to remain a relevant and trusted partner to our customers. Our annual non-order related research and development spending in 2022 amounted to approximately 4 percent of revenues. We focus our research and development expenditures on key areas of innovation and have spent approximately $7.8 billion since the beginning of 2016, focusing on developing best-in- class products and services in the fields of electrification and automation with the goal of helping our customers to create resource-efficient value. 8 FINANCIAL REPORT 2022 All our four Business Areas are market leaders in their respective areas being in either the number 1 or 2 position. Our global reach along with our extensive local presence assists us in scaling innovations to achieve stronger returns, which supports higher absolute investments for future growth. Active globally, our revenues are well-balanced across regions with customers served directly and through a strong channel partner network. The ABB Way The ABB Way is the glue that unites our Group and comprises a select number of common processes covering our business model, our people and culture, the ABB brand and our governance framework. It facilitates accountability, transparency and speed in ABB. In our operating model, the Divisions represent the highest level of operating decisions. They are closest to their respective markets and customer needs. Each Division progresses through the strategic mandates and priorities of stability and profitability before growth. In order to deploy full focus on organic and acquired growth to the extent of consolidating the market, the business’ structure should be robust and profitability should be at least in line with industry peers. Each Division has full accountability for its results and carries the responsibility for business development, and research and development for leading technology to secure a number 1 or 2 market position. During 2022, we completed the implementation of the decentralized way of working at ABB within all our Divisions. Our focus area in 2023 will be to increasingly shift our focus to profitable growth, and further increase the number of our Divisions with this mandate. Strong performance management is key in a decentralized business model. We apply a monthly scorecard system for the Divisions and Business Areas, based on a standardized set of Key Performance Indicators, to support full transparency of operational performance. It is accompanied by a mandatory target to make annual productivity improvements of at least 3 percent each year. The corporate functions focus on necessary strategic, financial and governance activities, with a lean headcount of approximately 900 employees. Enhanced growth profile Over the past several years, we have taken significant organic and inorganic actions to align our business portfolio to more attractive growth markets, increasing our focus on discrete industries, as well as transport and infrastructure, that offer better growth opportunities. Additionally, we have increased the proportion of sales stemming from short-cycle businesses, meaning a reduced proportion from project-related activities, which we believe should reduce the risk and volatility in our earnings. This ongoing shift towards better quality of revenues is now an integral part of governance and business execution. The responsibility for growth has been fully transferred to the Divisions, as they are closest to customers. This includes both organic and acquired growth. The Divisions have the best insights into current and future customer needs and are accountable for building their respective business accordingly. With more Divisions transitioning over time from stability and profitability to growth, we expect to see a gradual strengthening of our growth profile. Finally, environmental, social and governance (ESG) drivers are accelerating and translating into increased demand for our electrification and automation offering. The demand for electricity is growing twice as fast as other energy sources, resulting in approximately 50 percent higher average annual investments into distribution networks over the next 10 years (source: IEA World Energy Outlook 2021, Announced Pledges Scenario). The share of low-carbon sources in the global energy mix is expected to increase to 50 percent by 2050 from only 20 percent today (source: IEA World Energy Outlook 2021, Announced Pledges Scenario). The need to improve energy efficiency has never been more relevant, from both the perspective of sustainable operations and reducing operating costs in a high energy cost environment. Today approximately 45 percent of the world’s electricity is converted into motion by electric motors yet only approximately 20 percent of the world’s electric motors are optimized through the control of drives. Lastly, the global number of working age people (25 to 64 years) per retiree (65 years or over) is expected to fall by about 20 percent over the next 10 years (source: United Nations World Population Prospects 2019), supporting demand for robotics and automation solutions. We believe ABB’s offering is well positioned to address these trends. FINANCIAL REPORT 2022 9 — Businesses Our markets ABB is a technology leader in electrification and automation with a comprehensive and increasingly digitalized offering of electrification, motion and automation solutions. Our exposure to customers is geographically balanced while catering to multiple end-markets and segments. We believe our customer offering is well positioned to benefit from secular growth drivers, including urbanization, labor shortage, shift to electrification, automation and robotization, as well as other data and digitalization trends. We are focused on creating superior customer value through our comprehensive, modular offering, combining traditional products and services with software-enabled products and systems as well as digital services and software that we sell both separately and combined as scalable solutions. Our advanced software is a key differentiation of our digital offering and about 60 percent of our approximately 7,500 employees in research and development are active in software development. The majority of our businesses are market leaders within their respective segments. We believe market leadership is critical, as it provides the opportunity for price leadership, which in turn supports profitability, enabling us to invest further in research and development to sustain our technological leadership. For a discussion of the geographic distribution of our total revenues, see “Analysis of results of operations—Revenues.” Industry market Approximately half of our revenues are derived from customers within the industrial segment where we serve production facilities and factories all around the world, from process industries such as oil and gas, pulp and paper as well as mining, to discrete industries including automotive, food and beverage and consumer electronics. Demand for our electrification and automation offerings with embedded digital solutions increased as the energy crisis and tight labor markets served as a prominent reminder to companies of the importance of energy efficiency and flexibility in automated production. This has accelerated customer demand for the digital services and solutions we offer. In discrete industries, demand from end-markets such as food and beverage, machine builders and general industry grew strongly in 2022 as did the automotive segment due to broadly accelerating investments in the EV segment. As supply chain constraints eased in the latter part of 2022, we saw a normalization of customers’ order patterns following a period of pre-buying due to extended delivery lead times. Later-cycle process industries improved across nearly all customer segments. We saw an increase in gas-related demand during the second half of the year. Early signs of headwind were noted in energy intensive industries such as metals as a result of higher energy prices. Transport & infrastructure market Approximately one-third of our customers operate in the transport & infrastructure market. Our expertise provides efficient, reliable and sustainable solutions for these customers, with a focus on energy efficiency and reduced operating costs. In transport & infrastructure, there was a very strong order development across data centers and the e-mobility business. The buildings segment improved in both the residential and non-residential segments, although softness in residential building in China was noted, as well as general weakness in residential-related demand towards the second half of the year. In the marine segment there were positive developments for the cruise ship sector as well as general marine and ports demand. Utilities market We deliver solutions mainly for distribution utilities and renewables customers, while continuing to service conventional power generation customers with our control and automation solutions. During 2022, the renewables markets continued to see strong growth. Business levels in the conventional power generation market remained stable. Demand from electrical distribution utilities remained strong, with ongoing investments to increase grid reliability and resilience due to increased integration of renewables. 10 FINANCIAL REPORT 2022 We serve industry, transport & infrastructure and utilities through our operating Divisions which are included in our Business Areas. Developments in these Business Areas are discussed in more detail below. Revenue figures presented in this Businesses section are before intersegment eliminations. — Electrification Business Area Overview Electrification provides leading electrical distribution and management technologies, solutions and services to electrify the world in a safe, smart and sustainable way. The portfolio includes medium- and low-voltage electrical components, switchgear, digital devices, enclosures, breakers, power conversion products and charging solutions for electric vehicles, among others. With our products, solutions and services, we collaborate with customers to improve power delivery and security, enhance energy management, efficiency and operational reliability, as we seek to achieve a low carbon society. The Electrification Business Area delivers products through a global network of channel partners and end customers. Approximately half of the Business Area’s revenue is derived from distributors and approximately a quarter is derived from direct sales to end-users. The remaining revenues are generated from original equipment manufacturers (OEMs), engineering, procurement, construction (EPC) contracting companies, system integrators, utilities and panel builders. The proportion of direct compared to channel partner sales varies by segment, product technology and geographic markets. The Electrification Business Area had approximately 52,300 employees as of December 31, 2022, and generated $14.1 billion of revenues in 2022. Customers The Electrification Business Area serves a wide range of customer segments, including residential, commercial and industrial buildings, utilities, oil and gas, chemicals, data centers, e-mobility, renewables, food and beverage, transport and infrastructure, among others. From some of the world’s tallest buildings to the busiest airports, the Business Area’s products and solutions cover a wide range of applications and business segments. Products and Services The Electrification Business Area’s products and services are delivered through seven operating Divisions. The Distribution Solutions Division helps utility, industry and transport & infrastructure customers improve power quality and control, reduce outage time and enhance operational reliability and efficiency. The Division offers products, solutions and services that largely serve the power distribution sector, often providing the requisite medium-voltage link between high-voltage transmission systems and low-voltage users. With ABB Ability TM enabled digital solutions at its core, the offering includes low-voltage switchgear (up to 1 kilovolt) and medium-voltage equipment (1 to 66 kilovolts), indoor and outdoor circuit breakers, reclosers, fuses, contactors, relays, instrument transformers, sensors, motor control centers, as well as a wide range of air- and gas-insulated switchgear. The Division also produces indoor and outdoor modular systems and other segment-specific solutions to facilitate efficient and reliable distribution, protection and control of power, adding value through design, engineering and project management. The Smart Power Division helps protect, control, and connect people, plants, and systems with a portfolio of low-voltage products and systems. The product offering includes, molded-case and air- circuit breakers, safety products including sensors, switches, contactors, relays, and power protection solutions such as uninterruptible power supply (UPS) solutions, status transfer switches and power distribution units. FINANCIAL REPORT 2022 11 The Smart Buildings Division enables optimization of energy efficiency, safety, security and comfort for any building type, through new installations or retrofit solutions. The Division offers integrated digital technologies for HVAC, lighting, shutters, and security, in addition to energy distribution solutions including DIN rail products, enclosures and emergency lighting through to industrial plugs and sockets and conventional wiring accessories, accommodating for single family homes, multiple dwellings, commercial buildings, infrastructure and industrial applications. The Division’s highly innovative technologies and digital solutions serve rising global demand among real estate developers, owners, and investors for smart building technologies that optimize energy distribution and building automation. The scalable solutions aim to deliver significant sustainable and financial benefits, meeting social and environmental demands, while being able to address even the most complex of customers’ carbon reduction strategies. The Installation Products Division helps manage the connection, protection and distribution of electrical power. The Division’s products are engineered to provide ease of installation and perform in demanding and harsh conditions, helping to ensure safety and continuous operation for our customers and people around the world. The Commercial Essentials product segment includes electrical junction boxes, commercial fittings, strut and cable tray metal framing systems for commercial and residential construction. The Premier Industrial product segment includes multiple product lines, such as Ty-Rap® cable ties, T&B Liquidtight Systems® protection products, PVC coated and nylon conduit systems, power connection and grounding systems, and cable protection systems of conduits and fittings for harsh and industrial applications. The Division also manufactures solutions for medium-voltage applications used in utility and industrial applications under its marquee brands including Elastimold™ reclosers and switchgear, capacitor switches, current limiting fuses, the High Tech Valiant™ full-range current limiting fuse for fire mitigation, faulted current indicators and distribution connectors, cable accessories and apparatus with products for overhead and underground distribution. Manufacturing includes made-to-stock and custom-made solutions. The Power Conversion Division designs, develops and manufactures end-to-end solutions to power and safeguard life’s everyday moments. The Division supports customers in rapidly changing, disruptive industries where power reliability, efficiency, and quality matter most, and customers rely on the Division to solve their most difficult power challenges. Customers include businesses in telecom/5G, networking, data centers, and industrial applications such as EV charging, robotics, laser, test & measurement, and utilities. The Division is powering the technology behind today’s connected world, helping to enable industrial advancement with the realization of 5G and to advance data center power architectures as the cloud becomes more business-critical than ever before. The E-mobility Division is contributing to a zero-emission mobility future with smart, reliable and emission-free electric vehicle charging solutions including market leading charging hardware, ABB Ability™ enabled digital services and energy and fleet management solutions. ABB E-mobility offers a leading portfolio of EV charging solutions from smart chargers for the home to high-power chargers for the highway stations of the future, solutions for the electrification of fleets and opportunity charging for electric buses and trucks. The Service Division partners with our customers to address their energy challenges for today and tomorrow. Our team of world-class engineers collaborate globally across ABB’s Electrification portfolio to service customers in utilities, transportation, infrastructure and industry, assisting to maintain uninterrupted power supply, maximizing energy efficiency while lowering cost and carbon emissions. We bring greater reliability, predictability and sustainability to their operations, and through our digital service portfolio, we drive new levels of optimization, responsiveness and connectivity. Sales and Marketing Sales and marketing is generally conducted within the Divisions in Electrification. This enables the Divisions to manage their respective end-to-end activities and create demand across all channels, products and solutions. They increase focus and speed for our customers to drive faster growth. Where necessary, the Divisions work together on joint services, such as the management of accounts, channels, and segment-sales, engaging in a range of promotional activities, both internal and external. Competition The Electrification Business Area’s principal competitors vary by product group and include Chint, Eaton, Hubbell, Legrand, LS Electric, Panasonic, Schneider Electric, Siemens and Vertiv. 12 FINANCIAL REPORT 2022 Capital Expenditures The Electrification Business Area’s capital expenditures for property, plant and equipment totaled $385 million in 2022, compared to $345 million in 2021. Investments in 2022 were higher than in 2021 driven by capacity expansion for e-mobility products and some investments which were previously delayed in 2021 and 2020 due to the COVID-19 pandemic. Investments in 2022 principally related to real estate investments, capacity expansion, as well as equipment replacement and upgrades. Geographically, in 2022, Europe represented 55 percent of the capital expenditures, followed by the Americas (33 percent) and Asia, Middle East and Africa (12 percent). — Motion Business Area Overview The Motion Business Area provides pioneering technology, products, solutions and related services to industrial customers to increase energy efficiency, improve safety and reliability, and maintain precise control over processes. The portfolio includes motors, generators and drives for a wide range of applications in all industrial sectors. The Motion Business Area designs, manufactures and sells drives, motors, generators and traction converters. Building on long-standing experience in electric powertrains, the Business Area combines domain expertise and technology to deliver the optimum solution for a wide range of applications for a comprehensive range of industrial segments. In addition, the Business Area, along with its channel partners, has an industry-leading global service presence. The Motion Business Area had approximately 21,100 employees as of December 31, 2022, and generated $6.7 billion of revenues in 2022. Customers The Motion Business Area serves a wide range of customers in different industrial segments such as pulp and paper, oil and gas, metals and mining, food and beverage, HVAC, water and wastewater, transportation, power generation, marine and offshore. Products and Services At December 31, 2022, the Motion Business Area’s products and services are delivered through seven operating Divisions. The Business Area divested its Mechanical Power Transmission Division on November 1, 2021, which designed, manufactured and sold various mechanical power transmission products sold under the Dodge® brand. The Drive Products Division serves the industries and infrastructure segments with world-class drives and programmable logic controllers (PLC). With its products, global scale and local presence, the Division helps customers to improve energy efficiency, productivity and safety. The System Drives Division supplies high-power, high-performance drives, drive systems and packages for industrial process and large infrastructure applications. The Division offers global support to help customers, partners and equipment manufacturers with asset reliability, performance improvement and energy efficiency in mission critical applications. The Service Division serves customers worldwide and aims to help customers by maximizing uptime, extending life cycle and enhancing the performance and energy efficiency of their electrical motion solutions. The Division is leading the way in digitalization by securely connecting motors and drives to help customers prevent expensive downtime while also optimizing operations profitably, safely and reliably. The Traction Division is a recognized leader in traction technologies that drive innovation in rail, bus and other modes of electric transportation. A comprehensive range of high performance propulsion, auxiliary and energy storage solutions help improve energy efficiency and contributes to making transportation more sustainable. The IEC Low Voltage Motors Division is a global market leader that provides a full range of energy efficient low voltage motors, including ultra-efficient motors such as synchronous reluctance motors (SynRM) to help customers reduce power bills and cut emissions. Through a global footprint, application expertise and with rugged designs, the Division’s products support customers with IEC FINANCIAL REPORT 2022 13 low-voltage motor solutions that improve reliability and productivity in the most demanding applications. The Large Motors and Generators Division offers a comprehensive product portfolio of large AC motors and generators. The Division’s robust, reliable and highly efficient offerings power critical infrastructure and transportation across all major industries and applications often in remote and demanding locations. The NEMA Motors Division is a marketer, designer and manufacturer that offers Baldor-Reliance® industrial electric motors, primarily in North America. The Division focuses on quality, reliability and efficiency to provide a comprehensive offering of NEMA motors in the market across most industrial segments and applications. Sales and Marketing Sales are made both through direct sales forces and through channel partners, such as distributors and wholesalers, as well as installers, OEMs and system integrators. The proportion of direct sales to end users compared to channel partner sales varies among the different industries, products and geographic markets. Competition The principal competitors of the Motion Business Area include Schneider, Siemens, Toshiba, WEG Industries, SEW EURODRIVE and Danfoss. Capital Expenditures Capital expenditures in the Motion Business Area for property, plant and equipment totaled $150 million in 2022, compared to $230 million in 2021, which included the purchase of a formerly leased property in China. Principal expenditures in 2022 related to real estate investments, capacity expansion, equipment replacement and upgrades across various countries including Finland, the United States, China and India. Geographically, in 2022, Europe represented 60 percent of the capital expenditures, followed by the Americas (28 percent) and Asia, Middle East and Africa (12 percent). — Process Automation Business Area Overview The Process Automation Business Area offers customers in process, hybrid and maritime industries a broad range of integrated automation, electrical, motion and digital systems, solutions and related services that are designed to optimize productivity, energy efficiency, sustainability and safety of industrial processes and operations, based on the Business Area’s deep domain knowledge and expertise of each end market. The Business Area’s offering can be grouped into two categories, with approximately half of the offering related to solutions for new and brownfield projects and half related to service, mainly for installed own products. In some cases, the Business Area integrates offerings from the Electrification, Motion and Robotics & Discrete Automation Business Areas into its integrated systems. The Business Area’s offerings are sold primarily through its direct sales force with a smaller share through partners and distributors. The Business Area had approximately 20,100 employees as of December 31, 2022, and generated revenues of $6.0 billion in 2022. Customers The Process Automation Business Area’s end customers include companies across process, hybrid and maritime industries. These industries include oil, gas, chemicals and plastics, mining and minerals, metals, pulp and paper, pharmaceuticals, food and beverage, power generation, marine and ports. 14 FINANCIAL REPORT 2022 Products and Services The offering of the Process Automation Business Area includes an extensive portfolio of products, solutions, digital applications and services for the control of the simplest to the most complex and critical of processes and infrastructure. These systems can link various process and information flows, allowing customers to manage and control their entire business process based on real-time information. The Business Area’s control platform includes ABB Ability™ Distributed Control System (DCS), System 800xA ® , which is also an electrical control system, a safety system and a collaboration enabler with the capacity to improve engineering efficiency, operator performance and asset utilization. Other control solutions include Symphony ® Plus (designed to address the open automation platform needs of the Hydropower and Water industry segments) and our Freelance DCS solution. Components for basic automation solutions, process controllers, I/O modules, panels, and Human Machine Interfaces (HMI), are available through the Compact Product Suite offering. The product portfolio is complemented by a suite of ABB Ability™ Advanced Digital Services and by ABB Care, a subscription-based lifecycle management program that provides services to maintain and continually advance and enhance ABB’s distributed control systems and optimize customers’ lifecycle costs. The ABB Ability™ Genix Industrial Analytics and Artificial Intelligence Suite unlocks greater value by contextualizing and integrating data from IT, engineering, and operations systems to provide deep, meaningful and actionable insights. The portfolio is complemented by a range of industry-specific products in each Division. As of December 31, 2022, the Process Automation Business Area’s products and services are delivered through four operating Divisions. The Business Area spun off its Turbocharging Division in October 2022, which manufactured and serviced turbochargers for diesel and gas engines for marine- and land- based power generation. The Energy Industries Division enables safe, smart, and sustainable projects and operations for businesses across the oil and gas, chemicals, life sciences, power generation and water sectors. It is committed to driving more sustainable use of our planet’s resources through innovative solutions that enable energy efficient and low carbon operations across traditional industries and support the development of new and renewable energy models. The Division serves the energy market with leading integrated solutions that automate, digitalize and electrify operations across industries. The Division’s goal is to help customers adapt and succeed in the rapidly changing global energy transition. Harnessing data, machine learning and artificial intelligence (AI), the Division brings over 50 years of domain expertise delivering solutions designed to improve energy, process and production efficiency, as well as reduce risk, operational cost and capital cost, while minimizing waste for all customers, from project start-up and throughout the entire plant lifecycle. The Process Industries Division serves the mining, minerals processing, metals, aluminum, cement, pulp and paper, battery manufacturing, and food and beverage, as well as their associated service industries. The Division brings deep industry domain expertise coupled with the ability to integrate both automation and electrical systems, increase productivity and reduce overall capital and operating costs for customers. For mining, metals and cement customers, solutions include specialized products and services, as well as total production systems. The Division designs, plans, engineers, supplies, erects and commissions integrated electrical and motion systems, including electric equipment, drives, motors, high power rectifiers and equipment for automation and supervisory control within a variety of areas including mineral handling, mining operations, aluminum smelting, hot and cold steel applications and cement production. The offering for the pulp and paper industries includes control systems, quality control systems, drive systems, on-line sensors, actuators and field instruments. Digitalization solutions, including collaborative operations and augmented reality, help improve plant and enterprise productivity, and reduce maintenance and energy costs. The Marine & Ports Division serves the shipping industry through its extensive portfolio of integrated marine systems and solutions that improve the flexibility, reliability and energy efficiency of vessels. By coupling power, propulsion, automation, marine software and services that ensure maximum vessel uptime, we are well positioned to help improve the profitability and sustainability of our customers’ business throughout the entire lifecycle of a fleet. With ABB Ability™ Marine software solutions and ABB Ability™ Collaborative Operations Centers around the world, shipowners and operators can run their fleets at lower fuel and maintenance costs, while improving crew, passenger and cargo safety as well as overall productivity of their operations. Further, the Division delivers automation, electrical systems and digital solutions for container and bulk cargo handling, from ship to gate. These solutions help terminal operators meet the challenge of larger ships, taller cranes and bigger volumes per call, and make terminal operations safer, greener and more productive. FINANCIAL REPORT 2022 15 The portfolio of the Measurement & Analytics Division consists of analyzers (measuring compositions of gases and liquids), instrumentation (measuring the typical process variables of temperature, pressure, flow, and level) as well as specialized measurements for specific industries. With this offering the Division serves virtually all process, hybrid and marine industries, the largest among them being the oil, gas and chemical value chain, water and power generation industries. The Division also provides advanced digital solutions to help customers improve productivity, safety and environmental sustainability. Sales and Marketing The Process Automation Business Area’s sales are primarily made through its direct sales force as well as third-party channel partners, such as distributors, system integrators and OEMs. The majority of revenues are derived through the Business Area’s own direct sales channels. Competition The Process Automation Business Area’s principal competitors vary by industry or product group. Competitors include: Emerson, Honeywell, Schneider Electric, Siemens, Siemens Energy, Yokogawa, Endress + Hauser, Kongsberg and Valmet. Capital Expenditures The Process Automation Business Area’s capital expenditures for property, plant and equipment totaled $100 million in 2022, compared to $85 million in 2021. Principal investments in 2022 primarily related to purchases of land and building, mainly in the Energy Industries Division. Geographically, in 2022, Europe represented 76 percent of the capital expenditures, followed by Asia, Middle East and Africa (13 percent) and the Americas (11 percent). — Robotics & Discrete Automation Business Area Overview The Robotics & Discrete Automation Business Area provides robotics, and machine and factory automation including products, software, solutions and services. Revenues are generated both from direct sales to end users as well as from indirect sales mainly through system integrators and machine builders. The Robotics & Discrete Automation Business Area had approximately 10,700 employees as of December 31, 2022, and generated $3.2 billion of revenues in 2022. Customers Robotics & Discrete Automation serves a wide range of customers. The main customers are active in industries such as automotive, machine building, metalworking, electronics, food and beverage and logistics. They include end-users such as manufacturers, system integrators and machine builders. Products and Services The Robotics & Discrete Automation Business Area’s products and services are delivered through two operating Divisions. The Robotics Division offers a wide range of products, solutions and services including robots, autonomous mobile robots, robotics application cells and smart systems, field services, spare parts, digital services, engineering and operations software. This offering provides customers with increased productivity, quality, flexibility and simplicity for operations, e.g. to meet the challenge of making smaller lots of a larger number of specific products in shorter cycles for today’s dynamic global markets and coping with increasing uncertainty. Robots are also used in activities or environments which may be hazardous to employee health and safety, such as repetitive or strenuous lifting, dusty, hot or cold rooms, or painting booths and can help customers address labor shortages. Robotics solutions are used in a wide range of segments from automotive OEMs, automotive suppliers, electronics, general industry, consumer goods, food and beverage, and warehouse/logistics center automation. They are increasingly deployed in service applications for life sciences care, restaurants and retail. Typical robotic applications include welding, material handling, machine tending, machining, painting, picking, packing, palletizing and assembly. 16 FINANCIAL REPORT 2022 The Machine Automation Division offers integrated automation solutions based on programmable logical controllers, industrial PCs, servo motion, industrial transport systems and machine vision. It also provides software for engineering and optimization. The range of solutions are mainly used by machine builders for various types of series machines, e.g. for plastics, metals, printing and packaging. Sales and Marketing Sales are made both through direct sales as well as through third ‑ party channel partners, such as system integrators and machine builders. The proportion of direct sales compared to channel partner sales varies among the different industries, product technologies and geographic markets. Competition Competitors of the Robotics & Discrete Automation Business Area vary by offering and include companies such as Fanuc, Kuka, Yaskawa, Epson, Dürr, Stäubli, Universal Robots, Rockwell Automation, Siemens, Mitsubishi Electric and Beckhoff. Capital Expenditures The Robotics & Discrete Automation Business Area’s capital expenditures for property, plant and equipment totaled $86 million in 2022, compared to $96 million in 2021. Principal investments in 2022 were primarily related to a new Robotics factory in Shanghai, China, and selective investments mainly in production facilities in the Robotics Division in Sweden and in the Machine Automation Division in Austria. In 2022, Europe represented 66 percent of capital expenditures, followed by Asia, Middle East and Africa (28 percent) and the Americas (6 percent). — Corporate and Other Corporate and Other includes core headquarter functions, real estate activities, Corporate Treasury Operations, Global Business Services (GBS), the investment in Hitachi Energy (until December 2022) and other minor business activities. Certain strategic investments managed by ABB Technology Ventures are also included in Corporate. The remaining activities of certain EPC projects which we are completing and are in a wind-down phase are reported as non-core businesses within Corporate and Other. In addition, the historical business activities of certain divested businesses are presented in Corporate and Other. These include the high-voltage cables business, steel structures and certain EPC contracts relating to the oil and gas industry. Corporate headquarters and stewardship activities include the operations of our corporate headquarters in Zurich, Switzerland, as well as limited corporate ‑ related activities in certain countries. These activities cover staff functions with group ‑ wide responsibilities, such as accounting and financial reporting, corporate finance and corporate treasury, taxes, financial planning and analysis, internal audit, legal and integrity, compliance, risk management and insurance, corporate communications, information systems and investor relations. GBS operates shared service centers globally through a network of four hubs and consists of both expert and transactional services in the areas of human resources, finance and information services. GBS also staffs and maintains front offices in most countries. The costs in GBS are incurred primarily for the benefit of the Business Areas, which are charged for their use of such services and the related number of employees are allocated to the Business Areas. GBS also provides services to third parties under transitional service agreements in relation to certain divested businesses, the largest of which are Hitachi Energy (the former Power Grids business) and Accelleron (the former Turbocharging Division). A significant portion of the costs for GBS and other shared corporate overhead costs are charged to the operating businesses. Up to the divestment of the Power Grids business on July 1, 2020, overhead and other management costs, including GBS costs, which would have been allocated or charged to our Power Grids business, and which were not directly attributable to this business, have not been allocated to the discontinued operation and are included in Corporate and Other as “stranded costs”. Corporate and Other had approximately 1,000 employees at December 31, 2022, of which approximately 100 pertain to our non-core businesses. FINANCIAL REPORT 2022 17 — Discontinued operations In July 2020, we divested 80.1 percent of our Power Grids business to Hitachi Ltd. As a result, the Power Grids business is reported as discontinued operations in the Consolidated Financial Statements for all years presented. See “Note 3 - Discontinued operations” to our Consolidated Financial Statements. Power Grids business The former Power Grids business of ABB delivered products, systems, software and service solutions across the power value chain for utility, industry and transport & infrastructure customers. The Power Grids business operated worldwide with a globally diversified manufacturing, engineering, and research and development footprint. Direct sales accounted for the majority of total revenues generated by the business while external channel partners such as EPCs, wholesalers, distributors and OEMs accounted for the rest. Products and Services The Grid Automation operation supplied substation automation products, systems and services. It also provided Supervisory Control and Data Acquisition (SCADA) systems for transmission and distribution networks as well as a range of wireless, fiber optic and powerline carrier-based telecommunication technologies for mission-critical applications and also offered grid-edge and microgrid solutions. Its enterprise software portfolio provided solutions for managing and optimizing assets, operations, logistics, financials and HR, reducing operating costs and improving productivity for customers. The Grid Integration operation was a leading provider of integration and transmission solutions such as High Voltage Direct Current (HVDC). Another key part of the portfolio was the Flexible Alternating Current Transmission Systems (FACTS) business, which comprised Static Var Compensation (SVC) and static compensator (STATCOM) technologies to address stability and power quality issues. The Grid Integration operation’s portfolio also included a range of high-power semiconductors, a core technology for power electronics deployed in HVDC, FACTS and rail applications. The Grid Integration operation also provided transmission and distribution substations and associated lifecycle services. These substations are used in utility and non-utility applications including rail, data centers and various industries. Battery energy storage solutions and shore-to-ship power supply were also part of the customer offering. The High Voltage products operation was a provider of high voltage switchgear up to 1200 kV AC and 1100 kV DC with a portfolio spanning air-insulated, gas-insulated and hybrid technologies. It also manufactured generator circuit breakers, a key product for integrating large power plants into the grid. The portfolio also included a broad range of capacitors and filters that facilitate power quality, instrument transformers and other substation components. The Transformers operation supplied transformers that are an integral component found across the power value chain, enabling the reliable, efficient and safe conversion of voltage levels. The product range included dry- and liquid-distribution transformers, traction transformers for rail applications and special application transformers plus related components, for example, insulation kits, bushings and other transformer accessories. The Power Grids business also had an extensive portfolio of service offerings across the value chain. The portfolio included spare parts, condition monitoring and maintenance services, on- and off ‑ site repairs as well as retrofits and upgrades. Advanced software-based monitoring and advisory services further enhanced the portfolio. 18 FINANCIAL REPORT 2022 — Capital expenditures Total capital expenditures for property, plant and equipment and intangible assets (excluding intangibles acquired through business combinations) amounted to $762 million, $820 million and $694 million in 2022, 2021 and 2020, respectively. In 2022 and 2021, capital expenditures were 6 percent and 8 percent lower, respectively, than depreciation and amortization. Excluding acquisition-related amortization, capital expenditures were 30 percent higher in 2022 and 28 percent higher in 2021, respectively, than depreciation and amortization. Capital expenditures in 2022 primarily focused in mature markets, reflecting the geographic distribution of our existing production facilities. Capital expenditures in Europe and North America in 2022 were driven primarily by upgrades and maintenance of existing production facilities, mainly in the U.S., Germany, Italy, Finland, Netherlands, and Switzerland. In Asia, Middle East and Africa, capital expenditures were made primarily to increase production capacity by investing in new or expanded facilities, the highest of which were in China and India. The share of emerging markets capital expenditures as a percentage of total capital expenditures in 2022 and 2021 was 24 percent and 33 percent, respectively. At December 31, 2022, construction in progress for property, plant and equipment was $586 million, mainly in the U.S., Germany, Switzerland, Finland, Austria, China and Sweden, while at December 31, 2021, construction in progress for property, plant and equipment was $522 million, mainly in the U.S., Switzerland, Germany, Sweden, Italy, China and India. Our capital expenditures relate primarily to property, plant and equipment and are funded primarily through cash flows from operating activities. For 2023, we estimate the expenditures for property, plant and equipment will be higher than our annual depreciation and amortization charge, excluding acquisition-related amortization. — Supplies and raw materials We purchase a variety of supplies and products which contain raw materials for use in our production and project execution processes. The primary materials used in our products, by weight, are copper, aluminum, steel, mineral oil and various plastics. We also purchase a wide variety of fabricated products, electronic components and systems. We operate a worldwide supply chain management network with employees dedicated to this function in our Business Areas, Divisions and in key countries. Our supply chain operations consists of a number of teams, each focusing on different product categories. These category teams are tasked with taking advantage of opportunities to leverage the scale of ABB on a global, Business Area and/or Division level, as appropriate, to optimize the efficiency of our supply networks in a sustainable manner. Our supply chain management organization’s activities and objectives include: • pool and leverage procurement of materials and services, • provide transparency of ABB’s global spending through a comprehensive performance and reporting system linked to our enterprise resource planning (ERP) systems, • strengthen ABB’s supply chain network by implementing an effective product category management structure and extensive competency-based training, and • monitor and develop our supply base to ensure sustainability, both in terms of materials and processes used. We buy many categories of products which contain steel, copper, aluminum, crude oil and other commodities. Continuing global economic growth in many emerging economies, coupled with the volatility in foreign currency exchange rates, has led to significant fluctuations in these raw material costs over the last few years. While we expect global commodity prices to remain highly volatile, we expect to offset some market volatility through the use of long-term contracts and global sourcing. FINANCIAL REPORT 2022 19 We seek to mitigate the majority of our exposure to commodity price risk by entering into derivative contracts. For example, we manage copper, silver and aluminum price risk using principally swap contracts based on prices for these commodities quoted on leading exchanges. ABB’s hedging policy is designed to safeguard margins by minimizing price volatility and providing a stable cost base during order execution. In addition to using derivatives to reduce our exposure to fluctuations in raw materials prices, in some cases we can reduce this risk by incorporating changes in raw materials prices into the prices of our end products (through price escalation clauses). Overall, during 2022, supply chain management personnel in our businesses, and in the countries in which we operate, along with the category teams, continued to focus on value chain optimization efforts in all areas, while maintaining and improving quality and delivery performance. Responding to the challenges of overall global supply chain constraints, each Business Area quickly implemented a task force to mitigate supply chain shortages. The Business Areas experienced some delays in supplier deliveries and product shortages for various categories such as semiconductors and other raw materials as well as constraints in the transportation of inbound supplies. However, we responded to these challenges and took mitigating actions such as building up buffer stocks, approving new suppliers, changing supplier splits, combined with daily, weekly and monthly task force project follow ups. We have, to a large extent, been able to mitigate most disruptions, maintain a competitive service level and support our business growth, while maintaining delivery schedules to our customers. Through our Sustainable Supply Base Management (SSBM) approach, we assess ESG risks, compliance and the performance of our suppliers in these areas to make sure they meet our expectations. These expectations are detailed in the ABB Supplier Code of Conduct and the ABB Code of Conduct. We manage our obligations in relation to conflict minerals through our Conflict Minerals policy and processes that we aim to continually improve and tailor to our value chain. We continue to work with our suppliers and customers to enable us to comply with the SEC’s rules and disclosure obligations relating to conflict minerals. Further information on ABB’s Conflict Minerals policy and supplier requirements can be found under “Material Compliance” at global.abb/group/en/about/supplying/material-compliance. — Patents and trademarks While we are not materially dependent on any one of our intellectual properties, as a technology-driven company, we believe that intellectual property rights are crucial to protect the assets of our business. We continue to file new patent applications to protect our new inventions. As of December 31, 2022, we have a portfolio of approximately 25,000 pending patent applications and granted patents, of which approximately 5,500 are pending applications. This portfolio includes approximately 3,500 utility models and design rights, of which approximately 200 are pending applications. In 2022, we filed close to 500 priority patents, utility model and design applications, each covering a unique invention or unique angle on an invention. Additionally, we filed approximately 1,850 secondary patents, utility model and design applications, each extending the coverage of a previously filed priority application. Based on our existing intellectual property strategy, we believe that we have adequate control over our core technologies. The “ABB” trademarks and logo are protected in all of the countries in which we operate. We proactively assert our intellectual property rights to safeguard the reputation associated with the ABB technology and brand. While these intellectual property rights are fundamental to all of our businesses, there is no dependency of the business on any single patent, utility model or design application. 20 FINANCIAL REPORT 2022 — Management overview In 2022, we managed to navigate high customer activity in a complex macroeconomic environment marked by inflation, a strained value chain, an energy crisis, the war in Ukraine with the related economic sanctions on Russia as well as the lingering impacts of the COVID-19 pandemic. During the year, we also worked to fully implement the ABB Way operating model within our Divisions. Our new and more efficient ways of working combined with a strong market situation led to increased operational results. In the wake of the COVID-19 pandemic, ongoing supply chain, logistics and labor challenges emerged, but we were able to avoid major business disruptions with our more agile organization. Our strong price management processes proved effective as we quickly responded to rising input costs and were able to more than offset the higher costs of inflation through price increases during the year. Active portfolio management continues to be part of our performance culture. On the back of systematic portfolio reviews we ascertain whether, ultimately, ABB is the best owner of the different businesses. We continued to make strong progress in aligning our business portfolio with our purpose, and fully focus on the areas of electrification and automation. We completed the spin-off of the Turbocharging Division in October 2022 and sold the remaining 19.9 percent interest in Hitachi Energy to Hitachi in December. The net cash received from the sale further strengthened our balance sheet, giving us additional flexibility in our capital allocation decisions. Looking forward, after the end of the year, we also reached an agreement in January 2023 to sell our Power Conversion Division to AcBel Polytech Inc. The transaction is subject to regulatory approvals and is expected to be completed in the second half of 2023. At the same time, we remain committed to our strategy to separately list our E-mobility business subject to constructive market conditions. In the meantime, we received gross proceeds of approximately CHF 200 million ($216 million) through a private placement of new shares in ABB E-mobility in November 2022. After the end of the year, we obtained an additional amount of funding through the private placement, increasing the total gross proceeds by an additional CHF 325 million ($351 million) in February 2023. We remain a committed partner to ABB E-mobility with a shareholding of 81 percent as of February 2023. In addition, our active portfolio management process is driving decisions within the Divisions to improve or exit areas of underperformance and support improved performance ambitions. During 2022 we accelerated the pace of strategic partnerships as well as bolt-on acquisitions driven by the Divisions. The Motion Business Area announced their first two acquisitions in more than a decade, with a combined value of approximately $125 million. Both the planned acquisition of the Siemens low voltage NEMA motor business (closing in 2023) and the PowerTech Converter acquisition will help the respective Divisions to further strengthen their leading market positions. We have also made minority investments led by our Divisions. Both the InCharge Energy, Inc (In-Charge) and Numocity Technologies Private Ltd (Numocity) majority acquisitions made earlier this year are good examples that minority investments can later also become acquisition targets. As part of our future strategy, we continue to aim to complete five or more bolt-on acquisitions each year. Business progress During 2022, demand for ABB’s offering was robust, driven by strong demand across all regions and most customer segments, leading to positive developments in both volumes and pricing, the latter of which was largely driven by our quick response to rising input costs which we were able to pass on to our customers. Orders increased in all Business Areas with higher demand in all regions with the Americas seeing the highest growth, while growth in Asia, Middle East, and Africa was lower, driven mainly by lower growth rates in China versus prior year. Overall demand increased for the short-cycle flow business and the systems-driven offerings as well as in service. While our orders increased 7 percent (13 percent in local currencies) in 2022, revenue growth was lower at 2 percent (9 percent in local currencies). Supply chain constraints and imbalances in the overall supply chain limited our ability to convert orders into actual deliveries resulting in an increase of our order backlog of 20 percent to $19.9 billion at the end of the year. FINANCIAL REPORT 2022 21 Group profitability showed strong improvement during 2022 with segment profit (Operational EBITA) improving in all Business Areas but reflecting approximately 10 percent of negative currency translation impacts compared to 2021. The result was driven by strong pricing execution, increased volumes and improved internal efficiency. Active price management and productivity gains were able to offset increasing raw material costs and general cost inflation emphasized by the tight supply situation over the year. Cash flows from operating activities was $1.3 billion in 2022, a decrease of 61 percent compared to 2021. The profitability improvement was more than offset by the impact of a buildup of working capital, especially inventories, required to support our record high backlog and the impact of higher pay-out of employee bonuses due to the strong financial performance in 2021, as well as significant cash outflows relating to the exit of a non-core business, the payment for the settlement related to regulatory penalties for the Kusile project as well as ongoing restructuring and business transformation costs. We continued to make organic growth investments in a disciplined manner, prioritizing research and development while reducing administrative costs. Total non-order related research and development was $1.2 billion in 2022, or 4 percent of revenues. Capital allocation Our capital allocation priorities are unchanged: • funding organic growth, research and development, and capital expenditures at attractive returns, • paying a rising, sustainable dividend per share over time, • investing in value-creating acquisitions, and • returning additional cash to shareholders. We expect that our strong cash generation, on the back of the ABB Way operating model, will enhance our flexibility to invest in both organic growth and bolt-on acquisitions, while providing attractive returns to shareholders. At the 2023 Annual General Meeting (AGM), the Board of Directors is proposing a dividend of 0.84 Swiss francs per share. During the year we reached our goal of returning $7.8 billion of the cash proceeds from the Power Grids divestment to shareholders. Under the various share buyback programs we have now purchased in excess of our goal with $2.8 billion of shares purchased in 2022 in addition to the $5.5 billion purchased through the end of 2021. Sustainability strategy 2030 With our 2030 sustainability strategy, we are actively contributing to a more sustainable world, leading by example in our own operations and partnering with customers and suppliers to enable a low-carbon society, preserve resources and promote social progress. Our sustainability focus is part of ABB’s commitment to responsible business practices, which are at the center of our comprehensive governance framework, based on integrity and transparency. Amongst other focus areas in 2022, we announced a new emissions target for our supply chain. We aim to work with our main tier-one suppliers to achieve a 50 percent reduction in their CO 2 e emissions by 2030. The target is focused on suppliers covering 70 percent of ABB’s annual procurement expenditure. The new target is expected to make an important contribution to our goal of enabling a low carbon society as, in many cases, our suppliers have a bigger footprint than our company. For a detailed discussion of our sustainability strategy 2030 and our progress in 2022, see “See the Sustainability Report”. — Critical accounting policies and estimates General We prepare our Consolidated Financial Statements in accordance with U.S. GAAP and present these in U.S. dollars unless otherwise stated. 22 FINANCIAL REPORT 2022 The preparation of our financial statements requires us to make assumptions and estimates that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis (see “Note 2 - Significant accounting policies” to our Consolidated Financial Statements for a listing of our most significant accounting estimates). Where appropriate, we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from our estimates and assumptions. We deem an accounting policy to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made and if different estimates that reasonably could have been used, or if changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact our Consolidated Financial Statements. We also deem an accounting policy to be critical when the application of such policy is essential to our ongoing operations. We believe the following critical accounting policies require us to make subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain and material to our Consolidated Financial Statements. These policies should be considered when reading our Consolidated Financial Statements. Revenue recognition A customer contract exists if collectability under the contract is considered probable, the contract has commercial substance, contains payment terms, the rights and commitments of both parties, and has been approved. By analyzing the type, terms and conditions of each contract or arrangement with a customer, we determine which revenue recognition method applies. We recognize revenues when control of goods or services is transferred to customers in an amount that reflects the consideration we expect to be entitled to in exchange for these goods or services. Control is transferred when the customer has the ability to direct the use and obtain the benefits from the goods or services. The percentage ‑ of ‑ completion method of accounting is generally used when recognizing revenue on an over time basis and involves the use of assumptions and projections, principally relating to future material, labor, subcontractor and project ‑ related overhead costs as well as estimates of the amount of variable consideration to which we expect to be entitled. As a consequence, there is a risk that total contract costs or the amount of variable consideration will, respectively, either exceed or be lower than those we originally estimated (based on all information reasonably available to us) and the margin will decrease or the contract may become unprofitable. This risk increases if the duration of a contract increases because there is a higher probability that the circumstances upon which we originally developed our estimates will change, resulting in increased costs that we may not recover. Factors that could cause costs to increase include: • unanticipated technical problems with equipment supplied or developed by us which may require us to incur additional costs to remedy, • changes in the cost of components, materials or labor, • difficulties in obtaining required governmental permits or approvals, • project modifications creating unanticipated costs, • suppliers’ or subcontractors’ failure to perform, and • delays caused by unexpected conditions or events. Changes in our initial assumptions, which we review on a regular basis between balance sheet dates, may result in revisions to estimated costs, current earnings and anticipated earnings. We recognize these changes in the period in which the changes in estimates are determined. By recognizing changes in estimates cumulatively, recorded revenue and costs to date reflect the current estimates of the stage of completion of each project. Additionally, losses on such contracts are recognized in the period when they are identified and are based upon the anticipated excess of contract costs over the related contract revenues. Pension and other postretirement benefits As more fully described in “Note 17 - Employee benefits” to our Consolidated Financial Statements, we have a number of defined benefit pension and other postretirement plans and recognize an asset for a plan’s overfunded status or a liability for a plan’s underfunded status in our Consolidated Balance Sheets. We measure such a plan’s assets and obligations that determine its funded status as of the end of the year. FINANCIAL REPORT 2022 23 Significant differences between assumptions and actual experience, or significant changes in assumptions, may materially affect the pension obligations. The effects of actual results differing from assumptions and the changing of assumptions are included in net actuarial loss within “Accumulated other comprehensive loss”. We recognize actuarial gains and losses gradually over time. Any cumulative unrecognized actuarial gain or loss that exceeds 10 percent of the greater of the present value of the projected benefit obligation (PBO) and the fair value of plan assets is recognized in earnings over the expected average remaining working lives of the employees participating in the plan, or the expected average remaining lifetime of the inactive plan participants if the plan is comprised of all or almost all inactive participants. Otherwise, the actuarial gain or loss is not recognized in the Consolidated Income Statements. We use actuarial valuations to determine our pension and postretirement benefit costs and credits. The amounts calculated depend on a variety of key assumptions, including discount rates, mortality rates and expected return on plan assets. Under U.S. GAAP, we are required to consider current market conditions in making these assumptions. In particular, the discount rates are reviewed annually based on changes in long ‑ term, highly ‑ rated corporate bond yields. Decreases in the discount rates result in an increase in the PBO and in pension costs. Conversely, an increase in the discount rates results in a decrease in the PBO and in pension costs. The mortality assumptions are reviewed annually by management. Decreases in mortality rates result in an increase in the PBO and in pension costs. Conversely, an increase in mortality rates results in a decrease in the PBO and in pension costs. Holding all other assumptions constant, a 0.25 percentage-point decrease in the discount rate would have increased the PBO related to our defined benefit pension plans by $144 million while a 0.25 percentage-point increase in the discount rate would have decreased the PBO related to our defined benefit pension plans by $140 million. The expected return on plan assets is reviewed regularly and considered for adjustment annually based upon the target asset allocations and represents the long ‑ term return expected to be achieved. Decreases in the expected return on plan assets result in an increase to pension costs. Holding all other assumptions constant, an increase or decrease of 0.25 percentage points in the expected long ‑ term rate of asset return would have decreased or increased, respectively, the net periodic benefit cost in 2022 by $20 million. The funded status, which can increase or decrease based on the performance of the financial markets or changes in our assumptions, does not represent a mandatory short ‑ term cash obligation. Instead, the funded status of a defined benefit pension plan is the difference between the PBO and the fair value of the plan assets. Our defined benefit pension plans were overfunded by $326 million and $27 million at December 31, 2022 and 2021, respectively. Our other postretirement plans were underfunded by $50 million and $71 million at December 31, 2022 and 2021, respectively. Income taxes In preparing our Consolidated Financial Statements, we are required to estimate income taxes in each of the jurisdictions in which we operate. Tax expense from continuing operations is reconciled from the weighted ‑ average global tax rate (rather than from the Swiss domestic statutory tax rate). As the parent company of the ABB Group, ABB Ltd, is domiciled in Switzerland, income which has been generated in jurisdictions outside of Switzerland (hereafter “foreign jurisdictions”) and has already been subject to corporate income tax in those foreign jurisdictions is, to a large extent, tax exempt in Switzerland. Therefore, generally no or only limited Swiss income tax has to be provided for on the repatriated earnings of foreign subsidiaries. There is no requirement in Switzerland for a parent company of a group to file a tax return of the group determining domestic and foreign pre ‑ tax income and as our consolidated income from continuing operations is predominantly earned outside of Switzerland, corporate income tax in foreign jurisdictions largely determines our global weighted ‑ average tax rate. 24 FINANCIAL REPORT 2022 We account for deferred taxes by using the asset and liability method. Under this method, we determine deferred tax assets and liabilities based on temporary differences between the financial reporting and the tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. We recognize a deferred tax asset when it is more likely than not that the asset will be realized. We regularly review our deferred tax assets for recoverability and establish a valuation allowance based upon historical losses, projected future taxable income and the expected timing of the reversals of existing temporary differences. To the extent we increase or decrease this allowance in a period, we recognize the change in the allowance within “Income tax expense” in the Consolidated Income Statements unless the change relates to discontinued operations, in which case the change is recorded in “Income from discontinued operations, net of tax”. Unforeseen changes in tax rates and tax laws, as well as differences in the projected taxable income as compared to the actual taxable income, may affect these estimates. Certain countries levy withholding taxes, dividend distribution taxes or additional corporate income taxes (hereafter “withholding taxes”) on dividend distributions. Such taxes cannot always be fully reclaimed by the shareholder, although they have to be declared and withheld by the subsidiary. Switzerland has concluded double taxation treaties with many countries in which we operate. These treaties either eliminate or reduce such withholding taxes on dividend distributions. It is our policy to distribute retained earnings of subsidiaries, insofar as such earnings are not permanently reinvested or no other reasons exist that would prevent the subsidiary from distributing them. No deferred tax liability is set up if retained earnings are considered as indefinitely reinvested and used for financing current operations as well as business growth through working capital and capital expenditure in those countries. We operate in numerous tax jurisdictions and, as a result, are regularly subject to audit by tax authorities, including for transfer pricing. We provide for tax contingencies whenever it is deemed more likely than not that a tax asset has been impaired or a tax liability has been incurred for events such as tax claims or changes in tax laws. Contingency provisions are recorded based on the technical merits of our filing position, considering the applicable tax laws and OECD guidelines and are based on our evaluations of the facts and circumstances as of the end of each reporting period. Changes in the facts and circumstances could result in a material change to the tax accruals. Although we believe that our tax estimates are reasonable and that appropriate tax reserves have been made, the final determination of tax audits and any related litigation could be different than that which is reflected in our income tax provisions and accruals. An estimated loss from a tax contingency must be accrued as a charge to income if it is more likely than not that a tax asset has been impaired or a tax liability has been incurred and the amount of the loss can be reasonably estimated. We apply a two ‑ step approach to recognize and measure uncertainty in income taxes. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50 percent likely of being realized upon ultimate settlement. The required amount of provisions for contingencies of any type may change in the future due to new developments. Goodwill and intangible assets We review goodwill for impairment annually as of October 1, or more frequently if events or circumstances indicate the carrying value may not be recoverable. We use either a qualitative or quantitative assessment method for each reporting unit. As each of our Divisions have full ownership and accountability for their respective strategies, performance and resources, we have determined our reporting units to be at the Division level, which is one level below our operating segments of Electrification, Motion, Process Automation and Robotics & Discrete Automation. When performing the qualitative assessment, we first determine, for a reporting unit, factors which would affect the fair value of the reporting unit including: (i) macroeconomic conditions related to the business, (ii) industry and market trends, and (iii) the overall future financial performance and future opportunities in the markets in which the business operates. We then consider how these factors would impact the most recent quantitative analysis of the reporting unit’s fair value. Key assumptions in determining the fair value of the reporting unit include the projected level of business operations, the reporting unit’s weighted ‑ average cost of capital, the income tax rate and the terminal growth rate. FINANCIAL REPORT 2022 25 During 2022, we added one new Division by creating a standalone Division from components of two existing Divisions resulting in twenty-one reporting units in total for the Group at October 1, 2022. Subsequently ABB completed the spin-off of the Turbocharging Division in October 2022. For each change in reporting unit which arose during 2022, an interim quantitative impairment test was conducted before and after the change. In both the “before” and “after” tests, it was concluded that the fair value of the reporting units exceeded the carrying value by a significant amount. During 2021, we added three new Divisions by splitting two existing ones into multiple standalone Divisions and announced (in July 2021) the divestment of the Mechanical Power Transmission Division, resulting in twenty reporting units in total for the Group at October 1, 2021. For each change in reporting unit which arose during 2021, an interim quantitative impairment test was conducted before and after the change. In both the “before” and “after” tests, it was concluded that the fair value of the reporting units exceeded the carrying value by a significant amount. In 2020, prior to the adoption of the new “ABB Way” operating model on July 1, 2020, goodwill was generally assessed at the level of ABB’s operating segments (one level above the Division, with the exception of Process Automation where the reporting units were the same as the Divisions) while after the change, goodwill impairment was assessed at the Division level. Although the new operating model resulted only in an allocation of goodwill within the operating segments and did not change the segment level goodwill, an interim quantitative impairment test was conducted before and after the July 1 change. As a result of the interim quantitative impairment test, a goodwill impairment charge of $290 million was recorded in 2020 to reduce the carrying value of the Machine Automation reporting unit to its implied fair value. For more information, please refer to “Note 11 – Goodwill and intangible assets” to ABB’s Consolidated Financial Statements. At October 1, 2022 and 2021, we performed qualitative assessments and determined that it was not more likely than not that the fair value for each of these reporting units was below the carrying value. As a result, we concluded that it was not necessary to perform the quantitative impairment test. Intangible assets are reviewed for recoverability upon the occurrence of certain triggering events (such as a decision to divest a business or projected losses of an entity) or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. We record impairment charges other than impairments of goodwill in “Other income (expense), net” in our Consolidated Income Statements, unless they relate to a discontinued operation, in which case the charges are recorded in “Income from discontinued operations, net of tax”. — New accounting pronouncements For a description of accounting changes and recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on our Consolidated Financial Statements, see “Note 2 - Significant accounting policies” to our Consolidated Financial Statements. — Research and development Each year, we invest significantly in research and development. Our research and development focuses on developing and commercializing the technologies, products and solutions of our businesses that are of strategic importance to our future growth. In 2022, we invested $1,166 million, or approximately 4 percent of our 2022 consolidated revenues, on research and development activities in our continuing operations. We also had expenditures of approximately $48 million on order-related development activities. These are customer ‑ and project ‑ specific development efforts that we undertake to develop or adapt equipment and systems to the unique needs of our customers in connection with specific orders or projects. 26 FINANCIAL REPORT 2022 In addition to continuous product development, and order ‑ related engineering work, we develop platforms for technology applications in our businesses in our research and development laboratories, which operate on a global basis. Through active management of our investment in research and development, we seek to maintain a balance between short ‑ term and long ‑ term research and development programs and optimize our return on investment. We protect these results by holding patents, copyrights and other appropriate intellectual property protection. To complement our business-focused product development, our businesses invest together in collaborative research activities covering topics such as artificial intelligence, software, sensors, control and optimization, mechatronics and robotics, power electronics, communication technologies, material and manufacturing, electrodynamics and electrical switching technologies. This results in advancing the state-of-the-art technologies used in our products and in common technology platforms that can be applied across multiple product lines. Universities are incubators of future technology, and one task of our research and development teams is to transform university research into industry ‑ ready technology platforms. We collaborate with multiple universities and research institutions to build research networks and foster new technologies. We believe these collaborations shorten the amount of time required to turn basic ideas into viable products, and they additionally help us to recruit and train new personnel. We have built numerous university strategic relationships with a number of leading institutions in various countries around the world. We are also leveraging our ecosystem to enhance our innovation efforts and gain speed with strategic partners with complementary competencies. In addition, we invest and collaborate with start-ups worldwide via our corporate venture arm ABB Technology Ventures and our start-up collaboration arm SynerLeap. The result of our investment in research and development is that ABB is widely recognized for its world- class technology. — Acquisitions and divestments Acquisitions During 2022 and 2021, ABB paid $195 million and $212 million to purchase five and two businesses, respectively. The principal acquisition in 2022 was InCharge Energy, Inc. (In-Charge), where we increased our ownership to a 60 percent controlling interest, expanding the market presence of the E-mobility Division within our Electrification operating segment, particularly in the North American market. In- Charge is headquartered in Santa Monica, United States, and is a provider of turn-key commercial electric vehicle charging hardware and software solutions. See “Note 4 - Acquisitions, divestments and equity-accounted companies” to our Consolidated Financial Statements. The principal acquisition in 2021 was ASTI Mobile Robotics Group SL (ASTI). ASTI is headquartered in Burgos, Spain. There were no significant acquisitions in 2020. FINANCIAL REPORT 2022 27 Divestments and spin-offs Spin-off of the Turbocharging Division In September 2022, the shareholders approved the spin-off of the Company’s Turbocharging Division into an independent, publicly traded company, Accelleron Industries AG (Accelleron), which was completed through the distribution of common stock of Accelleron to the stockholders of ABB on October 3, 2022. As a result of the spin-off of this Division, the Company distributed net assets of $272 million, net of amounts attributable to noncontrolling interests of $12 million, which was reflected as a reduction in Retained earnings. In addition, total accumulated comprehensive income of $95 million, including the cumulative translation adjustment, was reclassified to Retained earnings. Cash and cash equivalents distributed with Accelleron was $172 million. Prior to being spun-off, the Turbocharging Division was part of our Process Automation Business Area. See “Note 4 - Acquisitions, divestments and equity-accounted companies” to our Consolidated Financial Statements. Divestment of Mechanical Power Transmission Division In November 2021, we completed the sale of our Mechanical Power Transmission Division (Dodge) to RBC Bearings Inc. for cash proceeds of $2,862 million, net of transaction costs and cash disposed and recognizing a net gain on sale of $2,195 million. Prior to its disposal, the Dodge business was part of our Motion Business Area. See “Note 4 - Acquisitions, divestments and equity-accounted companies” to our Consolidated Financial Statements. Divestment of Power Grids On July 1, 2020, we completed the divestment of 80.1 percent of our former Power Grids business (Hitachi Energy) to Hitachi. As this divestment represented a strategic shift that would have a major effect on our operations and financial results, the results of operations for this business are presented as discontinued operations and the assets and liabilities are reflected as held for sale for all periods presented. For more information on the divestment of the Power Grids business see “Note 3 - Discontinued operations” to our Consolidated Financial Statements. Hitachi held a call option which required ABB to sell the remaining 19.9 percent interest in Hitachi Energy at a price consistent with what was paid by Hitachi to acquire the initial 80.1 percent or at fair value, if higher. In September 2022, we agreed with Hitachi that we would sell our remaining investment in Hitachi Energy and concurrently settle certain outstanding contractual obligations relating to the initial sale of the business, including certain indemnification guarantees (see Note 15 - Commitments and contingencies). The transaction was completed in December 2022, and we received proceeds of $1,552 million. See “Note 4 - Acquisitions, divestments and equity-accounted companies” to our Consolidated Financial Statements. — Exchange rates We report our financial results in U.S. dollars. Due to our global operations, a significant amount of our revenues, expenses, assets and liabilities are denominated in other currencies. As a consequence, movements in exchange rates between currencies may affect: (i) our profitability, (ii) the comparability of our results between periods and (iii) the reported carrying value of our assets and liabilities. We translate non ‑ USD denominated results of operations, assets and liabilities to USD in our Consolidated Financial Statements. Balance sheet items are translated to USD using year ‑ end currency exchange rates. Income statement and cash flow items are translated to USD using the relevant monthly average currency exchange rate. Increases and decreases in the value of the USD against other currencies will affect the reported results of operations in our Consolidated Income Statements and the value of certain of our assets and liabilities in our Consolidated Balance Sheets, even if our results of operations or the value of those assets and liabilities have not changed in their original currency. As foreign exchange rates impact our reported results of operations and the reported value of our assets and liabilities, changes in foreign exchange rates could significantly affect the comparability of our reported results of operations between periods and result in significant changes to the reported value of our assets, liabilities and stockholders’ equity. 28 FINANCIAL REPORT 2022 While we operate globally and report our financial results in USD, exchange rate movements between the USD and the EUR, the CNY and the CHF are of particular importance to us due to (i) the location of our significant operations and (ii) our corporate headquarters being in Switzerland. The exchange rates between the USD and the EUR, the USD and the CHF and the USD and the CNY at December 31, 2022, 2021 and 2020, were as follows: Exchange rates into $ 2022 2021 2020 EUR 1.00 1.07 1.13 1.23 CHF 1.00 1.08 1.10 1.14 CNY 1.00 0.14 0.16 0.15 The average exchange rates between the USD and the EUR, the USD and the CHF and the USD and the CNY for the years ended December 31, 2022, 2021 and 2020, were as follows: Exchange rates into $ 2022 2021 2020 EUR 1.00 1.05 1.18 1.14 CHF 1.00 1.05 1.09 1.07 CNY 1.00 0.15 0.16 0.14 When we incur expenses that are not denominated in the same currency as the related revenues, foreign exchange rate fluctuations could affect our profitability. To mitigate the impact of exchange rate movements on our profitability, it is our policy to enter into forward foreign exchange contracts to manage the foreign exchange transaction risk of our operations. In 2022, approximately 75 percent of our consolidated revenues were reported in currencies other than the USD. The following percentages of consolidated revenues were reported in the following currencies: • Euro, approximately 22 percent, and • Chinese renminbi, approximately 16 percent. In 2022, approximately 72 percent of our cost of sales and selling, general and administrative expenses were reported in currencies other than the USD. The following percentages of consolidated cost of sales and selling, general and administrative expenses were reported in the following currencies: • Euro, approximately 19 percent, and • Chinese renminbi, approximately 13 percent. We also incur expenses other than cost of sales and selling, general and administrative expenses in various currencies. The results of operations and financial position of our subsidiaries outside of the U.S. are generally accounted for in the currencies of the countries in which those subsidiaries are located. We refer to these currencies as “local currencies”. Local currency financial information is then translated into USD at applicable exchange rates for inclusion in our Consolidated Financial Statements. The discussion of our results of operations below provides certain information with respect to orders, revenues, income from operations and other measures as reported in USD (as well as in local currencies). We measure period ‑ to ‑ period variations in local currency results by using a constant foreign exchange rate for all periods under comparison. Differences in our results of operations in local currencies as compared to our results of operations in USD are caused exclusively by changes in currency exchange rates. While we consider our results of operations as measured in local currencies to be a significant indicator of business performance, local currency information should not be relied upon to the exclusion of U.S. GAAP financial measures. Instead, local currencies reflect an additional measure of comparability and provide a means of viewing aspects of our operations that, when viewed together with the U.S. GAAP results, provide a more complete understanding of factors and trends affecting the business. As local currency information is not standardized, it may not be possible to compare our local currency information to other companies’ financial measures that have the same or a similar title. We encourage investors to review our financial statements and publicly filed reports in their entirety and not to rely on any single financial measure. FINANCIAL REPORT 2022 29 — Orders Our policy is to book and report an order when a binding contractual agreement has been concluded with a customer covering, at a minimum, the price and scope of products or services to be supplied, the delivery schedule and the payment terms. The reported value of an order corresponds to the undiscounted value of revenues that we expect to recognize following delivery of the goods or services subject to the order, less any trade discounts and excluding any value added or sales tax. The value of orders received during a given period of time represents the sum of the value of all orders received during the period, adjusted to reflect the aggregate value of any changes to the value of orders received during the period and orders existing at the beginning of the period. These adjustments, which may in the aggregate increase or decrease the orders reported during the period, may include changes in the estimated order price up to the date of contractual performance, changes in the scope of products or services ordered and cancellations of orders. The undiscounted value of future revenues we expect to generate from our orders at any point in time is represented by our order backlog. The level of orders fluctuates from year to year. Portions of our business involve orders for long ‑ term projects that can take months or years to complete and many larger orders result in revenues in periods after the order is booked. Consequently, the level of orders generally cannot be used to accurately predict future revenues or operating performance. Orders that have been placed can often be cancelled, delayed or modified by the customer. These actions can reduce or delay any future revenues from the order or may result in the elimination of the order. — Performance measures We evaluate the performance of our operating segments based on orders received, revenues and Operational EBITA. Operational EBITA represents income from operations excluding: • amortization expense on intangibles arising upon acquisitions (acquisition-related amortization), • restructuring, related and implementation costs, • changes in the amount recorded for obligations related to divested businesses occurring after the divestment date (changes in obligations related to divested businesses), • changes in estimates relating to opening balance sheets of acquired businesses (changes in pre ‑ acquisition estimates), • gains and losses from sale of businesses (including fair value adjustment on assets and liabilities held for sale), • acquisition- and divestment-related expenses and integration costs, • other income/expense relating to the Power Grids joint venture, • certain other non-operational items, as well as • foreign exchange/commodity timing differences in income from operations consisting of: (a) unrealized gains and losses on derivatives (foreign exchange, commodities, embedded derivatives), (b) realized gains and losses on derivatives where the underlying hedged transaction has not yet been realized, and (c) unrealized foreign exchange movements on receivables/payables (and related assets/liabilities). Certain other non-operational items generally includes: certain regulatory, compliance and legal costs, certain asset write downs/impairments (including impairment of goodwill) and certain other fair value changes, as well as other items which are determined by management on a case-by-case basis. See “Note 23 - Operating segment and geographic data” to our Consolidated Financial Statements for a reconciliation of the total Operational EBITA to income from continuing operations before taxes. 30 FINANCIAL REPORT 2022 — Transactions with affiliates and associates In the normal course of our business, we purchase products from, sell products to and engage in other transactions with entities in which we hold an equity interest. The amounts involved in these transactions are not material to ABB Ltd. Prior to its sale in December 2022 our most significant equity method investment was in Hitachi Energy Ltd (see “Note 4 - Acquisitions, divestments and equity- accounted companies” for details). Also, in the normal course of our business, we engage in transactions with businesses that we have divested. We believe that the terms of the transactions we conduct with these companies are negotiated on an arm’s length basis. FINANCIAL REPORT 2022 31 — Analysis of results of operations The discussion in the following sections below provides a comparative analysis between 2022 and 2021. See the sections under “Operating and Financial Review and Prospects” in our 2021 Annual Report for a comparative discussion and analysis between 2021 and 2020. Our consolidated results from operations were as follows: Income Statement Data: ($ in millions, except per share data in $) 2022 2021 2020 Revenues 29,446 28,945 26,134 Cost of sales (19,736) (19,478) (18,256) Gross profit 9,710 9,467 7,878 Selling, general and administrative expenses (5,132) (5,162) (4,895) Non-order related research and development expenses (1,166) (1,219) (1,127) Impairment of goodwill — — (311) Other income (expense), net (75) 2,632 48 Income from operations 3,337 5,718 1,593 Interest and dividend income 72 51 51 Interest and other finance expense (130) (148) (240) Losses from extinguishment of debt — — (162) Non-operational pension (cost) credit 115 166 (401) Income tax expense (757) (1,057) (496) Income from continuing operations, net of tax 2,637 4,730 345 Income (loss) from discontinued operations, net of tax (43) (80) 4,860 Net income 2,594 4,650 5,205 Net income attributable to noncontrolling interests and redeemable noncontrolling interests (119) (104) (59) Net income attributable to ABB 2,475 4,546 5,146 Amounts attributable to ABB shareholders: Income from continuing operations, net of tax 2,517 4,625 294 Income (loss) from discontinued operations, net of tax (42) (79) 4,852 Net income 2,475 4,546 5,146 Basic earnings per share attributable to ABB shareholders: Income from continuing operations, net of tax 1.33 2.31 0.14 Income (loss) from discontinued operations, net of tax (0.02) (0.04) 2.30 Net income 1.30 2.27 2.44 Diluted earnings per share attributable to ABB shareholders: Income from continuing operations, net of tax 1.32 2.29 0.14 Income (loss) from discontinued operations, net of tax (0.02) (0.04) 2.29 Net income 1.30 2.25 2.43 A more detailed discussion of the orders, revenues, income from operations and Operational EBITA for our Business Areas follows in the sections of “Business analysis” below for Electrification, Motion, Process Automation, Robotics & Discrete Automation and Corporate and Other. Orders and revenues of our businesses include intersegment transactions which are eliminated in the “Corporate and Other” line in the tables below. 32 FINANCIAL REPORT 2022 Orders % Change ($ in millions) 2022 2021 2020 2022 2021 Electrification 15,901 14,381 11,884 11% 21% Motion 7,896 7,616 6,574 4% 16% Process Automation 6,825 6,779 6,144 1% 10% Robotics & Discrete Automation 4,116 3,844 2,868 7% 34% Total Business Areas 34,738 32,620 27,470 6% 19% Corporate and Other Non-core and divested businesses 46 (10) (31) n.a. n.a. Intersegment eliminations and other (796) (742) (927) n.a. n.a. Total 33,988 31,868 26,512 7% 20% In 2022, total orders increased 7 percent compared to 2021 (13 percent in local currencies). All Business Areas contributed to the order growth driven by both higher business volumes and price increases, reflecting strong demand across most regions and most customer segments, as well as the impact of successfully passing on rising input costs to end customers. Orders were higher for product and project businesses as well as for service businesses. In addition to strong underlying market demand, orders were also supported by customers placing orders early to secure deliveries in an environment with a generally tight supply chain, especially earlier in the year. As supply chain constraints eased over the year, customer order patterns tended to normalize. Growth rates were highest in the Electrification and Robotics & Discrete Automation Business Areas. Both the Process Automation and Motion Business Areas contributed modest growth, with the former impacted by the spin-off of the Turbocharging Division in October 2022 and the latter impacted by the divestment of the Mechanical Power Transmission business sold in November 2021 which together had a combined negative impact on consolidated order growth of approximately 3 percent. For additional information about individual Business Area order performance, refer to the relevant sections of “Business analysis” below. We determine the geographic distribution of our orders based on the location of the ultimate destination of the products’ end use, if known, or the location of the customer. The geographic distribution of our consolidated orders was as follows: % Change ($ in millions) 2022 2021 2020 2022 2021 Europe 11,778 11,857 9,618 (1)% 23% The Americas 11,825 9,940 7,956 19% 25% of which: United States 8,920 7,453 5,971 20% 25% Asia, Middle East and Africa 10,385 10,071 8,938 3% 13% of which: China 5,087 5,036 4,121 1% 22% Total 33,988 31,868 26,512 7% 20% In 2022, orders increased 19 percent in the Americas (20 percent in local currencies), with orders growing in the U.S., Canada, Brazil and Mexico. In Europe, orders decreased 1 percent (increased 13 percent in local currencies) with the Motion and Robotics & Discrete Automation Business Areas reporting order growth. Orders were higher in France, Switzerland, Italy and the United Kingdom while they declined in Germany, Sweden and Finland. In Asia, Middle East and Africa, orders increased 3 percent (9 percent in local currencies) with orders increasing in China, India, Singapore, South Korea and Saudi Arabia while they decreased in Australia. FINANCIAL REPORT 2022 33 Order backlog % Change December 31, ($ in millions) 2022 2021 2020 2022 2021 Electrification 6,933 5,458 4,358 27% 25% Motion 4,726 3,749 3,320 26% 13% Process Automation 6,229 6,079 5,805 2% 5% Robotics & Discrete Automation 2,679 1,919 1,403 40% 37% Total Business Areas 20,567 17,205 14,886 20% 16% Corporate and Other Non-core and divested businesses 23 114 139 (80)% (18)% Intersegment eliminations (723) (712) (722) n.a. n.a. Total 19,867 16,607 14,303 20% 16% At December 31, 2022, consolidated order backlog was 20 percent higher (26 percent in local currencies) compared to December 31, 2021. Order backlog increased significantly in most Business Areas with the Process Automation Business Area having only modest growth. The order backlog in the Motion Business Area was driven by order growth in both the short- and long-cycle businesses in most Divisions. Order backlog increased across all Divisions in the Electrification Business Area reflecting the very high order levels with the strongest growth in the E-mobility and Distribution Solutions Divisions. The order backlog in the Process Automation Business Area was supported by a strong order increase in most Divisions except the Marine & Ports Division, which was negatively impacted by an order reversal due to a customer bankruptcy in Germany. The low order backlog growth in the Process Automation Business Area also reflects the spin-off of the Turbocharging Division. The increase in the order backlog in the Robotics & Discrete Automation Business Area was driven by strong growth in both Divisions (Machine Automation and Robotics). Revenues % Change ($ in millions) 2022 2021 2020 2022 2021 Electrification 14,105 13,187 11,924 7% 11% Motion 6,745 6,925 6,409 (3)% 8% Process Automation 6,044 6,259 5,792 (3)% 8% Robotics & Discrete Automation 3,181 3,297 2,907 (4)% 13% Total Business Areas 30,075 29,668 27,032 1% 10% Corporate and Other Non-core and divested businesses 135 11 (6) n.a. n.a. Intersegment eliminations and other (764) (734) (892) n.a. n.a. Total 29,446 28,945 26,134 2% 11% In 2022, revenues increased by 2 percent (9 percent in local currencies). During the first half of the year, revenues were hampered as component constraints slowed production and hindered customer deliveries. However, the supply chain challenges progressively eased, triggering higher revenue growth rates in the latter part of the year. All Business Areas benefited from increased volumes and price increases as we were able to pass on the impacts of higher cost inputs to the end customers. Growth rates were highest in the Electrification Business Area. In local currencies, the Motion Business Area achieved a single-digit growth rate despite the adverse impact from the divestment of the Mechanical Power Transmission Division in November 2021. The Process Automation Business Area saw moderate growth in local currencies despite the spin-off of the Turbocharging Division in October 2022. Revenues in the Robotics & Discrete Automation Business Area increased in local currencies, with revenues benefiting in the second half of the year from an easing of component constraints. For additional analysis of revenues for each of the Business Areas, refer to the relevant sections of “Business analysis” below. 34 FINANCIAL REPORT 2022 We determine the geographic distribution of our revenues based on the location of the ultimate destination of the products’ end use, if known, or the location of the customer. The geographic distribution of our consolidated revenues was as follows: % Change ($ in millions) 2022 2021 2020 2022 2021 Europe 10,286 10,529 9,764 (2)% 8% The Americas 9,572 8,686 7,949 10% 9% of which: United States 7,021 6,397 6,027 10% 6% Asia, Middle East and Africa 9,588 9,730 8,421 (1)% 16% of which: China 4,696 4,932 4,098 (5)% 20% Total 29,446 28,945 26,134 2% 11% In 2022, the increase in revenues was driven by the Americas region, where revenues increased 10 percent (11 percent in local currencies) and were higher across all Business Areas except the Motion Business Area. Revenues increased in the U.S., Canada, Brazil, Mexico, Argentina and Peru. In Europe, revenues decreased 2 percent (increased 12 percent in local currencies) and were higher across all Business Areas except the Motion Business Area, which was flat. Sales were higher in Finland, the United Kingdom and France while revenues were lower in Sweden, Switzerland and Norway. Germany and Italy reported stable sales. In Asia, Middle East and Africa revenues decreased 1 percent (increased 5 percent in local currencies) and revenues grew in the Electrification Business Area while the Process Automation and Robotics & Discrete Automation Business Areas reported a decrease with the Motion Business Area being stable. Revenues increased in India and Singapore while they decreased in China, Saudi Arabia, Australia, Japan and South Korea. Cost of sales Cost of sales consists primarily of labor, raw materials and component costs but also includes indirect production costs, expenses for warranties, contract and project charges, as well as order-related development expenses incurred in connection with projects for which corresponding revenues have been recognized. In 2022, costs of sales increased 1 percent (8 percent in local currencies) to $19,736 million. Cost of sales as a percentage of revenues decreased to 67.0 percent from 67.3 percent in 2021, increasing the gross margin, primarily driven by price increases and certain cost savings actions taken to mitigate higher inflation in labor, commodity prices and freight costs. It is partly offset by a negative impact due to portfolio changes. In 2022, gross margin percentages were higher in the Electrification, Process Automation and Motion Business Areas. The gross margin percentages in the Robotics & Discrete Automation Business Areas were lower in 2022 compared to 2021 due to the impact of higher inflation and lower volume due to general supply chain constraints. Selling, general and administrative expenses The components of selling, general and administrative expenses were as follows: ($ in millions) 2022 2021 2020 Selling expenses 3,248 3,281 3,087 General and administrative expenses 1,884 1,881 1,808 Total 5,132 5,162 4,895 In 2022, general and administrative expenses were flat (increased 8 percent in local currencies) compared to 2021. The local currency increase principally represents an impact from inflation. As a percentage of revenues, general and administrative expenses slightly decreased to 6.4 percent from 6.5 percent in 2021 mainly due to strong revenue growth compared to more modest cost increases. General and administrative expenses in 2022 continue to include the ongoing costs required to deliver services to Hitachi Energy Ltd and Accelleron (commencing in October 2022) under transition service agreements for which we are compensated and have recorded $162 million in Other income (expense), net, during 2022 compared to $173 million in 2021. FINANCIAL REPORT 2022 35 In 2022, selling expenses decreased 1 percent (increased 6 percent in local currencies) compared to 2021 and was higher in local currencies across all Business Areas. Spending levels increased as pandemic-related restrictions were gradually relaxed and sales activities increased to keep pace with the strong growth in underlying demand. Selling expenses as a percentage of orders received decreased from 10.3 percent in 2021 to 9.6 percent in 2022 mainly due to strong order growth. Non ‑ order related research and development expenses In 2022, non ‑ order related research and development expenses decreased 4 percent (increase 4 percent in local currencies) compared to 2021. In 2022, non ‑ order related research and development expenses as a percentage of revenues remained similar to prior year levels (4.0 percent in 2022 compared to 4.2 percent in 2021) as we continued investing in research and development in line with revenues growth. Other income (expense), net ($ in millions) 2022 2021 2020 Income from provision of services under transition services agreements 221 173 91 Net gain from sale of property, plant and equipment 84 38 37 Gain (loss) from change in fair value of investments in equity securities 52 108 73 Brand income from Hitachi Energy 57 89 60 Favorable resolution of an uncertain purchase price adjustment 15 6 36 Fair value adjustment on assets and liabilities held for sale — — (33) Net gain (loss) from sale of businesses & equity-accounted investments (1) 36 2,193 (2) Asset impairments (55) (33) (35) Income (loss) from equity-accounted companies (102) (100) (66) Restructuring and restructuring-related expenses (2) (227) (48) (87) Regulatory penalties in connection with Kusile project (313) — — Other income (expense) 157 206 (26) Total (75) 2,632 48 (1) Includes gain on sale of the remaining 19.9 percent investment in Hitachi Energy Ltd. (2) Excluding asset impairments In 2022, Other income (expense), net, was a loss of $75 million compared to a gain of $2,632 million in 2021. In 2022, we recorded costs of $313 million associated with regulatory penalties assessed in connection with the Kusile project and higher restructuring and restructuring-related expenses which included $195 million in connection with the exit of the full train retrofit business primarily for contract settlement costs. In 2022, we recorded a gain of $43 million relating to the sale of the remaining 19.9 percent of Hitachi Energy to Hitachi. In 2021, we recorded gains of $2,193 million in Other income (expense), net for net gains from sales of businesses. This was primarily due to the divestment of the Dodge business. In 2022 compared to 2021, we recorded lower gains for net fair value increases in various equity investments, the most significant of which in 2022 related to InCharge Energy, Inc and in 2021 related to CMR Surgical Ltd. Income from operations % Change ($ in millions) 2022 2021 2020 2022 2021 Electrification 2,159 1,841 1,335 17% 38% Motion 1,092 3,276 989 (67)% 231% Process Automation 663 713 344 (7)% 107% Robotics & Discrete Automation 247 269 (163) (8)% n.a. Total Business Areas 4,161 6,099 2,505 (32)% 143% Corporate and Other (823) (385) (927) n.a. n.a. Intersegment elimination (1) 4 15 n.a. n.a. Total 3,337 5,718 1,593 (42)% 259% In 2022 and 2021, changes in income from operations were a result of the factors discussed above and in “Business analysis” below. 36 FINANCIAL REPORT 2022 Financial income and expenses Financial income and expenses include “Interest and dividend income”, “Interest and other finance expense” and “Losses from extinguishment of debt”. “Interest and other finance expense” includes interest expense on our debt, the amortization of upfront transaction costs associated with long ‑ term debt and committed credit facilities, commitment fees on credit facilities, foreign exchange gains and losses on financial items and gains and losses on marketable securities. In addition, interest accrued relating to uncertain tax positions is included within interest expense. “Interest and other finance expense” excludes interest expense which has been allocated to discontinued operations. ($ in millions) 2022 2021 2020 Interest and dividend income 72 51 51 Interest and other finance expense (130) (148) (240) Losses from extinguishment of debt — — (162) In 2022, increases in market interest rates resulted in both higher interest income on cash deposits and higher interest expense on floating rate debt. Interest expense was lower primarily due to net reversals of interest expense in connection with income tax related contingencies. This was partially offset by the effect of higher rates of interest on floating rate debt as well as higher amounts of outstanding commercial paper. Non-operational pension (cost) credit A non-operational pension credit of $115 million was recorded in 2022 compared to a $166 million credit in 2021. Compared to 2021, the 2022 non-operational pension credit has decreased due to lower expected returns on plan assets and higher interest costs on the benefit obligations (see “Note 17 - Employee benefits” to our Consolidated Financial Statements). Income tax expense ($ in millions) 2022 2021 2020 Income from continuing operations before taxes 3,394 5,787 841 Income tax expense (757) (1,057) (496) Effective tax rate for the year 22.3% 18.3% 59.0% In 2022, the effective tax rate increased to 22.3 percent from 18.3 percent in 2021. The effective tax rate in 2022 was approximately 2 percentage points higher due to the non-deductible regulatory penalties in connection with the Kusile project and 3 percentage points due to not benefiting losses in entities having a participation exemption. The effective tax rate in 2022 also reflects a benefit of approximately 6 percentage points due to changes in assessment of recoverability of deferred tax assets. In 2021, the tax impacts related to the sale of the Dodge business reduced the effective tax rate by approximately 5 percentage points. We also realized certain benefits from internal reorganizations in anticipation of this divestment which reduced the effective tax rate by a further 4 percentage points. See “Note 16 - Income taxes” to our Consolidated Financial Statements for additional information. Income from continuing operations, net of tax As a result of the factors discussed above, compared to 2021, Income from continuing operations, net of tax, decreased by $2,093 million to $2,637 million in 2022. FINANCIAL REPORT 2022 37 Income from discontinued operations, net of tax Income (loss) from discontinued operations, net of tax, in 2022, 2021 and 2020 was as follows: ($ in millions) 2022 2021 2020 Total revenues — — 4,008 Total cost of sales — — (3,058) Gross profit — — 950 Expenses (38) (18) (808) Change to net gain recognized on sale of the Power Grids business (10) (65) 5,141 Income (loss) from operations (48) (83) 5,282 Net interest income (expense) and other finance expense — 2 (5) Non-operational pension (cost) credit — — (94) Income (loss) from discontinued operations before taxes (48) (81) 5,182 Income tax 5 1 (322) Income (loss) from discontinued operations, net of tax (43) (80) 4,860 On July 1, 2020, we completed the divestment of 80.1 percent of our former Power Grids business to Hitachi. As a result of the sale, substantially all Power Grids related assets and liabilities have been sold. As this divestment represented a strategic shift that would have a major effect on our operations and financial results, the results of operations for this business have been presented as discontinued operations for all periods presented. In addition, we also have retained obligations (primarily for environmental and taxes) related to other businesses disposed or otherwise exited that qualified as discontinued operations. Changes to these retained obligations are also included in Income (loss) from discontinued operations, net of tax. In 2020, as a result of the sale of the Power Grids business, we recognized a net gain for the sale of the entire Power Grids business which is included in Income from discontinued operations, net of tax. Certain amounts included in the net gain are estimated or otherwise subject to change in value and, as a result, we have recorded additional adjustments in 2022 and 2021, primarily due to the impacts of the final purchase price settlement agreed with Hitachi and net foreign currency losses on certain obligations. We may record additional adjustments in future periods to the gain which are not expected to have a material impact on the Consolidated Financial Statements. For additional information on the divestment and discontinued operations, see “Note 3 - Discontinued operations” to our Consolidated Financial Statements. Net income attributable to ABB As a result of the factors discussed above, compared to 2021, Net income attributable to ABB decreased by $2,071 million to $2,475 million in 2022. Earnings per share attributable to ABB shareholders (in $) 2022 2021 2020 Basic earnings per share attributable to ABB shareholders: Income from continuing operations, net of tax 1.33 2.31 0.14 Income (loss) from discontinued operations, net of tax (0.02) (0.04) 2.30 Net income 1.30 2.27 2.44 Diluted earnings per share attributable to ABB shareholders: Income from continuing operations, net of tax 1.32 2.29 0.14 Income (loss) from discontinued operations, net of tax (0.02) (0.04) 2.29 Net income 1.30 2.25 2.43 Basic earnings per share is calculated by dividing income by the weighted ‑ average number of shares outstanding during the year. Diluted earnings per share is calculated by dividing income by the weighted ‑ average number of shares outstanding during the year, assuming that all potentially dilutive securities were exercised, if dilutive. Potentially dilutive securities comprise: outstanding written call options and outstanding options and shares granted subject to certain conditions under our share ‑ based payment arrangements. See “Note 20 - Earnings per share” to our Consolidated Financial Statements. 38 FINANCIAL REPORT 2022 — Business analysis Electrification Business Area The financial results of our Electrification Business Area were as follows: % Change ($ in millions) 2022 2021 2020 2022 2021 Orders 15,901 14,381 11,884 11% 21% Order backlog at December 31, 6,933 5,458 4,358 27% 25% Revenues 14,105 13,187 11,924 7% 11% Income from operations 2,159 1,841 1,335 17% 38% Operational EBITA 2,328 2,121 1,681 10% 26% Orders Approximately two-thirds of the Business Area’s orders are for products with short delivery times; these orders are usually recorded and delivered within a three-month period and thus are generally considered as short-cycle. The remainder is comprised of smaller project orders that require longer lead times, as well as larger solutions requiring engineering and installation. Approximately half of the Business Area’s orders are received via third-party distributors. As a consequence, end-customer market data is based partially on management estimates. In 2022, orders increased 11 percent (17 percent in local currencies) as demand improved across all key end-user segments. Demand in the buildings segment, the Electrification Business Area’s largest end- user segment, was robust, with strong growth particularly in the non-residential building sector. Solid growth in the residential building sector in the first half of the year was partly offset by a slowdown in the second half of 2022, particularly in certain European markets. Substantial growth continues in the e-mobility segment along with strong growth in data centers, food and beverage, infrastructure and renewables. Demand from the oil and gas segment increased significantly during the year, while growth in the utilities and rail segments was solid even if geographically uneven. The geographic distribution of orders for our Electrification Business Area was as follows: ($ in millions) 2022 2021 2020 Europe 4,973 5,022 4,149 The Americas 6,776 5,199 4,033 of which: United States 5,273 3,891 3,065 Asia, Middle East and Africa 4,152 4,160 3,702 of which: China 2,028 2,141 1,819 Total 15,901 14,381 11,884 FINANCIAL REPORT 2022 39 In 2022, orders in local currencies increased in all regions. The pandemic-related challenges improved compared to 2021 in most geographies. Orders in the Americas increased 30 percent (31 percent in local currencies), with demand strengthening across all key markets, led by increases in the U.S. and Brazil. Orders in Europe decreased 1 percent, reflecting the weakening of many European currencies against the U.S. dollar, but increased 13 percent in local currencies, with growth across the region including in key markets such as Italy and Germany. Orders in Asia, Middle East and Africa were on the same level as in 2021, but increased 6 percent in local currencies, with strong order growth in India throughout the year offsetting a slowdown in China. Orders in China were lower in most end-user segments mainly as business activity was hampered by pandemic-related measures, but also reflected a challenging comparable due to strong order performance in 2021. Order backlog In 2022, order backlog increased 27 percent (33 percent in local currencies). Order backlog benefited from strong order intake, but was also impacted by execution challenges caused by material shortages, transportation constraints as well as pandemic-related production pressures in some local markets. Revenues In 2022, revenues increased 7 percent (14 percent in local currencies). Revenues in local currencies increased in all Divisions reflecting the strong demand across regions and end-user segments, however growth was still hampered by component shortages, logistics challenges and a tight labor market. Pricing actions taken to mitigate increasing material, labor and transportation costs contributed strongly to the higher revenue level and accounted for around three quarters of the revenue growth in 2022. The revenue growth was led by the E-mobility Division, mirroring the very high demand in this segment. There was also strong double-digit revenue growth in local currencies in the Power Conversion Division as well as in the Installation Products and Smart Power Divisions. The geographic distribution of revenues for our Electrification Business Area was as follows: ($ in millions) 2022 2021 2020 Europe 4,544 4,628 4,190 The Americas 5,372 4,503 4,093 of which: United States 3,940 3,322 3,115 Asia, Middle East and Africa 4,189 4,056 3,641 of which: China 2,004 2,110 1,858 Total 14,105 13,187 11,924 In 2022, revenues in the Americas increased 19 percent (20 percent in local currencies) with widespread regional growth. Revenues increased 3 percent (10 percent in local currencies) in Asia, Middle East and Africa, supported by strong growth in India, while revenues in China were lower than the previous year. Revenues in Europe decreased 2 percent, impacted by weakening currencies in many European countries versus the U.S. dollar, while revenues in the region grew 13 percent in local currencies. Income from operations In 2022, income from operations increased 17 percent (28 percent in local currencies), supported by higher volumes as well as strong price management, which helped offset the adverse impact from cost inflation in raw materials, freight and labor. Benefits of savings realized from ongoing restructuring and cost savings programs also positively influenced income from operations. Restructuring-related expenses and implementation costs in our operating Divisions were lower in 2022 than in 2021, mainly due to the substantial completion of the integration of GEIS, which we acquired in 2018. Also contributing to the higher income from operations in 2022 compared to 2021 were higher gains from net fair value increases in various equity investments, the most significant being InCharge Energy, Inc., as well as lower GEIS integration costs. These positive effects were partially dampened by widespread inflationary cost pressures in 2022, as well as higher personnel expenses driven by a ramp-up of manufacturing capacity to meet higher demand. Changes in foreign currencies, including the impacts from FX/commodity timing differences summarized in the table below, negatively impacted income from operations by approximately 6 percent. 40 FINANCIAL REPORT 2022 Operational EBITA The reconciliation of Income from operations to Operational EBITA for the Electrification Business Area was as follows: ($ in millions) 2022 2021 2020 Income from operations 2,159 1,841 1,335 Acquisition-related amortization 116 117 115 Restructuring, related and implementation costs 28 66 145 Changes in obligations related to divested businesses 1 — 15 Changes in pre-acquisition estimates 11 (6) 11 Gains and losses from sale of businesses (1) 13 4 Fair value adjustment on assets and liabilities held for sale — — 33 Favorable resolution of an uncertain purchase price adjustment — (5) (36) Acquisition- and divestment-related expenses and integration costs 40 70 71 Changes in fair value of investments in equity securities (57) (15) — Certain other non-operational items 33 15 9 FX/commodity timing differences in income from operations (2) 25 (21) Operational EBITA 2,328 2,121 1,681 In 2022, Operational EBITA increased 10 percent (20 percent excluding the impact from changes in foreign currency exchange rates) compared to 2021, primarily due to the reasons described under “Income from operations”, excluding the explanations related to the reconciling items in the table above. Motion Business Area The financial results of our Motion Business Area were as follows: % Change ($ in millions) 2022 2021 2020 2022 2021 Orders 7,896 7,616 6,574 4% 16% Order backlog at December 31, 4,726 3,749 3,320 26% 13% Revenues 6,745 6,925 6,409 (3)% 8% Income from operations 1,092 3,276 989 (67)% 231% Operational EBITA 1,163 1,183 1,075 (2)% 10% FINANCIAL REPORT 2022 41 Orders In 2022, orders increased 4 percent (11 percent in local currencies) compared to 2021. Strong market activity as well as effective price management offset negative impacts from both exchange rates and the divestment in November 2021 of the Mechanical Power Transmission Division which negatively impacted the growth rate by approximately 9 percent. The Business Area recorded strong double-digit order growth in local currencies across all Divisions and in key customer segments and benefited from strong order growth in the buildings segment (heating, ventilation, air conditioning and refrigeration) as well as in rail, with solid demand recovery and high year-on-year growth in the chemical, and oil and gas segments. Other segments supporting strong order development include metals, pulp and paper, marine and other segments such as power generation (including wind), food and beverage, and mining. The market shift towards carbon reduction, energy efficiency and digitalization continued to support business growth. The geographic distribution of orders for our Motion Business Area was as follows: ($ in millions) 2022 2021 2020 Europe 2,710 2,617 2,219 The Americas 2,583 2,677 2,276 of which: United States 2,128 2,200 1,897 Asia, Middle East and Africa 2,603 2,322 2,079 of which: China 1,314 1,232 1,077 Total 7,896 7,616 6,574 In 2022, orders increased 4 percent (18 percent in local currencies) in Europe as orders increased across the region particularly in Turkiye, Italy, Sweden, Germany, France and Poland. In Asia, Middle East and Africa, orders increased 12 percent (18 percent in local currencies) driven by growth in India, China and Australia. In the Americas, orders decreased 4 percent (2 percent in local currencies) reflecting the impact of the divestment of the Mechanical Power Transmission Division, which operated principally in the United States. Order backlog Order backlog in 2022 increased 26 percent (33 percent in local currencies) compared to 2021 reaching $4.7 billion. Order backlog increased across all Divisions and was driven mainly by the large orders received in the long-cycle business. Additionally, supply chain constraints impacted customer deliveries, particularly in the short-cycle business, further adding to the order backlog. Revenues In 2022, revenues declined 3 percent (up 5 percent in local currencies) compared to 2021, negatively impacted by approximately 9 percent by the divestment of the Mechanical Power Transmission Division in November 2021. The growth in the other Divisions was supported by strong demand and solid price management particularly in the products business. The geographic distribution of revenues for our Motion Business Area was as follows: ($ in millions) 2022 2021 2020 Europe 2,271 2,258 2,196 The Americas 2,208 2,396 2,225 of which: United States 1,823 1,974 1,867 Asia, Middle East and Africa 2,266 2,271 1,988 of which: China 1,245 1,256 1,040 Total 6,745 6,925 6,409 In 2022, revenues in Europe increased 1 percent (16 percent in local currencies) compared to 2021. Revenue increases in local currencies were driven by Turkiye, Germany, the United Kingdom, Finland and Italy while sales volumes declined in Poland, Switzerland and Austria. In Asia, Middle East and Africa revenues were flat (up 6 percent in local currencies) as revenue growth in India and China was partly offset by declines in Australia and Japan. In the Americas, revenues decreased 8 percent (7 percent in local currencies) impacted by the divestment of the Mechanical Power Transmission Division, which was partially offset by growth in the U.S., particularly in the book-and-bill business in the NEMA Motors Division. 42 FINANCIAL REPORT 2022 Income from operations In 2022, income from operations declined 67 percent compared to 2021 as the previous year included a gain of $2,195 million on the sale of the Mechanical Power Transmission Division. Excluding this gain, income from operations increased 1 percent as higher volume in 2022 offset the impact of the divestment. The higher revenues reflected strong demand and active price management during 2022 which more than offset increasing commodities and freight expenses and other cost inflation. Profitability was also supported by continued cost discipline, focus on operational performance and a positive divisional mix. Changes in foreign currencies, including the impacts from FX/commodity timing differences summarized in the table below, negatively impacted income from operations by approximately 4 percent. Operational EBITA The reconciliation of Income from operations to Operational EBITA for the Motion Business Area was as follows: ($ in millions) 2022 2021 2020 Income from operations 1,092 3,276 989 Acquisition-related amortization 31 43 52 Restructuring, related and implementation costs 16 22 44 Gains and losses from sale of businesses 8 (2,196) — Acquisition- and divestment-related expenses and integration costs 15 26 — Certain other non-operational items — 1 17 FX/commodity timing differences in income from operations 1 11 (27) Operational EBITA 1,163 1,183 1,075 In 2022, Operational EBITA decreased 2 percent (increased 6 percent excluding the impact from changes in foreign currency exchange rates) compared to 2021, primarily due to the reasons described under “Income from operations”, excluding the explanations related to the reconciling items in the table above. Process Automation Business Area The financial results of our Process Automation Business Area were as follows: % Change ($ in millions) 2022 2021 2020 2022 2021 Orders 6,825 6,779 6,144 1% 10% Order backlog at December 31, 6,229 6,079 5,805 2% 5% Revenues 6,044 6,259 5,792 (3)% 8% Income from operations 663 713 344 (7)% 107% Operational EBITA 848 801 451 6% 78% FINANCIAL REPORT 2022 43 Orders In 2022, orders increased 1 percent (8 percent in local currencies) compared to 2021. Order growth was impacted approximately 3 percent due to the spin-off of the Turbocharging Division. Orders grew in all Divisions and were especially strong in the Measurement & Analytics and Process Industries Divisions. Strong demand was seen for the product, systems and service businesses and supported by most customer segments. Demand was particularly strong in sectors such as chemicals and refining, with positive developments also recorded in the areas of mining, metals, and oil and gas, including the liquefied natural gas sector. Customer activities increased in power generation, pulp and paper, and ports segments, whereas demand in marine was lower. Customer interest was high in the hydrogen segment, which remains a small but growing part of the business. The geographic distribution of orders for our Process Automation Business Area was as follows: ($ in millions) 2022 2021 2020 Europe 2,361 2,614 2,365 The Americas 1,994 1,645 1,360 of which: United States 1,201 1,047 770 Asia, Middle East and Africa 2,470 2,520 2,419 of which: China 748 821 590 Total 6,825 6,779 6,144 Orders in Europe decreased 10 percent (increased 2 percent in local currencies). In local currencies and excluding the impact of the spin-off of the Turbocharging Division, orders increased in Poland, Norway, the Netherlands and the United Kingdom while orders decreased in Russia where the ABB Group is winding down remaining business activities and Germany where a customer bankruptcy resulted in an order reversal of approximately $170 million. Orders in Asia, Middle East and Africa decreased 2 percent (increased 5 percent in local currencies). Higher orders in India, South Korea, Singapore and Saudi Arabia were partly offset by lower order volumes in China and Australia both of which had a higher order intake in 2021. In the Americas, orders increased 21 percent (23 percent in local currencies) supported by strong demand in the U.S., Canada, Argentina and Brazil. Order backlog In 2022, order backlog increased 2 percent (8 percent in local currencies) compared to 2021. Order backlog increased in all Divisions due to strong order intake during 2022. Revenues In 2022, revenues decreased 3 percent (increased 4 percent in local currencies) compared to 2021 due to foreign currency translation and the impact from the spin-off of the Turbocharging Division business. Revenues increased in all Divisions, reflecting strong execution of the order backlog in the long-cycle businesses and strong underlying demand that was partially held back by challenges from supply chain constraints which hampered customer deliveries. The geographic distribution of revenues for our Process Automation Business Area was as follows: ($ in millions) 2022 2021 2020 Europe 2,266 2,439 2,395 The Americas 1,569 1,439 1,329 of which: United States 943 836 808 Asia, Middle East and Africa 2,209 2,381 2,068 of which: China 668 742 629 Total 6,044 6,259 5,792 In 2022, revenues were 7 percent lower (1 percent in local currencies) in Asia, Middle East and Africa, 9 percent higher (11 percent in local currencies) in the Americas and 7 percent lower (5 percent higher in local currencies) in Europe compared to 2021. In Asia, Middle East and Africa, revenues were higher in India and Australia but declined in China, Singapore and South Korea. In the Americas, revenue growth was driven by the U.S. and Argentina while revenues in Brazil were steady. Growth in Europe was reported in key markets including Italy, Germany, France, Norway and the United Kingdom. 44 FINANCIAL REPORT 2022 Income from operations In 2022, income from operations decreased 7 percent compared to 2021 driven largely by unfavorable foreign currency exchange changes and the impact of the spin-off of the Turbocharging Division. Excluding these impacts, all Divisions reported higher operating income. In local currencies, income growth was driven by higher revenue volumes, operational improvements in project execution, a favorable business mix and discipline in cost controls. The impact from inflation on costs was offset by pricing actions taken to secure gross margin levels, mainly in the short-cycle business. Changes in foreign currencies, including the effect from changes in the FX/commodity timing differences summarized in the table below, negatively impacted income from operations by approximately 10 percent. Operational EBITA The reconciliation of Income from operations to Operational EBITA for the Process Automation Business Area was as follows: ($ in millions) 2022 2021 2020 Income from operations 663 713 344 Acquisition-related amortization 4 5 4 Restructuring, related and implementation costs 29 48 125 Gains and losses from sale of businesses — (13) — Acquisition- and divestment-related expenses and integration costs 134 35 2 Certain other non-operational items — 1 1 FX/commodity timing differences in income from operations 18 12 (25) Operational EBITA 848 801 451 In 2022, Operational EBITA increased 6 percent (15 percent excluding the impact from changes in foreign currency exchange rates) compared to 2021, primarily due to the reasons described under “Income from operations”, excluding the explanations related to the reconciling items in the table above. Robotics & Discrete Automation Business Area The financial results of our Robotics & Discrete Automation Business Area were as follows: % Change ($ in millions) 2022 2021 2020 2022 2021 Orders 4,116 3,844 2,868 7% 34% Order backlog at December 31, 2,679 1,919 1,403 40% 37% Revenues 3,181 3,297 2,907 (4)% 13% Income (loss) from operations 247 269 (163) (8)% n.a. Operational EBITA 340 355 237 (4)% 50% FINANCIAL REPORT 2022 45 Orders In 2022, orders increased 7 percent (16 percent in local currencies). Both the Robotics and the Machine Automation Divisions contributed to the robust order growth driven by positive developments in both volumes and pricing, reflecting strong demand across all regions and most of the customer segments. In the automotive sector, demand was particularly driven by EV investments. Strength was also noted in the automotive-related sectors, general industry, machine builders and electronics market sectors. In addition to strong underlying market demand, the order intake was also supported by customers placing orders early in an effort to secure deliveries in an environment with a generally tight supply chain, especially earlier in the year. As supply chain constraints progressively eased over the year, customer order patterns tended to normalize. The geographic distribution of orders for our Robotics & Discrete Automation Business Area was as follows: ($ in millions) 2022 2021 2020 Europe 2,043 1,978 1,424 The Americas 609 530 388 of which: United States 404 371 277 Asia, Middle East and Africa 1,464 1,336 1,056 of which: China 1,151 976 781 Total 4,116 3,844 2,868 In 2022, orders increased in all regions. Orders in Europe increased 3 percent (16 percent in local currencies) driven by increased demand, mainly in Germany. Orders in the Americas increased 15 percent (15 percent in local currencies) compared to 2021, driven by strong order intake in the U.S. in the Robotics Division. Orders in Asia, Middle East and Africa increased 10 percent (15 percent in local currencies) with strong demand in the Robotics Division in China. Order backlog In 2022, order backlog increased 40 percent (49 percent in local currencies) compared to 2021. Order backlog increased in both Divisions. The order backlog benefited from strong order intake, despite our selectivity of orders in the automotive EV segment and also reflected customer deliveries being hampered by material shortages, transportation constraints as well as pandemic-related production pressures in some local markets. Revenues In 2022, revenues decreased 4 percent (increased 5 percent in local currencies) compared to 2021. Revenues increased in both Divisions due to higher volumes from book-and-bill business and price increases to compensate for higher input expenses. However, growth in the first half of the year was hindered by component shortages (primarily related to semiconductors) and logistic challenges. Additionally, the COVID-19 related shutdown of the robotics factory in Shanghai, China, in April, with the subsequent gradual ramp up of production during May, had a significant impact on customer deliveries in the second quarter. Service revenues also increased, driven by strong demand from all industry segments. The geographic distribution of revenues for our Robotics & Discrete Automation Business Area was as follows: ($ in millions) 2022 2021 2020 Europe 1,498 1,582 1,481 The Americas 525 441 389 of which: United States 374 309 273 Asia, Middle East and Africa 1,158 1,274 1,037 of which: China 898 950 719 Total 3,181 3,297 2,907 Revenues from Asia, Middle East and Africa decreased 9 percent (decreased 4 percent in local currencies) compared to 2021 due to the impact from the factory shutdown in Shanghai, China, described above. Revenues in Europe decreased 5 percent (increased 8 percent in local currencies) with Austria, Italy and the Czech Republic performing strongly while revenues declined in the United Kingdom. In the Americas, revenues increased 19 percent (increased 19 percent in local currencies) due to strong demand in both Divisions in the U.S. and in the Robotics Division in Brazil, following the recovery from the lower levels in 2021. 46 FINANCIAL REPORT 2022 Income (loss) from operations In 2022, the Business Area recorded income from operations of $247 million compared to $269 million in 2021, with both Divisions contributing to the higher income level. The operational performance in 2022 reflected improved sales volumes, price increases, a favorable change in the revenue mix, and the benefit of cost reduction measures taken in the second half of 2022. These positive drivers were partially offset by widespread inflationary cost pressures in 2022 as well as under absorption of fixed costs due to volumes being hampered by component shortages, particularly in the first half of the year. Changes in foreign currencies, including the impacts from FX/commodity timing differences summarized in the table below, negatively impacted income from operations by approximately 14 percent. Operational EBITA The reconciliation of Income (loss) from operations to Operational EBITA for the Robotics & Discrete Automation Business Area was as follows: ($ in millions) 2022 2021 2020 Income (loss) from operations 247 269 (163) Acquisition-related amortization 78 83 78 Restructuring, related and implementation costs 11 7 26 Changes in pre-acquisition estimates (1) — — Favorable resolution of an uncertain purchase price adjustment (15) — — Acquisition- and divestment-related expenses and integration costs 6 1 — Impairment of goodwill — — 290 Certain other non-operational items 8 — 5 FX/commodity timing differences in income from operations 6 (5) 1 Operational EBITA 340 355 237 In 2022, Operational EBITA decreased 4 percent (increased 8 percent excluding the impact from changes in foreign currency exchange rates) compared to 2021, primarily due to the reasons described under “Income (loss) from operations”, excluding the explanations related to the reconciling items in the table above. Corporate and Other Net loss from operations for Corporate and Other was as follows: ($ in millions) 2022 2021 2020 Corporate headquarters and stewardship (430) (399) (334) Regulatory penalty in connection with Kusile project (313) — — Loss from equity-accounted companies (101) (102) (68) Other corporate costs (25) (29) (65) Corporate brand income from Hitachi Energy 57 89 60 Net gain (loss) from sale of businesses (1) 43 (3) 2 Corporate real estate 66 41 54 Restructuring costs in Corporate — (5) (46) Fair value adjustment on equity securities (4) 94 71 OS implementation costs — — (24) Digital program costs — — (45) Corporate research and development — — (49) Costs for divestment of Power Grids — — (86) Stranded corporate costs — — (40) Divested businesses and other non-core activities (117) (67) (342) Total Corporate and Other (824) (381) (912) (1) Includes gain on sale of the remaining 19.9 percent investment in Hitachi Energy Ltd. FINANCIAL REPORT 2022 47 In 2022, the net loss from operations within Corporate and Other increased by $443 million to $824 million compared to 2021. This increase was driven by costs associated with regulatory penalties assessed in connection with the Kusile project, restructuring expenses in connection with the exit of the full train retrofit business and lower gains for fair value adjustments on equity investments. Partly offsetting these negative impacts was the reversal of a provision that we had previously recorded related to one of our divested businesses and the gain in December 2022 from the sale of the remaining 19.9 percent of Hitachi Energy to Hitachi. Corporate In 2022, Corporate headquarters and stewardship costs increased by $31 million, mainly due to higher external consulting costs as part of the implementation of the ABB Way operating model. Excluding this, Corporate headquarters and stewardship costs were lower, supported by lower costs especially in the corporate legal function. During 2022, we did not have any significant revaluations of equity investments while in 2021 we recognized gains of $94 million for investments in our corporate equity ventures portfolio. Corporate brand income results from the granting of use of the ABB Brand to Hitachi Energy, the fair value of which was initially determined on the date of the divestment of the former Power Grids business in 2020. A portion of the proceeds received for the sale was allocated to the fair value of the granting of the use of the brand and is being amortized over the expected period of benefit received by Hitachi Energy. Corporate real estate primarily includes income and expenses from property rentals and gains from the sale of real estate properties. In 2022, income from operations in corporate real estate included gains from the sale of real estate properties of approximately $73 million compared to $22 million in 2021. Other corporate costs consists of operational costs of our Corporate Treasury Operations and other minor items including changes of the elimination related to internal profit of inventory. Other - Divested businesses and other non-core activities The results of operations for certain divested businesses and other non ‑ core activities are presented in Corporate and Other. Divested businesses include the high-voltage cables business, steel structures business and the oil & gas EPC business. Other continuing non ‑ core activities include the execution and wind ‑ down of certain legacy EPC and other contracts. In 2022 and 2021, the amounts represent charges and losses relating to divested businesses and the winding down of the remaining EPC projects. In 2022, we recorded a restructuring expense of $195 million in connection with the exit of the full train retrofit business primarily for contract settlement costs. This was offset in part by the reversal of a provision of $61 million that we had previously recorded related to one of our divested businesses based on a settlement proposal issued by the ruling court. In 2021, we recorded losses of $67 million which were mostly related to the full train retrofit business but also related to legacy EPC projects and the divested oil & gas EPC business. At December 31, 2022, our remaining non ‑ core activities primarily include the completion of the remaining EPC contracts for substations and oil & gas. — Liquidity and capital resources Principal sources of funding We meet our liquidity needs principally using cash from operations, proceeds from the issuance of debt instruments (bonds and commercial paper), and short ‑ term bank borrowings. In 2022, we also received significant funds from the sale of our remaining investment in Hitachi Energy which was sold in December 2022. 48 FINANCIAL REPORT 2022 Our net debt/cash is shown in the table below: December 31, ($ in millions) 2022 2021 Short-term debt and current maturities of long-term debt 2,535 1,384 Long-term debt 5,143 4,177 Cash and equivalents (4,156) (4,159) Restricted cash - current (18) (30) Marketable securities and short-term investments (725) (1,170) Restricted cash - non-current — (300) Net debt (cash) (defined as the sum of the above lines) 2,779 (98) During 2022, cash generation from operating activities was lower than in 2021 while we increased our total cash payments to shareholders in the form of dividends and purchases of treasury stock. These factors were the primary contributors to the change in net debt as presented in the table above. During 2022, we changed from a net cash position of $98 million at December 31, 2021, to a net debt position of $2,779 million at December 31, 2022. The effect of the exchange rate movements reduced net debt by approximately $30 million. In 2022, we received net proceeds of $1,552 million for the sale of our remaining investment in Hitachi Energy. We generated cash flows from operating activities during 2022 of $1,287 million and sold treasury stock in relation to our employee share plans for $394 million. We also issued shares in our subsidiary ABB E-Mobility to third parties in private placements for $216 million. These items were more than offset by amounts for purchases of treasury shares of $3,553 million, including $2,891 million relating to the announced buybacks of our shares, as well as $1,698 million for the payment of the dividend to our shareholders. We made net purchases of property, plant and equipment and intangible assets of $635 million and made payments of dividends to noncontrolling shareholders totaling $99 million. See “Financial position”, “Investing activities” and “Financing activities” for further details. Our Corporate Treasury Operations is responsible for providing a range of treasury management services to our group companies, including investing cash in excess of current business requirements. At December 31, 2022 and 2021, the proportion of our aggregate “Cash and equivalents” (including restricted cash) and “Marketable securities and short ‑ term investments” managed by our Corporate Treasury Operations amounted to approximately 51 percent and 44 percent, respectively. Our investment strategy for cash (in excess of current business requirements) has generally been to invest in short-term time deposits with maturities of less than 3 months, supplemented at times by investments in money market funds, and in some cases, government securities. We actively monitor credit risk in our investment and derivative portfolios. Credit risk exposures are controlled in accordance with policies approved by our senior management to identify, measure, monitor and control credit risks. We have minimum rating requirements for our counterparts and closely monitor developments in the credit markets making appropriate changes to our investment policy as deemed necessary. In addition to minimum rating criteria, we have strict investment parameters and specific approved instruments as well as restrictions on the types of investments we make. These parameters are closely monitored on an ongoing basis and amended as we consider necessary. Our cash is held in various currencies around the world. Approximately 41 percent of our cash and equivalents held at December 31, 2022, was in U.S. dollars, while the most significant foreign currencies in which cash and equivalents was held was euros (21 percent) and Indian rupees (10 percent). We believe the ongoing cash flows generated from our business, supplemented, when necessary, through access to the capital markets (including short ‑ term commercial paper) and our credit facilities are sufficient to support business operations, capital expenditures, business acquisitions, the payment of dividends to shareholders and contributions to pension plans. Consequently, we believe that our ability to obtain funding from these sources will continue to provide the cash flows necessary to satisfy our working capital and capital expenditure requirements, as well as meet our debt repayments and other financial commitments for the next 12 months. See “Contractual obligations and commitments”. Due to the nature of our operations, including the timing of annual incentive payments to employees, our cash flow from operations generally tends to be weaker in the first half of the year than in the second half of the year. FINANCIAL REPORT 2022 49 Debt and interest rates Total outstanding debt was as follows: December 31, ($ in millions) 2022 2021 Short-term debt and current maturities of long-term debt 2,535 1,384 Long-term debt: Bonds 4,944 3,984 Other long-term debt 199 193 Total debt 7,678 5,561 The increase in short-term debt in 2022 was due primarily to the increase in commercial paper outstanding offset partially by a reduction in Current maturities of long-term debt. At December 31, 2022, Long-term debt was $966 million higher compared to the end of 2021 due to the issuance of five new instruments which remain classified as Long-term debt at December 31, 2022 (EUR 700 million 0.625% Instruments due 2024, EUR 500 million floating rate Instruments due 2024, CHF 150 million 2.1% Bonds due 2025, CHF 425 million 0.75% Bonds due 2027 and CHF 150 million 2.375% Bonds due 2030) offset partially by the reclassification to current of the EUR 700 million 0.625% Instruments, due 2023. The increase in interest rates also resulted in a reduction in our long-term debt of approximately $200 million due to the application of fair value hedge accounting on certain outstanding instruments. Our debt has been obtained in a range of currencies and maturities and with various interest rate terms. For certain of our debt obligations, we use derivatives to manage the fixed interest rate exposure. For example, we use interest rate swaps and cross-currency interest rate swaps to effectively convert fixed rate debt into floating rate liabilities. After considering the effects of interest rate swaps and cross-currency interest rate swaps, at December 31, 2022, the effective average interest rate on our floating rate long-term debt (including current maturities) of $3,459 million and our fixed rate long-term debt (including current maturities) of $2,771 million was 2.8 percent and 2.2 percent, respectively. This compares with an effective rate of 0.3 percent for floating rate long-term debt of $3,598 million and 3.1 percent for fixed rate long-term debt of $1,885 million at December 31, 2021. For a discussion of our use of derivatives to modify the interest characteristics of certain of our individual bond issuances, see “Note 12 - Debt” to our Consolidated Financial Statements. Credit facility In December 2019, we replaced our previous multicurrency revolving credit facility with a new $2 billion multicurrency revolving credit facility, maturing in 2024. In 2021 we exercised our option to further extend the maturity to 2026. No amount was drawn under the facility at December 31, 2022 and 2021. The facility is available for general corporate purposes and contains cross-default clauses whereby an event of default would occur if we were to default on indebtedness, as defined in the facility, at or above a specified threshold. The credit facility does not contain financial covenants that would restrict our ability to pay dividends or raise additional funds in the capital markets. For further details of the credit facility, see “Note 12 - Debt” to our Consolidated Financial Statements. Commercial paper At December 31, 2022, we had two commercial paper programs in place: • a $2 billion commercial paper program for the private placement of U.S. dollar denominated commercial paper in the United States, and • a $2 billion Euro-commercial paper program for the issuance of commercial paper in a variety of currencies. At December 31, 2022 and 2021, there was no amount outstanding under the $2 billion program in the United States. At December 31, 2022, $1,383 million was outstanding under the $2 billion Euro-commercial paper program. There was no amount outstanding at December 31, 2021. 50 FINANCIAL REPORT 2022 European program for the issuance of debt The European program for the issuance of debt allows the issuance of up to the equivalent of $8 billion in certain debt instruments. The terms of the program do not obligate any third party to extend credit to us and the terms and possibility of issuing any debt under the program are determined with respect to, and as of the date of issuance of, each debt instrument. At December 31, 2022, five bonds (principal amount of EUR 700 million, due in 2023, principal amount of EUR 700 million, due in 2024, principal amount of EUR 500 million, due in 2024, principal amount of EUR 750 million, due in 2024, and principal amount of EUR 800 million, due in 2030) having a combined carrying amount of $3,444 million were outstanding under the program. The carrying amount of the three bonds outstanding under the program at December 31, 2021, was $2,522 million. Credit ratings Credit ratings are assessments by the rating agencies of the credit risk associated with ABB and are based on information provided by us or other sources that the rating agencies consider reliable. Higher ratings generally result in lower borrowing costs and increased access to capital markets. Our ratings are of “investment grade” which is defined as Baa3 (or above) from Moody’s and BBB− (or above) from Standard & Poor’s. At December 31, 2022 and 2021, our long-term debt was rated A3 by Moody’s and currently with a Stable outlook. At December 31, 2022 and 2021, our long-term debt was rated A- by Standard & Poor’s and currently with a Stable outlook. Limitations on transfers of funds Currency and other local regulatory limitations related to the transfer of funds exist in a number of countries where we operate or otherwise have bank deposits, including: China, Egypt, India, Malaysia, the Russian Federation, South Africa, South Korea, Taiwan (Chinese Taipei), Thailand, Turkiye and Vietnam. Funds, other than regular dividends, fees or loan repayments, cannot be readily transferred offshore from these countries and are therefore deposited and used for working capital needs in those countries. In addition, there are certain countries where, for tax reasons, it is not considered optimal to transfer the cash offshore. As a consequence, these funds are not available within our Corporate Treasury Operations to meet short-term cash obligations outside the relevant country. The above described funds are reported as cash in our Consolidated Balance Sheets, but we do not consider these funds immediately available for the repayment of debt outside the respective countries where the cash is situated, including those described above. At December 31, 2022 and 2021, the balance of “Cash and equivalents” and “Marketable securities and other short-term investments” under such limitations (either regulatory or sub-optimal from a tax perspective) totaled approximately $1,381 million and $2,074 million, respectively. During 2022, we continued to direct our subsidiaries in countries with restrictions to place such cash with our core banks or investment grade banks, in order to minimize credit risk on such cash positions. We continue to closely monitor the situation to ensure bank counterparty risks are minimized. FINANCIAL REPORT 2022 51 — Financial position Balance sheets December 31, ($ in millions) 2022 2021 % Change Current assets Cash and equivalents 4,156 4,159 0% Restricted cash 18 30 (40)% Marketable securities and short-term investments 725 1,170 (38)% Receivables, net 6,858 6,551 5% Contract assets 954 990 (4)% Inventories, net 6,028 4,880 24% Prepaid expenses 230 206 12% Other current assets 505 573 (12)% Current assets held for sale and in discontinued operations 96 136 (29)% Total current assets 19,570 18,695 5% For a discussion on Cash and equivalents, see sections “Liquidity and Capital Resources—Principal sources of funding” and “Cash flows” for further details. Marketable securities and short-term investments decreased in 2022. The change primarily reflects lower amounts placed in bank time deposits and a reduction in amounts placed in money market funds classified as equity securities (see “Note 5 - Cash and equivalents, marketable securities and short- term investments” to our Consolidated Financial Statements). Receivables, net, increased 5 percent (12 percent in local currencies) reflecting the higher revenues (due to both higher business volumes and higher prices) at the end of 2022 compared to 2021. Receivables also decreased 3 percent due to the spin-off of the Turbocharging Division. Contract assets decreased 4 percent (increased 2 percent in local currencies). Contract assets decreased 2 percent due to the spin-off of the Turbocharging Division with the remaining local currency increase of 4 percent reflecting higher levels of business activity at the end of 2022 compared to 2021. Inventories, net, increased 24 percent (32 percent in local currencies) and were significantly higher in all inventory categories. A portion of this increase reflects higher business activities at the end of 2022 compared to 2021 as well as higher inventories in order to fulfil the higher order backlog. We also had a significant build-up in the amount of raw materials as well as cost increases for materials. Supply chain challenges and shortages in the availability of some items have created the need for our businesses to stockpile certain key components. These challenges have also resulted in some delays in completing and delivering finished goods. The impact of the spin-off of the Turbocharging Division was a reduction of Inventories, net, of 3 percent. Current assets held for sale and in discontinued operations decreased to $96 million from $136 million. These amounts primarily relate to working capital for certain contracts relating to the former Power Grids business which remain with ABB and are being executed over time for the direct benefit of Hitachi Energy. For the details of the assets of the Power Grids business see “Note 3 - Discontinued operations” to our Consolidated Financial Statements. December 31, ($ in millions) 2022 2021 % Change Current liabilities Accounts payable, trade 4,904 4,921 0% Contract liabilities 2,216 1,894 17% Short-term debt and current maturities of long-term debt 2,535 1,384 83% Current operating leases 220 230 (4)% Provisions for warranties 1,028 1,005 2% Other provisions 1,171 1,386 (16)% Other current liabilities 4,323 4,367 (1)% Current liabilities held for sale and in discontinued operations 132 381 (65)% Total current liabilities 16,529 15,568 6% 52 FINANCIAL REPORT 2022 Accounts payable, trade, remained flat (increase 6 percent in local currencies) while the spin-off of the Turbocharging Division reduced the balance by 2 percent. The local currency increase reflects higher inventory purchases but the increase was muted as payment terms with suppliers have become somewhat less favorable in a constrained supply chain environment. Contract liabilities increased 17 percent (increased 24 percent in local currency) reflecting higher levels of business activity at the end of 2022 compared to 2021. The spin-off of the Turbocharging Division reduced the amount by 1 percent. The increase in short-term debt and current maturities of long-term debt in 2022 was due to an increase of commercial paper borrowings under the Euro-commercial paper program and the reclassification to current of the EUR 700 million 0.625% Instruments, due 2023, offset partially by the repayment at maturity of the USD 1,250 million 2.875% Notes, due 2022. Current operating leases includes the portion of the operating lease liabilities that are due to be paid in the next 12 months. For a summary of operating lease liabilities, see “Note 14 - Leases” to our Consolidated Financial Statements. Provisions for warranties increased 2 percent (7 percent in local currencies). The spin-off of the Turbocharging Division reduced the amount by 2 percent. The local currency increase reflects the higher provisioning in 2022 on increased revenues as well as increases in expected costs for certain newer product lines. For details on the change in the Provisions for warranties, see “Note 15 - Commitments and contingencies” to our Consolidated Financial Statements. Current liabilities held for sale and in discontinued operations decreased to $132 million from $381 million. The decrease included the settlement of $136 million for certain indemnification guarantees which were provided in connection with the original sale of the Power Grids business to Hitachi. The remaining amounts primarily relate to certain working capital balances of the former Power Grids business as described above. December 31, ($ in millions) 2022 2021 % Change Non-current assets Restricted cash, non-current — 300 (100)% Property, plant and equipment, net 3,911 4,045 (3)% Operating lease right-of-use assets 841 895 (6)% Investments in equity-accounted companies 130 1,670 (92)% Prepaid pension and other employee benefits 916 892 3% Intangible assets, net 1,406 1,561 (10)% Goodwill 10,511 10,482 0% Deferred taxes 1,396 1,177 19% Other non-current assets 467 543 (14)% Total non-current assets 19,578 21,565 (9)% The non-current Restricted cash at December 31, 2021, related to certain amounts received on the initial sale of the Power Grids business in 2020 which were placed in escrow, pending resolution of certain of our contractual obligations to Hitachi. See “Note 3 - Discontinued operations” to our Consolidated Financial Statements. In connection with the sale of the remaining ownership in Hitachi Energy to Hitachi in December 2022, the restrictions on the bank account where this cash was deposited were removed. In 2022, Property, plant and equipment, net, decreased 3 percent (increased 2 percent in local currencies). The spin-off of the Turbocharging Division reduced this balance by 4 percent. In 2022, Goodwill remained flat (increased 2 percent in local currencies). The local currency increase primarily reflects the purchase of In-Charge. Intangible assets, net, decreased 10 percent (8 percent in local currencies). Acquisitions of businesses, primarily In-Charge, increased Intangible assets, net, by 5 percent. For additional information on goodwill and intangible assets see “Note 11 - Goodwill and intangible assets” to our Consolidated Financial Statements. The balance for Investment in equity-accounted companies at December 31, 2021, primarily represented our remaining 19.9 percent interest in the Hitachi Energy joint venture. We sold this remaining interest in December 2022. For additional information on investments in equity-accounted companies see “Note 4 - Acquisitions, divestments and equity-accounted companies” to our Consolidated Financial Statements. FINANCIAL REPORT 2022 53 Prepaid pension and other employee benefits increased 3 percent (6 percent in local currencies). The spin-off of the Turbocharging Division reduced this balance by 10 percent. For additional information on Pension and employee benefits see “Note 17 - Employee benefits” to our Consolidated Financial Statements. In 2022, Deferred taxes increased 19 percent (26 percent in local currencies). For details on deferred tax assets see “Note 16 - Income taxes” to our Consolidated Financial Statements. December 31, ($ in millions) 2022 2021 % Change Non-current liabilities Long-term debt 5,143 4,177 23% Non-current operating leases 651 689 (6)% Pension and other employee benefits 719 1,025 (30)% Deferred taxes 729 685 6% Other non-current liabilities 2,085 2,116 (1)% Non-current liabilities held for sale and in discontinued operations 20 43 (53)% Total non-current liabilities 9,347 8,735 7% Long-term debt increased 23 percent. The balance at December 31, 2022, includes five instruments newly issued in 2022: i) EUR 700 million 0.625% Instruments due 2024, ii) EUR 500 million floating rate Instruments due 2024, iii) CHF 150 million 2.1% Bonds due 2025, iv) CHF 425 million 0.75% Bonds due 2027 and v) CHF 150 million 2.375% Bonds due 2030. This was partially offset by the reclassification to current of the EUR 700 million 0.625% Instruments, due 2023, as well as a reduction of 5 percent in reported amounts due to fair value hedge accounting adjustments. Foreign currency movements also reduced the balance by 3 percent over the year. For additional information on Long-term debt, see “Liquidity and Capital Resources—Debt and interest rates” as well as “Note 12 - Debt” to our Consolidated Financial Statements. Non-current operating leases includes the portion of the operating lease liabilities that are due to be paid in more than 12 months. Pension and employee benefits decreased 30 percent (26 percent in local currencies). For additional information on Pension and employee benefits see “Note 17 - Employee benefits” to our Consolidated Financial Statements. For a breakdown of Other non ‑ current liabilities, see “Note 13 - Other provisions, other current liabilities and other non-current liabilities” to our Consolidated Financial Statements. Non-current liabilities held for sale and in discontinued operations relate to the sale in 2020 of the Power Grids business. For the details of the liabilities of the Power Grids business see “Note 3 - Discontinued operations” to our Consolidated Financial Statements. Cash flows The Consolidated Statements of Cash Flows are shown on a continuing operations basis, with the effects of discontinued operations shown in aggregate for each major cash flow activity and also include the impact from changes in restricted cash. The Consolidated Statements of Cash Flows can be summarized as follows: ($ in millions) 2022 2021 2020 Net cash provided by operating activities 1,287 3,330 1,693 Net cash provided by investing activities 981 2,307 6,760 Net cash used in financing activities (2,394) (4,968) (8,175) Effects of exchange rate changes on cash and equivalents (189) (81) 79 Net change in cash and equivalents and restricted cash (315) 588 357 54 FINANCIAL REPORT 2022 Operating activities ($ in millions) 2022 2021 2020 Net income 2,594 4,650 5,205 Loss (income) from discontinued operations, net of tax 43 80 (4,860) Depreciation and amortization 814 893 915 Total adjustments to reconcile net income to net cash provided by operating activities (excluding depreciation and amortization) (434) (2,593) 263 Total changes in operating assets and liabilities (1,683) 308 352 Net cash provided by operating activities — continuing operations 1,334 3,338 1,875 Net cash used in operating activities — discontinued operations (47) (8) (182) Cash flows from operating activities in continuing operations in 2022 provided net cash of $1,334 million, a decrease of 60 percent compared to 2021 of which 7 percent was due to movements in exchange rates. In addition, in 2022, we had lower cash effective net income (i.e. net income from continuing operations adjusted for depreciation, amortization and other non-cash items) partially due to costs associated with business transformation activities, higher costs relating to business restructuring and costs for the spin-off of the Turbocharging Division and other business portfolio transactions. In 2022, this reduction was also impacted by payments of approximately $315 million in relation to regulatory penalties for the Kusile project. In 2022, an increase in both business volumes and inflation-driven cost and price changes resulted in growth in our working capital. Changes in operating assets and liabilities reflected a high buildup of inventory with a less favorable timing of inventory payments, an increase in amounts receivable from customers as well as the timing of payments for accrued liabilities, including higher employee bonuses paid in 2022 compared to 2021. Cash paid for income taxes decreased to $1,188 million from $1,292 million, reflecting the higher current income taxes in 2021, including tax impacts from the sales of businesses. In 2022 and 2021, there were no significant cash flows from operating activities of discontinued operations. Investing activities ($ in millions) 2022 2021 2020 Purchases of investments (321) (1,528) (5,933) Purchases of property, plant and equipment and intangible assets (762) (820) (694) Acquisition of businesses (net of cash acquired) and increases in cost- and equity-accounted companies (288) (241) (121) Proceeds from sales of investments 697 2,272 4,341 Proceeds from maturity of investments 73 81 11 Proceeds from sales of property, plant and equipment 127 93 114 Proceeds from sales of businesses (net of transaction costs and cash disposed) and cost- and equity-accounted companies 1,541 2,958 (136) Net cash from settlement of foreign currency derivatives (166) (121) 138 Changes in loans receivable, net 320 (19) (3) Other investing activities (14) (4) 11 Net cash provided by (used in) investing activities — continuing operations 1,207 2,671 (2,272) Net cash provided by (used in) investing activities — discontinued operations (226) (364) 9,032 Net cash provided by investing activities for continuing operations in 2022 was $1,207 million compared to $2,671 million during 2021, a decrease of $1,464 million. In 2022, we received net proceeds in connection with the sale of our remaining equity-method investment in Hitachi Energy of $1,552 million. In addition, included in Changes in loans receivable, net, are funds collected from a subsidiary of Accelleron in October 2022, related to a short-term intercompany loan granted in anticipation of the Turbocharging Division spin off. In 2021, we received proceeds of $2,958 million in connection with sales of businesses, primarily from the sale of the Dodge business. FINANCIAL REPORT 2022 55 The following presents purchases of property, plant and equipment and intangible assets by significant asset category: ($ in millions) 2022 2021 2020 Construction in progress 540 479 493 Purchase of machinery and equipment 127 150 134 Purchase of land and buildings 26 158 17 Purchase of intangible assets 69 33 50 Purchases of property, plant and equipment and intangible assets 762 820 694 Cash expenditures for acquisitions of businesses in 2022 primarily reflects the amount paid to acquire In-Charge while the amount in 2021 primarily reflects the acquisition of ASTI. Cash flows used in investing activities for discontinued operations includes amounts relating to the original sale of the Power Grids business to Hitachi. We sold this business in 2020 and reported net cash proceeds of $9,168 million in that year. Certain amounts related to the purchase price were subject to adjustment, including the final settlement for working capital balances as well as other payments which were contractually due to be transferred to Hitachi in periods after the initial sale. In 2022 and 2021, these uncertain elements of the purchase price, including the original indemnification guarantees, were finalized and we made payments related to the purchase price and certain other obligations totaling $227 million and $364 million, respectively. Financing activities ($ in millions) 2022 2021 2020 Net changes in debt with maturities of 90 days or less 1,366 (83) (587) Increase in debt 3,849 1,400 343 Repayment of debt (2,703) (1,538) (3,459) Delivery of shares 394 826 412 Purchase of treasury stock (3,553) (3,708) (3,048) Dividends paid (1,698) (1,726) (1,736) Cash associated with the spin-off of the Turbocharging Division (172) — — Dividends paid to noncontrolling shareholders (99) (98) (82) Proceeds from issuance of subsidiary shares 216 — — Other financing activities 6 (41) (49) Net cash used in financing activities — continuing operations (2,394) (4,968) (8,206) Net cash provided by financing activities — discontinued operations — — 31 Our financing cash flow activities primarily include debt transactions (both from the issuance of debt securities and borrowings directly from banks), share transactions (including share transactions in consolidated subsidiaries) and payments of distributions to controlling and noncontrolling shareholders. In 2022, we also distributed cash as part of the spin-off of the Turbocharging Division. In 2022, the net inflow for debt with maturities of 90 days or less related to net borrowings of amounts outstanding under the Euro-commercial paper program and various local country borrowings. In 2022, “Increase in debt” primarily represents initial borrowings for terms longer than 90 days under the Euro-commercial paper program of $1,425 million and borrowings under the following six long- term debt transactions (total cashflow amount at date of borrowings of $2,390 million): • CHF 275 million 0% Bonds due 2023 • EUR 700 million 0.625% Instruments due 2024 • EUR 500 million floating rate Instruments due 2024 • CHF 150 million 2.1% Bonds due 2025 • CHF 425 million 0.75% Bonds due 2027 • CHF 150 million 2.375% Bonds due 2030 In 2022, “Repayment of debt” includes the repayment at maturity of the USD 1,250 million Notes and repayments of $1,345 million under the Euro-commercial paper program for borrowings having terms longer than 90 days. “Delivery of shares” in 2022 primarily reflects cash received from the exercise of options in connection with our Management Incentive Plan (resulting in a delivery of 16 million shares). All shares were delivered out of Treasury stock. 56 FINANCIAL REPORT 2022 “Proceeds from issuance of subsidiary shares” in 2022 relates to the sale of shares by ABB E-mobility Holdings Ltd through a private placement of $216 million. In 2022, “Purchase of treasury stock” reflects $2,891 million of cash payments to purchase 91 million of our own shares in connection with the announced share buyback programs. It also reflects $662 million paid to purchase 20 million shares on the open market during the year. “Cash associated with the spin-off of the Turbocharging Division” represents the amount of cash and cash equivalents which were directly owned by the entities in the spin-off of the Turbocharging Division at the date of the spin-off. Contractual obligations and commitments The contractual obligations presented in the table below represent our estimates of future payments under fixed contractual obligations and commitments. These amounts may differ from those reported in our Consolidated Balance Sheet at December 31, 2022. Changes in our business needs, cancellation provisions and changes in interest rates, as well as actions by third parties and other factors, may cause these estimates to change. Therefore, our actual payments in future periods may vary from those presented below. The table below summarizes certain of our cash requirements for known contractual obligations and principal and interest payments under our debt instruments and purchase obligations at December 31, 2022, and the timing thereof. For details of future operating and finance lease payments, see “Note 14 - Leases” to our Consolidated Financial Statements. At December 31, 2022 ($ in millions) Current Non-current Total Long-term debt obligations 1,058 5,235 6,293 Interest payments related to long-term debt obligations 70 629 699 Purchase obligations 3,519 949 4,468 Total 4,647 6,813 11,460 In the table above, the “Long ‑ term debt obligations” reflect the cash amounts to be repaid upon maturity of those debt obligations. The cash obligations above will differ from Long ‑ term debt due to the impacts of fair value hedge accounting adjustments and premiums or discounts on certain debt. We have determined the interest payments related to long ‑ term debt obligations by reference to the payments due under the terms of our debt obligations at the time such obligations were incurred. However, we use interest rate swaps to modify the interest characteristics of certain of our debt obligations. The net effect of these swaps may increase or decrease the actual amount of our cash interest payment obligations, which may differ from those stated in the above table. For further details on our debt obligations and the related hedges, see “Note 12 - Debt” to our Consolidated Financial Statements. Purchase obligations are defined as agreements to purchase goods and services that are enforceable and legally binding, that specify all significant terms, including the quantities to be purchased, price provisions and the approximate timing of the transactions. Purchase obligations includes procurement contracts for raw materials, sub-contracted work, supplies and services. Purchase obligations include amounts recorded as well as amounts that are not recorded in the Consolidated Balance Sheets. Off ‑ balance sheet arrangements Commercial commitments We disclose the maximum potential exposure of certain guarantees, as well as possible recourse provisions that may allow us to recover from third parties amounts paid out under such guarantees. The maximum potential exposure does not allow any discounting of our assessment of actual exposure under the guarantees. The information below reflects our maximum potential exposure under the guarantees, which is higher than our assessment of the expected exposure. FINANCIAL REPORT 2022 57 Guarantees The following table provides quantitative data regarding our third ‑ party guarantees. The maximum potential payments represent a worst ‑ case scenario, and do not reflect our expected outcomes. Maximum potential payments (1) December 31, ($ in millions) 2022 2021 Performance guarantees 4,300 4,540 Financial guarantees 96 52 Indemnification guarantees (2) — 136 Total 4,396 4,728 (1) Maximum potential payments include amounts in both continuing and discontinued operations. (2) Certain indemnifications provided to Hitachi in connection with the divestment of Power Grids were without limit. The carrying amount of liabilities recorded in the Consolidated Balance Sheets reflects our best estimate of future payments, which we may incur as part of fulfilling our guarantee obligations. In respect of the above guarantees, the carrying amounts of liabilities at December 31, 2022 and 2021, amounted to $1 million and $156 million, respectively, the majority of which in 2021 is included in discontinued operations. In addition, in the normal course of bidding for and executing certain projects, we have entered into standby letters of credit, bid/performance bonds and surety bonds (collectively “performance bonds”) with various financial institutions. Customers can draw on such performance bonds in the event that we do not fulfill our contractual obligations. We would then have an obligation to reimburse the financial institution for amounts paid under the performance bonds. At December 31, 2022 and 2021, the total outstanding performance bonds aggregated to $2.9 billion and $3.6 billion, respectively; of each of these amounts, $0.1 billion relates to discontinued operations. There have been no significant amounts reimbursed to financial institutions under these types of arrangements in 2022 and 2021. For additional descriptions of our performance, financial and indemnification guarantees see “Note 15 - Commitments and contingencies” to our Consolidated Financial Statements. 58 FINANCIAL REPORT 2022 Consolidated Financial Statements of ABB Group FINANCIAL REPORT 2022 59 02 CONSOLIDATED FINANCIAL STATEMENTS OF ABB GROUP 60 Report of management on internal control over financial reporting 61 Reports of the Auditors 69 Financial Statements and Notes 60 FINANCIAL REPORT 2022 — Report of management on internal control over financial reporting The Board of Directors and Management of ABB Ltd and its consolidated subsidiaries (“ABB”) are responsible for establishing and maintaining adequate internal control over financial reporting. ABB’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of the published Consolidated Financial Statements in accordance with U.S. generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with ABB’s policies and procedures may deteriorate. Management conducted an assessment of the effectiveness of internal control over financial reporting based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on this assessment, management has concluded that ABB’s internal control over financial reporting was effective as of December 31, 2022. KPMG AG, the independent registered public accounting firm who audited the Company’s consolidated financial statements, has issued an opinion on the effectiveness of ABB’s internal control over financial reporting as of December 31, 2022, which is included on page 66 of this Annual Report. Björn Rosengren Timo Ihamuotila Chief Executive Officer Chief Financial Officer Zurich, February 23, 2023 61 WWG Statutory Auditor's Report To the General Meeting of ABB Ltd, Zurich Report on the Audit of the Consolidated Financial Statements Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of ABB Ltd and subsidiaries (the Group) as of December 31 , 2022 and 2021 , the related consolidated income statements, statements of comprehensive income, cash flows and changes in stockholders’ equity for each of the years in the three-year period ended December 31 , 2022, and the related notes (collectively, the consolidated financial statements on page 69 to 137), including a summary of significant accounting policies. In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles (US GAAP) and comply with Swiss law. Basis for Opinion We conducted our audit in accordance with Swiss law, Swiss Standards on Auditing (SA-CH) and the standards of the Public Company Accounting Oversight Board (United States) (PCAOB). Our responsibility is to express an opinion on these consolidated financial statements based on our audit and our responsibilities under those provisions and standards are further described in the “Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements” section of our report. We are a public accounting firm and are independent of the Group in accordance with the provisions of Swiss law and U.S. federal securities laws, together with the requirements of the Swiss audit profession, the U.S. Securities and Exchange Commission and the PCAOB, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1 ) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Critical Audit Matters Revenue recognition for certain long-term fixed price contracts using the percentage-of-completion method [ Valuation of unrecognized tax benefits related to transfer pricing 62 ■ CM— Revenue recognition for certain long-term fixed price contracts using the percentage-of-completion method Critical Audit Matter As discussed in Note 2 to the consolidated financial statements, revenues from the sale of customized products, including long-term fixed price contracts for integrated automation and electrification systems and solutions are generally recognized on an over time basis using the percentage-of-completion method of accounting. For the year ended December 31 , 2022, the Group reported $24,471 million of revenue from sales of products, a portion of which related to long-term fixed price contracts. We identified the evaluation of estimated costs to complete related to revenue recognition of certain long- term fixed price contracts using the percentage of- completion method of accounting as a critical audit matter. In particular, a high degree of subjective auditor judgment was required to evaluate the Group’s estimates regarding the amount of future direct materials, labor and subcontract costs, and indirect costs to complete the contracts. Our response The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Group’s revenue process including controls over the development of estimates regarding the amount of future direct materials, labor and subcontract costs, and indirect costs. We assessed the Group’s historical ability to accurately estimate costs to complete by comparing historical estimates to actual results for a selection of contracts. We evaluated the estimate of remaining costs to be incurred for a selection of contracts by assessing progress to date and the nature and complexity of work to be performed through interviewing project managers and inspecting correspondence, if any, between the Group and the customer and/or subcontractors. For further information on revenue recognition for long-term fixed price contracts refer to the following: — Note 2 “Significant accounting policies” [ Valuation of unrecognized tax benefits related to transfer pricing Critical Audit Matter As discussed in Note 2 to the consolidated financial statements, the Group operates across multiple tax jurisdictions, is exposed to numerous tax laws and is regularly subject to tax audits by local tax authorities. As discussed in Note 16, the Group reported total unrecognized tax benefits of $1,350 million, a portion of which related to transfer pricing. We identified the valuation of unrecognized tax benefits related to transfer pricing as a critical audit matter. A high degree of subjective auditor judgment and specialized skills and knowledge was required in assessing the Group's interpretation of international tax practice and developments in relation to intragroup charges and intragroup sales of goods and services and the Group’s ability to estimate the resolution of the tax positions. Our response The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Group’s tax process including controls related to the Group’s interpretation of international tax practice and developments in relation to intragroup charges and intragroup sale of goods and services and the estimate of the related unrecognized tax benefits. We tested the identified costs that have a higher likelihood of being challenged by tax authorities associated with intragroup arrangements and potential price adjustments for intragroup sales of goods and services. We involved tax professionals with specialized skills and knowledge, who assisted in evaluating (1) the Group’s historical ability to accurately estimate the unrecognized tax benefits related to transfer pricing by comparing historical tax positions to subsequent settlements (2) the Group’s transfer pricing 63 W1 A k’l documentation and methodology for compliance with applicable laws and regulations by assessing the documentation and relevant agreements, (3) the impact of new information or changes in international tax practice and developments on historical tax positions, and (4) developing an independent expectation of the unrecognized tax benefits estimate relating to current year tax positions in connection with the Group’s intragroup charges and intragroup sales of goods and services and comparing the results to the Group’s assessment. For further information on unrecognized tax benefits refer to the following: — Note 2 “Significant accounting policies” — Note 16 “Income taxes” Other Information in the ABB Annual Reporting Suite The Board of Directors is responsible for the other information. The other information comprises the information included in the ABB Annual Reporting Suite (consisting of the Integrated Report, the Financial Report, the Corporate Governance Report, and the Compensation Report), but does not include the consolidated financial statements, the stand-alone financial statements of the company, the compensation report and our auditor’s reports thereon. Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Board of Directors for the Consolidated Financial Statements The Board of Directors is responsible for the preparation and fair presentation of consolidated financial statements in accordance with US GAAP and the provisions of Swiss law, and for such internal control as the Board of Directors determines is necessary to enable the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, the Board of Directors is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. 64 Auditor’s Responsibilities for the Audit of the Consolidation Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Swiss law, SA-CH and PCAOB standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with Swiss law, SA-CH and PCAOB standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: — Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. — Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. — Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made. — Conclude on the appropriateness of the Board of Directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern. — Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. — Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate with the Board of Directors and the Audit Committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies or material weaknesses in internal control that we identify during our audit. We also provide the Board of Directors and the Audit Committee with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. From the matters arising from the audit of the financial statements that were communicated or required to be communicated to the Board of Directors and the Audit Committee, we determine those matters that related to accounts or disclosures that are material to the financial statements and involved especially challenging, subjective, or complex auditor judgment in current period and are therefore critical audit matters. 65 Report on Other Legal and Regulatory Requirement In accordance with article 728a para. 1 item 3 CO and PS-CH 890, we confirm that an internal control system exists, which has been designed for the preparation of consolidated financial statements according to the instructions of the Board of Directors. We recommend that the consolidated financial statements submitted to you be approved. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Group’s internal control over financial reporting as of December 31 , 2022, based on criteria established in Internal Control - Integrated Framework (201 3) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 23, 2023, expressed an unqualified opinion on the effectiveness of the Group’s internal control over financial reporting. We have served as the Group’s auditor since 2018. KPMG AG Mohammad Nafeie Hans-Dieter Krauss Licensed Audit Expert Auditor in Charge Zurich, Switzerland February 23, 2023 KPMG AG, Badenerstrasse 172, CH-8036 Zurich © 2023 KPMG AG, a Swiss corporation, is a subsidiary of KPMG Holding AG, which is a member of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. 66 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of ABB Ltd Opinion on Internal Control Over Financial Reporting We have audited ABB Ltd and its subsidiaries’ (the Group) internal control over financial reporting as of December 31 , 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion the Group maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO. We also have audited, in accordance with Swiss law, Swiss Standards on Auditing (SA-CH) and the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Group as of December 31, 2022 and 2021, the related consolidated income statements, statements of comprehensive income, cash flows and changes in stockholders’ equity for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively, the consolidated financial statements), and our report dated February 23, 2023, expressed an unqualified opinion on those consolidated financial statements. Basis for Opinion The Group’s Board of Directors and management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of management on internal control over financial reporting. Our responsibility is to express an opinion on the Group’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. FINANCIAL REPORT 2022 67 Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. KPMG AG Hans-Dieter Krauss Licensed Audit Expert Auditor in Charge Mohammad Nafeie Zurich, Switzerland February 23, 2023 KPMG AG, Badenerstrasse 172, PO Box, CH-8036 Zurich © 2023 KPMG AG, a Swiss corporation, is a subsidiary of KPMG Holding AG, which is a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. 68 FINANCIAL REPORT 2022 BLANK PAGE FINANCIAL REPORT 2022 69 — ABB Ltd Consolidated Income Statements Year ended December 31 ($ in millions, except per share data in $) 2022 2021 2020 Sales of products 24,471 23,745 21,214 Sales of services and other 4,975 5,200 4,920 Total revenues 29,446 28,945 26,134 Cost of sales of products (16,804) (16,364) (15,229) Cost of services and other (2,932) (3,114) (3,027) Total cost of sales (19,736) (19,478) (18,256) Gross profit 9,710 9,467 7,878 Selling, general and administrative expenses (5,132) (5,162) (4,895) Non-order related research and development expenses (1,166) (1,219) (1,127) Impairment of goodwill — — (311) Other income (expense), net (75) 2,632 48 Income from operations 3,337 5,718 1,593 Interest and dividend income 72 51 51 Interest and other finance expense (130) (148) (240) Losses from extinguishment of debt — — (162) Non-operational pension (cost) credit 115 166 (401) Income from continuing operations before taxes 3,394 5,787 841 Income tax expense (757) (1,057) (496) Income from continuing operations, net of tax 2,637 4,730 345 Income (loss) from discontinued operations, net of tax (43) (80) 4,860 Net income 2,594 4,650 5,205 Net income attributable to noncontrolling interests and redeemable noncontrolling interests (119) (104) (59) Net income attributable to ABB 2,475 4,546 5,146 Amounts attributable to ABB shareholders: Income from continuing operations, net of tax 2,517 4,625 294 Income (loss) from discontinued operations, net of tax (42) (79) 4,852 Net income 2,475 4,546 5,146 Basic earnings per share attributable to ABB shareholders: Income from continuing operations, net of tax 1.33 2.31 0.14 Income (loss) from discontinued operations, net of tax (0.02) (0.04) 2.30 Net income 1.30 2.27 2.44 Diluted earnings per share attributable to ABB shareholders: Income from continuing operations, net of tax 1.32 2.29 0.14 Income (loss) from discontinued operations, net of tax (0.02) (0.04) 2.29 Net income 1.30 2.25 2.43 Weighted-average number of shares outstanding (in millions) used to compute: Basic earnings per share attributable to ABB shareholders 1,899 2,001 2,111 Diluted earnings per share attributable to ABB shareholders 1,910 2,019 2,119 Due to rounding, numbers presented may not add to the totals provided. See accompanying Notes to the Consolidated Financial Statements 70 FINANCIAL REPORT 2022 — ABB Ltd Consolidated Statements of Comprehensive Income Year ended December 31 ($ in millions) 2022 2021 2020 Net income 2,594 4,650 5,205 Other comprehensive income (loss), net of tax: Foreign currency translation adjustments: Foreign currency translation adjustments (685) (521) 498 Net loss on complete or substantially complete liquidations of foreign subsidiaries 5 — — Changes attributable to divestments 41 (9) 519 Foreign currency translation adjustments (639) (530) 1,017 Available-for-sale securities: Net unrealized gains (losses) arising during the year (23) (10) 24 Reclassification adjustments for net (gains) losses included in net income 2 (5) (14) Changes attributable to divestments — — (3) Unrealized gains (losses) on available-for-sale securities (21) (15) 7 Pension and other postretirement plans: Prior service credits arising during the year — — 43 Net actuarial gains (losses) arising during the year 226 411 (200) Amortization of prior service credit included in net income (16) (14) (11) Amortization of net actuarial loss included in net income 44 69 88 Net losses from settlements and curtailments included in net income 9 7 518 Changes attributable to divestments (8) (6) 151 Pension and other postretirement plan adjustments 255 467 589 Derivative instruments and hedges: Net unrealized gains (losses) arising during the year (12) 8 2 Reclassification adjustments for net (gains) losses included in net income 12 (13) — Changes in derivative instruments and hedges — (5) 2 Total other comprehensive income (loss), net of tax (405) (83) 1,615 Total comprehensive income, net of tax 2,189 4,567 6,820 Total comprehensive (income) loss attributable to noncontrolling interests and redeemable noncontrolling interests, net of tax (87) (108) (86) Total comprehensive income attributable to ABB, net of tax 2,102 4,459 6,734 Due to rounding, numbers presented may not add to the totals provided. See accompanying Notes to the Consolidated Financial Statements FINANCIAL REPORT 2022 71 — ABB Ltd Consolidated Balance Sheets December 31 ($ in millions, except share data) 2022 2021 Cash and equivalents 4,156 4,159 Restricted cash 18 30 Marketable securities and short-term investments 725 1,170 Receivables, net 6,858 6,551 Contract assets 954 990 Inventories, net 6,028 4,880 Prepaid expenses 230 206 Other current assets 505 573 Current assets held for sale and in discontinued operations 96 136 Total current assets 19,570 18,695 Restricted cash, non-current — 300 Property, plant and equipment, net 3,911 4,045 Operating lease right-of-use assets 841 895 Investments in equity-accounted companies 130 1,670 Prepaid pension and other employee benefits 916 892 Intangible assets, net 1,406 1,561 Goodwill 10,511 10,482 Deferred taxes 1,396 1,177 Other non-current assets 467 543 Total assets 39,148 40,260 Accounts payable, trade 4,904 4,921 Contract liabilities 2,216 1,894 Short-term debt and current maturities of long-term debt 2,535 1,384 Current operating leases 220 230 Provisions for warranties 1,028 1,005 Other provisions 1,171 1,386 Other current liabilities 4,323 4,367 Current liabilities held for sale and in discontinued operations 132 381 Total current liabilities 16,529 15,568 Long-term debt 5,143 4,177 Non-current operating leases 651 689 Pension and other employee benefits 719 1,025 Deferred taxes 729 685 Other non-current liabilities 2,085 2,116 Non-current liabilities held for sale and in discontinued operations 20 43 Total liabilities 25,876 24,303 Commitments and contingencies Redeemable noncontrolling interest 85 — Stockholders’ equity: Common stock, CHF 0.12 par value (1,965 million and 2,053 million shares issued at December 31, 2022 and 2021, respectively) 171 178 Additional paid-in capital 141 22 Retained earnings 20,082 22,477 Accumulated other comprehensive loss (4,556) (4,088) Treasury stock, at cost (100 million and 95 million shares at December 31, 2022 and 2021, respectively) (3,061) (3,010) Total ABB stockholders’ equity 12,777 15,579 Noncontrolling interests 410 378 Total stockholders’ equity 13,187 15,957 Total liabilities and stockholders’ equity 39,148 40,260 Due to rounding, numbers presented may not add to the totals provided. See accompanying Notes to the Consolidated Financial Statements 72 FINANCIAL REPORT 2022 — ABB Ltd Consolidated Statements of Cash Flows Year ended December 31 ($ in millions) 2022 2021 2020 Operating activities: Net income 2,594 4,650 5,205 Loss (income) from discontinued operations, net of tax 43 80 (4,860) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 814 893 915 Impairment of goodwill — — 311 Changes in fair values of investments (33) (123) (99) Pension and other employee benefits (125) (216) 50 Deferred taxes (344) (289) (280) Losses from extinguishment of debt — — 162 Loss from equity-accounted companies 102 100 66 Net loss (gain) from derivatives and foreign exchange (23) 49 (2) Net gain from sale of property, plant and equipment (84) (38) (37) Net loss (gain) from sale of businesses 7 (2,193) 2 Other 66 117 90 Changes in operating assets and liabilities: Trade receivables, net (831) (142) (100) Contract assets and liabilities 416 29 186 Inventories, net (1,599) (771) 196 Accounts payable, trade 395 659 (13) Accrued liabilities 136 454 (92) Provisions, net (70) (48) 243 Income taxes payable and receivable (94) 117 (76) Other assets and liabilities, net (36) 10 8 Net cash provided by operating activities — continuing operations 1,334 3,338 1,875 Net cash used in operating activities — discontinued operations (47) (8) (182) Net cash provided by operating activities 1,287 3,330 1,693 Investing activities: Purchases of investments (321) (1,528) (5,933) Purchases of property, plant and equipment and intangible assets (762) (820) (694) Acquisition of businesses (net of cash acquired) and increases in cost- and equity-accounted companies (288) (241) (121) Proceeds from sales of investments 697 2,272 4,341 Proceeds from maturity of investments 73 81 11 Proceeds from sales of property, plant and equipment 127 93 114 Proceeds from sales of businesses (net of transaction costs and cash disposed) and cost- and equity-accounted companies 1,541 2,958 (136) Net cash from settlement of foreign currency derivatives (166) (121) 138 Changes in loans receivable, net 320 (19) (3) Other investing activities (14) (4) 11 Net cash provided by (used in) investing activities — continuing operations 1,207 2,671 (2,272) Net cash provided by (used in) investing activities — discontinued operations (226) (364) 9,032 Net cash provided by investing activities 981 2,307 6,760 FINANCIAL REPORT 2022 73 Year ended December 31 ($ in millions) 2022 2021 2020 Financing activities: Net changes in debt with maturities of 90 days or less 1,366 (83) (587) Increase in debt 3,849 1,400 343 Repayment of debt (2,703) (1,538) (3,459) Delivery of shares 394 826 412 Purchase of treasury stock (3,553) (3,708) (3,048) Dividends paid (1,698) (1,726) (1,736) Cash associated with the spin-off of the Turbocharging Division (172) — — Dividends paid to noncontrolling shareholders (99) (98) (82) Proceeds from issuance of subsidiary shares 216 — — Other financing activities 6 (41) (49) Net cash used in financing activities — continuing operations (2,394) (4,968) (8,206) Net cash provided by financing activities — discontinued operations — — 31 Net cash used in financing activities (2,394) (4,968) (8,175) Effects of exchange rate changes on cash and equivalents and restricted cash (189) (81) 79 Net change in cash and equivalents and restricted cash (315) 588 357 Cash and equivalents and restricted cash, beginning of period 4,489 3,901 3,544 Cash and equivalents and restricted cash, end of period 4,174 4,489 3,901 Supplementary disclosure of cash flow information: Interest paid 90 132 189 Income taxes paid 1,188 1,292 905 Due to rounding, numbers presented may not add to the totals provided. See accompanying Notes to the Consolidated Financial Statement 74 FINANCIAL REPORT 2022 — ABB Ltd Consolidated Statements of Changes in Stockholders’ Equity Years ended December 31, 2022, 2021 and 2020 Common stock Additional paid-in capital Retained earnings Accumulated other Comprehensive loss Treasury stock Total ABB stockholders’ equity Noncontrolling interests Total stockholders’ equity ($ in millions) Balance at January 1, 2020 188 73 19,640 (5,590) (785) 13,526 454 13,980 Adoption of accounting standard update (82) (82) (9) (91) Net income 5,146 5,146 59 5,205 Foreign currency translation adjustments, net of tax 990 990 27 1,017 Effect of change in fair value of available-for-sale securities, net of tax 7 7 7 Unrecognized income (expense) related to pensions and other postretirement plans, net of tax 589 589 589 Change in derivative instruments and hedges, net of tax 2 2 2 Changes in noncontrolling interests (16) (16) 19 3 Changes in noncontrolling interests in connection with divestments — (138) (138) Dividends to noncontrolling shareholders — (98) (98) Dividends to shareholders (1,758) (1,758) (1,758) Share-based payment arrangements 54 54 54 Purchase of treasury stock (3,181) (3,181) (3,181) Delivery of shares (24) 436 412 412 Call options (3) (3) (3) Balance at December 31, 2020 188 83 22,946 (4,002) (3,530) 15,685 314 15,999 Net income 4,546 4,546 104 4,650 Foreign currency translation adjustments, net of tax (534) (534) 4 (530) Effect of change in fair value of available-for-sale securities, net of tax (15) (15) (15) Unrecognized income (expense) related to pensions and other postretirement plans, net of tax 467 467 467 Change in derivative instruments and hedges, net of tax (5) (5) (5) Changes in noncontrolling interests (37) (20) (57) 55 (2) Dividends to noncontrolling shareholders — (98) (98) Dividends to shareholders (1,730) (1,730) (1,730) Cancellation of treasury shares (10) (17) (3,130) 3,157 — — Share-based payment arrangements 60 60 60 Purchase of treasury stock (3,682) (3,682) (3,682) Delivery of shares (84) (136) 1,046 826 826 Other 16 16 16 Balance at December 31, 2021 178 22 22,477 (4,088) (3,010) 15,579 378 15,957 Net income (1) 2,475 2,475 124 2,599 Foreign currency translation adjustments, net of tax (608) (608) (31) (639) Effect of change in fair value of available-for-sale securities, net of tax (21) (21) (21) Unrecognized income (expense) related to pensions and other postretirement plans, net of tax 256 256 (1) 255 Change in derivative instruments and hedges, net of tax — — — Issuance of subsidiary shares 120 120 86 206 Other changes in noncontrolling interests 10 10 (34) (24) Dividends to noncontrolling shareholders — (100) (100) Dividends to shareholders (1,700) (1,700) (1,700) Spin-off of the Turbocharging Division (177) (95) (272) (12) (284) Cancellation of treasury shares (8) (4) (2,864) 2,876 — — Share-based payment arrangements 42 42 42 Purchase of treasury stock (3,502) (3,502) (3,502) Delivery of shares (51) (130) 575 394 394 Other 2 2 2 Balance at December 31, 2022 171 141 20,082 (4,556) (3,061) 12,777 410 13,187 (1) Amounts attributable to noncontrolling interests in 2022 exclude net losses of $5 million related to redeemable noncontrolling interests, which are reported in the mezzanine equity section on the Consolidated Balance Sheets. See Note 4 for details. Due to rounding, numbers presented may not add to the totals provided. See accompanying Notes to the Consolidated Financial Statements FINANCIAL REPORT 2022 75 — Notes to the Consolidated Financial Statements — Note 1 The Company ABB Ltd and its subsidiaries (collectively, the Company) together form a technology leader in electrification and automation, enabling a more sustainable and resource-efficient future. The Company’s solutions connect engineering know-how and software to optimize how things are manufactured, moved, powered and operated. — Note 2 Significant accounting policies The following is a summary of significant accounting policies followed in the preparation of these Consolidated Financial Statements. Basis of presentation The Consolidated Financial Statements are prepared in accordance with United States of America (United States or U.S.) generally accepted accounting principles (U.S. GAAP) and are presented in United States dollars ($ or USD) unless otherwise stated. Due to rounding, numbers presented may not add to the totals provided. The par value of capital stock is denominated in Swiss francs. Scope of consolidation The Consolidated Financial Statements include the accounts of ABB Ltd and companies which are directly or indirectly controlled by ABB Ltd. Additionally, the Company consolidates variable interest entities if it has determined that it is the primary beneficiary. Intercompany accounts and transactions are eliminated. Investments in joint ventures and affiliated companies in which the Company has the ability to exercise significant influence over operating and financial policies (generally through direct or indirect ownership of 20 percent to 50 percent of the voting rights), are recorded in the Consolidated Financial Statements using the equity method of accounting. Translation of foreign currencies and foreign exchange transactions The functional currency for most of the Company’s subsidiaries is the applicable local currency. The translation from the applicable functional currencies into the Company’s reporting currency is performed for balance sheet accounts using exchange rates in effect at the balance sheet date and for income statement accounts using average exchange rates prevailing during the year. The resulting translation adjustments are excluded from the determination of earnings and are recognized in “Accumulated other comprehensive loss” until the subsidiary is sold, substantially liquidated or evaluated for impairment in anticipation of disposal. Foreign currency exchange gains and losses, such as those resulting from foreign currency denominated receivables or payables, are included in the determination of earnings, except as they relate to intercompany loans that are equity ‑ like in nature with no reasonable expectation of repayment, which are recognized in “Accumulated other comprehensive loss”. Exchange gains and losses are recognized in earnings and classified in the line item consistent with the underlying transaction or item. 76 FINANCIAL REPORT 2022 Discontinued operations The Company reports a disposal, or planned disposal, of a component or a group of components as a discontinued operation if the disposal represents a strategic shift that has or will have a major effect on the Company’s operations and financial results. A strategic shift could include a disposal of a major geographical area, a major line of business or other major parts of the Company. A component may be a reportable segment or an operating segment, a reporting unit, a subsidiary, or an asset group. The assets and liabilities of a component reported as a discontinued operation are presented separately as held for sale and in discontinued operations in the Company’s Consolidated Balance Sheets. Interest expense that is not directly attributable to or related to the Company’s continuing business or discontinued business is allocated to discontinued operations based on the ratio of net assets to be sold less debt that is required to be paid as a result of the planned disposal transaction to the sum of total net assets of the Company plus consolidated debt. General corporate overhead is not allocated to discontinued operations (see Note 3). Operating cycle A portion of the Company’s activities (primarily long ‑ term system integration activities) has an operating cycle that exceeds one year. For classification of current assets and liabilities related to such activities, the Company elected to use the duration of the individual contracts as its operating cycle. Accordingly, there are accounts receivable, inventories and provisions related to these contracts which will not be realized within one year that have been classified as current. Use of estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make assumptions and estimates that directly affect the amounts reported in the Consolidated Financial Statements and the accompanying Notes. These accounting assumptions and estimates include: • estimates to determine valuation allowances for deferred tax assets and amounts recorded for unrecognized tax benefits, • estimates related to credit losses expected to occur over the remaining life of financial assets such as trade and other receivables, loans and other instruments, • estimates used to record expected costs for employee severance in connection with restructuring programs, • estimates of loss contingencies associated with litigation or threatened litigation and other claims and inquiries, environmental damages, product warranties, self ‑ insurance reserves, regulatory and other proceedings, • assumptions and projections, principally related to future material, labor and project ‑ related overhead costs, used in determining the percentage ‑ of ‑ completion on projects where revenue is recognized over time, as well as the amount of variable consideration the Company expects to be entitled to, • assumptions used in the calculation of pension and postretirement benefits and the fair value of pension plan assets, • assumptions used in determining inventory obsolescence and net realizable value, • growth rates, discount rates and other assumptions used to determine impairment of long ‑ lived assets and in testing goodwill for impairment, • estimates and assumptions used in determining the fair values of assets and liabilities assumed in business combinations, and • estimates and assumptions used in determining the initial fair value of retained noncontrolling interests and certain obligations in connection with divestments. The actual results and outcomes may differ from the Company’s estimates and assumptions. Cash and equivalents Cash and equivalents include highly liquid investments with maturities of three months or less at the date of acquisition. Currency and other local regulatory limitations related to the transfer of funds exist in a number of countries where the Company operates. Funds, other than regular dividends, fees or loan repayments, cannot be readily transferred abroad from these countries and are therefore deposited and used for working capital needs locally. These funds are included in cash and equivalents as they are not considered restricted. FINANCIAL REPORT 2022 77 Cash and equivalents that are subject to contractual restrictions or other legal obligations and are not readily available are classified as “Restricted cash”. Marketable securities and short ‑ term investments Management determines the appropriate classification of held ‑ to ‑ maturity and available ‑ for ‑ sale debt securities at the time of purchase. Debt securities are classified as held ‑ to ‑ maturity when the Company has the positive intent and ability to hold the securities to maturity. Held ‑ to ‑ maturity debt securities are carried at amortized cost, adjusted for accretion of discounts or amortization of premiums to maturity computed under the effective interest method. Such accretion or amortization is included in “Interest and dividend income”. Marketable debt securities not classified as held ‑ to ‑ maturity are classified as available ‑ for ‑ sale and reported at fair value. Unrealized gains and losses on available ‑ for ‑ sale debt securities are excluded from the determination of earnings and are instead recognized in the “Accumulated other comprehensive loss” component of stockholders’ equity, net of tax, until realized. Realized gains and losses on available ‑ for ‑ sale debt securities are computed based upon the historical cost of these securities, using the specific identification method. Marketable debt securities are classified as either “Cash and equivalents” or “Marketable securities and short ‑ term investments” according to their maturity at the time of acquisition. Marketable equity securities are generally classified as “Marketable securities and short ‑ term investments”, however, any marketable securities held as a long ‑ term investment rather than as an investment of excess liquidity are classified as “Other non ‑ current assets”. Marketable equity securities are measured at fair value with fair value changes reported in net income. Fair value changes for marketable equity securities are generally reported in “Interest and other finance expense”, however, fair value changes for certain marketable equity securities classified as long-term investments are reported in “Other income (expense), net”. For debt securities classified as available-for-sale where fair value has declined below amortized cost due to credit losses, the Company records an allowance for expected credit losses and adjusts the allowance in subsequent periods in “Interest and other finance expense”. All fair value changes other than those related to credit risk are reported in “Accumulated other comprehensive loss” until the security is sold. In addition, equity securities without readily determinable fair values are remeasured if there is an observable price change in an orderly transaction for the same investment, or if a qualitative assessment indicates that the investment is impaired and the fair value of the investment is less than its carrying amount. Similar to other fair value changes as described above, depending on the nature of the investment, this fair value change is either recorded in “Other income (expense), net” or “Interest and other finance expense”. Accounts receivable and allowance for expected credit losses Accounts receivable are recorded at the invoiced amount. The Company has a group ‑ wide policy on the management of credit risk. The policy includes a credit assessment methodology to assess the creditworthiness of customers and assign to those customers a risk category. Third ‑ party agencies’ ratings are considered, if available. For customers where agency ratings are not available, the customer’s most recent financial statements, payment history and other relevant information are considered in the assignment to a risk category. Customers are assessed at least annually or more frequently when information on significant changes in the customer’s financial position becomes known. In addition to the assignment to a risk category, a credit limit per customer is set. The Company recognizes an allowance for credit losses to present the net amount of receivables expected to be collected at the balance sheet date. The allowance is based on the credit losses expected to arise over the asset’s contractual term taking into account historical loss experience, customer-specific data as well as forward looking estimates. The Company’s accounts receivable are first grouped by the individual legal entity which generally has a geographic concentration of receivables, resulting in different risk levels for different entities. Receivables are then further subdivided within the entity into pools based on similar risk characteristics to estimate expected credit losses. Expected credit losses are estimated individually when the related assets do not share similar risk characteristics. Accounts receivable are written off when deemed uncollectible and are recognized as a deduction from the allowance for credit losses. Expected recoveries, which are not to exceed the amount previously written off, are considered in determining the allowance balance at the balance sheet date. 78 FINANCIAL REPORT 2022 The Company, in its normal course of business, transfers receivables to third parties, generally without recourse. The transfer is accounted for as a sale when the Company has surrendered control over the receivables. Control is deemed to have been surrendered when (i) the transferred receivables have been put presumptively beyond the reach of the Company and its creditors, even in bankruptcy or other receivership, (ii) the third ‑ party transferees have the right to pledge or exchange the transferred receivables, and (iii) the Company has relinquished effective control over the transferred receivables and does not retain the ability or obligation to repurchase or redeem the transferred receivables. At the time of sale, the sold receivables are removed from the Consolidated Balance Sheets and the related cash inflows are classified as operating activities in the Consolidated Statements of Cash Flows. Costs associated with the sale of receivables, including the related gains and losses from the sales, are included in “Interest and other finance expense”. Transfers of receivables that do not meet the requirements for treatment as sales are accounted for as secured borrowings and the related cash flows are classified as financing activities in the Consolidated Statements of Cash Flows. Concentrations of credit risk The Company sells a broad range of products, systems, services and software to a wide range of industrial, commercial and utility customers as well as various government agencies and quasi ‑ governmental agencies throughout the world. Concentrations of credit risk with respect to accounts receivable are limited, as the Company’s customer base is comprised of a large number of individual customers. Ongoing credit evaluations of customers’ financial positions are performed to determine whether the use of credit support instruments such as guarantees, letters of credit or credit insurance are necessary; collateral is not generally required. The Company maintains an allowance for credit losses as discussed above in “Accounts receivable and allowance for expected credit losses”. Such losses, in the aggregate, are in line with the Company’s expectations. It is the Company’s policy to invest cash in deposits with banks throughout the world with certain minimum credit ratings and in high quality, low risk, liquid investments. The Company actively manages its credit risk by routinely reviewing the creditworthiness of the banks and the investments held. The Company has not incurred significant credit losses related to such investments. The Company’s exposure to credit risk on derivative financial instruments is the risk that the counterparty will fail to meet its obligations. To reduce this risk, the Company has credit policies that require the establishment and periodic review of credit limits for individual counterparties. In addition, the Company has entered into close ‑ out netting agreements with most derivative counterparties. Close ‑ out netting agreements provide for the termination, valuation and net settlement of some or all outstanding transactions between two counterparties on the occurrence of one or more pre ‑ defined trigger events. Derivative instruments are presented on a gross basis in the Consolidated Financial Statements. Revenue recognition A customer contract exists if collectability under the contract is considered probable, the contract has commercial substance, contains payment terms, as well as the rights and commitments of both parties, and has been approved. The Company offers arrangements with multiple performance obligations to meet its customers’ needs. These arrangements may involve the delivery of multiple products and/or performance of services (such as installation and training) and the delivery and/or performance may occur at different points in time or over different periods of time. Goods and services under such arrangements are evaluated to determine whether they form distinct performance obligations and should be accounted for as separate revenue transactions. The Company allocates the sales price to each distinct performance obligation based on the price of each item sold in separate transactions at the inception of the arrangement. The Company generally recognizes revenues for the sale of non ‑ customized products including circuit breakers, modular substation packages, control products, motors, generators, drives, robots, turbochargers, measurement and analytical instrumentation, and other goods which are manufactured on a standardized basis at a point in time. Revenues are recognized at the point in time that the customer obtains control of the goods, which is when it has taken title to the products and assumed the risks and rewards of ownership of the products specified in the purchase order or sales agreement. Generally, the transfer of title and risks and rewards of ownership are governed by the contractually defined shipping terms. The Company uses various International Commercial Terms (as promulgated by the International Chamber of Commerce) in its sales of products to third party customers, such as Ex Works (EXW), Free Carrier (FCA) and Delivered Duty Paid (DDP). FINANCIAL REPORT 2022 79 Billing terms for these point in time contracts vary but generally coincide with delivery to the customer. Payment is generally due upon receipt of the invoice, payable within 90 days or less. The Company generally recognizes revenues for the sale of customized products, including integrated automation and electrification systems and solutions, on an over time basis using the percentage ‑ of ‑ completion method of accounting. These systems are generally accounted for as a single performance obligation as the Company is required to integrate equipment and services into one deliverable for the customer. Revenues are recognized as the systems are customized during the manufacturing or integration process and as control is transferred to the customer as evidenced by the Company’s right to payment for work performed or by the customer’s ownership of the work in process. The Company principally uses the cost ‑ to ‑ cost method to measure progress towards completion on contracts. Under this method, progress of contracts is measured by actual costs incurred in relation to the Company’s best estimate of total costs based on the Company’s history of manufacturing or constructing similar assets for customers. Estimated costs are reviewed and updated routinely for contracts in progress to reflect changes in quantity or pricing of the inputs. The cumulative effect of any change in estimate is recorded in the period when the change in estimate is determined. Contract costs include all direct materials, labor and subcontract costs and indirect costs related to contract performance, such as indirect labor, supplies, tools and depreciation costs. The nature of the Company’s contracts for the sale of customized products gives rise to several types of variable consideration, including claims, unpriced change orders, liquidated damages and penalties. These amounts are estimated based upon the most likely amount of consideration to which the customer or the Company will be entitled. The estimated amounts are included in the sales price to the extent it is probable that a significant reversal of cumulative revenues recognized will not occur when the uncertainty associated with the variable consideration is resolved. All estimates of variable consideration are reassessed periodically. Back charges to suppliers or subcontractors are recognized as a reduction of cost when it is determined that recovery of such cost is probable and the amounts can be reliably estimated. Billing terms for these over ‑ time contracts vary but are generally based on achieving specified milestones. The differences between the timing of revenues recognized and customer billings result in changes to contract assets and contract liabilities. Payment is generally due upon receipt of the invoice, payable within 90 days or less. Contractual retention amounts billed to customers are generally due upon expiration of the contractual warranty period. Service revenues reflect revenues earned from the Company’s activities in providing services to customers primarily subsequent to the sale and delivery of a product or complete system. Such revenues consist of maintenance type contracts, repair services, equipment upgrades, field service activities that include personnel and accompanying spare parts, training, and installation and commissioning of products as a stand-alone service or as part of a service contract. The Company generally recognizes revenues from service transactions as services are performed or at the point in time that the customer obtains control of the spare parts. For long-term service contracts including monitoring and maintenance services, revenues are recognized on a straight-line basis over the term of the contract consistent with the nature, timing and extent of the services or, if the performance pattern is other than straight line, as the services are provided based on costs incurred relative to total expected costs. In limited circumstances the Company sells extended warranties that extend the warranty coverage beyond the standard coverage offered on specific products. Revenues for these warranties are recorded over the length of the warranty period based on their stand ‑ alone selling price. Billing terms for service contracts vary but are generally based on the occurrence of a service event. Payment is generally due upon receipt of the invoice, payable within 90 days or less. Revenues are reported net of customer rebates, early settlement discounts, and similar incentives. Rebates are estimated based on sales terms, historical experience and trend analysis. The most common incentives relate to amounts paid or credited to customers for achieving defined volume levels. Taxes assessed by a governmental authority that are directly imposed on revenue-producing transactions between the Company and its customers, such as sales, use, value added and some excise taxes, are excluded from revenues. The Company does not adjust the contract price for the effects of a financing component if the Company expects, at contract inception, that the time between control transfer and cash receipt is less than 12 months. 80 FINANCIAL REPORT 2022 Sales commissions are expensed immediately when the amortization period for the costs to obtain the contract is less than a year. Contract loss provisions Losses on contracts are recognized in the period when they are identified and are based upon the anticipated excess of contract costs over the related contract revenues. Shipping and handling costs Shipping and handling costs are recorded as a component of cost of sales. Inventories Inventories are stated at the lower of cost or net realizable value. Cost is determined using the first ‑ in, first ‑ out method, the weighted ‑ average cost method, or the specific identification method. Inventoried costs are stated at acquisition cost or actual production cost, including direct material and labor and applicable manufacturing overheads. Adjustments to reduce the cost of inventory to its net realizable value are made, if required, for decreases in sales prices, obsolescence or similar reductions in value. Impairment of long ‑ lived assets Long ‑ lived assets that are held and used are evaluated for impairment for each of the Company’s asset groups when events or circumstances indicate that the carrying amount of the long-lived asset or asset group may not be recoverable. If the asset group’s net carrying value exceeds the asset group’s net undiscounted cash flows expected to be generated over its remaining useful life including net proceeds expected from disposition of the asset group, if any, the carrying amount of the asset group is reduced to its estimated fair value. The estimated fair value is determined using a market, income and/or cost approach. Property, plant and equipment Property, plant and equipment is stated at cost, less accumulated depreciation and is depreciated using the straight ‑ line method. The estimated useful lives of the assets are generally as follows: • factories and office buildings: 30 to 40 years, • other facilities: 15 years, • machinery and equipment: 3 to 15 years, • furniture and office equipment: 3 to 8 years, and • leasehold improvements are depreciated over their estimated useful life or, for operating leases, over the lease term, if shorter. Goodwill and intangible assets Goodwill is reviewed for impairment annually as of October 1, or more frequently if events or circumstances indicate that the carrying value may not be recoverable. Goodwill is evaluated for impairment at the reporting unit level. A reporting unit is an operating segment or one level below an operating segment. For the annual impairment reviews performed in 2022 the reporting units were determined to be one level below the operating segments. When evaluating goodwill for impairment, the Company uses either a qualitative or quantitative assessment method for each reporting unit. The qualitative assessment involves determining, based on an evaluation of qualitative factors, if it is more likely than not that the fair value of a reporting unit is less than its carrying value. If, based on this qualitative assessment, it is determined to be more likely than not that the reporting unit’s fair value is less than its carrying value, a quantitative impairment test is performed, otherwise no further analysis is required. If the Company elects not to perform the qualitative assessment for a reporting unit, then a quantitative impairment test is performed. When performing a quantitative impairment test, the Company calculates the fair value of a reporting unit using an income approach based on the present value of future cash flows, applying a discount rate that represents the reporting unit’s weighted-average cost of capital, and compares it to the reporting unit’s carrying value. If the carrying value of the net assets of a reporting unit exceeds the fair value of the reporting unit then the Company records an impairment charge equal to the difference, provided that the loss recognized does not exceed the total amount of goodwill allocated to that reporting unit. FINANCIAL REPORT 2022 81 The cost of acquired intangible assets with a finite life is amortized using a method of amortization that reflects the pattern of intangible assets’ expected contributions to future cash flows. If that pattern cannot be reliably determined, the straight ‑ line method is used. The amortization periods range from 3 to 5 years for software and from 5 to 20 years for customer ‑ , technology ‑ and marketing ‑ related intangibles. Intangible assets with a finite life are tested for impairment upon the occurrence of certain triggering events. Derivative financial instruments and hedging activities The Company uses derivative financial instruments to manage currency, commodity, interest rate and equity exposures, arising from its global operating, financing and investing activities (see Note 6). The Company recognizes all derivatives, other than certain derivatives indexed to the Company’s own stock, at fair value in the Consolidated Balance Sheets. Derivatives that are not designated as hedging instruments are reported at fair value with derivative gains and losses reported through earnings and classified consistent with the nature of the underlying transaction. If the derivatives are designated as a hedge, depending on the nature of the hedge, changes in the fair value of the derivatives will either be offset against the change in fair value of the hedged item attributable to the risk being hedged through earnings (in the case of a fair value hedge) or recognized in “Accumulated other comprehensive loss” until the hedged item is recognized in earnings (in the case of a cash flow hedge). Where derivative financial instruments have been designated as cash flow hedges of forecasted transactions and such forecasted transactions are no longer probable of occurring, hedge accounting is discontinued and any derivative gain or loss previously included in “Accumulated other comprehensive loss” is reclassified into earnings consistent with the nature of the original forecasted transaction. Gains or losses from derivatives designated as hedging instruments in a fair value hedge are reported through earnings and classified consistent with the nature of the underlying hedged transaction. Certain commercial contracts may grant rights to the Company or the counterparties, or contain other provisions that are considered to be derivatives. Such embedded derivatives are assessed at inception of the contract and depending on their characteristics, accounted for as separate derivative instruments and shown at their fair value in the Consolidated Balance Sheets with changes in their fair value reported in earnings consistent with the nature of the commercial contract to which they relate. Derivatives are classified in the Consolidated Statements of Cash Flows in the same section as the underlying item. Cash flows from the settlement of undesignated derivatives used to manage the risks of different underlying items on a net basis are classified within “Net cash provided by operating activities”, as the underlying items are primarily operational in nature. Other cash flows on the settlement of derivatives are recorded within “Net cash provided by (used in) investing activities”. Leases The Company leases primarily real estate, vehicles, machinery and equipment. The Company evaluates if a contract contains a lease at inception of the contract. A contract is or contains a lease if it conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration. To determine this, the Company assesses whether, throughout the period of use, it has both the right to obtain substantially all of the economic benefits from the use of the identified asset and the right to direct the use of the identified asset. Leases are classified as either finance or operating, with the classification determining the pattern of expense recognition in the Consolidated Income Statements. Lease expense for operating leases is recorded on a straight-line basis over the lease term. Lease expense for finance leases is separated between amortization of right-of-use assets and lease interest expense. In many cases, the Company’s leases include one or more options to renew, with renewal terms that can extend up to 5 years. The exercise of lease renewal options is at the Company’s discretion. Renewal periods are included in the expected lease term if they are reasonably certain of being exercised by the Company. Certain leases also include options to purchase the leased property. None of the Company’s lease agreements contain material residual value guarantees or material restrictions or covenants. 82 FINANCIAL REPORT 2022 Long-term leases (leases with terms greater than 12 months) are recorded in the Consolidated Balance Sheets at the commencement date of the lease based on the present value of the minimum lease payments. The present value of the lease payments is determined by using the interest rate implicit in the lease if available. As most of the Company’s leases do not provide an implicit rate, the Company’s incremental borrowing rate is used for most leases and is determined for portfolios of leases based on the remaining lease term, currency of the lease, and the internal credit rating of the subsidiary which entered into the lease. Short-term leases (leases with an initial lease term of 12 months or less and where it is reasonably certain that the identified asset will not be leased for a term greater than 12 months) are not recorded in the Consolidated Balance Sheets and are expensed on a straight-line basis over the lease term. The majority of short-term leases relate to real estate and machinery. Assets under operating lease are included in “Operating lease right-of-use assets”. Operating lease liabilities are reported both as current and non-current operating lease liabilities. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Assets under finance lease are included in “Property, plant and equipment, net” while finance lease liabilities are included in “Long-term debt” (including “Current maturities of long-term debt” as applicable). Lease and non-lease components for leases other than real estate are not accounted for separately. Income taxes The Company uses the asset and liability method to account for deferred taxes. Under this method, deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and the tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. The Company records a deferred tax asset when it determines that it is more likely than not that the deduction will be sustained based upon the deduction’s technical merit. Deferred tax assets and liabilities that can be offset against each other are reported on a net basis. A valuation allowance is recorded to reduce deferred tax assets to the amount that is more likely than not to be realized. Deferred taxes are provided on unredeemed retained earnings of the Company’s subsidiaries. However, deferred taxes are not provided on such unredeemed retained earnings to the extent it is expected that the earnings are permanently reinvested. Such earnings may become taxable upon the sale or liquidation of these subsidiaries or upon the remittance of dividends. The Company operates in numerous tax jurisdictions and, as a result, is regularly subject to audit by tax authorities. The Company provides for tax contingencies whenever it is deemed more likely than not that a tax asset has been impaired or a tax liability has been incurred. Contingency provisions are recorded based on the technical merits of the Company’s filing position, considering the applicable tax laws and Organisation for Economic Co ‑ operation and Development (OECD) guidelines and are based on its evaluations of the facts and circumstances as of the end of each reporting period. The Company applies a two ‑ step approach to recognize and measure uncertainty in income taxes. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50 percent likely of being realized upon ultimate settlement. Uncertain tax positions that could be settled against existing loss carryforwards or income tax credits are reported net. Expenses related to tax penalties are classified in the Consolidated Income Statements as “Income tax expense” while interest thereon is classified as “Interest and other finance expense”. Current income tax relating to certain items is recognized directly in “Accumulated other comprehensive loss” and not in earnings. In general, the Company applies the individual items approach when releasing income tax effects from “Accumulated other comprehensive loss”. Research and development Research and development costs not related to specific customer orders are generally expensed as incurred. FINANCIAL REPORT 2022 83 Earnings per share Basic earnings per share is calculated by dividing income by the weighted ‑ average number of shares outstanding during the year. Diluted earnings per share is calculated by dividing income by the weighted ‑ average number of shares outstanding during the year, assuming that all potentially dilutive securities were exercised, if dilutive. Potentially dilutive securities comprise outstanding written call options, outstanding options and shares granted subject to certain conditions under the Company’s share ‑ based payment arrangements. See further discussion related to earnings per share in Note 20 and of potentially dilutive securities in Note 18. Share ‑ based payment arrangements The Company has various share ‑ based payment arrangements for its employees, which are described more fully in Note 18. Such arrangements are accounted for under the fair value method. For awards that are equity ‑ settled, total compensation is measured at grant date, based on the fair value of the award at that date, and recorded in earnings over the period the employees are required to render service. For awards that are cash ‑ settled, compensation is initially measured at grant date and subsequently remeasured at each reporting period, based on the fair value and vesting percentage of the award at each of those dates, with changes in the liability recorded in earnings. Fair value measures The Company uses fair value measurement principles to record certain financial assets and liabilities on a recurring basis and, when necessary, to record certain non ‑ financial assets at fair value on a non ‑ recurring basis, as well as to determine fair value disclosures for certain financial instruments carried at amortized cost in the financial statements. Financial assets and liabilities recorded at fair value on a recurring basis include foreign currency, commodity and interest rate derivatives, as well as cash ‑ settled call options and available ‑ for ‑ sale securities. Non ‑ financial assets recorded at fair value on a non ‑ recurring basis include long ‑ lived assets that are reduced to their estimated fair value due to impairments. Fair value is the price that would be received when selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various valuation techniques including the market approach (using observable market data for identical or similar assets and liabilities), the income approach (discounted cash flow method) and the cost approach (using costs a market participant would incur to develop a comparable asset). Inputs used to determine the fair value of assets and liabilities are defined by a three ‑ level hierarchy, depending on the nature of those inputs. The Company has categorized its financial assets and liabilities and non ‑ financial assets measured at fair value within this hierarchy based on whether the inputs to the valuation technique are observable or unobservable. An observable input is based on market data obtained from independent sources, while an unobservable input reflects the Company’s assumptions about market data. 84 FINANCIAL REPORT 2022 The levels of the fair value hierarchy are as follows: Level 1: Valuation inputs consist of quoted prices in an active market for identical assets or liabilities (observable quoted prices). Assets and liabilities valued using Level 1 inputs include exchange ‑ traded equity securities, listed derivatives which are actively traded such as commodity futures, interest rate futures and certain actively traded debt securities. Level 2: Valuation inputs consist of observable inputs (other than Level 1 inputs) such as actively quoted prices for similar assets, quoted prices in inactive markets and inputs other than quoted prices such as interest rate yield curves, credit spreads, or inputs derived from other observable data by interpolation, correlation, regression or other means. The adjustments applied to quoted prices or the inputs used in valuation models may be both observable and unobservable. In these cases, the fair value measurement is classified as Level 2 unless the unobservable portion of the adjustment or the unobservable input to the valuation model is significant, in which case the fair value measurement would be classified as Level 3. Assets and liabilities valued or disclosed using Level 2 inputs include investments in certain funds, certain debt securities that are not actively traded, interest rate swaps, cross-currency interest rate swaps, commodity swaps, cash ‑ settled call options, forward foreign exchange contracts, foreign exchange swaps and forward rate agreements, time deposits, as well as financing receivables and debt. Level 3: Valuation inputs are based on the Company’s assumptions of relevant market data (unobservable input). Investments in private equity, real estate and collective funds held within the Company’s pension plans are generally valued using the net asset value (NAV) per share as a practical expedient for fair value provided certain criteria are met. The NAVs are determined based on the fair values of the underlying investments in the funds. These assets are not classified in the fair value hierarchy but are separately disclosed. Whenever quoted prices involve bid ‑ ask spreads, the Company ordinarily determines fair values based on mid ‑ market quotes. However, for the purpose of determining the fair value of cash ‑ settled call options serving as hedges of the Company’s management incentive plan (MIP), bid prices are used. When determining fair values based on quoted prices in an active market, the Company considers if the level of transaction activity for the financial instrument has significantly decreased, or would not be considered orderly. In such cases, the resulting changes in valuation techniques would be disclosed. If the market is considered disorderly or if quoted prices are not available, the Company is required to use another valuation technique, such as an income approach. Disclosures about the Company’s fair value measurements of assets and liabilities are included in Note 7. Contingencies The Company is subject to proceedings, litigation or threatened litigation and other claims and inquiries, related to environmental, labor, product, regulatory, tax (other than income tax) and other matters, and is required to assess the likelihood of any adverse judgments or outcomes to these matters, as well as potential ranges of probable losses. A determination of the provision required, if any, for these contingencies is made after analysis of each individual issue, often with assistance from both internal and external legal counsel and technical experts. The required amount of a provision for a contingency of any type may change in the future due to new developments in the particular matter, including changes in the approach to its resolution. The Company records a provision for its contingent obligations when it is probable that a loss will be incurred and the amount can be reasonably estimated. Any such provision is generally recognized on an undiscounted basis using the Company’s best estimate of the amount of loss incurred or at the lower end of an estimated range when a single best estimate is not determinable. In some cases, the Company may be able to recover a portion of the costs relating to these obligations from insurers or other third parties; however, the Company records such amounts only when it is probable that they will be collected. FINANCIAL REPORT 2022 85 The Company generally provides for anticipated costs for warranties when it delivers the related products. Warranty costs include calculated costs arising from imperfections in design, material and workmanship in the Company’s products. The Company makes individual assessments on contracts with risks resulting from order ‑ specific conditions or guarantees and assessments on an overall, statistical basis for similar products sold in larger quantities. The Company may have legal obligations to perform environmental clean ‑ up activities related to land and buildings as a result of the normal operations of its business. In some cases, the timing or the method of settlement, or both, are conditional upon a future event that may or may not be within the control of the Company, but the underlying obligation itself is unconditional and certain. The Company recognizes a provision for these obligations when it is probable that a liability for the clean ‑ up activity has been incurred and a reasonable estimate of its fair value can be made. In some cases, a portion of the costs expected to be incurred to settle these matters may be recoverable. An asset is recorded when it is probable that such amounts are recoverable. Provisions for environmental obligations are not discounted to their present value when the timing of payments cannot be reasonably estimated. Pensions and other postretirement benefits The Company has a number of defined benefit pension plans, defined contribution pension plans and termination indemnity plans. For plans accounted for as a defined benefit pension plan, the Company recognizes an asset for such a plan’s overfunded status or a liability for such a plan’s underfunded status in its Consolidated Balance Sheets. Additionally, the Company measures such a plan’s assets and obligations that determine its funded status as of the end of the year and recognizes the changes in the funded status in the year in which the changes occur. Those changes are reported in “Accumulated other comprehensive loss”. The Company uses actuarial valuations to determine its pension and postretirement benefit costs and credits. The amounts calculated depend on a variety of key assumptions, including discount rates and expected return on plan assets. Current market conditions are considered in selecting these assumptions. The Company’s various pension plan assets are assigned to their respective levels in the fair value hierarchy in accordance with the valuation principles described in the “Fair value measures” section above. See Note 17 for further discussion of the Company’s employee benefit plans. Business combinations The Company accounts for assets acquired and liabilities assumed in business combinations using the acquisition method and records these at their respective fair values. Contingent consideration is recorded at fair value as an element of purchase price with subsequent adjustments recognized in income. Identifiable intangibles consist of intellectual property such as trademarks and trade names, customer relationships, patented and unpatented technology, in ‑ process research and development, order backlog and capitalized software; these are amortized over their estimated useful lives. Such intangibles are subsequently subject to evaluation for potential impairment if events or circumstances indicate the carrying amount may not be recoverable. See “Goodwill and intangible assets” above. Acquisition ‑ related costs are recognized separately from the acquisition and expensed as incurred. Upon gaining control of an entity in which an equity method or cost basis investment was held by the Company, the carrying value of that investment is adjusted to fair value with the related gain or loss recorded in income. Deferred tax assets and liabilities based on temporary differences between the financial reporting and the tax base of assets and liabilities, as well as uncertain tax positions and valuation allowances on acquired deferred tax assets assumed in connection with a business combination, are initially estimated as of the acquisition date based on facts and circumstances that existed at the acquisition date. Changes in deferred taxes, uncertain tax positions and valuation allowances on acquired deferred tax assets that occur after the measurement period are recognized in income. Estimated fair values of acquired assets and liabilities are subject to change within the measurement period (a period of up to 12 months after the acquisition date during which the acquirer may adjust the provisional acquisition amounts) with any adjustments to the preliminary estimates being recorded to goodwill. 86 FINANCIAL REPORT 2022 New accounting pronouncements Applicable for current period Business Combinations — Accounting for contract assets and contract liabilities from contracts with customers In January 2022, the Company early adopted a new accounting standard update, which provides guidance on the accounting for revenue contracts acquired in a business combination. The update requires contract assets and liabilities acquired in a business combination to be recognized and measured at the date of acquisition in accordance with the principles for recognizing revenues from contracts with customers. The Company has applied this accounting standard update prospectively starting with acquisitions closing after January 1, 2022. Disclosures about government assistance In January 2022, the Company adopted a new accounting standard update, which requires entities to disclose certain types of government assistance. Under the update, the Company is required to annually disclose (i) the type of the assistance received, including any significant terms and conditions, (ii) its related accounting policy, and (iii) the effect such transactions have on its financial statements. The Company has applied this accounting standard update prospectively. This update does not have a significant impact on the Company’s Consolidated Financial Statements. Applicable for future periods Facilitation of the effects of reference rate reform on financial reporting In March 2020, an accounting standard update was issued which provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This update, along with clarifications outlined in subsequent updates issued during January 2021 and December 2022, can be adopted and applied no later than December 31, 2024, with early adoption permitted. The Company expects to adopt this update during the second half of 2023 and does not expect this update to have a significant impact on its Consolidated Financial Statements. Disclosure about supplier finance program obligations In September 2022, an accounting standard update was issued which requires entities to disclose information related to supplier finance programs. Under the update, the Company is required to annually disclose (i) the key terms of the program, (ii) the amount of the supplier finance obligations outstanding and where those obligations are presented in the balance sheet at the reporting date, and (iii) a rollforward of the supplier finance obligation program within the reporting period. This update is effective for the Company retrospectively for all in-scope transactions for annual periods beginning January 1, 2023, with the exception of the rollforward disclosures, which are effective prospectively for annual periods beginning January 1, 2024, with early adoption permitted. The Company does not expect this update to have a significant impact on its Consolidated Financial Statements. The total outstanding supplier finance obligation included in “Accounts payable, trade” in the Consolidated Balance Sheet at December 31, 2022 amounted to $477 million. — Note 3 Discontinued operations Divestment of the Power Grids business On July 1, 2020, the Company completed the sale of 80.1 percent of its Power Grids business to Hitachi Ltd (Hitachi). The transaction was executed through the sale of 80.1 percent of the shares of Hitachi Energy Ltd, formerly Hitachi ABB Power Grids Ltd (Hitachi Energy). Cash consideration received at the closing date was $9,241 million net of cash disposed. Further, for accounting purposes, the 19.9 percent ownership interest retained by the Company was deemed to have been both divested and reacquired at its fair value on July 1, 2020. The Company also obtained a put option, exercisable with three-months’ notice commencing in April 2023. The combined fair value of the retained investment and the related put option amounted to $1,779 million and was recorded as both an equity-method investment and as part of the proceeds for the sale of the entire Power Grids business (see Note 4). FINANCIAL REPORT 2022 87 In connection with the divestment, the Company recorded liabilities in discontinued operations for estimated future costs and other cash payments of $487 million for various contractual items relating to the sale of the business, including required future cost reimbursements payable to Hitachi Energy, costs to be incurred by the Company for the direct benefit of Hitachi Energy and an amount due to Hitachi in connection with the expected purchase price finalization of the closing debt and working capital balances. In October 2021, the Company and Hitachi concluded an agreement to settle the various amounts owed by the Company. The net difference between the agreed amounts and the amounts initially estimated by the Company was recorded in 2021 in discontinued operations as an adjustment to “Net gain recognized on sale of the Power Grids business” in the table below. During 2022, 2021 and 2020, total cash payments (including the amounts paid under the settlement agreement) of $102 million, $364 million and $33 million, respectively, were made in connection with these liabilities. At December 31, 2022, the remaining amount recorded was $53 million. As a result of the Power Grids sale, the Company recognized an initial net gain of $5,141 million, net of transaction costs, for the sale of the entire Power Grids business in Income from discontinued operations, net of tax, in 2020. Included in the calculation of the net gain was a cumulative translation loss relating to the Power Grids business of $420 million which was reclassified from Accumulated other comprehensive loss (see Note 21). Certain amounts included in the net gain were estimated or otherwise subject to change in value and in 2021 the Company recorded adjustments, including the agreed settlement amount referred to above, reducing the total net gain by $65 million and in 2022 such adjustments reduced the gain by a further $10 million. Certain remaining minor obligations relating to the divestment continue to be subject to uncertainty and will be adjusted in future periods but these adjustments are not expected to have a material impact on the Consolidated Financial Statements. In 2020, the Company recorded $262 million in Income tax expense within discontinued operations in connection with the reorganization of the legal entity structure of the Power Grids business required to facilitate the sale. In connection with the divestment, the Company recognized liabilities in discontinued operations for certain indemnities (see Note 15 for additional information) and also recorded an initial liability of $258 million representing the fair value of the right granted to Hitachi Energy for the use of the ABB brand for up to 8 years. Upon closing of the sale, the Company entered into various transition services agreements (TSAs). Pursuant to these TSAs, the Company and Hitachi Energy provide to each other, on an interim, transitional basis, various services. The services provided by the Company primarily include finance, information technology, human resources and certain other administrative services. Under the current terms, the TSAs will continue for up to 3 years, and can only be extended on an exceptional basis for business-critical services for an additional period which is reasonably necessary to avoid a material adverse impact on the business. In 2022, 2021 and 2020, the Company recognized within its continuing operations, general and administrative expenses incurred to perform the TSAs, offset by $162 million, $173 million and $91 million, respectively, in TSA-related income for such services that is reported in Other income (expense), net. Discontinued operations As a result of the sale of the Power Grids business, substantially all Power Grids-related assets and liabilities have been sold. As this divestment represented a strategic shift that would have a major effect on the Company’s operations and financial results, the results of operations for this business have been presented as discontinued operations and the assets and liabilities are presented as held for sale and in discontinued operations for all periods presented. Certain of the business contracts in the Power Grids business continue to be executed by subsidiaries of the Company for the benefit/risk of Hitachi Energy. Assets and liabilities relating to, as well as the net financial results of, these contracts will continue to be included in discontinued operations until they have been completed or otherwise transferred to Hitachi Energy. 88 FINANCIAL REPORT 2022 Prior to the divestment, interest expense that was not directly attributable to or related to the Company’s continuing business or discontinued business was allocated to discontinued operations based on the ratio of net assets to be sold less debt that was required to be paid as a result of the planned disposal transaction to the sum of total net assets of the Company plus consolidated debt. General corporate overhead was not allocated to discontinued operations. Operating results of the discontinued operations are summarized as follows: ($ in millions) 2022 2021 2020 Total revenues — — 4,008 Total cost of sales — — (3,058) Gross profit — — 950 Expenses (38) (18) (808) Change to net gain recognized on sale of the Power Grids business (10) (65) 5,141 Income (loss) from operations (48) (83) 5,282 Net interest income (expense) and other finance expense — 2 (5) Non-operational pension (cost) credit — — (94) Income (loss) from discontinued operations before taxes (48) (81) 5,182 Income tax 5 1 (322) Income (loss) from discontinued operations, net of tax (43) (80) 4,860 Of the total Income (loss) from discontinued operations before taxes in the table above, $(47) million, $(80) million and $5,170 million in 2022, 2021 and 2020, respectively, are attributable to the Company, while the remainder is attributable to noncontrolling interests. Until the date of the divestment, Income (loss) from discontinued operations before taxes excluded stranded costs which were previously able to be allocated to the Power Grids operating segment. As a result, $40 million in 2020 of allocated overhead and other management costs which were previously included in the measure of segment profit for the Power Grids operating segment are now reported as part of Corporate and Other. In the table above, Net interest income (expense) and other finance expense in 2020 includes $20 million of interest expense which has been recorded on an allocated basis in accordance with the Company’s accounting policy election until the divestment date. Included in the reported Total revenues of the Company for 2020 are revenues for sales from the Company’s operating segments to the Power Grids business of $108 million which represent intercompany transactions that, prior to Power Grids being classified as a discontinued operation, were eliminated in the Company’s Consolidated Financial Statements (see Note 23). Subsequent to the divestment, sales to Hitachi Energy are reported as third-party revenues. In addition, the Company also has retained obligations (primarily for environmental and taxes) related to other businesses disposed or otherwise exited that qualified as discontinued operations. Changes to these retained obligations are also included in Income (loss) from discontinued operations, net of tax, above. The major components of assets and liabilities held for sale and in discontinued operations in the Company’s Consolidated Balance Sheets are summarized as follows: December 31, 2022 ($ in millions) 2022 (1) 2021 (1) Receivables, net 92 131 Other current assets 4 5 Current assets held for sale and in discontinued operations 96 136 Accounts payable, trade 44 71 Other liabilities 88 310 Current liabilities held for sale and in discontinued operations 132 381 Other non-current liabilities 20 43 Non-current liabilities held for sale and in discontinued operations 20 43 (1) At December 31, 2022 and 2021, the balances reported as held for sale and in discontinued operations pertain to Power Grids activities and other obligations which will remain with the Company until such time as the obligation is settled or the activities are fully wound down. FINANCIAL REPORT 2022 89 — Note 4 Acquisitions, divestments and equity-accounted companies Acquisitions of controlling interests Acquisitions of controlling interests were as follows: ($ in millions, except number of acquired businesses) 2022 2021 2020 Purchase price for acquisitions (net of cash acquired) (1) 195 212 79 Aggregate excess of purchase price over fair value of net assets acquired (2) 229 161 92 Number of acquired businesses 5 2 3 (1) Excluding changes in cost- and equity-accounted companies. (2) Recorded as goodwill (see Note 11). In the table above, the “Purchase price for acquisitions” and “Aggregate excess of purchase price over fair value of net assets acquired” amounts for 2022, relate primarily to the acquisition of InCharge Energy, Inc. (In-Charge) and in 2021, relate primarily to the acquisition of ASTI Mobile Robotics Group SL (ASTI). In 2020, there were no significant acquisitions. Acquisitions of controlling interests have been accounted for under the acquisition method and have been included in the Company’s Consolidated Financial Statements since the date of acquisition. On January 26, 2022, the Company increased its ownership in In-Charge to a 60 percent controlling interest through a stock purchase agreement. In-Charge is headquartered in Santa Monica, USA, and is a provider of turn-key commercial electric vehicle charging hardware and software solutions. The resulting cash outflows for the Company amounted to $134 million (net of cash acquired of $4 million). The acquisition expands the market presence of the E-mobility Division of its Electrification operating segment, particularly in the North American market. In connection with the acquisition, the Company’s pre-existing 13.2 percent ownership of In-Charge was revalued to fair value and a gain of $32 million was recorded in Other income (expense), net. The Company entered into an agreement with the remaining noncontrolling shareholders allowing either party to put or call the remaining 40 percent of the shares until 2027. The amount for which either party can exercise their option is dependent on a formula based on revenues and thus, the amount is subject to change. As a result of this agreement, the noncontrolling interest is classified as Redeemable noncontrolling interest (i.e. mezzanine equity) in the Consolidated Balance Sheets and was initially recognized at fair value. On August 2, 2021, the Company acquired the shares of ASTI. ASTI is headquartered in Burgos, Spain, and is a global autonomous mobile robot (AMR) manufacturer. The resulting cash outflows for the Company amounted to $186 million (net of cash acquired). The acquisition expands the Company’s robotics and automation offering in its Robotics & Discrete Automation operating segment. While the Company uses its best estimates and assumptions as part of the purchase price allocation process to value assets acquired and liabilities assumed at the acquisition date, the purchase price allocation for acquisitions is preliminary for up to 12 months after the acquisition date and is subject to refinement as more detailed analyses are completed and additional information about the fair values of the acquired assets and liabilities becomes available. Business divestments and spin-offs On September 7, 2022, the shareholders approved the spin-off of the Company’s Turbocharging Division into an independent, publicly traded company, Accelleron Industries AG (Accelleron), which was completed through the distribution of common stock of Accelleron to the stockholders of ABB on October 3, 2022. As a result of the spin-off of this Division, the Company distributed net assets of $272 million, net of amounts attributable to noncontrolling interests of $12 million, which was reflected as a reduction in Retained earnings. In addition, total accumulated comprehensive income of $95 million, including the cumulative translation adjustment, was reclassified to Retained earnings. Cash and cash equivalents distributed with Accelleron was $172 million. 90 FINANCIAL REPORT 2022 The results of operations of the Turbocharging Division, are included in the continuing operations of the Process Automation operating segment for all periods presented through to the spin-off date. In 2022, 2021 and 2020 Income continuing operations before taxes, included income of $134 million, $186 million and $139 million, respectively, from this Division. In anticipation of the spin-off, the Company granted to a subsidiary of Accelleron access to funds in the form of a short-term intercompany loan. At the spin-off date, this loan, having a principal amount of 300 million Swiss francs ($306 million at the date of spin-off), was due to the Company and subsequently collected in October 2022. In 2021, the Company received proceeds (net of transaction costs and cash disposed) of $2,958 million, relating to divestments of consolidated businesses and recorded gains of $2,193 million in Other income (expense), net on the sales of such businesses. These are primarily due to the divestment of the Company’s Mechanical Power Transmission Division (Dodge) to RBC Bearings Inc. Certain amounts included in the net gain for the sale of the Dodge business are estimated or otherwise subject to change in value and, as a result, the Company may record additional adjustments to the gain in future periods which are not expected to have a material impact on the Consolidated Financial Statements. In 2021 and 2020 Income from continuing operations before taxes, included net income of $115 million and $96 million, respectively, from the Dodge business which, prior to its sale was part of the Company’s Motion operating segment. In 2020, the Company completed the sale of its Power Grids business (see Note 3 for details) and its solar inverters business. Divestment of the solar inverters business In February 2020, the Company completed the sale of its solar inverters business for no consideration. Under the agreement, which was reached in July 2019, the Company was required to transfer $143 million of cash to the buyer on the closing date. In addition, payments totaling EUR 132 million ($145 million) are required to be transferred to the buyer from 2020 through 2025. In 2019, the Company recorded a loss of $421 million, in Other income (expense), net, representing the excess of the carrying value, which includes a loss of $99 million arising from the cumulative translation adjustment, over the estimated fair value of this business. In 2020, a further loss of $33 million was recorded in Other income (expense), net for changes in fair value of this business. The loss in 2020 includes the $99 million reclassification from other comprehensive income of the currency translation adjustment related to the business. The fair value was based on the estimated current market values using Level 3 inputs, considering the agreed-upon sale terms with the buyer. The solar inverters business, which includes the solar inverter business acquired as part of the Power-One acquisition in 2013, was part of the Company’s Electrification operating segment. As this divestment does not qualify as a discontinued operation, the results of operations for this business prior to its disposal are included in the Company’s continuing operations for all periods presented. Including the above loss of $33 million in 2020, Income from continuing operations before taxes includes net losses of $63 million, from the solar inverters business. Investments in equity-accounted companies In connection with the divestment of its Power Grids business to Hitachi in 2020 (see Note 3), the Company retained a 19.9 percent interest in the business. For accounting purposes the 19.9 percent interest was deemed to have been both divested and reacquired, with a fair value at the transaction date of $1,661 million. The fair value was based on a discounted cash flow model considering the expected results of the future business operations of Hitachi Energy and using relevant market inputs including a risk-adjusted weighted-average cost of capital. The Company also obtained an option, exercisable with three-months’ notice commencing April 2023, granting it the right to require Hitachi to purchase this investment at fair value, subject to a minimum floor price equivalent to a 10 percent discount compared to the price paid for the initial 80.1 percent. This option was initially valued at $118 million using a standard option pricing model with inputs considering the nature of the investment and the expected period until option exercise. As this option is not separable from the investment the value has been combined with the value of the underlying investment and is accounted for together. Hitachi also received a call option requiring the Company to sell the remaining 19.9 percent interest in Hitachi Energy at any time at a price consistent with what was paid by Hitachi to acquire the initial 80.1 percent or at fair value, if higher. FINANCIAL REPORT 2022 91 In September 2022, the Company and Hitachi agreed terms to sell the Company’s remaining investment in Hitachi Energy to Hitachi and simultaneously settle certain outstanding contractual obligations relating to the initial sale of the Power Grids business, including certain indemnification guarantees (see Note 15). The sale of the remaining investment was completed in December 2022, resulting in cash proceeds of $1,552 million and a gain of $43 million which was recorded in “Other income (expense), net”. In July 2020, the Company concluded that based on its continuing involvement with the Power Grids business, including the membership in its governing board of directors, it had significant influence over Hitachi Energy. As a result, the investment (including the value of the option) was accounted for using the equity method through the date of its sale in December 2022. The difference between the initial carrying value of the Company's investment in Hitachi Energy at fair value and its proportionate share of the underlying net assets created basis differences of $8,570 million ($1,705 million for the Company’s 19.9 percent ownership), which were allocated as follows: Weighted-average ($ in millions) Allocated amounts useful life Inventories 169 5 months Order backlog 727 2 years Property, plant and equipment (1) 1,016 Intangible assets (2) 1,731 9 years Other contractual rights 251 2 years Other assets 43 Deferred tax liabilities (942) Goodwill 6,026 Less: Amount attributed to noncontrolling interest (451) Basis difference 8,570 (1) Property, plant and equipment includes assets subject to amortization having an initial fair value difference of $686 million and a weighted-average useful life of 14 years. (2) Intangible assets include brand license agreement, technology and customer relationships. For assets subject to depreciation or amortization, the Company amortizes these basis differences over the estimated remaining useful lives of the assets that gave rise to this difference, recording the amortization, net of related deferred tax benefit, as a reduction of income from equity-accounted companies. Certain other assets are recorded as an expense as the benefits from the assets are realized. At December 31, 2022, the Company determined that no impairment of its equity-accounted investments existed. The carrying value of the Company’s investments in equity-accounted companies and respective percentage of ownership is as follows: Ownership as of Carrying value at December 31, ($ in millions, except ownership share in %) December 31, 2021 2022 2021 Hitachi Energy Ltd 19.9% — 1,609 Others 130 61 Total 130 1,670 In 2022, 2021 and 2020, the Company recorded its share of the earnings of investees accounted for under the equity method of accounting in Other income (expense), net, as follows: ($ in millions) 2022 2021 2020 Income (loss) from equity-accounted companies, net of taxes (22) 38 29 Basis difference amortization (net of deferred income tax benefit) (80) (138) (95) Loss from equity-accounted companies (102) (100) (66) 92 FINANCIAL REPORT 2022 — Note 5 Cash and equivalents, marketable securities and short-term investments Cash and equivalents and marketable securities and short ‑ term investments consisted of the following: Marketable securities Gross Gross and unrealized unrealized Cash and short-term December 31, 2022 ($ in millions) Cost basis gains losses Fair value equivalents investments Changes in fair value recorded in net income Cash 1,715 1,715 1,715 Time deposits 2,459 2,459 2,459 Equity securities 345 10 355 355 4,519 10 — 4,529 4,174 355 Changes in fair value recorded in other comprehensive income Debt securities available-for-sale: —U.S. government obligations 269 1 (15) 255 255 —Other government obligations 58 58 58 —Corporate 64 (7) 57 57 391 1 (22) 370 — 370 Total 4,910 11 (22) 4,899 4,174 725 Of which: —Restricted cash, current 18 Marketable securities Gross Gross and unrealized unrealized Cash and short-term December 31, 2021 ($ in millions) Cost basis gains losses Fair value equivalents investments Changes in fair value recorded in net income Cash 2,752 2,752 2,752 Time deposits 2,037 2,037 1,737 300 Equity securities 569 18 587 587 5,358 18 — 5,376 4,489 887 Changes in fair value recorded in other comprehensive income Debt securities available-for-sale: —U.S. government obligations 203 7 (1) 209 209 —Corporate 74 1 (1) 74 74 277 8 (2) 283 — 283 Total 5,635 26 (2) 5,659 4,489 1,170 Of which: —Restricted cash, current 30 —Restricted cash, non-current 300 FINANCIAL REPORT 2022 93 Contractual maturities Contractual maturities of debt securities consisted of the following: Available-for-sale December 31, 2022 ($ in millions) Cost basis Fair value Less than one year 139 138 One to five years 157 148 Six to ten years 90 80 Due after ten years 4 4 Total 390 370 At December 31, 2022 and 2021, the Company pledged $69 million and $66 million, respectively, of available ‑ for ‑ sale marketable securities as collateral for issued letters of credit and other security arrangements. — Note 6 Derivative financial instruments The Company is exposed to certain currency, commodity, interest rate and equity risks arising from its global operating, financing and investing activities. The Company uses derivative instruments to reduce and manage the economic impact of these exposures. Currency risk Due to the global nature of the Company’s operations, many of its subsidiaries are exposed to currency risk in their operating activities from entering into transactions in currencies other than their functional currency. To manage such currency risks, the Company’s policies require its subsidiaries to hedge their foreign currency exposures from binding sales and purchase contracts denominated in foreign currencies. For forecasted foreign currency denominated sales of standard products and the related foreign currency denominated purchases, the Company’s policy is to hedge up to a maximum of 100 percent of the forecasted foreign currency denominated exposures, depending on the length of the forecasted exposures. Forecasted exposures greater than 12 months are not hedged. Forward foreign exchange contracts are the main instrument used to protect the Company against the volatility of future cash flows (caused by changes in exchange rates) of contracted and forecasted sales and purchases denominated in foreign currencies. In addition, within its treasury operations, the Company primarily uses foreign exchange swaps and forward foreign exchange contracts to manage the currency and timing mismatches arising in its liquidity management activities. Commodity risk Various commodity products are used in the Company’s manufacturing activities. Consequently it is exposed to volatility in future cash flows arising from changes in commodity prices. To manage the price risk of commodities, the Company’s policies require that its subsidiaries hedge the commodity price risk exposures from binding contracts, as well as at least 50 percent (up to a maximum of 100 percent) of the forecasted commodity exposure over the next 12 months or longer (up to a maximum of 18 months). Primarily swap contracts are used to manage the associated price risks of commodities. Interest rate risk The Company has issued bonds at fixed rates. Interest rate swaps and cross-currency interest rate swaps are used to manage the interest rate and foreign currency risk associated with certain debt and generally such swaps are designated as fair value hedges. In addition, from time to time, the Company uses instruments such as interest rate swaps, interest rate futures, bond futures or forward rate agreements to manage interest rate risk arising from the Company’s balance sheet structure but does not designate such instruments as hedges. 94 FINANCIAL REPORT 2022 Equity risk The Company is exposed to fluctuations in the fair value of its warrant appreciation rights (WARs) issued under its Management Incentive Plan (MIP) (see Note 18). A WAR gives its holder the right to receive cash equal to the market price of an equivalent listed warrant on the date of exercise. To eliminate such risk, the Company has purchased cash ‑ settled call options, indexed to the shares of the Company, which entitle the Company to receive amounts equivalent to its obligations under the outstanding WARs. Volume of derivative activity In general, while the Company’s primary objective in its use of derivatives is to minimize exposures arising from its business, certain derivatives are designated and qualify for hedge accounting treatment while others either are not designated or do not qualify for hedge accounting. Foreign exchange and interest rate derivatives The gross notional amounts of outstanding foreign exchange and interest rate derivatives (whether designated as hedges or not) were as follows: Type of derivative Total notional amounts at December 31, ($ in millions) 2022 2021 2020 Foreign exchange contracts 13,509 11,276 12,610 Embedded foreign exchange derivatives 933 815 1,134 Cross-currency interest rate swaps 855 906 — Interest rate contracts 2,830 3,541 3,227 Derivative commodity contracts The Company uses derivatives to hedge its direct or indirect exposure to the movement in the prices of commodities which are primarily copper, silver and aluminum. The following table shows the notional amounts of outstanding derivatives (whether designated as hedges or not), on a net basis, to reflect the Company’s requirements for these commodities: Total notional amounts at December 31, Type of derivative Unit 2022 2021 2020 Copper swaps metric tonnes 29,281 36,017 39,390 Silver swaps ounces 2,012,213 2,842,533 1,966,677 Aluminum swaps metric tonnes 6,825 7,125 8,112 Equity derivatives At December 31, 2022, 2021 and 2020, the Company held 8 million, 9 million and 22 million cash ‑ settled call options indexed to ABB Ltd shares (conversion ratio 5:1) with a total fair value of $15 million, $29 million and $21 million, respectively. Cash flow hedges As noted above, the Company mainly uses forward foreign exchange contracts to manage the foreign exchange risk of its operations, commodity swaps to manage its commodity risks and cash ‑ settled call options to hedge its WAR liabilities. The Company applies cash flow hedge accounting in only limited cases. In these cases, the effective portion of the changes in their fair value is recorded in “Accumulated other comprehensive loss” and subsequently reclassified into earnings in the same line item and in the same period as the underlying hedged transaction affects earnings. In 2022, 2021 and 2020, there were no significant amounts recorded for cash flow hedge accounting activities. Fair value hedges To reduce its interest rate exposure arising primarily from its debt issuance activities, the Company uses interest rate swaps and cross-currency interest rate swaps. Where such instruments are designated as fair value hedges, the changes in the fair value of these instruments, as well as the changes in the fair value of the risk component of the underlying debt being hedged, are recorded as offsetting gains and losses in “Interest and other finance expense”. FINANCIAL REPORT 2022 95 The effect of derivative instruments, designated and qualifying as fair value hedges, on the Consolidated Income Statements was as follows: ($ in millions) 2022 2021 2020 Gains (losses) recognized in Interest and other finance expense: Interest rate contracts Designated as fair value hedges (91) (55) 11 Hedged item 93 56 (11) Cross-currency Designated as fair value hedges (134) (37) — interest rate swaps Hedged item 135 34 — Derivatives not designated in hedge relationships Derivative instruments that are not designated as hedges or do not qualify as either cash flow or fair value hedges are economic hedges used for risk management purposes. Gains and losses from changes in the fair values of such derivatives are recognized in the same line in the income statement as the economically hedged transaction. Furthermore, under certain circumstances, the Company is required to split and account separately for foreign currency derivatives that are embedded within certain binding sales or purchase contracts denominated in a currency other than the functional currency of the subsidiary and the counterparty. The gains (losses) recognized in the Consolidated Income Statements on derivatives not designated in hedging relationships were as follows: ($ in millions) Gains (losses) recognized in income Type of derivative not designated as a hedge Location 2022 2021 2020 Foreign exchange contracts Total revenues (56) 3 94 Total cost of sales 21 (53) — SG&A expenses (1) 27 11 (11) Non-order related research and development — (2) (2) Interest and other finance expense (128) (173) 207 Embedded foreign exchange contracts Total revenues (3) (7) (34) Total cost of sales (11) (2) (1) Commodity contracts Total cost of sales (47) 78 56 Other Interest and other finance expense 4 — 1 Total (193) (145) 310 (1) SG&A expenses represent “Selling, general and administrative expenses”. The fair values of derivatives included in the Consolidated Balance Sheets were as follows: Derivative assets Derivative liabilities Current in Non-current Current in Non-current “Other in “Other “Other in “Other current non-current current non-current December 31, 2022 ($ in millions) assets” assets” liabilities” liabilities” Derivatives designated as hedging instruments: Foreign exchange contracts — — 4 4 Interest rate contracts — — 5 57 Cross-currency interest rate swaps — — — 288 Cash-settled call options 15 — — — Total 15 — 9 349 Derivatives not designated as hedging instruments: Foreign exchange contracts 140 21 80 5 Commodity contracts 13 — 12 — Interest rate contracts 5 — 3 — Embedded foreign exchange derivatives 11 6 17 13 Total 169 27 112 18 Total fair value 184 27 121 367 96 FINANCIAL REPORT 2022 Derivative assets Derivative liabilities Current in Non-current Current in Non-current “Other in “Other “Other in “Other current non-current current non-current December 31, 2021 ($ in millions) assets” assets” liabilities” liabilities” Derivatives designated as hedging instruments: Foreign exchange contracts — — 3 5 Interest rate contracts 9 20 — — Cross-currency interest rate swaps — — — 109 Cash-settled call options 29 — — — Total 38 20 3 114 Derivatives not designated as hedging instruments: Foreign exchange contracts 108 14 107 7 Commodity contracts 19 — 5 — Interest rate contracts 1 — 2 — Embedded foreign exchange derivatives 10 7 16 10 Total 138 21 130 17 Total fair value 176 41 133 131 Close ‑ out netting agreements provide for the termination, valuation and net settlement of some or all outstanding transactions between two counterparties on the occurrence of one or more pre ‑ defined trigger events. Although the Company is party to close ‑ out netting agreements with most derivative counterparties, the fair values in the tables above and in the Consolidated Balance Sheets at December 31, 2022 and 2021, have been presented on a gross basis. The Company’s netting agreements and other similar arrangements allow net settlements under certain conditions. At December 31, 2022 and 2021, information related to these offsetting arrangements was as follows: December 31, 2022 ($ in millions) Gross amount of Derivative liabilities Cash Non-cash Type of agreement or recognized eligible for set-off in collateral collateral Net asset similar arrangement assets case of default received received exposure Derivatives 194 (96) — — 98 Total 194 (96) — — 98 December 31, 2022 ($ in millions) Gross amount of Derivative liabilities Cash Non-cash Type of agreement or recognized eligible for set-off in collateral collateral Net liability similar arrangement liabilities case of default pledged pledged exposure Derivatives 458 (96) — — 362 Total 458 (96) — — 362 December 31, 2021 ($ in millions) Gross amount of Derivative liabilities Cash Non-cash Type of agreement or recognized eligible for set-off in collateral collateral Net asset similar arrangement assets case of default received received exposure Derivatives 200 (104) — — 96 Total 200 (104) — — 96 December 31, 2021 ($ in millions) Gross amount of Derivative liabilities Cash Non-cash Type of agreement or recognized eligible for set-off in collateral collateral Net liability similar arrangement liabilities case of default pledged pledged exposure Derivatives 238 (104) — — 134 Total 238 (104) — — 134 FINANCIAL REPORT 2022 97 — Note 7 Fair values Recurring fair value measures The fair values of financial assets and liabilities measured at fair value on a recurring basis were as follows: Total December 31, 2022 ($ in millions) Level 1 Level 2 Level 3 fair value Assets Securities in “Marketable securities and short-term investments”: Equity securities 355 355 Debt securities—U.S. government obligations 255 255 Debt securities—Other government obligations 58 58 Debt securities—Corporate 57 57 Derivative assets—current in “Other current assets” 184 184 Derivative assets—non-current in “Other non-current assets” 27 27 Total 255 681 — 936 Liabilities Derivative liabilities—current in “Other current liabilities” 121 121 Derivative liabilities—non-current in “Other non-current liabilities” 367 367 Total — 488 — 488 Total December 31, 2021 ($ in millions) Level 1 Level 2 Level 3 fair value Assets Securities in “Marketable securities and short-term investments”: Equity securities 587 587 Debt securities—U.S. government obligations 209 209 Debt securities—Corporate 74 74 Derivative assets—current in “Other current assets” 176 176 Derivative assets—non-current in “Other non-current assets” 41 41 Total 209 878 — 1,087 Liabilities Derivative liabilities—current in “Other current liabilities” 133 133 Derivative liabilities—non-current in “Other non-current liabilities” 131 131 Total — 264 — 264 During 2022, 2021 and 2020 there have been no reclassifications for any financial assets or liabilities between Level 1 and Level 2. The Company uses the following methods and assumptions in estimating fair values of financial assets and liabilities measured at fair value on a recurring basis: • Securities in “Marketable securities and short ‑ term investments”: If quoted market prices in active markets for identical assets are available, these are considered Level 1 inputs; however, when markets are not active, these inputs are considered Level 2. If such quoted market prices are not available, fair value is determined using market prices for similar assets or present value techniques, applying an appropriate risk ‑ free interest rate adjusted for non ‑ performance risk. The inputs used in present value techniques are observable and fall into the Level 2 category. • Derivatives: The fair values of derivative instruments are determined using quoted prices of identical instruments from an active market, if available (Level 1 inputs). If quoted prices are not available, price quotes for similar instruments, appropriately adjusted, or present value techniques, based on available market data, or option pricing models are used. Cash ‑ settled call options hedging the Company’s WAR liability are valued based on bid prices of the equivalent listed warrant. The fair values obtained using price quotes for similar instruments or valuation techniques represent a Level 2 input unless significant unobservable inputs are used. 98 FINANCIAL REPORT 2022 Non ‑ recurring fair value measures The Company elects to record private equity investments without readily determinable fair values at cost, less impairment, adjusted for observable price changes. The Company reassesses at each reporting period whether these investments continue to qualify for this treatment. In 2022 and 2021, the Company recognized, in Other income (expense), net, net fair value gains of $52 million and $108 million, respectively, related to certain of its private equity investments based on observable market price changes for an identical or similar investment of the same issuer. The fair values were determined using Level 2 inputs. The carrying values of these investments at December 31, 2022 and 2021, totaled $106 million and $169 million, respectively. Based on valuations at July 1, 2020, the Company recorded goodwill impairment charges of $311 million in the third quarter of 2020. The fair value measurements used in the analyses were calculated using the income approach (discounted cash flow method). The discounted cash flow models were calculated using unobservable inputs, which classified the fair value measurement as Level 3 (see Note 11 for additional information including further detailed information related to these charges and significant unobservable inputs). Apart from the transactions above, there were no additional significant non ‑ recurring fair value measurements during 2022 and 2021. Disclosure about financial instruments carried on a cost basis The fair values of financial instruments carried on a cost basis were as follows: Carrying Total December 31, 2022 ($ in millions) value Level 1 Level 2 Level 3 fair value Assets Cash and equivalents (excluding securities with original maturities up to 3 months): Cash 1,697 1,697 1,697 Time deposits 2,459 2,459 2,459 Restricted cash 18 18 18 Liabilities Short-term debt and current maturities of long-term debt (excluding finance lease obligations) 2,500 1,068 1,432 2,500 Long-term debt (excluding finance lease obligations) 4,976 4,813 30 4,843 Carrying Total December 31, 2021 ($ in millions) value Level 1 Level 2 Level 3 fair value Assets Cash and equivalents (excluding securities with original maturities up to 3 months): Cash 2,422 2,422 2,422 Time deposits 1,737 1,737 1,737 Restricted cash 30 30 30 Marketable securities and short-term investments (excluding securities): Time deposits 300 300 300 Restricted cash, non-current 300 300 300 Liabilities Short-term debt and current maturities of long-term debt (excluding finance lease obligations) 1,357 1,288 69 1,357 Long-term debt (excluding finance lease obligations) 4,043 4,234 58 4,292 The Company uses the following methods and assumptions in estimating fair values of financial instruments carried on a cost basis: • Cash and equivalents (excluding securities with original maturities up to 3 months), Restricted cash, current and non-current, and Marketable securities and short ‑ term investments (excluding securities): The carrying amounts approximate the fair values as the items are short ‑ term in nature or, for cash held in banks, are equal to the deposit amount. FINANCIAL REPORT 2022 99 • Short ‑ term debt and current maturities of long ‑ term debt (excluding finance lease obligations): Short ‑ term debt includes commercial paper, bank borrowings and overdrafts. The carrying amounts of short ‑ term debt and current maturities of long ‑ term debt, excluding finance lease obligations, approximate their fair values. • Long ‑ term debt (excluding finance lease obligations): Fair values of bonds are determined using quoted market prices (Level 1 inputs), if available. For bonds without available quoted market prices and other long ‑ term debt, the fair values are determined using a discounted cash flow methodology based upon borrowing rates of similar debt instruments and reflecting appropriate adjustments for non ‑ performance risk (Level 2 inputs). — Note 8 Receivables, net and Contract assets and liabilities “Receivables, net” consisted of the following: December 31, ($ in millions) 2022 2021 Trade receivables 6,478 6,206 Other receivables 688 684 Allowance (308) (339) Total 6,858 6,551 “Trade receivables” in the table above includes contractual retention amounts billed to customers of $100 million and $119 million at December 31, 2022 and 2021, respectively. Management expects that the substantial majority of related contracts will be completed and the substantial majority of the billed amounts retained by the customer will be collected. Of the retention amounts outstanding at December 31, 2022, 52 percent and 34 percent are expected to be collected in 2023 and 2024, respectively. “Other receivables” in the table above consists of value added tax, claims, rental deposits and other non ‑ trade receivables. The reconciliation of changes in the allowance for doubtful accounts is as follows: ($ in millions) 2022 2021 2020 Balance at January 1, 339 357 228 Transition adjustment — — 56 Current-period provision for expected credit losses 37 33 115 Write-offs charged against the allowance (48) (37) (42) Exchange rate differences (20) (14) — Balance at December 31, 308 339 357 The following table provides information about Contract assets and Contract liabilities: December 31, ($ in millions) 2022 2021 2020 Contract assets 954 990 985 Contract liabilities 2,216 1,894 1,903 Contract assets primarily relate to the Company’s right to receive consideration for work completed but for which no invoice has been issued at the reporting date. Contract assets are transferred to receivables when rights to receive payment become unconditional. Management expects that the majority of the amounts will be collected within one year of the respective balance sheet date. Contract liabilities primarily relate to up-front advances received on orders from customers as well as amounts invoiced to customers in excess of revenues recognized predominantly on long-term projects. Contract liabilities are reduced as work is performed and as revenues are recognized. In addition to the amounts presented as Contract liabilities in the table above, $59 million are non-current and are included in Other non-current liabilities in the Balance Sheet. 100 FINANCIAL REPORT 2022 The significant changes in the Contract assets and Contract liabilities balances were as follows: 2022 2021 Contract Contract Contract Contract ($ in millions) assets liabilities assets liabilities Revenue recognized, which was included in the Contract liabilities balance at January 1, 2022/2021 (1,043) (1,086) Additions to Contract liabilities - excluding amounts recognized as revenue during the period 1,481 1,136 Receivables recognized that were included in the Contract assets balance at January 1, 2022/2021 (591) (566) The Company considers its order backlog to represent its unsatisfied performance obligations. At December 31, 2022, the Company had unsatisfied performance obligations totaling $19,867 million and, of this amount, the Company expects to fulfill approximately 77 percent of the obligations in 2023, approximately 13 percent of the obligations in 2024 and the balance thereafter. — Note 9 Inventories, net “Inventories, net” consisted of the following: December 31, ($ in millions) 2022 2021 Raw materials 2,626 2,136 Work in process 1,189 995 Finished goods 2,036 1,594 Advances to suppliers 177 155 Total 6,028 4,880 — Note 10 Property, plant and equipment, net “Property, plant and equipment, net” consisted of the following: December 31, ($ in millions) 2022 2021 Land and buildings 3,622 3,925 Machinery and equipment 5,495 5,785 Construction in progress 586 522 9,703 10,232 Accumulated depreciation (5,792) (6,187) Total 3,911 4,045 Assets under finance leases included in “Property, plant and equipment, net” were as follows: December 31, ($ in millions) 2022 2021 Land and buildings 178 164 Machinery and equipment 135 92 313 256 Accumulated depreciation (135) (123) Total 178 133 In 2022, 2021 and 2020 depreciation, including depreciation of assets under finance leases, was $531 million, $575 million and $586 million, respectively. In 2022, 2021 and 2020 there were no significant impairments of property, plant or equipment. FINANCIAL REPORT 2022 101 — Note 11 Goodwill and intangible assets The changes in “Goodwill” were as follows: Robotics & Process Discrete ($ in millions) Electrification Motion Automation Automation Total Balance at January 1, 2021 4,527 2,456 1,639 2,228 10,850 Goodwill acquired during the year 11 — — 150 161 Goodwill allocated to disposals — (338) (7) — (345) Exchange rate differences and other (66) (1) (19) (98) (184) Balance at December 31, 2021 (1) 4,472 2,117 1,613 2,280 10,482 Goodwill acquired during the year 220 9 — — 229 Goodwill allocated to disposals (2) (2) — (6) — (8) Exchange rate differences and other (92) (8) (20) (72) (192) Balance at December 31, 2022 (1) 4,598 2,118 1,587 2,208 10,511 (1) At December 31, 2022 and 2021, the gross goodwill amounted to $10,774 million and $10,760 million, respectively. The accumulated impairment charges amounted to $263 million and $278 million, respectively, and related to the Robotics & Discrete Automation segment. (2) Includes goodwill of $6 million relating to the Turbocharging Division which, prior to its spin-off, was included in the Process Automation operating segment. The Company adopted a new operating model on July 1, 2020, which resulted in a change to the goodwill reporting units being identified at the Division level. As a result of the new allocation of goodwill, an interim quantitative impairment test was conducted both before and after the changes which were effective July 1, 2020. The interim quantitative impairment test indicated that the estimated fair values of the reporting units were substantially in excess of their carrying value for all reporting units except for the Machine Automation reporting unit within the Robotics & Discrete Automation operating segment. With the fair value of the reporting unit lower due to the economic conditions, the existing book value of the intangible assets combined with the newly allocated reporting unit goodwill led to the carrying value of the Machine Automation reporting unit exceeding its fair value. During 2020, a goodwill impairment charge of $290 million was recorded to reduce the carrying value of this reporting unit to its implied fair value. During 2022 and 2021, certain reporting units were split into separate reporting units. For each change, an interim quantitative impairment test was conducted before and after the change and in all cases, it was concluded that the fair value of the relevant reporting units exceeded the carrying value by a significant amount. At October 1, 2022 and 2021, respectively, the Company performed qualitative assessments and determined that it was not more likely than not that the fair value for each of the reporting units was below the carrying value. As a result, the Company concluded that it was not necessary to perform the quantitative impairment test. Intangible assets, net consisted of the following: 2022 2021 Gross Accumu- Net Gross Accumu- Net carrying lated amort- carrying carrying lated amort- carrying December 31, ($ in millions) amount ization amount amount ization amount Capitalized software for internal use 830 (720) 110 835 (732) 103 Capitalized software for sale 26 (26) — 31 (29) 2 Intangibles other than software: Customer-related 1,743 (808) 935 1,716 (707) 1,009 Technology-related 997 (812) 185 1,122 (868) 254 Marketing-related 498 (347) 151 493 (327) 166 Other 55 (30) 25 56 (29) 27 Total 4,149 (2,743) 1,406 4,253 (2,692) 1,561 102 FINANCIAL REPORT 2022 Additions to intangible assets other than goodwill consisted of the following: ($ in millions) 2022 2021 Capitalized software for internal use 53 32 Capitalized software for sale — 2 Intangibles other than software: Customer-related 79 13 Technology-related 16 35 Marketing-related 20 11 Other 7 2 Total 175 95 There were no significant intangible assets acquired in business combinations in 2021. Included in the additions of $175 million in 2022 are intangible assets of $116 million acquired in business combinations, primarily consisting of customer-related and marketing-related intangibles. Amortization expense of intangible assets consisted of the following: ($ in millions) 2022 2021 2020 Capitalized software for internal use 52 66 61 Intangibles other than software 230 252 268 Total 282 318 329 In 2022, 2021 and 2020 impairment charges on intangible assets were not significant. At December 31, 2022, future amortization expense of intangible assets is estimated to be: ($ in millions) 2023 296 2024 221 2025 174 2026 153 2027 145 Thereafter 417 Total 1,406 — Note 12 Debt The Company’s total debt at December 31, 2022 and 2021, amounted to $7,678 million and $5,561 million, respectively. Short ‑ term debt and current maturities of long-term debt “Short ‑ term debt and current maturities of long ‑ term debt” consisted of the following: December 31, ($ in millions) 2022 2021 Short-term debt (weighted-average interest rate of 1.9% and 3.2%, respectively) 1,448 78 Current maturities of long-term debt (weighted-average nominal interest rate of 0.5% and 2.8%, respectively) 1,087 1,306 Total 2,535 1,384 Short ‑ term debt primarily represents short ‑ term loans from various banks and issued commercial paper. At December 31, 2022, the Company had two commercial paper programs in place: a $2 billion Euro ‑ commercial paper program for the issuance of commercial paper in a variety of currencies, and a $2 billion commercial paper program for the private placement of U.S. dollar denominated commercial paper in the United States. At December 31, 2022, $1,383 million was outstanding under the $2 billion Euro-commercial paper program and no amount was outstanding under the $2 billion program in the United States. At December 31, 2021, no amount was outstanding under either program. FINANCIAL REPORT 2022 103 In December 2019, the Company replaced its previous multicurrency revolving credit facility with a new $2 billion multicurrency revolving credit facility maturing in 2024. In 2021, the Company exercised its option to extend the maturity of this facility to 2026. The facility is for general corporate purposes. Interest costs on drawings under the facility are LIBOR (for drawings in currencies for which LIBOR is still published) and EURIBOR for EURO drawings, plus a margin of 0.175 percent, while commitment fees (payable on the unused portion of the facility) amount to 35 percent of the margin, which represents commitment fees of 0.06125 percent per annum. Utilization fees, payable on drawings, amount to 0.075 percent per annum on drawings up to one ‑ third of the facility, 0.15 percent per annum on drawings in excess of one ‑ third but less than or equal to two ‑ thirds of the facility, or 0.30 percent per annum on drawings over two ‑ thirds of the facility. The facility contains cross ‑ default clauses whereby an event of default would occur if the Company were to default on indebtedness as defined in the facility, at or above a specified threshold. No amount was drawn at December 31, 2022 and 2021, under this facility. The Company amended and restated its facility in February 2023 for the purpose of addressing the discontinuation of LIBOR. Under the amended and restated credit facility, the margin is unchanged, but advances in USD are referenced to CME Term SOFR, whilst advances in CHF and GBP are referenced to overnight SARON and SONIA respectively, subject to applicable credit adjustment spreads. Long ‑ term debt The Company raises long-term debt in various currencies, maturities and on various interest rate terms. For certain of its debt obligations, the Company utilizes derivative instruments to modify its interest rate exposure. In particular, the Company uses interest rate swaps to effectively convert certain fixed ‑ rate long ‑ term debt into floating rate obligations. For certain non-U.S. dollar denominated debt, the Company utilizes cross-currency interest rate swaps to effectively convert the debt into a U.S. dollar obligation. The carrying value of debt, designated as being hedged by fair value hedges, is adjusted for changes in the fair value of the risk component of the debt being hedged. The following table summarizes the Company’s long ‑ term debt considering the effect of interest rate and cross-currency interest rate swaps. Consequently, a fixed ‑ rate debt subject to a fixed ‑ to ‑ floating interest rate swap is included as a floating rate debt in the table below: 2022 2021 December 31, Nominal Effective Nominal Effective ($ in millions, except % data) Balance rate rate Balance rate rate Floating rate 3,459 0.4% 2.8% 3,598 1.2% 0.3% Fixed rate 2,771 2.2% 2.2% 1,885 3.0% 3.1% 6,230 5,483 Current portion of long-term debt (1,087) 0.5% 1.5% (1,306) 2.8% 1.0% Total 5,143 4,177 At December 31, 2022, the principal amounts of long ‑ term debt repayable (excluding finance lease obligations) at maturity were as follows: ($ in millions) 2023 1,058 2024 2,387 2025 193 2026 — 2027 461 Thereafter 2,194 Total 6,293 104 FINANCIAL REPORT 2022 Details of outstanding bonds were as follows: 2022 2021 December 31, (in millions) Nominal Carrying Nominal Carrying outstanding value (1) outstanding value (1) Bonds: 2.875% USD Notes, due 2022 — USD 1,250 $ 1,258 0.625% EUR Instruments, due 2023 EUR 700 $ 742 EUR 700 $ 800 0% CHF Bonds, due 2023 CHF 275 $ 298 — 0.625% EUR Instruments, due 2024 EUR 700 $ 720 — Floating Rate EUR Instruments, due 2024 EUR 500 $ 536 — 0.75% EUR Instruments, due 2024 EUR 750 $ 769 EUR 750 $ 860 0.3% CHF Bonds, due 2024 CHF 280 $ 303 CHF 280 $ 306 2.1% CHF Bonds, due 2025 CHF 150 $ 162 — 0.75% CHF Bonds, due 2027 CHF 425 $ 460 — 3.8% USD Notes, due 2028 (2) USD 383 $ 381 USD 383 $ 381 1.0% CHF Bonds, due 2029 CHF 170 $ 184 CHF 170 $ 186 0% EUR Instruments, due 2030 EUR 800 $ 677 EUR 800 $ 862 2.375% CHF Bonds, due 2030 CHF 150 $ 162 — 4.375% USD Notes, due 2042 (2) USD 609 $ 590 USD 609 $ 589 Total $ 5,984 $ 5,242 (1) USD carrying values include unamortized debt issuance costs, bond discounts or premiums, as well as adjustments for fair value hedge accounting, where appropriate. (2) Prior to completing a cash tender offer in 2020, the original principal amount outstanding, on each of the 3.8% USD Notes, du e 2028, and the 4.375% USD Notes, due 2042, was $750 million. During 2022, the Company repaid at maturity its 2.875% USD Notes, which paid interest semi ‑ annually in arrears. The Company had entered into interest rate swaps for an aggregate nominal amount of $1,050 million to partially hedge its interest obligations on these Notes and after considering the impact of such swaps, $1,050 million of the outstanding principal at December 31, 2021, is shown as floating rate debt, in the table of long ‑ term debt above. During 2020, in connection with exercising certain early redemption options on the $250 million 5.625% USD Notes, due 2021, and $450 million 3.375% USD Notes, due 2023, and the partial redemption through a cash tender offer of the 3.8% USD Notes, due 2028, and 4.375% USD Notes, due 2042, the Company recognized losses on extinguishment of debt of $162 million, representing the premium associated with the early redemption, as well as the recognition of the relevant remaining unamortized issuance premium or discounts and issuance costs. The 0.625% EUR Instruments, due 2023, pay interest annually in arrears at a fixed rate of 0.625 percent per annum. The Company may redeem these notes up to three months prior to maturity (Par call date), in whole or in part, at the greater of (i) 100 percent of the principal amount of the notes to be redeemed and (ii) the sum of the present values of remaining scheduled payments of principal and interest (excluding interest accrued to the redemption date) discounted to the redemption date at a rate defined in the note terms, plus interest accrued at the redemption date. The Company may redeem these instruments in whole or in part, after the Par call date at 100 percent of the principal amount of the notes to be redeemed. The Company entered into interest rate swaps to modify the characteristics of these bonds. After considering the impact of such swaps, these notes effectively became floating rate euro obligations and consequently have been shown as floating rate debt, in the table of long ‑ term debt above. The 0.75% EUR Instruments, due 2024, pay interest annually in arrears at a fixed rate of 0.75 percent per annum and have the same early redemption terms as the 0.625% EUR Instruments above. The Company entered into interest rate swaps to modify the characteristics of these bonds. After considering the impact of such swaps, these bonds effectively became floating rate euro obligations and consequently have been shown as floating rate debt in the table of long ‑ term debt above. The 0.3% CHF Bonds, due 2024, and 1.0% CHF Bonds, due 2029, each pay interest annually in arrears. The Company may redeem these bonds, one month prior to maturity in the case of the 2024 Bonds and three months prior to maturity in the case of the 2029 Bonds, in whole but not in part, at par plus accrued interest. Further, the Company has the option to redeem these instruments prior to maturity, in whole but not in part, at par plus accrued interest, if 85 percent or more of the aggregate principal amount of the relevant bond issue have been redeemed or purchased and cancelled at the time of the option exercise notice. FINANCIAL REPORT 2022 105 The 3.8% USD Notes, due 2028, were issued in April 2018, along with $300 million of 2.8% USD Notes, due 2020, and $450 million of 3.375% USD Notes, due 2023, each paying interest semi ‑ annually in arrears. The 2020 Notes were repaid at maturity in October 2020 and the 2023 Notes were redeemed early in full in December 2020. The Company may redeem the remaining principal outstanding of the 2028 Notes up to three months prior to their maturity date, in whole or in part, at the greater of (i) 100 percent of the principal amount of the notes to be redeemed and (ii) the sum of the present values of remaining scheduled payments of principal and interest (excluding interest accrued to the redemption date) discounted to the redemption date at a rate defined in the Notes terms, plus interest accrued at the redemption date. On or after January 3, 2028 (three months prior to their maturity date), the Company may also redeem the 2028 Notes, in whole or in part, at any time at a redemption price equal to 100 percent of the principal amount of the notes to be redeemed plus unpaid accrued interest to, but excluding, the redemption date. During 2020 by way of a cash tender offer, the Company redeemed $367 million of the original $750 million 3.8% USD Notes, due 2028, issued. These notes, registered with the U.S. Securities and Exchange Commission, were issued by ABB Finance (USA) Inc., a 100 percent owned finance subsidiary, and are fully and unconditionally guaranteed by ABB Ltd. There are no significant restrictions on the ability of the parent company to obtain funds from its subsidiaries by dividend or loan. In reliance on Rule 13-01 of Regulation S ‑ X, the separate financial statements of ABB Finance (USA) Inc. are not provided. The 0% EUR Instruments, due 2030, do not pay interest and have the same early redemption terms as the 0.625% EUR Instruments above. Cross-currency interest rate swaps have been used to modify the characteristics of these instruments. After considering the impact of these cross-currency interest rate swaps, the Company effectively has a floating rate U.S. dollar obligation. The 4.375% USD Notes, due 2042, pay interest semi ‑ annually in arrears at a fixed annual rate of 4.375 percent. The Company may redeem these notes prior to maturity, in whole or in part, at the greater of (i) 100 percent of the principal amount of the notes to be redeemed and (ii) the sum of the present values of remaining scheduled payments of principal and interest (excluding interest accrued to the redemption date) discounted to the redemption date at a rate defined in the note terms, plus interest accrued at the redemption date. These notes, registered with the U.S. Securities and Exchange Commission, were issued by ABB Finance (USA) Inc., a 100 percent owned finance subsidiary, and are fully and unconditionally guaranteed by ABB Ltd. There are no significant restrictions on the ability of the parent company to obtain funds from its subsidiaries by dividend or loan. In reliance on Rule 13 ‑ 01 of Regulation S ‑ X, the separate financial statements of ABB Finance (USA) Inc. are not provided. During 2020, by way of a cash tender offer, the Company redeemed $141 million of the original $750 million 4.375% USD Notes, due 2042, issued. In March 2022, the Company issued the following CHF bonds: (i) CHF 275 million zero interest Bonds, due 2023, and (ii) CHF 425 million Bonds, due 2027, with a coupon of 0.75 percent payable annually in arrears. The Company may redeem the CHF 425 million Bonds, one month prior to maturity, in whole but not in part, at par plus accrued interest. Further, the Company has the option to redeem these instruments prior to maturity, in whole but not in part, at par plus accrued interest, if 85 percent or more of the aggregate principal amount have been redeemed or purchased and cancelled at the time of the option exercise notice. The aggregate net proceeds of these CHF bond issues, after discount and fees, amounted to CHF 699 million (equivalent to approximately $751 million on date of issuance). Also in March 2022, the Company issued the following EUR Instruments, both due in 2024: (i) EUR 700 million, paying interest annually in arrears at a fixed rate of 0.625 percent per annum, and (ii) EUR 500 million floating rate notes, paying interest quarterly in arrears at a variable rate of 0.7 percentage points above the 3-month EURIBOR, subject to a minimum rate of interest of zero percent. The Company may redeem the EUR 700 million Instruments prior to maturity at the greater of (i) 100 percent of the principal amount of the notes to be redeemed and (ii) the sum of the present values of remaining scheduled payments of principal and interest (excluding interest accrued to the redemption date) discounted to the redemption date at a rate defined in the note terms, plus interest accrued at the redemption date. In relation to these EUR Instruments, the Company recorded net proceeds (after the respective discount and premium, as well as fees) of EUR 1,203 million (equivalent to $1,335 million on the date of issuance). Interest rate swaps have been used to modify the characteristics of the EUR 700 million Instruments, due 2024. After considering the impact of these interest rate swaps, the EUR 700 million Instruments, effectively become floating rate obligations. 106 FINANCIAL REPORT 2022 In October 2022, the Company issued the following CHF bonds: (i) CHF 150 million 2.1 percent Bonds, due 2025, and (ii) CHF 150 million 2.375 percent Bonds, due 2030. Each of the respective bonds pays interest annually in arrears. The Company may redeem these bonds, three months prior to maturity, in whole but not in part, at par plus accrued interest. Further, the Company has the option to redeem these instruments prior to maturity, in whole but not in part, at par plus accrued interest, if 85 percent or more of the aggregate principal amount of the relevant bond issue has been redeemed or purchased and cancelled at the time of the option exercise notice. The aggregate net proceeds of these CHF bond issues, after underwriting discount and other fees, amounted to CHF 299 million (equivalent to approximately $304 million on date of issuance). The Company’s various debt instruments contain cross ‑ default clauses which would allow the bondholders to demand repayment if the Company were to default on any borrowing at or above a specified threshold. Furthermore, all such bonds constitute unsecured obligations of the Company and rank pari passu with other debt obligations. In addition to the bonds described above, included in long ‑ term debt at December 31, 2022 and 2021, are finance lease obligations, bank borrowings of subsidiaries and other long ‑ term debt, none of which is individually significant. — Note 13 Other provisions, other current liabilities and other non-current liabilities “Other provisions” consisted of the following: December 31, ($ in millions) 2022 2021 Contract-related provisions 615 762 Provision for insurance-related reserves 171 174 Restructuring and restructuring-related provisions 145 188 Provisions for contractual penalties and compliance and litigation matters 49 63 Other 191 199 Total 1,171 1,386 “Other current liabilities” consisted of the following: December 31, ($ in millions) 2022 2021 Employee-related liabilities 1,490 1,547 Accrued expenses 872 768 Non-trade payables 681 644 Accrued customer rebates 315 322 Income taxes payable 312 378 Other tax liabilities 285 298 Derivative liabilities (see Note 6) 121 133 Deferred income 102 95 Pension and other employee benefits 38 41 Accrued interest 38 28 Other 69 113 Total 4,323 4,367 “Other non ‑ current liabilities” consisted of the following: December 31, ($ in millions) 2022 2021 Income tax related liabilities 1,287 1,458 Derivative liabilities (see Note 6) 367 130 Provisions for contractual penalties and compliance and litigation matters 67 129 Contract liabilities (see Note 8) 59 — Employee-related liabilities 45 59 Environmental provisions 42 39 Deferred income 33 74 Other 185 227 Total 2,085 2,116 FINANCIAL REPORT 2022 107 — Note 14 Leases The Company’s lease obligations primarily relate to real estate, machinery and equipment. The components of lease expense were as follows: Machinery Land and buildings and equipment Total ($ in millions) 2022 2021 2020 2022 2021 2020 2022 2021 2020 Operating lease cost 217 240 287 71 73 89 288 313 376 Finance lease cost 15 17 13 22 20 16 37 37 29 Short-term lease cost 20 26 17 18 14 31 38 40 48 Sub-lease income (18) (24) (20) (1) (1) (1) (19) (25) (21) Total lease expense 234 259 297 110 106 135 344 365 432 The following table presents supplemental cash flow information related to leases: Machinery Land and buildings and equipment Total ($ in millions) 2022 2021 2020 2022 2021 2020 2022 2021 2020 Operating leases: Cash paid under operating cash flows 200 223 263 66 68 83 266 291 346 Right-of-use assets obtained in exchange for new liabilities 285 267 266 50 86 57 335 353 323 In 2022, 2021 and 2020 the cash flow amounts under finance leases were not significant. At December 31, 2022, the future net minimum lease payments for operating and finance leases and the related present value of the net minimum lease payments consisted of the following: Operating Leases Finance Leases Land and Machinery Land and Machinery ($ in millions) buildings and equipment buildings and equipment 2023 203 54 21 23 2024 168 34 21 20 2025 138 18 21 17 2026 104 6 17 6 2027 70 1 17 1 Thereafter 151 1 68 — Total minimum lease payments 834 114 165 67 Difference between undiscounted cash flows and discounted cash flows (74) (3) (27) (3) Present value of minimum lease payments 760 111 138 64 The following table presents certain information related to lease terms and discount rates: Land and buildings Machinery and equipment 2022 2021 2020 2022 2021 2020 Operating leases: Weighted-average remaining term (months) 73 73 84 31 30 29 Weighted-average discount rate 3.3% 2.6% 3.0% 1.9% 1.9% 2.0% Finance leases: Weighted-average remaining term (months) 135 100 107 33 40 40 Weighted-average discount rate 5.5% 7.7% 7.7% 2.3% 1.8% 2.3% The present value of minimum finance lease payments included in Short ‑ term debt and current maturities of long ‑ term debt and Long ‑ term debt in the Consolidated Balance Sheets at December 31, 2022, amounts to $35 million and $167 million, respectively, and at December 31, 2021, amounts to $27 million and $134 million, respectively. 108 FINANCIAL REPORT 2022 — Note 15 Commitments and contingencies Contingencies—Regulatory, Compliance and Legal Regulatory As a result of an internal investigation, the Company self-reported to the Securities and Exchange Commission (SEC) and the Department of Justice (DoJ) in the United States as well as to the Serious Fraud Office (SFO) in the United Kingdom concerning certain of its past dealings with Unaoil and its subsidiaries, including alleged improper payments made by these entities to third parties. In May 2020, the SFO closed its investigation, which it originally announced in February 2017, as the case did not meet the relevant test for prosecution and in December 2022 this matter was closed without action by the DOJ as part of the Kusile settlement. Based on findings during an internal investigation, the Company self-reported to the SEC and the DoJ, in the United States, to the Special Investigating Unit (SIU) and the National Prosecuting Authority (NPA) in South Africa as well as to various authorities in other countries potential suspect payments and other compliance concerns in connection with some of the Company’s dealings with Eskom and related persons. Many of those parties have expressed an interest in, or commenced an investigation into, these matters and the Company is cooperating fully with them. The Company paid $104 million to Eskom in December 2020 as part of a full and final settlement with Eskom and the SIU relating to improper payments and other compliance issues associated with the Controls and Instrumentation Contract, and its Variation Orders for Units 1 and 2 at Kusile. The Company made a provision of approximately $325 million, which was recorded in Other income (expense), net, during the third quarter of 2022. In December 2022, the Company settled with the SEC and DoJ as well as the authorities in South Africa and Switzerland. The matter is still pending with the authorities in Germany, but the Company does not believe that it will need to record any additional provisions for this matter. General The Company is aware of proceedings, or the threat of proceedings, against it and others in respect of private claims by customers and other third parties with regard to certain actual or alleged anticompetitive practices. Also, the Company is subject to other claims and legal proceedings, as well as investigations carried out by various law enforcement authorities. With respect to the above- mentioned claims, regulatory matters, and any related proceedings, the Company will bear the related costs, including costs necessary to resolve them. Liabilities recognized At December 31, 2022 and 2021, the Company had aggregate liabilities of $86 million and $104 million, respectively, included in “Other provisions” and “Other non ‑ current liabilities”, for the above regulatory, compliance and legal contingencies, and none of the individual liabilities recognized was significant. As it is not possible to make an informed judgment on, or reasonably predict, the outcome of certain matters and as it is not possible, based on information currently available to management, to estimate the maximum potential liability on other matters, there could be adverse outcomes beyond the amounts accrued. Guarantees General The following table provides quantitative data regarding the Company’s third ‑ party guarantees. The maximum potential payments represent a “worst ‑ case scenario”, and do not reflect management’s expected outcomes. Maximum potential payments (1) December 31, ($ in millions) 2022 2021 Performance guarantees 4,300 4,540 Financial guarantees 96 52 Indemnification guarantees (2) — 136 Total 4,396 4,728 (1) Maximum potential payments include amounts in both continuing and discontinued operations. (2) Certain indemnifications provided to Hitachi in connection with the divestment of Power Grids are without limit. FINANCIAL REPORT 2022 109 The carrying amount of liabilities recorded in the Consolidated Balance Sheets reflects the Company’s best estimate of future payments, which it may incur as part of fulfilling its guarantee obligations. In respect of the above guarantees, the carrying amounts of liabilities at December 31, 2022 and 2021, amounted to $1 million and $156 million, respectively, the majority of which in 2021 is included in discontinued operations. The Company is party to various guarantees providing financial or performance assurances to certain third parties. These guarantees, which have various maturities up to 2035, mainly consist of performance guarantees whereby (i) the Company guarantees the performance of a third party’s product or service according to the terms of a contract and (ii) as member of a consortium/joint venture that includes third parties, the Company guarantees not only its own performance but also the work of third parties. Such guarantees may include guarantees that a project will be completed within a specified time. If the third party does not fulfill the obligation, the Company will compensate the guaranteed party in cash or in kind. The original maturity dates for the majority of these performance guarantees range from one to ten years. In conjunction with the divestment of the high ‑ voltage cable and cables accessories businesses, the Company has entered into various performance guarantees with other parties with respect to certain liabilities of the divested business. At December 31, 2022 and 2021, the maximum potential payable under these guarantees amounts to $843 million and $911 million, respectively, and these guarantees have various maturities ranging from five to ten years. The Company retained obligations for financial, performance and indemnification guarantees related to the sale of the Power Grids business (see Note 3 for details). The performance and financial guarantees have been indemnified by Hitachi at the same proportion of its ownership in Hitachi Energy Ltd, (increasing from 80.1 percent at December 31, 2021, to 100 percent at December 31, 2022). These guarantees, which have various maturities up to 2035, primarily consist of bank guarantees, standby letters of credit, business performance guarantees and other trade-related guarantees, the majority of which have original maturity dates ranging from one to ten years. The maximum amount payable under these guarantees at December 31, 2022 and 2021, is approximately $3.0 billion and $3.2 billion, respectively. On completing the sale of the Company’s remaining 19.9 percent interest in Hitachi Energy to Hitachi, the Company also settled certain existing indemnification guarantees that were due to be settled concurrent with such transaction. As a result, in 2022, the Company recorded $136 million of cash outflows for the settlement of these liabilities (recorded in discontinued operations). Commercial commitments In addition, in the normal course of bidding for and executing certain projects, the Company has entered into standby letters of credit, bid/performance bonds and surety bonds (collectively “performance bonds”) with various financial institutions. Customers can draw on such performance bonds in the event that the Company does not fulfill its contractual obligations. The Company would then have an obligation to reimburse the financial institution for amounts paid under the performance bonds. At December 31, 2022 and 2021, the total outstanding performance bonds aggregated to $2.9 billion and $3.6 billion, respectively; of each of these amounts, $0.1 billion relates to discontinued operations. There have been no significant amounts reimbursed to financial institutions under these types of arrangements in 2022 and 2021. Product and order ‑ related contingencies The Company calculates its provision for product warranties based on historical claims experience and specific review of certain contracts. The reconciliation of the “Provisions for warranties”, including guarantees of product performance, was as follows: ($ in millions) 2022 2021 2020 Balance at January 1, 1,005 1,035 816 Net change in warranties due to acquisitions, divestments, spin-offs and liabilities held for sale (1) (24) 1 8 Claims paid in cash or in kind (157) (222) (209) Net increase in provision for changes in estimates, warranties issued and warranties expired 252 226 369 Exchange rate differences (48) (35) 51 Balance at December 31, 1,028 1,005 1,035 (1) Includes adjustments to the initial purchase price allocation recorded during the measurement period. 110 FINANCIAL REPORT 2022 In 2020, the Company determined that the provision for a product warranty related to a divested business was no longer sufficient to cover expected warranty costs in the remaining warranty period. Due to an unexpected level of product failure, the previously estimated product warranty provision was increased by $143 million during 2020. The corresponding increase was included in “Cost of sales of products”. As these costs relate to a divested business, in accordance with the definition of the Company’s primary measure of segment performance, Operational EBITA (see Note 23), the costs have been excluded from this measure. The warranty liability has been recorded based on the information currently available and is subject to change in the future. Related party transactions The Company conducts business with certain companies where members of the Company’s Board of Directors or Executive Committee act, or in recent years have acted, as directors or senior executives. The Company’s Board of Directors has determined that the Company’s business relationships with those companies do not constitute material business relationships. This determination was made in accordance with the Company’s related party transaction policy which was prepared based on the Swiss Code of Best Practice and the independence criteria set forth in the corporate governance rules of the New York Stock Exchange. — Note 16 Income taxes “Income tax expense” consisted of the following: ($ in millions) 2022 2021 2020 Current taxes 1,101 1,346 776 Deferred taxes (344) (289) (280) Income tax expense allocated to continuing operations 757 1,057 496 Income tax expense (benefit) allocated to discontinued operations (5) (1) 322 Income tax expense from continuing operations is reconciled below from the Company’s weighted ‑ average global tax rate (rather than from the Swiss domestic statutory tax rate) as the parent company of the ABB Group, ABB Ltd, is domiciled in Switzerland and income generated in jurisdictions outside of Switzerland (hereafter “foreign jurisdictions”) which has already been subject to corporate income tax in those foreign jurisdictions is, to a large extent, tax exempt in Switzerland. There is no requirement in Switzerland for any parent company of a group to file a tax return of the consolidated group determining domestic and foreign pre ‑ tax income. As the Company’s consolidated income from continuing operations is predominantly earned outside of Switzerland, the weighted ‑ average global tax rate of the Company results from enacted corporate income tax rates in foreign jurisdictions. The reconciliation of “Income tax expense from continuing operations” at the weighted ‑ average tax rate to the effective tax rate is as follows: ($ in millions, except % data) 2022 2021 2020 Income from continuing operations before income taxes 3,394 5,787 841 Weighted-average global tax rate 23.6% 23.7% 22.9% Income taxes at weighted-average tax rate 800 1,371 193 Items taxed at rates other than the weighted-average tax rate 127 176 3 Unrecognized tax benefits (83) 151 (38) Changes in valuation allowance, net (195) (95) 29 Effects of changes in tax laws and enacted tax rates (19) 1 23 Non-deductible / non-taxable items 97 (542) 232 Other, net 30 (5) 54 Income tax expense from continuing operations 757 1,057 496 Effective tax rate for the year 22.3% 18.3% 59.0% FINANCIAL REPORT 2022 111 The allocation of consolidated income from continuing operations, which is predominantly earned outside of Switzerland, impacts the “weighted-average global tax rate”. In 2021, gains on sales of businesses increased the weighted-average global tax rate by approximately 1 percent. In 2022, “Items taxed at rates other than the weighted-average tax rate” included $53 million for dividends received in holding entities which could not fully benefit from the participation exemption. In 2021, this included $107 million for certain amounts related to the divestment of the Dodge business, while in 2020 the amount was not significant. In 2022, “Changes in valuation allowance, net” included positive impacts from changes in certain outlooks in Asia of $22 million, Europe of $23 million and the Americas of $208 million, offset by negative impacts from changes in certain outlooks in Europe of $55 million. In 2021, the amount included positive impacts from changes in certain outlooks in Europe of $82 million. In 2020, the amount predominantly reflects increases in the valuation allowance resulting from changes in the expectations at that time of future economic conditions due to impacts at that time on the Company’s business from the COVID-19 pandemic. In 2022, “Effects of changes in tax laws and enacted tax rates” primarily reflect the impact of changes to tax rates in Europe for $25 million. In 2021, the amount was not significant. In 2020, the amount primarily reflects the impact of changes to tax rates in certain countries in Asia for $16 million. In 2022, “Non-deductible / non-taxable items” includes the tax impact of $65 million for the non- deductible regulatory penalties in connection with the Kusile project offset partially by the impact of the non-taxable gain from the sale of the remaining investment in Hitachi Energy. In 2021, this includes $567 million in reported income tax benefits primarily due to impacts of divestments and internal reorganizations where the reported net gain from sale of businesses exceeded the related taxable gain as well as the impact of a recognition of previously unrecognized outside basis differences. In 2020, the negative impact from these items was $232 million and included $82 million for the impairment of non- deductible goodwill. The amount in 2020 also includes $62 million relating to non-operational pension costs resulting from the settlement of certain defined benefit plans which were principally not deductible. In all periods, the amounts reported also include other items that were deducted for financial accounting purposes but are typically not tax deductible, such as certain interest expense costs, local taxes on productive activities, disallowed amounts for meals and entertainment expenses and other similar items. In 2022 and 2021, “Unrecognized tax benefits” in the table above included a net benefit of $95 million and $150 million, respectively, related to the interpretation for tax law and double tax treaty agreements by competent tax authorities. The amount in 2020 included a benefit of $20 million. In 2020 “Other, net” included an expense of $54 million, related to the finalization of tax audits in Europe. 112 FINANCIAL REPORT 2022 Deferred tax assets and liabilities (excluding amounts held for sale and in discontinued operations) consisted of the following: December 31, ($ in millions) 2022 2021 Deferred tax assets: Unused tax losses and credits 462 551 Provisions and other accrued liabilities 756 757 Other current assets including receivables 100 104 Pension 283 338 Inventories 304 266 Intangible assets 1,154 1,135 Other 66 57 Total gross deferred tax asset 3,125 3,208 Valuation allowance (1,000) (1,263) Total gross deferred tax asset, net of valuation allowance 2,125 1,945 Deferred tax liabilities: Property, plant and equipment (232) (245) Intangible assets (237) (281) Other assets (91) (107) Pension (318) (302) Other liabilities (200) (175) Inventories (44) (35) Unremitted earnings of subsidiaries (336) (308) Total gross deferred tax liability (1,458) (1,453) Net deferred tax asset (liability ) 667 492 Included in: “Deferred taxes”—non-current assets 1,396 1,177 “Deferred taxes”—non-current liabilities (729) (685) Net deferred tax asset (liability) 667 492 Certain entities have deferred tax assets related to net operating loss carry ‑ forwards and other items. As recognition of these assets in certain entities did not meet the more likely than not criterion, valuation allowances have been recorded. “Unused tax losses and credits” at December 31, 2022 and 2021, in the table above, included $80 million and $93 million, respectively, for which the Company has established a valuation allowance as, due to limitations imposed by the relevant tax law, the Company determined that, more likely than not, such deferred tax assets would not be realized. The valuation allowance at December 31, 2022, 2021 and 2020, was $1,000 million, $1,263 million and $1,518 million, respectively. Certain amounts included in deferred tax assets for intangible assets result from intercompany transactions occurring at fair market value for which no corresponding accounting basis exists. At December 31, 2022 and 2021, deferred tax liabilities totaling $336 million and $308 million, respectively, have been provided for withholding taxes, dividend distribution taxes or additional corporate income taxes (hereafter “withholding taxes”) on unremitted earnings which will be payable in foreign jurisdictions in the event of repatriation of the foreign earnings to Switzerland. Income which has been generated outside of Switzerland and has already been subject to corporate income tax in such foreign jurisdictions is, to a large extent, tax exempt in Switzerland and therefore, generally no or only limited Swiss income tax has to be provided for on the repatriated earnings of foreign subsidiaries. Certain countries levy withholding taxes on dividend distributions and these taxes cannot always be fully reclaimed by the Company’s relevant subsidiary receiving the dividend although the taxes have to be withheld and paid by the relevant subsidiary distributing such dividend. In 2022 and 2021, certain taxes arose in certain foreign jurisdictions for which the technical merits do not allow utilization of benefits. At December 31, 2022 and 2021, foreign subsidiary retained earnings which would be subject to withholding taxes upon distribution were approximately $100 million and $100 million, respectively. These earnings were considered as indefinitely reinvested, as these funds are used for financing current operations as well as business growth through working capital and capital expenditure in those countries and, consequently, no deferred tax liability was recorded. FINANCIAL REPORT 2022 113 At December 31, 2022, net operating loss carry ‑ forwards of $1,806 million and tax credits of $57 million were available to reduce future income taxes of certain subsidiaries. Of these amounts, $809 million of operating loss carry-forwards and $47 million of tax credits will expire in varying amounts through 2046, while the remainder are available for carryforward indefinitely. The largest amount of these carry ‑ forwards related to the Company’s Europe operations. Unrecognized tax benefits consisted of the following: Penalties and interest related to Unrecognized unrecognized ($ in millions) tax benefits tax benefits Total Classification as unrecognized tax items on January 1, 2020 1,106 233 1,339 Net change due to acquisitions and divestments 1 — 1 Increase relating to prior year tax positions 298 96 394 Decrease relating to prior year tax positions (161) (57) (218) Increase relating to current year tax positions 390 5 395 Decrease due to settlements with tax authorities (340) (75) (415) Decrease as a result of the applicable statute of limitations (59) (16) (75) Exchange rate differences 63 6 69 Balance at December 31, 2020, which would, if recognized, affect the effective tax rate 1,298 192 1,490 Net change due to acquisitions and divestments 16 (6) 10 Increase relating to prior year tax positions 240 58 298 Decrease relating to prior year tax positions (42) (3) (45) Increase relating to current year tax positions 98 7 105 Decrease due to settlements with tax authorities (175) (20) (195) Decrease as a result of the applicable statute of limitations (72) (22) (94) Exchange rate differences (41) (7) (48) Balance at December 31, 2021, which would, if recognized, affect the effective tax rate 1,322 199 1,521 Increase relating to prior year tax positions 26 36 62 Decrease relating to prior year tax positions (98) (12) (110) Increase relating to current year tax positions 80 4 84 Decrease due to settlements with tax authorities (31) (14) (45) Decrease as a result of the applicable statute of limitations (71) (23) (94) Exchange rate differences (58) (10) (68) Balance at December 31, 2022, which would, if recognized, affect the effective tax rate 1,170 180 1,350 In 2022 and 2021, “Increase relating to current year tax positions” included a total of $69 million and $72 million, respectively, in taxes related to the interpretation of tax law and double tax treaty agreements by competent tax authorities. In 2020, “Increase relating to current year tax positions”, included a total of $381 million in taxes related to the interpretation of tax law and double tax treaty agreements by competent tax authorities. In 2020, $301 million of the $381 million is reported as Income tax expense in discontinued operations. In 2022, “Increase relating to prior year tax positions” included $26 million, predominantly from Asia and Europe. In 2021 “Increase relating to prior year tax positions” included a total of $240 million related to the interpretation of tax law and double tax treaty agreements by competent tax authorities in Europe. In 2020, “Increase relating to prior year tax positions” is predominantly related to the interpretation of tax law and double tax treaty agreements by competent tax authorities in Europe, of which $73 million is reported as Income tax expense in discontinued operations. In 2022, “Decrease relating to prior year tax positions” included $94 million for a decrease in tax risk assessments in Europe. In 2021, “Decrease relating to prior year tax positions” of $42 million included $33 million related to tax risk assessments in Europe. 114 FINANCIAL REPORT 2022 In 2020, “Decrease relating to prior year tax positions” included a total of $85 million related to a change of interpretation of tax law in Asia and changed tax risk assessments in Europe of $59 million. In 2022, “Decrease due to settlements with tax authorities” is predominantly related to tax assessments received in Asia and Europe. In 2021, “Decrease due to settlements with tax authorities” is predominantly related to tax assessments received in Europe. In 2020, “Decrease due to settlements with tax authorities” is predominantly related to closed tax audits in Europe. At December 31, 2022, the Company expected the resolution, within the next twelve months, of unrecognized tax benefits related to pending court cases amounting to $63 million for income taxes, penalties and interest. Otherwise, the Company had not identified any other significant changes which were considered reasonably possible to occur within the next twelve months. At December 31, 2022, the earliest significant open tax years that remained subject to examination were the following: Region Year Europe 2015 United States 2019 Rest of Americas 2018 China 2013 Rest of Asia, Middle East and Africa 2017 — Note 17 Employee benefits The Company operates defined benefit pension plans, defined contribution pension plans, and termination indemnity plans, in accordance with local regulations and practices. At December 31, 2022, the Company’s most significant defined benefit pension plans are in Switzerland as well as in Germany, the United Kingdom, and the United States. These plans cover a large portion of the Company’s employees and provide benefits to employees in the event of death, disability, retirement, or termination of employment. Certain of these plans are multi ‑ employer plans. The Company also operates other postretirement benefit plans including postretirement health care benefits and other employee ‑ related benefits for active employees including long ‑ service award plans. The measurement date used for the Company’s employee benefit plans is December 31. The funding policies of the Company’s plans are consistent with local government and tax requirements. During 2020, the Company took steps to transfer the defined benefit pension risks in three International countries to external financial institutions. Two of these plans were settled entirely for accounting purposes while the third plan involved the settlement of specific obligations for certain former employees. In connection with these transactions, the Company made net payments of $309 million and recorded non-operational pension charges of $520 million which were included in net periodic benefit cost as curtailments, settlements and special termination benefits. The Company also made cash payments of $143 million and recorded non-operational pension charges of $101 million in 2020 for the settlement of pension obligations in discontinued operations. The Company recognizes in its Consolidated Balance Sheets the funded status of its defined benefit pension plans, postretirement plans and other employee ‑ related benefits measured as the difference between the fair value of the plan assets and the benefit obligation. Unless otherwise indicated, the following tables include amounts relating to both continuing and discontinued operations. FINANCIAL REPORT 2022 115 Obligations and funded status of the plans The change in benefit obligation, change in fair value of plan assets, and funded status recognized in the Consolidated Balance Sheets were as follows: Other Defined pension postretirement benefits benefits Switzerland International International ($ in millions) 2022 2021 2022 2021 2022 2021 Benefit obligation at January 1, 3,434 3,870 5,115 5,527 71 98 Service cost 50 61 38 47 — 1 Interest cost 13 (5) 87 72 1 2 Contributions by plan participants 34 36 10 8 — — Benefit payments (96) (130) (234) (207) (7) (9) Settlements (92) (124) (36) (84) — — Benefit obligations of businesses acquired (divested) (328) — (2) (46) — (11) Actuarial (gain) loss (478) (140) (1,075) (15) (14) (8) Plan amendments and other — — (3) 13 — (2) Exchange rate differences (80) (134) (328) (200) (1) — Benefit obligation at December 31, 2,457 3,434 3,572 5,115 50 71 Fair value of plan assets at January 1, 4,113 4,133 4,463 4,608 — — Actual return on plan assets (310) 279 (789) 197 — — Contributions by employer 37 63 58 124 7 9 Contributions by plan participants 34 36 10 8 — — Benefit payments (96) (130) (234) (207) (7) (9) Settlements (92) (124) (36) (84) — — Plan assets of businesses acquired (divested) (414) — (1) (50) — — Plan amendments and other — — — 14 — — Exchange rate differences (89) (144) (299) (147) — — Fair value of plan assets at December 31, 3,183 4,113 3,172 4,463 — — Funded status — overfunded (underfunded) 726 679 (400) (652) (50) (71) The amounts recognized in "Accumulated other comprehensive loss" and "Noncontrolling interests" were: Defined pension Other postretirement benefits benefits December 31, ($ in millions) 2022 2021 2020 2022 2021 2020 Net actuarial (loss) gain (1,183) (1,540) (2,038) 32 21 21 Prior service credit 56 72 75 5 7 11 Amount recognized in OCI (1) and NCI (2) (1,127) (1,468) (1,963) 37 28 32 Taxes associated with amount recognized in OCI and NCI 266 352 374 — — — Amount recognized in OCI and NCI, net of tax (3) (861) (1,116) (1,589) 37 28 32 (1) OCI represents “Accumulated other comprehensive loss”. (2) NCI represents “Noncontrolling interests”. (3) NCI, net of tax, amounted to $(1) million, $0 million and $(1) million at December 31, 2022, 2021 and 2020. In addition, the following amounts were recognized in the Company's Consolidated Balance Sheets: Defined pension Other postretirement benefits benefits Switzerland International International December 31, ($ in millions) 2022 2021 2022 2021 2022 2021 Overfunded plans 726 683 189 208 — — Underfunded plans — current — — (22) (23) (6) (7) Underfunded plans — non-current — (4) (567) (837) (44) (64) Funded status — overfunded (underfunded) 726 679 (400) (652) (50) (71) 116 FINANCIAL REPORT 2022 December 31, ($ in millions) 2022 2021 Non-current assets Overfunded pension plans 915 891 Other employee-related benefits 1 1 Pension and other employee benefits 916 892 December 31, ($ in millions) 2022 2021 Current liabilities Underfunded pension plans (22) (23) Underfunded other postretirement benefit plans (6) (10) Other employee-related benefits (10) (8) Pension and other employee benefits (38) (41) December 31, ($ in millions) 2022 2021 Non-current liabilities Underfunded pension plans (567) (841) Underfunded other postretirement benefit plans (44) (62) Other employee-related benefits (108) (122) Pension and other employee benefits (719) (1,025) The accumulated benefit obligation (ABO) for all defined benefit pension plans was $5,953 million and $8,452 million at December 31, 2022 and 2021, respectively. The projected benefit obligation (PBO), ABO and fair value of plan assets, for pension plans with a PBO in excess of fair value of plan assets or ABO in excess of fair value of plan assets, was: PBO exceeds fair value of plan assets ABO exceeds fair value of plan assets December 31, Switzerland International Switzerland International ($ in millions) 2022 2021 2022 2021 2022 2021 2022 2021 PBO 9 12 2,274 2,994 9 12 2,274 2,979 ABO 9 12 2,222 2,917 9 12 2,222 2,905 Fair value of plan assets 9 8 1,689 2,133 9 8 1,689 2,119 All of the Company's other postretirement benefit plans are unfunded. Components of net periodic benefit cost Net periodic benefit cost consisted of the following: Defined pension Other postretirement benefits benefits Switzerland International International ($ in millions) 2022 2021 2020 2022 2021 2020 2022 2021 2020 Operational pension cost: Service cost 50 61 74 38 47 92 — 1 1 Operational pension cost 50 61 74 38 47 92 — 1 1 Non-operational pension cost (credit): Interest cost 13 (5) 6 87 72 111 1 2 3 Expected return on plan assets (117) (116) (123) (153) (178) (253) — — — Amortization of prior service cost (credit) (9) (9) (11) (2) (2) 2 (2) (3) (2) Amortization of net actuarial loss — — 7 58 67 109 (3) (2) (3) Curtailments, settlements and special termination benefits 4 1 6 7 7 644 — — — Non-operational pension cost (credit) (109) (129) (115) (3) (34) 613 (4) (3) (2) Net periodic benefit cost (59) (68) (41) 35 13 705 (4) (2) (1) The components of net periodic benefit cost other than the service cost component are included in Non-operational pension (cost) credit in the Consolidated Income Statements. Net periodic benefit cost includes $121 million in 2020, related to discontinued operations. FINANCIAL REPORT 2022 117 Assumptions The following weighted-average assumptions were used to determine benefit obligations: Defined pension Other postretirement benefits benefits Switzerland International International December 31, (in %) 2022 2021 2022 2021 2022 2021 Discount rate 2.2 0.2 4.8 2.1 5.3 2.6 Rate of compensation increase — — 1.8 1.5 0.3 0.3 Rate of pension increase — — 1.8 1.7 — — Cash balance interest credit rate 2.0 1.0 2.7 2.1 — — For the Company’s significant benefit plans, the discount rate used at each measurement date is set based on a high-quality corporate bond yield curve (derived based on bond universe information sourced from reputable third-party index and data providers and rating agencies) reflecting the timing, amount and currency of the future expected benefit payments for the respective plan. Consistent discount rates are used across all plans in each currency zone, based on the duration of the applicable plan(s) in that zone. For plans in the other countries, the discount rate is based on high quality corporate or government bond yields applicable in the respective currency, as appropriate at each measurement date with a duration broadly consistent with the respective plan’s obligations. The following weighted-average assumptions were used to determine the “Net periodic benefit cost”: Defined pension Other postretirement benefits benefits Switzerland International International (in %) 2022 2021 2020 2022 2021 2020 2022 2021 2020 Discount rate 0.7 — 0.3 2.1 1.6 1.9 2.0 2.1 2.8 Expected long-term rate of return on plan assets 3.3 3.0 3.0 3.7 4.0 4.3 — — — Rate of compensation increase — — — 1.5 1.0 2.2 0.1 0.2 0.2 Cash balance interest credit rate 1.3 1.0 1.0 2.1 2.1 1.6 — — — The “Expected long-term rate of return on plan assets” is derived for each benefit plan by considering the expected future long-term return assumption for each individual asset class. A single long-term return assumption is then derived for each plan based upon the plan’s target asset allocation. The Company maintains other postretirement benefit plans, which are generally contributory with participants’ contributions adjusted annually. The assumptions used were: December 31, 2022 2021 Health care cost trend rate assumed for next year 5.6% 5.1% Rate to which the trend rate is assumed to decline (the ultimate trend rate) 4.5% 4.5% Year that the rate reaches the ultimate trend rate 2029 2026 Plan assets The Company has pension plans in various countries with the majority of the Company’s pension liabilities deriving from a limited number of these countries. The pension plans are typically funded by regular contributions from employees and the Company. These plans are typically administered by boards of trustees (which include Company representatives) whose primary responsibilities include ensuring that the plans meet their liabilities through contributions and investment returns. The boards of trustees have the responsibility for making key investment strategy decisions within a risk-controlled framework. The pension plan assets are invested in diversified portfolios that are managed by third-party asset managers, in accordance with local statutory regulations, pension plan rules and the respective plans’ investment guidelines, as approved by the boards of trustees. Plan assets are generally segregated from those of the Company and invested with the aim of meeting the respective plans’ projected future pension liabilities. Plan assets are measured at fair value at the balance sheet date. 118 FINANCIAL REPORT 2022 The boards of trustees manage the assets of the pension plans in a risk-controlled manner and assess the risks embedded in the pension plans through asset/liability management studies. Asset/liability management studies typically take place every three years. However, the risks of the plans are monitored on an ongoing basis. The boards of trustees’ investment goal is to maximize the long-term returns of plan assets within specified risk parameters, while considering the future liabilities and liquidity needs of the individual plans. Risk measures taken into account include the funding ratio of the plan, the likelihood of extraordinary cash contributions being required, the risk embedded in each individual asset class, and the plan asset portfolio as a whole. The Company’s global pension asset allocation is the result of the asset allocations of the individual plans, which are set by the respective boards of trustees. The target asset allocation of the Company’s plans on a weighted-average basis is as follows: Target (in %) Switzerland International Asset class Equity 15 16 Fixed income 54 72 Real estate 26 4 Other 5 8 Total 100 100 The actual asset allocations of the plans are in line with the target asset allocations. Equity securities primarily include investments in large-cap and mid-cap publicly traded companies. Fixed income assets primarily include corporate bonds of companies from diverse industries and government bonds. Both fixed income and equity assets are invested either via funds or directly in segregated investment mandates, and include an allocation to emerging markets. Real estate consists primarily of investments in real estate in Switzerland held in the Swiss plans. The “Other” asset class includes investments in private equity, hedge funds, commodities, and cash, and reflects a variety of investment strategies. Based on the above global asset allocation and the fair values of the plan assets, the expected long-term return on assets at December 31, 2022, is 4.5 percent. The Company and the local boards of trustees regularly review the investment performance of the asset classes and individual asset managers. Due to the diversified nature of the investments, the Company is of the opinion that no significant concentration of risks exists in its pension fund assets. At December 31, 2022 and 2021, plan assets include ABB Ltd’s shares (as well as an insignificant amount of the Company’s debt instruments) with a total value of $7 million and $8 million, respectively. The fair values of the Company’s pension plan assets by asset class are presented below. For further information on the fair value hierarchy and an overview of the Company’s valuation techniques applied, see the “Fair value measures” section of Note 2. Not subject Total December 31, 2022 ($ in millions) Level 1 Level 2 to leveling (1) fair value Asset class Equity Equity securities 77 77 Mutual funds/commingled funds 748 748 Emerging market mutual funds/commingled funds 96 96 Fixed income Government and corporate securities 121 1,036 1,157 Government and corporate—mutual funds/commingled funds 2,189 2,189 Emerging market bonds—mutual funds/commingled funds 315 315 Real estate 1,172 1,172 Insurance contracts 57 57 Cash and short-term investments 124 129 253 Private equity 54 237 291 Total 322 4,624 1,409 6,355 FINANCIAL REPORT 2022 119 Not subject Total December 31, 2021 ($ in millions) Level 1 Level 2 to leveling (1) fair value Asset class Equity Equity securities 124 1 125 Mutual funds/commingled funds 1,049 1,049 Emerging market mutual funds/commingled funds 218 218 Fixed income Government and corporate securities 314 1,366 1,680 Government and corporate—mutual funds/commingled funds 3,121 3,121 Emerging market bonds—mutual funds/commingled funds 428 428 Real estate 1,326 1,326 Insurance contracts 74 74 Cash and short-term investments 75 158 233 Private equity 65 257 322 Total 513 6,480 1,583 8,576 (1) Amounts relate to assets measured using the NAV practical expedient which are not subject to leveling. The Company applies accounting guidance related to the presentation of certain investments using the net asset value (NAV) practical expedient. This accounting guidance exempts investments using this practical expedient from categorization within the fair value hierarchy. Investments measured at NAV are primarily non exchange-traded commingled or collective funds in private equity and real estate where the fair value of the underlying assets is determined by the investment manager. Investments in private equity can never be redeemed, but instead the funds will make distributions through liquidation of the underlying assets. Total unfunded commitments for the private equity funds were approximately $114 million and $125 million at December 31, 2022 and 2021, respectively. The real estate funds are typically subject to a lock-in period of up to three years after subscribing. After this period, the real estate funds typically offer a redemption notice of three to twelve months. Contributions Employer contributions were as follows: Defined pension Other postretirement benefits benefits Switzerland International International ($ in millions) 2022 2021 2022 2021 2022 2021 Total contributions to defined benefit pension and other postretirement benefit plans 37 63 58 124 7 9 Of which, discretionary contributions to defined benefit pension plans — — 18 61 — — The total contributions included non-cash contributions totaling $12 million and $53 million, respectively, for 2022 and 2021, of available-for-sale debt securities to certain of the Company’s pension plans. The Company expects to contribute approximately $69 million to its defined benefit pension plans in 2023. Of these contributions, $4 million are expected to be non-cash contributions. The Company expects to contribute approximately $6 million to its other postretirement benefit plans in 2023. The Company also contributes to a number of defined contribution plans. The aggregate expense for these plans in continuing operations was $269 million, $278 million and $205 million in 2022, 2021 and 2020, respectively. Contributions to multi-employer plans were not significant in 2022, 2021 and 2020. 120 FINANCIAL REPORT 2022 Estimated future benefit payments The expected future cash flows to be paid by the Company’s plans in respect of pension and other postretirement benefit plans at December 31, 2022, are as follows: Defined pension Other postretirement benefits benefits ($ in millions) Switzerland International International 2023 212 245 6 2024 211 251 6 2025 195 248 6 2026 195 251 5 2027 186 258 5 Years 2028 - 2032 870 1,254 18 — Note 18 Share-based payment arrangements The Company has granted share-based instruments to its employees under three principal share ‑ based payment plans, as more fully described in the respective sections below. Compensation cost for equity ‑ settled awards is recorded in Total cost of sales and in Selling, general and administrative expenses and totaled $42 million, $59 million and $44 million in 2022, 2021 and 2020, respectively, while compensation cost for cash ‑ settled awards, recorded in Selling, general and administrative expenses, was not significant, as mentioned in the WARs, LTIP and Other share ‑ based payments sections of this note. The total tax benefit recognized in 2022, 2021 and 2020 was not significant. At December 31, 2022, the Company had the ability to issue up to 94 million new shares out of contingent capital in connection with share ‑ based payment arrangements. In addition, 25 million of the 100 million shares held by the Company as treasury stock at December 31, 2022, could be used to settle share ‑ based payment arrangements. As the primary trading market for the shares of ABB Ltd is the SIX Swiss Exchange (on which the shares are traded in Swiss francs) and substantially all the share ‑ based payment arrangements with employees are based on the Swiss franc share or have strike prices set in Swiss francs, certain data disclosed below related to the instruments granted under share ‑ based payment arrangements are presented in Swiss francs. Management Incentive Plan Up to 2019, the Company offered, under the MIP, options and cash ‑ settled WARs to key employees for no consideration. Starting in 2020, the employee group previously eligible to receive grants under the MIP were granted shares under the LTIP (see LTIP section below) and consequently no grants were made in 2022, 2021 and 2020 under the MIP. The options granted under the MIP allow participants to purchase shares of ABB Ltd at predetermined prices. Participants may sell the options rather than exercise the right to purchase shares. Equivalent warrants are listed by a third ‑ party bank on the SIX Swiss Exchange, which facilitates pricing and transferability of options granted under this plan. The options entitle the holder to request that the third ‑ party bank purchase such options at the market price of equivalent listed warrants related to that MIP launch. If the participant elects to sell the options, the options will thereafter be held by a third party and, consequently, the Company’s obligation to deliver shares will be toward this third party. Each WAR gives the participant the right to receive, in cash, the market price of an equivalent listed warrant on the date of exercise of the WAR. Participants may exercise or sell options and exercise WARs after the vesting period, which is three years from the date of grant. All options and WARs expire six years from the date of grant. FINANCIAL REPORT 2022 121 In connection with the spin-off of the Turbocharging Division in October 2022, the strike prices of the options outstanding under the MIP program were reduced to neutralize the effect of the spin-off on the Company’s share price. The amount of the reduction in the strike price was determined to result in an equivalent fair value before and after the spin-off. New equivalent warrants, with the reduced strike prices, were listed by the third-party bank, allowing continued pricing and transferability. For the options held by the third-party bank, to effect the reduction in the exercise price, the Company settled, for cash, the options held by the bank that were outstanding at September 30, 2022, immediately prior to the spin-off, and simultaneously issued an equivalent number of new options for cash to the bank with lower strike prices. Options The fair value of each option was estimated on the date of grant using a lattice model. As mentioned previously, no options were granted in 2022, 2021 and 2020. In 2022, 69 million options were exercised, representing 14 million shares, with the shares delivered out of treasury stock. Cash received upon exercise amounted to approximately $330 million. In 2022, 2021 and 2020, the aggregate intrinsic value (on the date of exercise) of options exercised was approximately $143 million, $313 million and $38 million, respectively. In 2022, there were no significant forfeitures, and at December 31, 2022, all options granted under the MIP were vested and exercisable. The aggregate intrinsic value at December 31, 2022, of options outstanding was approximately $166 million. Presented below is a summary, by launch, related to options outstanding at December 31, 2022: Weighted- average Number of Number of remaining options shares contractual Exercise price (in Swiss francs) (1) (in millions) (in millions) (2) term (in years) 21.23 6.6 1.3 0.6 22.05 61.5 12.3 1.7 17.63 33.8 6.8 2.7 Total number of options and shares 101.9 20.4 1.9 (1) Information presented reflects the exercise price per share of ABB Ltd. (2) Information presented reflects the number of shares of ABB Ltd that can be received upon exercise. WARs As each WAR gives the holder the right to receive cash equal to the market price of the equivalent listed warrant on date of exercise, the Company records a liability based upon the fair value of outstanding WARs at each period end, accreted on a straight-line basis over the three-year vesting period. In Selling, general and administrative expenses, the Company records the changes in both the fair value and vested portion of the outstanding WARs. To hedge its exposure to fluctuations in the fair value of outstanding WARs, the Company purchased cash-settled call options, which entitle the Company to receive amounts equivalent to its obligations under the outstanding WARs. The cash-settled call options are recorded as derivatives measured at fair value (see Note 6), with subsequent changes in fair value recorded in Selling, general and administrative expenses to the extent that they offset the change in fair value of the liability for the WARs. The total impact in Selling, general and administrative expenses in 2022, 2021 and 2020 was not significant. At December 31, 2022, 8 million WARs were outstanding, all vested and exercisable. In 2022, there were no significant forfeitures. The aggregate fair value of outstanding WARs was $15 million and $29 million at December 31, 2022 and 2021, respectively. The fair value of WARs was determined based upon the trading price of equivalent warrants listed on the SIX Swiss Exchange. As mentioned previously, no WARs were granted in 2022, 2021 and 2020. In 2021, share-based liabilities of $25 million were paid upon exercise of WARs by participants. The amount in 2022 was not significant. 122 FINANCIAL REPORT 2022 Employee Share Acquisition Plan The employee share acquisition plan (ESAP) is an employee stock ‑ option plan with a savings feature. Employees save over a twelve ‑ month period, by way of regular payroll deductions. At the end of the savings period, employees choose whether to exercise their stock options using their savings plus interest, if any, to buy ABB Ltd shares (American Depositary Shares (ADS) in the case of employees in the United States and Canada—each ADS representing one registered share of the Company) at the exercise price set at the grant date, or have their savings returned with any interest. The savings are accumulated in bank accounts held by a third ‑ party trustee on behalf of the participants and earn interest, where applicable. Employees can withdraw from the ESAP at any time during the savings period and will be entitled to a refund of their accumulated savings. The fair value of each option is estimated on the date of grant using the same option valuation model as described under the MIP, using the assumptions noted in the table below. The expected term of the option granted has been determined to be the contractual one ‑ year life of each option, at the end of which the options vest and the participants are required to decide whether to exercise their options or have their savings returned with interest. The risk ‑ free rate is based on one ‑ year Swiss franc interest rates, reflecting the one ‑ year contractual life of the options. In estimating forfeitures, the Company has used the data from previous ESAP launches. 2022 2021 2020 Expected volatility 25% 20% 24% Dividend yield 3.0% 2.9% 3.8% Expected term 1 year 1 year 1 year Risk-free interest rate 1.1% -0.6% -0.7% Presented below is a summary of activity under the ESAP: Weighted- Weighted- Aggregate average average intrinsic exercise remaining value Number of price contractual (in millions shares (in Swiss term of Swiss (in millions) (1) francs) (2) (in years) francs) (2)(3) Outstanding at January 1, 2022 1.8 30.32 Granted 1.8 27.99 Forfeited (0.2) 30.28 Exercised (4) (0.1) 29.16 Not exercised (savings returned plus interest) (1.5) 29.16 Outstanding at December 31, 2022 1.8 27.99 0.8 0.1 Vested and expected to vest at December 31, 2022 1.8 27.99 0.8 0.1 Exercisable at December 31, 2022 — — — — (1) Includes shares represented by ADS. (2) Information presented for ADS is based on equivalent Swiss franc denominated awards. (3) Computed using the closing price, in Swiss francs, of ABB Ltd shares on the SIX Swiss Exchange and the exercise price of each option in Swiss francs. (4) The cash received in 2022 from exercises was not significant. The shares were delivered out of treasury stock. The exercise prices per ABB Ltd share and per ADS of 27.99 Swiss francs and $28.09, respectively, for the 2022 grant, 30.32 Swiss francs and $33.35, respectively, for the 2021 grant, and 22.87 Swiss francs and $24.93, respectively, for the 2020 grant were determined using the closing price of the ABB Ltd share on the SIX Swiss Exchange and ADS on the New York Stock Exchange on the respective grant dates. In connection with the spin-off of the Turbocharging Division in October 2022, the strike prices of the ESAP options outstanding at the time of spin-off were reduced, as per the terms and conditions of the original grant, to neutralize the effect of the spin-off on the Company’s share price, resulting in an equivalent fair value before and after the spin-off. Consequently, the exercise prices per ABB Ltd share and per ADS for the 2021 grant, were adjusted to 29.16 Swiss francs and $32.10, respectively. At December 31, 2022, the total unrecognized compensation cost related to non ‑ vested options granted under the ESAP was not significant. The weighted ‑ average grant ‑ date fair value (per option) of options granted during 2022, 2021 and 2020 was 2.47 Swiss francs, 1.96 Swiss francs and 1.67 Swiss francs, respectively. The total intrinsic value (on the date of exercise) of options exercised in 2021 was approximately $14 million, while in 2022 and 2020 it was not significant. FINANCIAL REPORT 2022 123 Long-Term Incentive Plan The long ‑ term incentive plan (LTIP) involves annual grants of the Company’s stock subject to certain conditions (Performance Shares) to members of the Company’s Executive Committee and selected other senior executives, as defined in the terms of the LTIP. Starting with 2020, certain of the employee group previously eligible to receive grants under the MIP have been included in the LTIP. The ultimate amount delivered under the LTIP’s Performance Shares grant is based on achieving certain results against targets, as set out below, over a three-year period from grant and the final amount is delivered to the participants at the end of this period. In addition, for certain awards to vest, the participant has to fulfill a three-year service condition as defined in the terms and conditions of the LTIP. The Performance Shares under the 2022 LTIP launch include a component based on the Company’s earnings per share performance (weighted 50 percent), a component based on the Company’s relative total shareholder return (weighted 30 percent) and an environmental, social and governance (ESG) component based on the Company’s CO 2 e emissions reductions (weighted 20 percent). The Performance Shares under the 2021 and 2020 LTIP launches comprise of a component based on the Company’s earnings per share performance and a component based on the Company’s relative total shareholder return, both with equal weighting. For the relative total shareholder return component of the Performance Shares, the actual number of shares that will be delivered at a future date is based on the Company’s total shareholder return performance relative to a peer group of companies over a three-year period starting with the year of grant. The actual number of shares that will ultimately be delivered will vary depending on the relative total shareholder return outcome achieved between a lower threshold (no shares delivered) and an upper threshold (the number of shares delivered is capped at 200 percent of the conditional grant). For the earnings per share performance component of the Performance Shares, the actual number of shares that will be delivered at a future date is based on the Company’s average earnings per share over three financial years, beginning with the year of launch. The actual number of shares that will ultimately be delivered will vary depending on the earnings per share outcome as computed under each LTIP launch, interpolated between a lower threshold (no shares delivered) and an upper threshold (the number of shares delivered is capped at 200 percent of the conditional grant). For the ESG component of the Performance Shares, the actual number of shares that will be delivered at a future date is based on the Company’s scope 1 and 2 CO 2 e emissions reduction over three financial years, beginning with the year of launch, compared to the 2019 baseline emissions. The actual number of shares that will ultimately be delivered will vary depending on the ESG outcome as computed under the LTIP launch, interpolated between a lower threshold (no shares delivered) and an upper threshold (the number of shares delivered is capped at 200 percent of the conditional grant). Starting in 2020, key employees which were previously eligible to participate in the MIP and which were not included in the employee group granted the Performance Shares described above, were granted Restricted Shares of the Company under the LTIP. The Restricted Shares do not have performance conditions and vest over a three-year period from the grant date. Under the 2022, 2021 and 2020 LTIP launches, participants generally do not have the ability to receive any of the award in cash, subject to legal restrictions in certain jurisdictions. In connection with the spin-off of the Turbocharging Division in October 2022, the number of shares granted to employees under the LTIP launches was adjusted, as per the terms and conditions of the original grant, to neutralize the effect of the spin-off, resulting in an equivalent fair value before and after the spin-off. Presented below is a summary of activity under the Performance Shares of the LTIP: Weighted-average Number of grant-date Performance Shares fair value per share (in millions) (Swiss francs) Nonvested at January 1, 2022 1.5 23.23 Granted 0.7 33.33 Turbocharging Division spin-off 0.1 Vested (0.3) 23.12 Forfeited (0.1) 26.96 Nonvested at December 31, 2022 1.9 27.01 124 FINANCIAL REPORT 2022 The aggregate fair value, at the dates of grant, of Performance Shares granted in 2022 and 2021 was $26 million and $37 million, respectively, while in 2020 it was not significant. The total grant-date fair value of shares that vested during 2022, 2021 and 2020 was not significant. The weighted-average grant-date fair value (per share) of shares granted during 2022, 2021 and 2020 was 33.33 Swiss francs, 38.92 Swiss francs and 10.50 Swiss francs, respectively. Presented below is a summary of activity under the Restricted Shares of the LTIP: Weighted-average Number of grant-date Restricted Shares fair value per share (in millions) (Swiss francs) Nonvested at January 1, 2022 2.0 20.61 Granted 0.8 30.52 Turbocharging Division spin-off 0.1 Vested (0.1) 19.60 Forfeited (0.2) 23.72 Nonvested at December 31, 2022 2.6 23.65 The aggregate fair value, at the dates of grant, of Restricted Shares granted in 2022, 2021 and 2020 was $27 million, $26 million and $22 million, respectively. The total grant-date fair value of shares that vested during 2022, 2021 and 2020 was not significant. The weighted-average grant-date fair value (per share) of shares granted during 2022 and 2021 was 30.52 Swiss francs, 26.39 Swiss francs and 15.76 Swiss francs, respectively. Equity-settled awards are recorded in the Additional paid-in capital component of Stockholders’ equity, with compensation cost recorded in Selling, general and administrative expenses over the vesting period (which is from grant date to the end of the vesting period) based on the grant-date fair value of the shares. Cash-settled awards are recorded as a liability, remeasured at fair value at each reporting date for the percentage vested, with changes in the liability recorded in Selling, general and administrative expenses. At December 31, 2022, total unrecognized compensation cost related to equity-settled awards under the LTIP was $50 million and is expected to be recognized over a weighted-average period of 1.8 years. The compensation cost recorded in 2022, 2021 and 2020 for cash-settled awards was not significant. For the relative total shareholder return component of the LTIP launches, the fair value of granted shares at grant date, for equity-settled awards, and at each reporting date, for cash-settled awards, is determined using a Monte Carlo simulation model. The main inputs to this model are the Company’s share price and dividend yield, the volatility of the Company’s and the peer group’s share price as well as the correlation between the peer companies. For the earnings per share component of the LTIP launches, the fair value of granted shares is based on the market price of the ABB Ltd share at grant date for equity-settled awards and at each reporting date for cash-settled awards, as well as the probable outcome of the earnings per share achievement, as computed using a Monte Carlo simulation model. The main inputs to this model are the Company’s and external financial analysts’ revenue growth rates and Operational EBITA margin expectations. For the ESG component of the LTIP launch, the fair value of granted shares is based on the market price of the ABB Ltd share at grant date for equity-settled awards and at each reporting date for cash-settled awards, as well as the probable outcome of the ESG component achievement, as determined by internal modelling based on the Company’s CO 2 e emissions. Other share-based payments The Company has other minor share-based payment arrangements with certain employees. The compensation cost related to these arrangements in 2022, 2021 and 2020 was not significant. FINANCIAL REPORT 2022 125 — Note 19 Stockholders' equity Capital At December 31, 2022, the Company had 2,469 million authorized shares, of which 1,965 million were registered and issued. At December 31, 2021, the Company had 2,557 million authorized shares, of which 2,053 million were registered and issued. Dividends At the Annual General Meeting of Shareholders (AGM) in March 2022, the shareholders approved the proposal of the Board of Directors to distribute a total of 0.82 Swiss francs per share. The approved dividend distribution amounted to $1,700 million, with the Company disbursing a portion in March 2022 and the remaining amounts in April 2022. At the AGM in March 2021, the shareholders approved the proposal of the Board of Directors to distribute a total of 0.80 Swiss francs per share. The approved dividend distribution amounted to $1,730 million, with the Company disbursing a portion in March 2021 and the remaining amounts in April 2021. At the AGM in March 2020, the shareholders approved the proposal of the Board of Directors to distribute a total of 0.80 Swiss francs per share. The approved dividend distribution amounted to $1,758 million and was paid in April 2020. Amounts available to be distributed as dividends to the stockholders of ABB Ltd are based on the requirements of Swiss law and ABB Ltd’s Articles of Incorporation, and are determined based on amounts presented in the unconsolidated financial statements of ABB Ltd, prepared in accordance with Swiss law. At December 31, 2022, the total unconsolidated stockholders’ equity of ABB Ltd was 6,219 million Swiss francs ($6,742 million), including 236 million Swiss francs ($256 million) representing share capital, 8,852 million Swiss francs ($9,597 million) representing reserves and 2,869 million Swiss francs ($3,111 million) representing a reduction of equity for treasury shares. Of the reserves, 2,869 million Swiss francs ($3,111 million) relating to treasury shares and 47 million Swiss francs ($51 million) representing 20 percent of share capital, at December 31, 2022, are restricted by law and not available for distribution. Treasury stock transactions In July 2020, the Company announced it intended to initially buy 10 percent of its share capital (which at the time represented a maximum of 180 million shares, in addition to those already held in treasury) through the share buyback program that started in July 2020. The initial share buyback program was executed on a second trading line on the SIX Swiss Exchange and was completed in March 2021. Through this buyback program, the Company purchased a total of 129 million shares for approximately $3.5 billion. At the March 2021 AGM, shareholders approved the cancellation of 115 million of the shares purchased under this buyback program and the cancellation was completed in the second quarter of 2021, resulting in a decrease in Treasury stock of $3,157 million and a corresponding total decrease in Capital stock, Additional paid-in capital and Retained earnings. In March 2021, the Company announced a follow-up share buyback program of up to $4.3 billion. This buyback program, which was launched in April 2021, was executed on a second trading line on the SIX Swiss Exchange and was completed in March 2022. Through this follow-up buyback program, the Company purchased a total of 90 million shares for approximately $3.1 billion. At the March 2022 AGM, shareholders approved the cancellation of 88 million shares which had been purchased under the share buyback programs launched in July 2020 and April 2021. The cancellation was completed in the second quarter of 2022, resulting in a decrease in Treasury stock of $2,876 million and a corresponding total decrease in Capital stock, Additional paid-in capital and Retained earnings. In March 2022, the Company announced a new share buyback program of up to $3 billion. This program, which was launched in April 2022, is being executed on a second trading line on the SIX Swiss Exchange and is planned to run until the Company’s 2023 AGM. Under these buyback programs, in 2022, 2021 and 2020, the Company purchased 91 million, 78 million and 109 million, respectively, of its own shares, resulting in an increase in Treasury stock of $2,842 million, $2,651 million and $2,835 million, respectively. In addition to the share buyback programs, in 2022, 2021 and 2020, the Company purchased a combined total of 20 million, 33 million and 13 million, respectively, of its own shares on the open market, mainly for use in connection with its employee share plans, resulting in an increase in Treasury stock of $660 million, $1,032 million and $346 million, respectively. 126 FINANCIAL REPORT 2022 Obligations to issue shares relating to employee incentive programs At December 31, 2022, the Company had outstanding obligations to deliver: • up to 1 million shares relating to the options granted under the 2017 launch of the MIP, with a strike price of 21.23 Swiss francs, vested in August 2020 and expiring in August 2023, • up to 12 million shares relating to the options granted under the 2018 launch of the MIP, with a strike price of 22.05 Swiss francs, vested in August 2021 and expiring in August 2024, • up to 7 million shares relating to the options granted under the 2019 launch of the MIP, with a strike price of 17.63 Swiss francs, vested in August 2022 and expiring in August 2025, • up to 2 million shares relating to the ESAP, vesting and expiring in October 2023, • up to 8 million shares to Eligible Participants under the 2022, 2021 and 2020 launches of the LTIP, vesting and expiring in April 2025, April 2024 and April 2023, respectively, and • less than 1 million shares in connection with certain other share-based payment arrangements with employees. In addition to the above obligations, the Company had sold, upon and in connection with each launch of the MIP, call options to a bank at fair value, giving the bank the right to acquire shares equivalent to the number of shares represented by the MIP WAR awards to participants. Under the terms of the agreement with the bank, the call options can only be exercised by the bank to the extent that MIP participants have exercised their WARs. In connection with the spin-off of the Turbocharging Division in October 2022, the Company settled, for cash, the options outstanding at September 30, 2022, immediately prior to the spin-off, and simultaneously issued to the bank for cash an equivalent number of new options with lower strike prices. The strike price of these new options was determined so as to neutralize the effect of the spin-off on the Company’s share price. At December 31, 2022, such call options representing 3.3 million shares and with strike prices ranging from 17.63 to 22.05 Swiss francs (weighted-average strike price of 20.58 Swiss francs) were held by the bank. The call options expire in periods ranging from August 2023 to August 2025. See Note 18 for a description of the above share ‑ based payment arrangements. In 2022, 2021 and 2020, the Company delivered 16 million, 36 million and 17 million shares, respectively, out of treasury stock, for options exercised in relation to the MIP. In addition, in 2021 and 2020, the Company delivered 1.7 million and 1.4 million shares, respectively, out of treasury stock under the ESAP. The number of shares delivered in 2022 under the ESAP was not significant. Issuance of subsidiary shares In November 2022, the Company received gross proceeds of 203 million Swiss francs ($216 million) through a private placement of shares in its ABB E-Mobility subsidiary, ABB E-mobility Holding Ltd (ABB E-Mobility), reducing the Company's beneficial ownership in the subsidiary from 100 percent to 92 percent. This resulted in an increase in Additional paid-in capital of $120 million. — Note 20 Earnings per share Basic earnings per share is calculated by dividing income by the weighted ‑ average number of shares outstanding during the year. Diluted earnings per share is calculated by dividing income by the weighted ‑ average number of shares outstanding during the year, assuming that all potentially dilutive securities were exercised, if dilutive. Potentially dilutive securities comprise outstanding written call options and outstanding options and shares granted subject to certain conditions under the Company’s share ‑ based payment arrangements. In 2022 and 2020, outstanding securities representing a maximum of 2 million and 79 million shares, respectively, were excluded from the calculation of diluted earnings per share as their inclusion would have been antidilutive. None were excluded in 2021. FINANCIAL REPORT 2022 127 Basic earnings per share: ($ in millions, except per share data in $) 2022 2021 2020 Amounts attributable to ABB shareholders: Income from continuing operations, net of tax 2,517 4,625 294 Income (loss) from discontinued operations, net of tax (42) (79) 4,852 Net income 2,475 4,546 5,146 Weighted-average number of shares outstanding (in millions) 1,899 2,001 2,111 Basic earnings per share attributable to ABB shareholders: Income from continuing operations, net of tax 1.33 2.31 0.14 Income (loss) from discontinued operations, net of tax (0.02) (0.04) 2.30 Net income 1.30 2.27 2.44 Diluted earnings per share: ($ in millions, except per share data in $) 2022 2021 2020 Amounts attributable to ABB shareholders: Income from continuing operations, net of tax 2,517 4,625 294 Income (loss) from discontinued operations, net of tax (42) (79) 4,852 Net income 2,475 4,546 5,146 Weighted-average number of shares outstanding (in millions) 1,899 2,001 2,111 Effect of dilutive securities: Call options and shares 11 18 8 Adjusted weighted-average number of shares outstanding (in millions) 1,910 2,019 2,119 Diluted earnings per share attributable to ABB shareholders: Income from continuing operations, net of tax 1.32 2.29 0.14 Income (loss) from discontinued operations, net of tax (0.02) (0.04) 2.29 Net income 1.30 2.25 2.43 128 FINANCIAL REPORT 2022 — Note 21 Other comprehensive income The following table includes amounts recorded within “Total other comprehensive income (loss)” including the related income tax effects: 2022 2021 2020 Before Tax Net of Before Tax Net of Before Tax Net of ($ in millions) tax effect tax tax effect tax tax effect tax Foreign currency translation adjustments: Foreign currency translation adjustments (685) — (685) (521) — (521) 500 (2) 498 Net loss on complete or substantially complete liquidations of foreign subsidiaries 5 — 5 — — — — — — Changes attributable to divestments 41 — 41 (9) — (9) 519 — 519 Net change during the year (639) — (639) (530) — (530) 1,019 (2) 1,017 Available-for-sale securities: Net unrealized gains (losses) arising during the year (28) 5 (23) (13) 3 (10) 31 (7) 24 Reclassification adjustments for net (gains) losses included in net income 2 — 2 (6) 1 (5) (18) 4 (14) Changes attributable to divestments — — — — — — (3) — (3) Net change during the year (26) 5 (21) (19) 4 (15) 10 (3) 7 Pension and other postretirement plans: Prior service (costs) credits arising during the year (2) 2 — 2 (2) — 55 (12) 43 Net actuarial gains (losses) arising during the year 298 (72) 226 437 (26) 411 (243) 43 (200) Amortization of prior service cost (credit) included in net income (13) (3) (16) (14) — (14) (11) — (11) Amortization of net actuarial loss included in net income 55 (11) 44 65 4 69 113 (25) 88 Net losses from settlements and curtailments included in net income 11 (2) 9 7 — 7 650 (132) 518 Changes attributable to divestments (8) — (8) (8) 2 (6) 186 (35) 151 Net change during the year 341 (86) 255 489 (22) 467 750 (161) 589 Derivative instruments and hedges: Net gains (losses) arising during the year (10) (2) (12) 7 1 8 2 — 2 Reclassification adjustments for net (gains) losses included in net income 12 — 12 (13) — (13) (2) 2 — Net change during the year 2 (2) — (6) 1 (5) — 2 2 Total other comprehensive income (loss) (322) (83) (405) (66) (17) (83) 1,779 (164) 1,615 FINANCIAL REPORT 2022 129 The following table shows changes in “Accumulated other comprehensive loss” (OCI) attributable to ABB, by component, net of tax: Unrealized Pension and Foreign gains (losses) other post- Accumulated currency on available- retirement Derivative other translation for-sale plan instruments comprehensive ($ in millions) adjustments securities adjustments and hedges loss Balance at January 1, 2020 (3,450) 10 (2,145) (5) (5,590) Other comprehensive (loss) income before reclassifications 498 24 (157) 2 367 Amounts reclassified from OCI 519 (17) 746 — 1,248 Total other comprehensive (loss) income 1,017 7 589 2 1,615 Less: Amounts attributable to noncontrolling interests 27 — — — 27 Balance at December 31, 2020 (2,460) 17 (1,556) (3) (4,002) Other comprehensive (loss) income before reclassifications (521) (10) 411 8 (112) Amounts reclassified from OCI (9) (5) 56 (13) 29 Total other comprehensive (loss) income (530) (15) 467 (5) (83) Less: Amounts attributable to noncontrolling interests 4 — — — 4 Balance at December 31, 2021 (1) (2,993) 2 (1,089) (8) (4,088) Other comprehensive (loss) income before reclassifications (685) (23) 226 (12) (494) Amounts reclassified from OCI 46 2 29 12 89 Total other comprehensive (loss) income (639) (21) 255 — (405) Spin-off of the Turbocharging Division (93) — (5) — (98) Less: Amounts attributable to noncontrolling interests and redeemable noncontrolling interests (34) — (1) — (35) Balance at December 31, 2022 (3,691) (19) (838) (8) (4,556) (1) Due to rounding, numbers presented may not add to the totals provided. 130 FINANCIAL REPORT 2022 The following table reflects amounts reclassified out of OCI in respect of Foreign currency translation adjustments and Pension and other postretirement plan adjustments: ($ in millions) Location of (gains) losses Details about OCI components reclassified from OCI 2022 2021 2020 Foreign currency translation adjustments: Net loss on complete or substantially complete liquidations of foreign subsidiaries Other income (expense), net 5 — — Changes attributable to divestments: - Loss on solar inverters business (see Note 4) Other income (expense), net — — 99 - Losses (gains) on other divestments, net Other income (expense), net 41 (9) — - Loss on Power Grids business (see Note 3) Income (loss) from discontinued operations, net of tax — — 420 Amounts reclassified from OCI 46 (9) 519 Pension and other postretirement plan adjustments: Amortization of prior service cost (credit) Non-operational pension (cost) credit (1) (13) (14) (11) Amortization of net actuarial loss Non-operational pension (cost) credit (1) 55 65 113 Net losses from settlements and curtailments Non-operational pension (cost) credit (1) 11 7 650 Changes attributable to divestments: - Losses (gains) on divestments, net Other income (expense), net (8) (8) — - Loss on Power Grids business (see Note 3) Income (loss) from discontinued operations, net of tax (2) — — 186 Total before tax 45 50 938 Tax Income tax expense (16) 4 (157) Changes in tax attributable to divestments: - Losses (gains) on divestments, net Other income (expense), net — 2 — - Loss on Power Grids business (see Note 3) Income (loss) from discontinued operations, net of tax (2) — — (35) Amounts reclassified from OCI 29 56 746 (1) Amounts in 2020, include a total of $94 million, reclassified from OCI to Income (loss) from discontinued operations (see Note 3). (2) Amounts represent the reclassification of OCI relating to pensions, including tax, on divestment of the Power Grids business. The amounts reclassified out of OCI in respect of Unrealized gains (losses) on available ‑ for ‑ sale securities and Derivative instruments and hedges were not significant in 2022, 2021 and 2020. — Note 22 Restructuring and related expenses OS program From December 2018 to December 2020, the Company executed a two-year restructuring program with the objective of simplifying its business model and structure through the implementation of a new organizational structure driven by its businesses. The program resulted in the elimination of the country and regional structures within the previous matrix organization, including the elimination of the three regional Executive Committee roles. The operating businesses are now responsible for both their customer-facing activities and business support functions, while the remaining Group-level corporate activities primarily focus on Group strategy, portfolio and performance management and capital allocation. As of December 31, 2020, the Company has incurred substantially all costs related to the OS program. FINANCIAL REPORT 2022 131 Liabilities associated with the OS program are included primarily in Other provisions. The following table shows the activity from the beginning of the program to December 31, 2022: Contract settlement, Employee loss order ($ in millions) severance costs and other costs Total Liability at January 1, 2018 — — — Expenses 65 — 65 Liability at December 31, 2018 65 — 65 Expenses 111 1 112 Cash payments (44) (1) (45) Change in estimates (30) — (30) Exchange rate differences (3) — (3) Liability at December 31, 2019 99 — 99 Expenses 119 17 136 Cash payments (91) (15) (106) Change in estimates (10) — (10) Exchange rate differences 4 — 4 Liability at December 31, 2020 121 2 123 Expenses, net of change in estimates 2 2 4 Cash payments (65) (3) (68) Exchange rate differences (6) — (6) Liability at December 31, 2021 52 1 53 Expenses, net of change in estimates (7) 1 (6) Cash payments (22) (1) (23) Exchange rate differences (3) — (3) Liability at December 31, 2022 20 1 21 The following table outlines the costs incurred in 2020 and the cumulative costs incurred under the program per operating segment as well as Corporate and Other: - Cumulative costs Costs incurred in incurred up to ($ in millions) 2020 December 31, 2020 Electrification 35 85 Motion 18 25 Process Automation 37 61 Robotics & Discrete Automation 10 18 Corporate and Other 49 114 Total 149 303 The Company recorded the following expenses, net of change in estimates, under this program: Cumulative costs Costs incurred in incurred up to ($ in millions) 2020 December 31, 2020 Employee severance costs 109 255 Estimated contract settlement, loss order and other costs 17 18 Inventory and long-lived asset impairments 23 30 Total 149 303 Restructuring expenses recorded for this program are included in the following line items in the Consolidated Income Statements: ($ in millions) 2020 Total cost of sales 38 Selling, general and administrative expenses 37 Non-order related research and development expenses 4 Other income (expense), net 70 Total 149 132 FINANCIAL REPORT 2022 Other restructuring-related activities In addition, during 2022, 2021 and 2020, the Company executed various other restructuring ‑ related activities and incurred the following charges, net of changes in estimates: ($ in millions) 2022 2021 2020 Employee severance costs 81 101 164 Estimated contract settlement, loss order and other costs 209 31 18 Inventory and long-lived asset impairments 7 24 12 Total 297 156 194 Expenses associated with these activities are recorded in the following line items in the Consolidated Income Statements: ($ in millions) 2022 2021 2020 Total cost of sales 24 71 95 Selling, general and administrative expenses 40 21 50 Non-order related research and development expenses 2 2 10 Other income (expense), net 231 62 39 Total 297 156 194 In 2022, the Company completed a plan (initiated in 2021) to fully exit its full train retrofit business by transferring the remaining contracts to a third party. The Company recorded $195 million of restructuring expenses in connection with this business exit primarily for contract settlement costs. Prior to exiting this business, the business was reported as part of the Company’s non-core business activities within Corporate and Other. At December 31, 2022 and 2021, $198 million and $212 million, respectively, was recorded for other restructuring-related liabilities and is primarily included in “Other provisions”. — Note 23 Operating segment and geographic data The Chief Operating Decision Maker (CODM) is the Chief Executive Officer. The CODM allocates resources to and assesses the performance of each operating segment using the information outlined below. The Company is organized into the following segments, based on products and services: Electrification, Motion, Process Automation and Robotics & Discrete Automation. The remaining operations of the Company are included in Corporate and Other. A description of the types of products and services provided by each reportable segment is as follows: • Electrification: manufactures and sells electrical products and solutions which are designed to provide safe, smart and sustainable electrical flow from the substation to the socket. The portfolio of increasingly digital and connected solutions includes electric vehicle charging infrastructure, renewable power solutions, modular substation packages, distribution automation products, switchboard and panelboards, switchgear, UPS solutions, circuit breakers, measuring and sensing devices, control products, wiring accessories, enclosures and cabling systems and intelligent home and building solutions, designed to integrate and automate lighting, heating, ventilation, security and data communication networks. The products and services are delivered through seven operating Divisions: Distribution Solutions, Smart Power, Smart Buildings, E-mobility, Installation Products, Power Conversion and Service. FINANCIAL REPORT 2022 133 • Motion: designs, manufactures, and sells drives, motors, generators and traction converters that are driving the low-carbon future for industries, cities, infrastructure and transportation. These products, digital technology and related services enable industrial customers to increase energy efficiency, improve safety and reliability, and achieve precise control of their processes. Building on over 130 years of cumulative experience in electric powertrains, the Business Area combines domain expertise and technology to deliver the optimum solution for a wide range of applications in all industrial segments. In addition, the Business Area, along with its partners, has a leading global service presence. These products and services are delivered through seven operating Divisions: Large Motors and Generators, IEC LV Motors, NEMA Motors, Drive Products, System Drives, Service and Traction, as well as, prior to its sale in November 2021, the Mechanical Power Transmission Division. • Process Automation: develops and sells a broad range of industry-specific, integrated automation, electrification and digital systems and solutions, as well as digital solutions, lifecycle services, advanced industrial analytics and artificial intelligence applications and suites for the process, marine and hybrid industries. Products and solutions include control technologies, advanced process control software and manufacturing execution systems, sensing, measurement and analytical instrumentation, marine propulsion systems and turbochargers. In addition, the Business Area offers a comprehensive range of services ranging from repair to advanced services such as remote monitoring, preventive maintenance, asset performance management, emission monitoring and cybersecurity services. The products, systems and services are delivered through five operating Divisions: Energy Industries, Process Industries, Marine & Ports and Measurement & Analytics, as well as, prior to its spin-off in October 2022, the Turbocharging Division (Accelleron). • Robotics & Discrete Automation: delivers its products, solutions and services through two operating Divisions: Robotics and Machine Automation. Robotics includes industrial robots, autonomous mobile robotics, software, robotic solutions, field services, spare parts, and digital services. Machine Automation specializes in solutions based on its programmable logic controllers (PLC), industrial PCs (IPC), servo motion, transport systems and machine vision. Both Divisions offer engineering and simulation software as well as a comprehensive range of digital solutions. Corporate and Other: includes headquarter costs, the Company’s corporate real estate activities, Corporate Treasury Operations, historical operating activities of certain divested businesses and other non-core operating activities. The primary measure of profitability on which the operating segments are evaluated is Operational EBITA, which represents income from operations excluding: • amortization expense on intangibles arising upon acquisition (acquisition-related amortization), • restructuring, related and implementation costs, • changes in the amount recorded for obligations related to divested businesses occurring after the divestment date (changes in obligations related to divested businesses), • changes in estimates relating to opening balance sheets of acquired businesses (changes in pre-acquisition estimates), • gains and losses from sale of businesses (including fair value adjustment on assets and liabilities held for sale), • acquisition- and divestment-related expenses and integration costs, • other income/expense relating to the Power Grids joint venture, • certain other non-operational items, as well as • foreign exchange/commodity timing differences in income from operations consisting of: (a) unrealized gains and losses on derivatives (foreign exchange, commodities, embedded derivatives), (b) realized gains and losses on derivatives where the underlying hedged transaction has not yet been realized, and (c) unrealized foreign exchange movements on receivables/payables (and related assets/liabilities). Certain other non-operational items generally includes certain regulatory, compliance and legal costs, certain asset write downs/impairments (including impairment of goodwill) and certain other fair value changes, as well as other items which are determined by management on a case ‑ by ‑ case basis. The CODM primarily reviews the results of each segment on a basis that is before the elimination of profits made on inventory sales between segments. Segment results below are presented before these eliminations, with a total deduction for intersegment profits to arrive at the Company’s consolidated Operational EBITA. Intersegment sales and transfers are accounted for as if the sales and transfers were to third parties, at current market prices. 134 FINANCIAL REPORT 2022 The following tables present disaggregated segment revenues from contracts with customers for 2022, 2021 and 2020: 2022 ($ in millions) Electrification Motion Process Automation Robotics & Discrete Automation Corporate and Other Total Geographical markets Europe 4,449 2,031 2,248 1,494 63 10,285 The Americas 5,332 2,148 1,566 524 3 9,573 of which: United States 3,918 1,787 943 373 2 7,023 Asia, Middle East and Africa 4,123 2,101 2,199 1,155 10 9,588 of which: China 1,984 1,147 666 897 2 4,696 13,904 6,280 6,013 3,173 76 29,446 Product type Products 12,179 5,380 1,337 1,863 7 20,766 Systems 830 — 1,974 832 69 3,705 Services and software 895 900 2,702 478 — 4,975 13,904 6,280 6,013 3,173 76 29,446 Third-party revenues 13,904 6,280 6,013 3,173 76 29,446 Intersegment revenues 201 465 31 8 (705) — Total revenues 14,105 6,745 6,044 3,181 (629) 29,446 2021 ($ in millions) Electrification Motion Process Automation Robotics & Discrete Automation Corporate and Other Total Geographical markets Europe 4,517 2,015 2,416 1,578 3 10,529 The Americas 4,465 2,346 1,431 439 5 8,686 of which: United States 3,304 1,952 833 308 — 6,397 Asia, Middle East and Africa 3,975 2,111 2,367 1,270 7 9,730 of which: China 2,087 1,156 740 949 — 4,932 12,957 6,472 6,214 3,287 15 28,945 Product type Products 10,706 5,555 1,496 2,159 4 19,920 Systems 1,367 — 1,802 645 11 3,825 Services and software 884 917 2,916 483 — 5,200 12,957 6,472 6,214 3,287 15 28,945 Third-party revenues 12,957 6,472 6,214 3,287 15 28,945 Intersegment revenues 230 453 45 10 (738) — Total revenues 13,187 6,925 6,259 3,297 (723) 28,945 FINANCIAL REPORT 2022 135 2020 ($ in millions) Electrification Motion Process Automation Robotics & Discrete Automation Corporate and Other Total Geographical markets Europe 4,008 1,934 2,322 1,429 15 9,708 The Americas 4,050 2,173 1,321 385 7 7,936 of which: United States 3,093 1,846 805 270 5 6,019 Asia, Middle East and Africa 3,506 1,807 2,038 1,024 7 8,382 of which: China 1,820 926 628 714 3 4,091 11,564 5,914 5,681 2,838 29 26,026 Product type Products 9,951 5,040 1,263 1,635 53 17,942 Systems 743 — 1,665 780 (24) 3,164 Services and software 870 874 2,753 423 — 4,920 11,564 5,914 5,681 2,838 29 26,026 Third-party revenues 11,564 5,914 5,681 2,838 29 26,026 Intersegment revenues (1) 360 495 111 69 (927) 108 Total revenues 11,924 6,409 5,792 2,907 (898) 26,134 (1) Intersegment revenues until June 30, 2020, include sales to the Power Grids business, which is presented as discontinued operations, and are not eliminated from Total revenues (see Note 3). Revenues by geography reflect the location of the customer. In 2022, 2021 and 2020 the United States and China are the only countries where revenue exceeded 10 percent of Total revenues. In each of 2022, 2021 and 2020 more than 98 percent of the Company’s total revenues were generated from customers outside Switzerland. 136 FINANCIAL REPORT 2022 The following tables present Operational EBITA, the reconciliations of consolidated Operational EBITA to Income from continuing operations before taxes, as well as Depreciation and amortization, and Capital expenditure for 2022, 2021 and 2020, as well as Total assets at December 31, 2022, 2021 and 2020: ($ in millions) 2022 2021 2020 Operational EBITA: Electrification 2,328 2,121 1,681 Motion 1,163 1,183 1,075 Process Automation 848 801 451 Robotics & Discrete Automation 340 355 237 Corporate and Other: — Non-core and divested businesses 5 (39) (133) — Stranded corporate costs — — (40) — Corporate costs and Other intersegment elimination (174) (299) (372) Total 4,510 4,122 2,899 Acquisition-related amortization (229) (250) (263) Restructuring, related and implementation costs (1) (347) (160) (410) Changes in obligations related to divested businesses 88 (9) (218) Changes in pre-acquisition estimates (10) 6 (11) Gains and losses from sale of businesses (7) 2,193 (2) Fair value adjustment on assets and liabilities held for sale — — (33) Acquisition- and divestment-related expenses and integration costs (195) (132) (74) Other income/expenses relating to the Power Grids joint venture (57) (34) (20) Foreign exchange/commodity timing differences in income from operations: Unrealized gains and losses on derivatives (foreign exchange, commodities, embedded derivatives) 32 (54) 67 Realized gains and losses on derivatives where the underlying hedged transaction has not yet been realized (48) (2) 26 Unrealized foreign exchange movements on receivables/payables (and related assets/liabilities) (15) 20 (33) Certain other non-operational items: Costs for divestment of Power Grids — — (86) Regulatory, compliance and legal costs (317) — (7) Business transformation costs (2) (152) (92) (37) Favorable resolution of an uncertain purchase price adjustment 15 6 36 Gains and losses from sale of investments in equity-accounted companies 43 — — Certain other fair value changes, including asset impairments (3) 45 119 (239) Other non-operational items (19) (15) (2) Income from operations 3,337 5,718 1,593 Interest and dividend income 72 51 51 Interest and other finance expense (130) (148) (240) Losses from extinguishment of debt — — (162) Non-operational pension (cost) credit 115 166 (401) Income from continuing operations before taxes 3,394 5,787 841 (1) Amount in 2022 includes impairment of certain assets. Amount in 2020 includes $67 million of implementation costs in relation to the OS program. (2) Amounts in 2022 and 2021 include ABB Way process transformation costs of $131 million and $80 million, respectively. (3) Amount in 2020 includes goodwill impairment charges of $311 million. Depreciation and Total assets (1), (2) amortization Capital expenditures (1) at December 31, ($ in millions) 2022 2021 2020 2022 2021 2020 2022 2021 2020 Electrification 406 425 411 385 345 316 13,992 12,831 12,800 Motion 141 172 182 150 230 118 6,565 5,936 6,495 Process Automation 75 83 80 100 85 75 4,598 5,009 5,008 Robotics & Discrete Automation 141 144 131 86 96 65 4,901 4,860 4,794 Corporate and Other 51 69 111 41 64 120 9,092 11,624 11,991 Consolidated 814 893 915 762 820 694 39,148 40,260 41,088 (1) Capital expenditures and Total assets are after intersegment eliminations and therefore reflect third-party activities only. (2) At December 31, 2022, 2021 and 2020, Corporate and Other includes $96 million, $136 million and $282 million, respectively, of assets in the Power Grids business which is reported as discontinued operations (see Note 3). In addition, at December 31, 2021 and 2020, Corporate and Other included $1,609 million and $1,710 million, respectively, related to the equity investment in Hitachi Energy, which was subsequently sold in December 2022 (see Note 4). FINANCIAL REPORT 2022 137 Other geographic information Geographic information for long-lived assets was as follows: Long-lived assets at December 31, ($ in millions) 2022 2021 Europe 2,533 2,670 The Americas 1,256 1,260 Asia, Middle East and Africa 963 1,009 Total 4,752 4,939 Long ‑ lived assets represent “Property, plant and equipment, net” and “Operating lease right-of-use assets” and are shown by location of the assets. At December 31, 2022, approximately 20 percent, 13 percent and 8 percent of the Company’s long ‑ lived assets were located in the United States, China and Switzerland, respectively. At December 31, 2021, approximately 19 percent, 12 percent and 11 percent of the Company’s long ‑ lived assets were located in the United States, China and Switzerland, respectively. 2023 Realignment of segments Commencing in January 2023, the E-mobility Division is no longer managed within the Electrification Business Area and has become an independent Division and a separate operating segment. The Division does not currently meet any of the size thresholds to be considered a reportable segment and will be presented within Corporate and Other. — Note 24 Subsequent events Divestments On January 19, 2023, the Company reached an agreement to sell its Power Conversion Division to AcBel Polytech Inc. for $505 million in cash. The transaction is subject to regulatory approvals and is expected to be completed in the second half of 2023. Debt On January 16, 2023, the Company issued the following EUR Instruments: (i) EUR 500 million of 3.25% Instruments, due 2027, and (ii) EUR 750 million of 3.375% Instruments, due 2031, both paying interest annually in arrears at a fixed rate. The aggregate net proceeds of these EUR Instruments, after discount and fees, amounted to EUR 1,235 million (equivalent to approximately $1,338 million on date of issuance). As of February 23, 2023, the Company has repaid all amounts previously outstanding at December 31, 2022, under the $2 billion Euro commercial paper program. Income taxes In February 2023, on completion of a tax audit, the Company obtained resolution of an uncertain tax position for which an amount was recorded within Other non-current liabilities as of December 31, 2022. Due to the resolution of this matter, the Company expects to release the provision of approximately $200 million in the first quarter of 2023. Stockholders’ equity In February 2023, the Company announced that a proposal will be put to the 2023 AGM for approval by the shareholders to distribute 0.84 Swiss francs per share to shareholders. In February 2023, the Company obtained an additional amount of funding raised through the private placement of new shares of ABB E-Mobility, increasing the total gross proceeds by an additional 325 million Swiss francs (approximately $351 million) and further reducing the Company’s ownership in ABB E-Mobility to 81 percent. ABB Ltd Statutory Financial Statements 03 ABB LTD STATUTORY FINANCIAL STATEMENTS 140 ABB Ltd Management Report 2022 141 Financial Statements and Notes 154 Proposed appropriation of available earnings 155 Report of the Statutory Auditor on the Financial Statements 140 FINANCIAL REPORT 2022 — ABB Ltd Management Report 2022 ABB Ltd is the holding company of the ABB Group, owning directly or indirectly all subsidiaries globally. The major business activities during 2022 can be summarized as follows: Management services • The Company provided management services to Group companies for CHF 20 million. Share transactions • share deliveries in relation to employee share programs of CHF 530 million • share cancellations of CHF 2,760 million: those shares were repurchased under share buyback programs in 2021 and 2022 • further share repurchases of CHF 2,690 million for cancellation purposes • share repurchases for employee share programs of CHF 616 million Dividend distribution to external shareholders • from retained earnings of CHF 1,919 million Divestment of the Power Grids business Further to its sale of 80.1% of the shares of Hitachi Energy Ltd on July 1, 2020, the Company transferred in 2021 ABB Power Technology Services Private Limited, India, ABB Power Products And Systems India Limited, India, and ABB Power Grids South Africa (Pty) Ltd as well as in 2022 ABB Engg. Technologies Co. (KSCC), Kuwait to Hitachi Energy Ltd. On December 28, 2022, the Company completed the sale of its remaining 19.9% equity stake in Hitachi Energy Ltd. Other information In 2022, the Company employed on average 19 employees. Once a year, the Company’s Board of Directors performs a risk assessment in accordance with the Group’s risk management process and discusses appropriate actions if necessary. The Company does not carry out any research and development activities. In 2023, the Company will continue to operate as the holding company of the ABB Group. No change of business is expected. February 23, 2023 FINANCIAL REPORT 2022 141 — Financial Statements 2022 Income Statement Year ended December 31 (CHF in thousands) Note 2022 2021 Dividend income 7 4,504,256 1,768,705 Finance income 141,294 177,551 Other operating income 8 51,730 68,357 Finance expense (282,552) (299,024) Personnel expenses (50,789) (45,441) Other operating expenses 9 (340,983) (22,850) Write down of participation 2 — (110,836) Gain and Loss on sale of participation 2 55,199 74,336 Net income before taxes 4,078,155 1,610,798 Income taxes (153) — Net income 4,078,002 1,610,798 142 FINANCIAL REPORT 2022 Balance Sheet December 31 (CHF in thousands) Note 2022 2021 Cash 282,220 570 Cash deposit with ABB Capital Ltd 406,029 292,883 Non-trade receivables 1,220 926 Non-trade receivables – Group 11,495 17,985 Short-term loans – Group 1,423,060 22,819 Accrued income and prepaid expenses 223 699 Accrued income and prepaid expenses – Group 672 46 Other short-term assets 2 — 10,644 Total current assets 2,124,919 346,572 Long-term loans – Group 299,780 319,462 Participations 2 5,709,367 7,088,533 Other long-term assets 3,816 289,897 Total non-current assets 6,012,963 7,697,892 Total assets 8,137,882 8,044,464 Interest-bearing liabilities 4 275,000 — Interest-bearing liabilities – Group 4 23,060 22,819 Non-trade payables 40,022 107,419 Non-trade payables – Group 6,138 5,360 Deferred income and accrued expenses 14,449 36,713 Deferred income and accrued expenses – Group 24,862 26,079 Short-term provisions 60,102 221,120 Total current liabilities 443,633 419,510 Interest-bearing liabilities 4 1,175,698 450,210 Interest-bearing liabilities – Group 4 299,780 319,462 Long-term provisions — 18,712 Total non-current liabilities 1,475,478 788,384 Total liabilities 1,919,111 1,207,894 Share capital 6 235,769 246,378 Legal reserves from retained earnings 6 1,000,000 1,000,000 Free reserves Retained earnings 6 3,774,196 6,832,045 Net income 4,078,002 1,610,798 Treasury shares 6 (2,869,196) (2,852,651) Total stockholders' equity 6,218,771 6,836,570 Total liabilities and stockholders’ equity 8,137,882 8,044,464 FINANCIAL REPORT 2022 143 — Notes to Financial Statements — Note 1 General ABB Ltd, Zurich, Switzerland (the Company) is the parent company of the ABB Group. Its stand-alone financial statements are prepared in accordance with Swiss law. The financial statements have been prepared in accordance with Article 957 et seqq. of Title 32 of the Swiss Code of Obligations. Group companies are all companies which are directly or indirectly controlled by the Company and variable interest entities if it is determined that the Company is the primary beneficiary. — Note 2 Participations 2022 2021 Company name Purpose Domicile Share capital Ownership and voting rights Share capital Ownership and voting rights ABB Asea Brown Boveri Ltd Holding CH-Zurich CHF 2,767,880,000 100.00% CHF 2,767,880,000 100.00% Hitachi Energy Ltd Holding CH-Zurich — 0.00% CHF 1,250,000 19.90% Development of participations (CHF in thousands) 2022 2021 Opening balance January 1 7,088,533 7,086,247 Additions (1) 504,256 681,827 Disposals (1,883,422) (568,705) Write downs — (110,836) Closing balance December 31 5,709,367 7,088,533 (1) Thereof dividend in kind from ABB Asea Brown Boveri Ltd CHF 504,256 in 2022 and CHF 568,705 in 2021 Participations are valued at the lower of cost or fair value, using generally accepted valuation principles. On July 1, 2020, the Company completed the sale of 80.1 percent of Hitachi Energy Ltd (formerly Hitachi ABB Power Grids Ltd). The transaction was executed through the sale of 80.1 percent of the shares of Hitachi Energy Ltd. Cash consideration received directly by the Company at the closing date was USD 5,674 million (CHF 5,376 million) and USD 1,176 million (CHF 1,114 million) restricted cash. In September 2022, the Company and Hitachi agreed terms to sell the Company’s remaining investment in Hitachi Energy Ltd to Hitachi and simultaneously settle certain outstanding contractual obligations relating to the initial sale of the Power Grids business. The sale of the remaining investment was completed in December 2022, resulting in net cash proceeds of CHF 1,440 million and a gain of CHF 55 million which was recorded in “Gain and Loss on sale of participations, net”. The book value of the 19.9 percent investment for Hitachi Energy Ltd was CHF 0 million and CHF 1,379 million, as of December 31, 2022 and 2021. Liabilities for estimated payments (CHF in thousands) 2022 2021 Deferred income (1) — 2,541 Short-term provisions (2) 49,328 221,120 Accrued expenses - Group (3) 16,856 8,611 Closing balance December 31 66,184 232,272 (1) Delayed closing countries (2) Transitional Service Agreement, Retention Bonus (3) Cost reimbursement to Group companies 144 FINANCIAL REPORT 2022 For certain entities of the Power Grids business, the legal process or other regulatory delays resulted in the Company not having transferred legal title to Hitachi as at December 31, 2021. The proceeds for these entities are included in Other short-term assets of CHF 0 million and CHF 11 million at December 31, 2022 and 2021, respectively. In 2022, the remaining Power Grids entity ABB Engg. Technologies Co. (KSCC) in Kuwait was transferred to Hitachi Energy Ltd. In 2021, the Company transferred ABB Power Technology Services Private Limited, India, and ABB Power Products And Systems India Limited, India, and ABB Power Grids South Africa (Pty) Ltd to Hitachi Energy Ltd. — Note 3 Indirect Participations The following table sets forth the name, country of incorporation, ownership and voting rights, as well as share capital, of the significant indirect subsidiaries of the Company, as of December 31, 2022 and 2021. Company name/Location Country Company ownership and voting rights % 2022 Share capital in thousands 2022 Company ownership and voting rights % 2021 Share capital in thousands 2021 Currency ABB S.A., Buenos Aires Argentina — (3) — (3) 100.00 278,860 ARS ABB Australia Pty Limited, Moorebank Australia 100.00 131,218 100.00 131,218 AUD ABB Group Holdings Pty. Ltd., Moorebank Australia 100.00 552,982 100.00 552,982 AUD ABB Group Investment Management Pty. Ltd., Moorebank Australia 100.00 505,312 100.00 505,312 AUD ABB AG, Wiener Neudorf Austria 100.00 15,000 100.00 15,000 EUR B&R Holding GmbH, Eggelsberg Austria 100.00 35 100.00 35 EUR B&R Industrial Automation GmbH, Eggelsberg Austria 100.00 1,240 100.00 1,240 EUR ABB N.V., Zaventem Belgium 100.00 4,000 100.00 34,308 EUR ABB Automacao LTDA, Sorocaba Brazil 100.00 191,039 100.00 196,554 BRL ABB Eletrificacao LTDA, Sorocaba Brazil 100.00 268,759 100.00 268,759 BRL ABB Bulgaria EOOD, Sofia Bulgaria 100.00 65,110 100.00 65,110 BGN ABB Electrification Canada ULC, Edmonton Canada 100.00 — (1) 100.00 — (1) CAD ABB Inc., Saint-Laurent Canada 100.00 — (1) 100.00 — (1) CAD ABB S.A., Santiago Chile 100.00 5,484,348 100.00 5,484,348 CLP ABB (China) Investment Limited, Beijing China 100.00 95,000 100.00 95,000 USD ABB (China) Ltd., Beijing China 100.00 140,000 100.00 140,000 USD ABB Beijing Drive Systems Co. Ltd., Beijing China 90.00 5,000 90.00 5,000 USD ABB Beijing Switchgear Limited, Beijing China 60.00 16,500 60.00 16,500 USD ABB Electrical Machines Ltd., Shanghai China 100.00 14,400 100.00 14,400 USD ABB Engineering (Shanghai) Ltd., Shanghai China 100.00 40,000 100.00 40,000 USD ABB LV Installation Materials Co. Ltd. Beijing, Beijing China 85.70 17,100 85.70 17,100 USD ABB Shanghai Free Trade Zone Industrial Co., Ltd., Shanghai China 100.00 6,500 100.00 6,500 CNY ABB Shanghai Motors Co. Ltd., Shanghai China 75.00 11,217 75.00 11,217 USD ABB Xiamen Low Voltage Equipment Co. Ltd., Xiamen China 100.00 15,800 100.00 15,800 USD ABB Xiamen Switchgear Co. Ltd., Xiamen China 66.52 29,500 66.52 29,500 USD ABB Xinhui Low Voltage Switchgear Co. Ltd., Xinhui China 90.00 6,200 90.00 6,200 USD ABB s.r.o., Prague Czech Republic 100.00 400,000 100.00 400,000 CZK ABB A/S, Skovlunde Denmark 100.00 100,000 100.00 100,000 DKK ABB for Electrical Industries (ABB ARAB) S.A.E., Cairo Egypt 100.00 353,479 100.00 353,479 EGP Asea Brown Boveri S.A.E., Cairo Egypt 100.00 166,000 100.00 166,000 USD ABB AS, Jüri Estonia 100.00 1,663 100.00 1,663 EUR ABB Oy, Helsinki Finland 100.00 10,003 100.00 10,003 EUR ABB France, Cergy Pontoise France 99.84 25,778 99.83 25,778 EUR ABB SAS, Cergy Pontoise France 100.00 45,921 100.00 45,921 EUR ABB AG, Mannheim Germany 100.00 167,500 100.00 167,500 EUR FINANCIAL REPORT 2022 145 Company name/Location Country Company ownership and voting rights % 2022 Share capital in thousands 2022 Company ownership and voting rights % 2021 Share capital in thousands 2021 Currency ABB Beteiligungs- und Verwaltungsgesellschaft mbH, Mannheim Germany 100.00 61,355 100.00 61,355 EUR ABB Stotz-Kontakt GmbH, Heidelberg Germany 100.00 7,500 100.00 7,500 EUR ABB Striebel & John GmbH, Sasbach Germany 100.00 1,050 — (3) — (3) EUR B + R Industrie-Elektronik GmbH, Bad Homburg Germany 100.00 358 100.00 358 EUR Busch-Jaeger Elektro GmbH, Lüdenscheid Germany 100.00 1,535 100.00 1,535 EUR ABB Engineering Trading and Service Ltd., Budapest Hungary 100.00 436,281 100.00 436,281 HUF Industrial C&S Hungary Kft., Budapest Hungary — (4) — (4) 100.00 3,000 HUF ABB Global Business Services and Contracting India Private Limited, Bangalore India 100.00 5,200,100 100.00 5,200,100 INR ABB Global Industries and Services Private Limited, Bangalore India 100.00 366,923 100.00 366,923 INR ABB India Limited, Bangalore India 75.00 423,817 75.00 423,817 INR ABB E-mobility S.p.A., Milan Italy 91.56 20,000 — (3) — (3) EUR ABB S.p.A., Milan Italy 100.00 110,000 100.00 110,000 EUR ABB K.K., Tokyo Japan 100.00 1,000,000 100.00 1,000,000 JPY ABB Ltd., Seoul Korea, Republic of 100.00 23,670,000 100.00 23,670,000 KRW ABB Electrical Control Systems S. de R.L. de C.V., Monterrey Mexico 100.00 712,463 100.00 315,134 MXN ABB Mexico S.A. de C.V., San Luis Potosi Mexico 100.00 1,135,752 100.00 683,418 MXN Asea Brown Boveri S.A. de C.V., San Luis Potosi Mexico 100.00 667,686 100.00 667,686 MXN ABB B.V., Rotterdam (5) Netherlands 100.00 9,200 — (3) — (3) EUR ABB E-mobility B.V., Delft (6) Netherlands 91.56 1 100.00 9,200 EUR ABB Finance B.V., Rotterdam Netherlands 100.00 20 100.00 20 EUR ABB Holdings B.V., Rotterdam Netherlands 100.00 363 100.00 363 EUR ABB AS, Fornebu Norway 100.00 134,550 100.00 134,550 NOK ABB Electrification Norway AS, Skien Norway 100.00 60,450 100.00 60,450 NOK ABB Holding AS, Fornebu Norway 100.00 240,000 100.00 240,000 NOK ABB Business Services Sp. z o.o., Warsaw Poland 99.94 24 99.94 24 PLN ABB Industrial Solutions (Bielsko-Biala) Sp. z o.o., Bielsko-Biala Poland — (4) — (4) 99.94 328,125 PLN ABB Industrial Solutions (Klodzko) Sp. z o.o., Klodzko Poland 99.94 50 99.94 50 PLN ABB Sp. z o.o., Warsaw Poland 99.94 245,461 99.94 245,461 PLN Industrial C&S of P.R. LLC, San Juan Puerto Rico 100.00 — (1) 100.00 — (1) USD ABB Ltd., Moscow Russian Federation — (3) — (3) 100.00 23,000 RUB ABB Electrical Industries Co. Ltd., Riyadh Saudi Arabia 65.00 181,000 65.00 181,000 SAR ABB Pte. Ltd., Singapore Singapore 100.00 32,797 100.00 32,797 SGD ABB Holdings (Pty) Ltd., Modderfontein South Africa 100.00 217,758 100.00 217,758 ZAR ABB Investments (Pty) Ltd, Modderfontein South Africa 51.00 185,978 51.00 56,000 ZAR ABB South Africa (Pty) Ltd., Modderfontein South Africa 74.91 261,000 74.91 200,001 ZAR Asea Brown Boveri S.A., Madrid Spain 100.00 33,318 100.00 33,318 EUR ABB AB, Västerås Sweden 100.00 200,000 100.00 200,000 SEK ABB Electrification Sweden AB, Västerås Sweden 100.00 10,000 100.00 10,000 SEK ABB Norden Holding AB, Västerås Sweden 100.00 2,344,783 100.00 2,344,783 SEK ABB Canada EL Holding GmbH, Zurich Switzerland 100.00 1,000 100.00 1,000 CHF ABB Capital AG, Zurich Switzerland 100.00 100 100.00 100 CHF ABB E-mobility Holding Ltd, Baden Switzerland 91.56 1,003 — (3) — (3) CHF ABB Information Systems Ltd., Zurich Switzerland 100.00 500 100.00 500 CHF ABB Investment Holding 2 GmbH, Zurich Switzerland — (4) — (4) 100.00 20 CHF ABB Management Services Ltd., Zurich Switzerland 100.00 571 100.00 571 CHF ABB Schweiz AG, Baden Switzerland 100.00 55,000 100.00 55,000 CHF ABB Ltd., Taipei Taiwan (Chinese Taipei) 100.00 195,000 100.00 195,000 TWD ABB Elektrik Sanayi A.S., Istanbul Turkiye 99.99 240,076 99.99 13,410 TRY ABB Industries (L.L.C.), Dubai United Arab Emirates 49.00 (2) 5,000 (2) 49.00 (2) 5,000 (2) AED ABB Holdings Limited, Warrington United Kingdom 100.00 226,014 100.00 226,014 GBP ABB Limited, Warrington United Kingdom 100.00 120,000 100.00 120,000 GBP 146 FINANCIAL REPORT 2022 Company name/Location Country Company ownership and voting rights % 2022 Share capital in thousands 2022 Company ownership and voting rights % 2021 Share capital in thousands 2021 Currency ABB E-mobility Inc., Wilmington, DE (7) United States 91.56 — — (3) — (3) USD ABB Finance (USA) Inc., Wilmington, DE United States 100.00 1 100.00 1 USD ABB Holdings Inc., Cary, NC United States 100.00 2 100.00 2 USD ABB Inc., Cary, NC United States 100.00 1 100.00 1 USD ABB Installation Products Inc., Memphis, TN United States 100.00 1 100.00 1 USD ABB Motors and Mechanical Inc., Fort Smith, AR United States 100.00 — (1) 100.00 — (1) USD ABB Treasury Center (USA), Inc., Wilmington, DE United States 100.00 1 100.00 1 USD Edison Holding Corporation, Wilmington, DE United States 100.00 — (1) 100.00 — (1) USD Industrial Connections & Solutions LLC, Cary, NC United States 100.00 — (1) 100.00 — (1) USD (1) Shares without par value. (2) Company consolidated as ABB exercises full management control. (3) Based on the internally defined thresholds, these indirect participations are considered not significant, and therefore no details to these participations are disclosed in the respective year. (4) Participation was either sold, liquidated or merged in 2022. (5) Participation was renamed from ABB Orange B.V., Rotterdam in 2022. (6) Participation was renamed from ABB B.V., Rotterdam in 2022. (7) In 2022, location changed from Delaware to Wilmington, DE. — Note 4 Interest-bearing liabilities December 31 (CHF in thousands) 2022 2021 Bonds 2019 – 2024 0.3% coupon nominal value 280,000 280,000 premium on issuance 34 54 Bonds 2019 – 2029 1.0% coupon nominal value 170,000 170,000 premium on issuance 135 156 Bonds 2022 – 2023 zero interest nominal value 275,000 — premium on issuance — — Bonds 2022 – 2027 0.75% coupon nominal value 425,000 — premium on issuance 496 — Bonds 2022 – 2025 2.10% coupon nominal value 150,000 — premium on issuance 11 — Bonds 2022 – 2030 2.375% coupon nominal value 150,000 — premium on issuance 22 — Loan 2016 – 2024 $350 million (in 2021 $375 million) 322,840 342,281 Total 1,773,538 792,491 In March 2022, the Company issued the following bonds: (i) CHF 275 million zero interest bonds due 2023 and (ii) CHF 425 million 0.75% bonds due 2027. The 0.75% coupon on the CHF 425 million bonds is paid annually. The Company has the option, one month before their maturity date to redeem the 2027 bonds, in whole but not in part, at par plus accrued interest. Further, the Company has the option to redeem the 2027 bonds prior to maturity, in whole but not in part, at par plus accrued interest, if 85% or more of the aggregate principal amount of the relevant bond issue has been redeemed or purchased and cancelled at the time of the option exercise notice. In October 2022, the Company issued the following bonds: (i) CHF 150 million 2.1% bonds due 2025 and (ii) CHF 150 million 2.375% bonds due 2030. Each of the respective bonds pays interest annually. The Company has the option, three months before their maturity date to redeem these bonds, in whole but not in part, at par plus accrued interest. Further, the Company has the option to redeem the above bonds prior to maturity, in whole but not in part, at par plus accrued interest, if 85% or more of the aggregate principal amount of the relevant bond issue has been redeemed or purchased and cancelled at the time of the option exercise notice. FINANCIAL REPORT 2022 147 In February 2019, the Company issued the following bonds: (i) CHF 280 million 0.3% bonds due 2024 and (ii) CHF 170 million 1.0% bonds due 2029. Each of the respective bonds pays interest annually in arrears in August and May respectively. The Company has the option, one month before their maturity date in case of the 2024 bonds and three months before their maturity date in the case of the 2029 bonds, to redeem the bonds, in whole but not in part, at par plus accrued interest. Further, the Company has the option to redeem the above bonds prior to maturity, in whole but not in part, at par plus accrued interest, if 85% or more of the aggregate principal amount of the relevant bond issue has been redeemed or purchased and cancelled at the time of the option exercise notice. In 2016, the Company entered into a borrowing agreement of USD 500 million with ABB Capital Ltd that expires in 2024 (with an amortization schedule of USD 25 million per annum) to hedge a USD 500 million loan granted to a Group company. In each of 2022 and 2021, the Company repaid USD 25 million. The average interest in 2022 and 2021 was 2.65% and 1.08%, respectively. — Note 5 Contingent liabilities With certain Group companies, the Company has keep-well agreements. A keep-well agreement is a shareholder agreement between the Company and a Group company. These agreements provide for maintenance of a minimum net worth in the Group company and the maintenance of 100% direct or indirect ownership by the Company. The keep-well agreements additionally provide that if at any time the Group company has insufficient liquid assets to meet any payment obligation on its debt (as defined in the agreements) and has insufficient unused commitments under its credit facilities with its lenders, the Company will make available to the Group company sufficient funds to enable it to fulfill such payment obligation as it falls due. A keep-well agreement is not a guarantee by the Company for payment of the indebtedness, or any other obligation, of a Group company. No party external to the ABB Group is a party to any keep- well agreement. The Company has also provided certain guarantees securing the performance of Group companies in connection with commercial paper programs, indentures or other debt instruments to enable them to fulfill the payment obligations under such instruments as they fall due. The amount guaranteed under these instruments was CHF 5,590.0 million as of December 31, 2022, and CHF 4,371.2 million as of December 31, 2021. Additionally, the Company has provided certain guarantees securing the performance of contracts and undertakings of Group companies with third parties entered into in the normal course of business of an aggregate value of CHF 73.3 million as per December 31, 2022, and CHF 72.8 million as per December 31, 2021. Furthermore, the Company is the guarantor in the Group’s USD 2 billion multicurrency revolving credit facility (“Group Facility”). In December 2019, the Group Facility maturing in 2021 was replaced with a new Group Facility maturing in 2024, with the option in 2020 and 2021 to extend the maturity to 2025 and 2026, respectively. The Company exercised its option in 2021 to extend the maturity of the facility to 2026. No amounts were drawn under this Group Facility at December 31, 2022 and 2021. The Company through certain of its direct and indirect subsidiaries is involved in various regulatory and legal matters. The Company’s direct and indirect subsidiaries have made certain related provisions as further described in “Note 15 Commitments and contingencies” to the Consolidated Financial Statements of ABB Ltd. As described in the note, there is a risk of adverse outcomes beyond the provisioned amounts. The Company is part of a value added tax Group and therefore is jointly liable to the Swiss Federal Tax Department for the value added tax liabilities of the other members. 148 FINANCIAL REPORT 2022 — Note 6 Stockholders’ equity Legal reserves Free reserves (CHF in thousands) Share capital from retained earnings from retained earnings Net income Treasury shares Total Opening balance at January 1,2022 246,378 1,000,000 6,832,045 1,610,798 (2,852,651) 6,836,570 Allocation to retained earnings 1,610,798 (1,610,798) — Cancellation of shares (10,609) (2,749,338) 2,759,947 — Dividend payment CHF 0.82 per share (1,418,210) (1,418,210) Extraordinary dividend (1) (501,099) (501,099) Purchases of treasury shares (3,306,162) (3,306,162) Delivery of treasury shares 529,670 529,670 Net income for the year 4,078,002 4,078,002 Closing balance at December 31, 2022 235,769 1,000,000 3,774,196 4,078,002 (2,869,196) 6,218,771 (1) distribution of Accelleron Industries AG Share capital as of December 31, 2022 Number of registered shares Par value (CHF) Total (CHF in thousands) Issued shares 1,964,745,075 0.12 235,769 Contingent shares 304,038,800 0.12 36,485 Authorized shares 200,000,000 0.12 24,000 Share capital as of December 31, 2021 Number of registered shares Par value (CHF) Total (CHF in thousands) Issued shares 2,053,148,264 0.12 246,378 Contingent shares 304,038,800 0.12 36,485 Authorized shares 200,000,000 0.12 24,000 On September 7, 2022, the shareholders approved the spin-off of the Company’s Turbocharging Division into an independent, publicly traded company, Accelleron Industries AG (Accelleron), which was completed through the distribution of common stock of Accelleron to the stockholders of ABB on October 3, 2022. Treasury shares are valued at acquisition cost. During 2022 and 2021, a loss from the delivery of treasury shares of CHF 121 million and CHF 155 million, respectively, was recorded in the Income Statement under Finance expense. During 2022, a bank holding call options related to ABB Group’s management incentive plan (MIP) exercised a portion of these options. Such options had been issued in 2016, 2017 and 2019 by the Group company that facilitates the MIP at fair value and had strike prices of CHF 21.50, CHF 22.50 and CHF 19.00, respectively. At issuance, the Group company had entered into an intercompany option agreement with the Company, having the same terms and conditions to enable it to meet its future obligations. As a result of the exercise by the bank, the Company delivered 2,048,984 shares at CHF 21.50, 12,836,201 shares at CHF 22.50 and 1,398,083 shares at CHF 19.00, out of treasury shares. During 2021, the bank holding call options related to ABB Group’s MIP exercised a portion of these options. Such options had been issued in 2015, 2016 and 2019 by the Group company that facilitates the MIP at fair value and had a strike price of CHF 19.50, CHF 21.50 and CHF 19.00, respectively. At issuance, the Group company had entered into an intercompany option agreement with the Company, having the same terms and conditions to enable it to meet its future obligations. As a result of the exercise by the bank, the Company delivered 17,507,403 shares at CHF 19.50, 14,194,305 shares at CHF 21.50 and 4,217,913 shares at CHF 19.00, out of treasury shares. In connection with the spin-off of the Turbocharging Division in October 2022, the strike prices of the options outstanding under the MIP program were reduced to neutralize the effect of the spin-off on the Company’s share price. At December 31, 2022, MIP options issued in 2017, 2018 and 2019 were outstanding and had the following new strike prices of CHF 21.23, CHF 22.05 and CHF 17.63, respectively. The ABB Group has an annual employee share acquisition plan (ESAP) which provides share options to employees globally. To enable the Group company that facilitates the ESAP to deliver shares to employees who have exercised their stock options, the Group company entered into an agreement with the Company to acquire the required number of shares at their then market value from the Company. FINANCIAL REPORT 2022 149 Consequently, in 2022, the Company delivered, out of treasury shares, to the Group company 105,138 shares at CHF 29.78. In 2021, the Company delivered, out of treasury shares, to the Group company 1,458,128 shares at CHF 32.24 and 270,504 shares at USD 34.88. In 2022 and 2021, the Company transferred 1,665,025 and 949,795 treasury shares at an average acquisition price per share of CHF 29.28 and CHF 25.50, respectively, to fulfill its obligations under other share-based arrangements. In 2022, the Company purchased 20 million shares, for CHF 616 million, to support its employee share programs globally and 91 million shares, for CHF 2,690 million, as part of its share buyback programs for capital reduction purposes announced on March 31, 2022 and April 8, 2021. In 2021, the Company purchased 33 million shares, for CHF 939 million, to support its employee share programs globally and 78 million shares, for CHF 2,425 million, as part of its share buyback programs for capital reduction purposes announced on April 8, 2021, and July 22, 2020. At the AGM in March 2022, shareholders approved the proposal of the Board of Directors to reduce the share capital of the Company by cancelling 88,403,189 treasury shares which were acquired under its share buyback programs in 2021 and 2022. This cancellation was completed in June 2022, resulting in a decrease in treasury shares of CHF 2,760 million and a corresponding combined decrease in share capital and retained earnings. The movement in the number of treasury shares during the year was as follows: 2022 2021 Number of shares Average acquisition price per share (in CHF) Number of shares Average acquisition price per share (in CHF) Opening balance as of January 1 94,803,864 30.09 137,314,095 23.52 Purchases for employee share programs 20,000,000 30.80 32,668,987 28.74 Purchases for intended cancellation 91,394,500 29.44 78,418,830 30.93 Cancellation (88,403,189) 31.22 (115,000,000) 24.16 Delivery for employee share programs (18,053,431) 29.34 (38,598,048) 24.95 Closing balance as of December 31 99,741,744 28.77 94,803,864 30.09 Thereof pledged for MIP 3,547,102 5,604,519 — Note 7 Dividend income The Company received, in 2022, dividend payments from ABB Asea Brown Boveri Ltd of CHF 4.0 billion in cash and CHF 504 million in kind (see note 2). The Company received, in 2021, dividend payments from ABB Asea Brown Boveri Ltd of CHF 1.2 billion in cash and CHF 569 million in kind (see note 2). — Note 8 Other operating income Other operating income includes mainly outgoing charges for Business Area and Division management services, income from share deliveries and guarantee compensation fees to Group companies. — Note 9 Other operating expenses In 2022 Other operating expenses includes CHF 301 million for regulatory penalties in connection with the Kusile project. 150 FINANCIAL REPORT 2022 — Note 10 Shareholders Shareholder structure As of December 31, 2022, the total number of shareholders directly registered with ABB Ltd was approximately 90,000 and another 549,000 shareholders held shares indirectly through nominees. In total as of that date, ABB had approximately 639,000 shareholders. Significant shareholders Investor AB, Sweden, disclosed to ABB and the SIX Swiss Exchange that as per November 9, 2015, it owned 232,165,142 ABB Ltd shares and controlled 10.03 percent of the voting rights in ABB Ltd (refer to https://www.ser-ag.com/en/resources/notifications-market-participants/significant- shareholders.html#/shareholder-details/TBFBH00013). In its latest quarterly financial report, Investor AB, Sweden, disclosed that as per December 31, 2022, it owned 265,385,142 ABB Ltd shares and controlled 13.51 percent of the voting rights in ABB Ltd. The number of shares held by Investor AB does not include shares held by Mr. Jacob Wallenberg, the chairman of Investor AB and a director of ABB, in his individual capacity. BlackRock, Inc., U.S.A., disclosed to ABB and the SIX Swiss Exchange that as per November 16, 2022, it owned 80,226,133 ABB Ltd shares and controlled 4.97 percent of the voting rights in ABB Ltd (refer to https://www.ser-ag.com/en/resources/notifications-market-participants/significant- shareholders.html#/shareholder-details/TAMBH00029). Cevian Capital II GP Limited, Jersey, disclosed to ABB and the SIX Swiss Exchange that as per July 30, 2020, it owned 107,344,554 ABB Ltd shares and controlled 4.95 percent of the voting rights in ABB Ltd (refer to https://www.ser-ag.com/en/resources/notifications-market-participants/significant- shareholders.html#/shareholder-details/TBK8400016). The Capital Group Companies, Inc., USA, disclosed to ABB and the SIX Swiss Exchange that as per July 1, 2022, it owned 69,725,960 ABB Ltd shares and controlled 4.02 percent of the voting rights in ABB Ltd (refer to https://www.ser-ag.com/en/resources/notifications-market-participants/significant- shareholders.html#/shareholder-details/TAM75000B6). At December 31, 2022, to the best of ABB’s knowledge, no other shareholder held 3 percent or more of ABB’s total share capital and voting rights as registered in the Commercial Register on that date. ABB Ltd has no cross shareholdings in excess of 5 percent of capital, or voting rights with any other company. Announcements related to disclosure notifications made by shareholders during 2022 can be found via the search facility on the platform of the Disclosure Office of the SIX Swiss Exchange: https://ww.ser-ag.com/en/resources/notifications-market-participants/significant- shareholders.html#/. Under ABB’s Articles of Incorporation (available at https://new.abb.com/about/corporate- governance), each registered share represents one vote. Significant shareholders do not have different voting rights. To our knowledge, we are not directly or indirectly owned or controlled by any government or by any other corporation or person. Shareholders’ rights Shareholders have the right to receive dividends, to vote and to execute such other rights as granted under Swiss law and the Articles of Incorporation (available at https://new.abb.com/ about/corporate- governance). Right to vote ABB has one class of shares and each registered share carries one vote at the general meeting. Voting rights may be exercised only after a shareholder has been registered in the share register of ABB as a shareholder with the right to vote, or with Euroclear Sweden AB (Euroclear), which maintains a subregister of the share register of ABB. FINANCIAL REPORT 2022 151 A shareholder may be represented at the Annual General Meeting by its legal representative, by another shareholder with the right to vote or by the independent proxy elected by the shareholders (unabhängiger Stimmrechtsvertreter). If the Company does not have an independent proxy, the Board of Directors shall appoint the independent proxy for the next General Meeting of Shareholders. All shares held by one shareholder may be represented by one representative only. For practical reasons shareholders must be registered in the share register no later than 6 business days before the general meeting in order to be entitled to vote. Except for the cases described under “Limitations on transferability of shares and nominee registration” below, there are no voting rights restrictions limiting ABB’s shareholders’ rights. Annual General Meeting/Extraordinary General Meeting/COVID-19 ABB’s top priority is protecting the health of its shareholders and employees. Therefore, due to the extraordinary circumstances and in accordance with applicable Swiss COVID-19 legislation, shareholders were not able to attend ABB’s Annual General Meeting 2022 in person, but could exercise their shareholder rights via the independent proxy only. In addition, ABB offered shareholders the opportunity to address questions on agenda items to the Board of Directors in writing ahead of the meeting. Thanks to the improved COVID-19 situation, ABB was able to hold an Extraordinary General Meeting in September 2022 with shareholders present in person. — Note 11 Shareholdings of Board and Executive Committee At December 31, 2022 and 2021, the members of the Board of Directors as of that date, held the following numbers of shares (or American Depository Shares (ADSs) representing such shares): Board ownership of ABB shares (audited) Total numbers of shares held Name December 31, 2022 December 31, 2021 Peter Voser (1) 231,807 191,946 Jacob Wallenberg 245,898 239,878 Gunnar Brock 37,813 33,399 David Constable 42,465 38,185 Frederico Curado 49,175 40,301 Lars Förberg 70,522 59,916 Jennifer Xin-Zhe Li 41,904 37,580 Geraldine Matchett 30,964 25,196 David Meline (2) 43,131 37,780 Satish Pai 34,827 28,432 Total 828,506 732,613 (1) Includes 2,000 shares held by the spouse. (2) Includes 3,150 shares held by the spouse. 152 FINANCIAL REPORT 2022 At December 31, 2022, the members of the Executive Committee, as of that date, held the following number of shares (or ADSs representing such shares), the conditional rights to receive ABB shares under the Long-term Incentive Plan (LTIP) and unvested shares in respect of other compensation arrangements. Total number of shares held at December 31, 2022 Unvested at December 31, 2022 Reference number of shares deliverable under the 2020 performance factors (EPS and TSR) of the LTIP (1)(2) Reference number of shares deliverable under the 2021 performance factors (EPS and TSR) of the LTIP (1)(2) Reference number of shares deliverable under the 2022 performance factors (EPS, TSR, Sustainability) of the LTIP (1)(2) Replacement share grant for foregone benefits from former employer (2)(3) Name (vesting 2023) (vesting 2024) (vesting 2025) (vesting 2023) Björn Rosengren 94,597 136,589 99,450 85,487 19,604 Timo Ihamuotila 189,034 50,887 37,830 31,609 — Carolina Granat (4) 5,200 — 27,301 23,148 — Andrea Antonelli (EC member as of March 1, 2022) — — 7,021 33,525 — Karin Lepasoon (EC member as of October 1, 2022) — — — 19,157 — Sami Atiya 90,473 42,852 31,201 26,501 — Tarak Mehta 152,993 48,209 36,271 29,694 — Peter Terwiesch 132,940 42,852 31,201 26,501 — Morten Wierod 64,777 40,174 31,201 28,736 — Total Executive Committee members at December 31, 2022 730,014 361,563 301,476 304,358 19,604 (1) The final 2020 LTIP, 2021 LTIP and 2022 LTIP awards will be settled 100 percent in shares, with an automatic sell-to-cover in place for employees who are subject to withholding taxes. (2) Initial number of shares granted have been increased by 3.7 percent to reflect the impact of the spin-off of the Turbocharging Division (now listed under Accelleron). (3) It is expected that the replacement share grants will be settled 65 percent in shares and 35 percent in cash. However, the participant has the possibility to elect to receive 100 percent of the vested award in shares. (4) This includes 1,200 shares held by the spouse. FINANCIAL REPORT 2022 153 At December 31, 2021, the members of the Executive Committee, as of that date, held the following number of shares (or ADSs representing such shares), the conditional rights to receive ABB shares under the LTIP and options (either vested or unvested as indicated) under the MIP and unvested shares in respect of other compensation arrangements. Total number of shares held at December 31, 2021 Vested at December 31, 2021 Unvested at December 31, 2021 Number of vested options held under the MIP Number of unvested options held under the MIP Reference number of shares deliverable under the 2019 performance factors EPS and TSR) of the LTIP (1) Reference number of shares deliverable under the 2020 performance factors (EPS and TSR) of the LTIP (1) Reference number of shares deliverable under the 2021 performance factors (EPS and TSR) of the LTIP (1) Replacement share grant for foregone benefits from former employer (2) Replacement share grant for foregone benefits from former employer (2) Name (vesting 2022) (vesting 2022) (vesting 2023) (vesting 2024) (vesting 2022) (vesting 2023) Björn Rosengren (EC member as of January 27, 2020, CEO as of March 1, 2020) 10,000 — — — 131,715 95,901 130,150 18,904 Timo Ihamuotila 150,440 — — 49,071 49,071 36,480 — — Carolina Granat (EC member as of January 1, 2021) (3) 1,200 — — — — 26,326 — — Maria Varsellona (4) 26,006 — — — — — — — Theodor Swedjemark (EC member as of August 1, 2020) (3)(5) 1,360 — 148,750 — 6,209 15,044 — — Sami Atiya 51,472 — — 49,587 41,323 30,087 — — Tarak Mehta 118,056 — — 44,422 46,488 34,976 — — Peter Terwiesch 100,440 — — 41,323 41,323 30,087 — — Morten Wierod (6) 21,025 — — 36,158 38,740 30,087 — — Total Executive Committee members at December 31, 2021 479,999 — 148,750 220,561 354,869 298,988 130,150 18,904 (1) The final 2019 LTIP award will be settled 65 percent in shares and 35 percent in cash. This applies to both performance factors (EPS and TSR). However, the participants have the possibility to elect to receive 100 percent of the vested award in shares. The final 2020 LTIP and 2021 LTIP awards will be settled 100 percent in shares, with an automatic sell-to-cover in place for employees who are subject to withholding taxes. (2) It is expected that the replacement share grant will be settled 65 percent in shares and 35 percent in cash. However, the participants have the possibility to elect to receive 100 percent of the vested award in shares. (3) This includes shares held by the spouse. (4) Unvested share grants were forfeited as a result of the resignation provided and removed from the shareholding overview. (5) In addition, his spouse holds unvested shares and options granted in connection with her role in the company. (6) The disclosed total number of shares held at December 31, 2021, was adjusted to reflect the correct year-end 2021 balance. — Note 12 Full time employees During each of 2022 and 2021, the Company employed on average 19 employees. At ABB, we believe that a culture of diversity, inclusion and equal opportunity is critical to our business success and makes us stronger. ABB has non-discriminatory pay policies which play an important part in minimizing any pay disparities based on gender. — Note 13 Subsequent events Subsequent to December 31, 2022, and up to February 17, 2023, the Company purchased, under the follow-up share buyback program, an additional 4.9 million shares, for approximately CHF 154 million. Any further purchases up to February 23, 2023, are considered not significant for the Company. 154 FINANCIAL REPORT 2022 — Proposed appropriation of available earnings Proposed appropriation of retained earnings (CHF in thousands) 2022 2021 Net income for the year 4,078,002 1,610,798 Carried forward from previous year 7,024,633 9,565,644 Cancellation of shares (2,749,338) (2,733,599) Extraordinary dividend 2022 (501,099) — Retained earnings available to the Annual General Meeting 7,852,198 8,442,843 Gross dividend of CHF 0.82 per share paid directly by the Company (1) — (1,418,210) Gross dividend of CHF 0.84 per share on total number of registered shares (1) (1,650,386) — Balance to be carried forward 6,201,812 7,024,633 (1) No dividend will be paid on treasury shares held by ABB Ltd. Shareholders who are resident in Sweden participating in the established dividend access facility will receive an amount in Swedish kronor from ABB Norden Holding AB which corresponds to the dividend resolved on a registered share of ABB Ltd without deduction of the Swiss withholding tax. This amount however is subject to taxation according to Swedish law. On February 2, 2023, the Company announced that the Board of Directors will recommend for approval at the March 23, 2023, Annual General Meeting that a dividend of CHF 0.84 per share be distributed out of the retained earnings available, expected to be paid in March 2023. As the legal retained earnings and legal capital reserves exceed 20% of the share capital, a further allocation has been waived. 155 MS Statutory Auditor's Report To the General Meeting of ABB Ltd, Zurich Report on the Audit of the Financial Statements Opinion We have audited the financial statements of ABB Ltd (the Company), which comprise the balance sheet as at December 31 , 2022, the income statement for the year then ended, and notes to the financial statements, including a summary of significant accounting policies. In our opinion, the financial statements (pages 141 to 153) comply with Swiss law and the Company’s articles of incorporation. Basis for Opinion We conducted our audit in accordance with Swiss law and Swiss Standards on Auditing (SA-CH). Our responsibilities under those provisions and standards are further described in the “Auditor’s Responsibilities for the Audit of the Financial Statements” section of our report. We are independent of the Company in accordance with the provisions of Swiss law, together with the requirements of the Swiss audit profession and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. We have determined that there are no key audit matters to communicate in our report. Other Information in the ABB Annual Reporting Suite The Board of Directors is responsible for the other information. The other information comprises the information included in the ABB Annual Reporting Suite (consisting of the Integrated Report, the Financial Report, the Corporate Governance Report and the Compensation Report), but does not include the consolidated financial statements, the stand-alone financial statements and the compensation report of the Company and our auditor’s reports thereon. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Board of Directors’ Responsibilities for the Financial Statements The Board of Directors is responsible for the preparation of the financial statements in accordance with the provisions of Swiss law and the Company’s articles of incorporation, and for such internal control as the Board of Directors determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. 156 In preparing the financial statements, the Board of Directors is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Swiss law and SA-CH will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with Swiss law and SA-CH, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: — Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. — Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. — Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made. — Conclude on the appropriateness of the Board of Directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern. We communicate with the Board of Directors or its relevant committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the Board of Directors or its relevant committee with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated with the Board of Directors or its relevant committee, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report, unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. 157 Report on Other Legal and Regulatory Requirements In accordance with article 728a para. 1 item 3 CO and PS-CH 890, we confirm that an internal control system exists, which has been designed for the preparation of financial statements according to the instructions of the Board of Directors. We further confirm that the proposed appropriation of available earnings complies with Swiss law and the Company’s articles of incorporation. We recommend that the financial statements submitted to you be approved. KPMG AG Hans-Dieter Krauss Licensed Audit Expert Auditor in Charge Mohammad Nafeie Zurich, Switzerland February 23, 2023 KPMG AG, Badenerstrasse 172, CH-8036 Zurich © 2023 KPMG AG, a Swiss corporation, is a subsidiary of KPMG Holding AG, which is a member of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. 158 FINANCIAL REPORT 2022 BLANK PAGE FINANCIAL REPORT 2022 159 Caution concerning forward-looking statements The ABB Financial Report 2022 includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We have based these forward-looking statements largely on current expectations, estimates and projections about the factors that may affect our future performance, including global economic conditions as well as the economic conditions of the regions and the industries that are major markets for ABB. The words “believe,” “may,” “will,” “estimate,” “continue,” “target,” “anticipate,” “intend,” “expect”, “plan” and similar words and the express or implied discussion of strategy, plans or intentions are intended to identify forward-looking statements. These forward- looking statements are subject to risks, uncertainties and assumptions, including among other things, the following: (i) business risks related to the global volatile economic environment; (ii) costs associated with compliance activities; (iii) difficulties encountered in operating in emerging markets; (iv) risks inherent in large, long term projects served by parts of our business; (v) the timely development of new products, technologies, and services that are useful for our customers; (vi) our ability to anticipate and react to technological change and evolving industry standards in the markets in which we operate; (vii) changes in interest rates and fluctuations in currency exchange rates; (viii) changes in raw materials prices or limitations of supplies of raw materials; (ix) the weakening or unavailability of our intellectual property rights; (x) industry consolidation resulting in more powerful competitors and fewer customers; (xi) effects of competition and changes in economic and market conditions in the product markets and geographic areas in which we operate; (xii) effects of, and changes in, laws, regulations, governmental policies, taxation, or accounting standards and practices and (xiii) other factors described in documents that we may furnish from time to time with the US Securities and Exchange Commission, including our Annual Reports on Form 20-F. Although we believe that the expectations reflected in any such forward- looking statements are based on reasonable assumptions, we can give no assurance that they will be achieved. We undertake no obligation to update publicly or revise any forward-looking statements because of new information, future events or otherwise. In light of these risks and uncertainties, the forward-looking information, events and circumstances might not occur. Our actual results and performance could differ substantially from those anticipated in our forward-looking statements.