Contents

review

The heavy duty market (trucks, buses and non-road equipment) is expected to show greater longevity than light duty, with less of an impact in the short and medium term from electrification.

innovation

Global HDD sales were down 10%. Whilst first half sales were down 33%, we experienced a strong recovery in the second half with sales up 20% year on year as markets recovered. We saw significant growth in our HDD Asia business, although this was more than offset by the Americas and European regions which saw truck production materially impacted by COVID-19.

Our Americas HDD business declined 29%, in line with the market. Following the downturn in the Class 8 truck cycle, external data suggest the cycle has turned. We saw increased orders coming through at the end of our financial year and we expect to see further benefits in 2021/22.

Europe HDD declined 11%, ahead of the market. In Asia sales grew 68%, significantly ahead of a market that grew strongly. We also benefited from Chinese government incentives and tighter legislation in China and India.

Underlying operating profit

Underlying operating profit declined 8% as the disruption from the pandemic in the first half was partly offset by a strong cost control and early benefits from our transformation programme. Margin remained broadly flat over the year at 11.2%, with the second half margin of 13.6% approaching pre-COVID levels.

ROIC

ROIC declined 2.8% to 15.6% due to lower operating profit and higher working capital as business activity ramped back up.

business

Sector review: Efficient Natural Resources

We sit in a sweet spot – with science and technology at our core, providing essential solutions today that will matter even more tomorrow."

Jane Toogood Sector Chief Executive, Efficient Natural Resources

Sales

£1,057m -1%

Underlying operating profit

£268m +6%

Margin

25.4%

25.2%

ROIC

Employees

4,017

Sales by business

PGM Services 45% ■ Advanced Glass
Technologies 6%
Diagnostic Services 4%

It has been a strong year for Efficient Natural Resources despite the challenges of living and working through a pandemic, and we end the year strongly positioned to win in a net zero world.

While Catalyst Technologies was hit by falling demand, cash generation was good both because of higher than average precious metal prices, which helped refining and trading performance in PGM Services, and our decisive efforts to optimise our operations for maximum efficiency. As a result, I'm pleased that we generated significant amounts of cash for the group under difficult economic circumstances.

Maintaining production throughout the pandemic

We also kept our facilities running throughout the pandemic and I'd like to thank the team for their hard work, particularly as we restructured part of our operations for greater efficiency. They did an excellent job at reducing our platinum group metal (pgm) refinery backlogs to historically low levels and improving our precious metal working capital volumes.

The impact of the pandemic has meant it's been a difficult year for everyone, and we continue to live with a lot of uncertainty. To that end, my senior leaders and I took part in mental health awareness training during the year, and we made sure employees knew how to access our wellbeing resources, such as Assist, our global employee assistance programme. This will remain an area of focus in the year ahead.

Throughout the year we have seen markets and industries recover at different rates. But the one consistent trend has been an acceleration of the drive towards sustainability: the essential transitions in transport, energy, decarbonisation of chemicals production and circularity. It's a really exciting time for Efficient Natural Resources, because we have such a big role to play. So it's essential that we make the right investment choices at the right time.

business

innovation

Review of the year

review

We are at the heart of the world's biggest transitions

Efficient Natural Resources is well placed to help our own businesses and customers move through those transitions and hit their sustainability and net zero targets. We're experts at converting syngas, a gaseous mixture of carbon oxides and hydrogen, and syngas is at the heart of many chemical value chains. In fact, syngas building blocks are crucial to around 40% of major primary chemicals, going into end markets such as food production, fuels and building materials. And because our catalysts are feedstock agnostic, we can produce that syngas from lots of different sources, including surplus CO² , biomass and renewable energy. This represents a big opportunity to help the industry to decarbonise.

New growth opportunities in the hydrogen economy and industrial decarbonisation

The progress we're making in new low carbon hydrogen technologies is another excellent example. We have a long history in making catalysts and designing processes for hydrogen production, with a 40% market share in 'grey' hydrogen technologies. But grey hydrogen is made from fossil fuels, which means carbon emissions. So now we're rapidly commercialising our award winning 'blue' hydrogen technologies (made from fossil fuels and combined with carbon capture and storage), with a global pipeline of around 15 projects. And, of course, in our New Markets Sector, we're designing the next generation of electrolysis products and technologies that will help make it easier and cheaper to produce 'green' hydrogen from renewable energy.

This work will be key in helping to decarbonise some of the world's most challenging industries and support ongoing fuel cell development for transport. It also creates new growth opportunities for our world leading methanol and ammonia technologies. Using clean hydrogen to make these products not only means we can lower the carbon footprint of chemicals production, it also provides a way to ship hydrogen affordably around the world.

Efficient Natural Resources is therefore at the heart of an industry that is set to be an important part of the transport, energy and decarbonisation transitions. In fact, without hydrogen, the world cannot reach its net zero targets.

Applying recycling knowhow to the circular economy

But we are also in a unique position to support the fourth big transition – the circular economy. Like the others, there will be challenges to overcome. For example, managing rising demand for the scarce precious metals needed to make catalysts and products used in batteries and fuel cells for electric vehicles, while reducing the quantity of primary metals we extract in the first place.

We're already incredibly proud of our heritage in recycling and deep scientific capability in 'thrifting' – designing catalyst technologies that use as little precious metal as possible to conserve critical resources. And our understanding of metals chemistry means we can recycle platinum from catalysts or other sources to a minimum purity of 99.95%.

Description

At a glance

Sector

review

We make catalysts and license process designs and technologies that help customers in the chemicals and energy industries turn a wide range of feedstocks into many of the products that are essential for modern life. We supply customers with pgms and are also a key supplier to other parts of JM. We make specialist products from pgms and we're the world's biggest recycler of them.

Our key customers

Chemical manufacturing companies.
Processors of mined and used pgms.
Oil and gas companies.
Other industrial customers and pgm-using industries.

Our products and services

Catalysts.
Licensing chemical process technologies.
Pgm recycling.
Specialist products made from pgms.
Specialist products for the glass industry.
Diagnostic services for oil and gas industry applications.

10 new catalyst licences won in 2020/21

Building a cleaner, healthier world for today… and tomorrow

There's plenty of work still to do, of course, including investing in some of our older pgm refining facilities to improve efficiency, but I believe Efficient Natural Resources sits in a sweet spot – providing essential services today that will matter even more tomorrow.

As someone who joined Johnson Matthey because of its reputation in sustainability, this is an exciting prospect. I believe passionately that our science can help solve some of the world's biggest challenges. We have the foundations in place, now we must draw on our skills and expertise to make the most of the growth opportunities ahead of us.

Sector review: Efficient Natural Resources continued

Operating results: Efficient Natural Resources

	Year ended 31st March
	2021 £ million	2020 £ million	% change	% change, constant rates
Sales Catalyst Technologies PGM Services Advanced Glass Technologies Diagnostic Services	469 479 66 43	556 389 70 64	-16 +23 -6 -33	-15 +25 -6 -31
Total sales	1,057	1,079	-2	-1
Underlying operating profit Margin Return on invested capital (ROIC) Reported operating profit	268 25.4% 25.2% 241	256 23.8% 17.2% 250	+5	+6

Strong performance despite challenges from COVID-19

Strong performance with sales broadly flat despite challenges from COVID-19. Catalyst Technologies was weaker due to COVID-19 and the comparison to a strong performance in the prior year from methanol catalyst refills. PGM Services grew strongly benefiting from more volatile and higher average precious metal prices.
Underlying operating profit grew 6% and margin expanded 1.6 percentage points. This reflected higher average pgm prices and strength in our PGM Services trading business in a more volatile price environment as well as efficiency benefits. This was partly offset by weaker performance across the rest of the sector.

Catalyst Technologies

Our Catalyst Technologies business licenses key, proven and efficient process technology solutions and manufactures high value speciality catalysts and additives principally for the chemical and energy industries. We continued to operate our own plants throughout the COVID-19 pandemic by implementing new ways of working to keep our employees safe.

Sales were down primarily driven by lower demand for refill catalysts and additives, with sales of copper zeolites to Clean Air and licensing income also lower. These sales were partly offset by good growth in first fill catalysts from customer plants already under construction prior to COVID-19.

Refill catalysts and additives impacted by COVID-19 and comparison to a strong prior year

This is recurring business which makes up the majority of sales within Catalyst Technologies. Sales were lower driven by weaker demand due to COVID-19 in some end markets including additives which reflects fuel demand, and formaldehyde which is largely used in construction. As expected, following a strong performance in the prior year, sales of methanol catalyst refills were lower due to the phasing of customer changeouts.

First fill catalysts grew well

Sales of first fill catalysts are driven by the start-up of new plants. They are a lead indicator of future refill catalyst demand. In the period, we saw good sales growth with increased demand for ammonia and hydrogen catalysts as new plants came onstream.

Licensing weaker in the period but strong future prospects

Our licensing business is dependent on new plant builds and revenue is recognised over the period of construction. In the period, sales were down largely due to project delays caused by COVID-19. We are starting to recognise income from our new technology including Fischer Tropsch sustainable aviation fuel and we received our first revenues from providing engineering packages and detailed studies for HyNet and Acorn, two of the world's leading low carbon blue hydrogen projects.

Licensing activity has improved and we signed 10 new licences in the year (2019/20: 4 licences) including technology for the world's largest methanol plant. We have a strong pipeline of projects which includes the world's first climate neutral e-methanol plant (see page 9).

PGM Services

PGM Services is the world's leading secondary refiner of platinum group metals (pgms) with expertise in management and refining of these scarce critical materials. This business has an important role in enabling the energy transition through providing circular solutions as demand for scarce critical materials increases and provides a strategic service to the group, supporting Clean Air with security of metal supply in a volatile market. Going forward it will provide that same security of supply to fuel cells and green hydrogen. In light of COVID-19, we adapted our working practices and our refineries maintained operation throughout the year, ensuring continued supply to our customers.

Case study

Creative solutions to transition towards sustainable fuels and chemicals

The chemicals industry has evolved to deliver products that have transformed how we feed, clothe and move people across the globe. But with its roots in 20th century investments in fossil fuel extraction and conversion, the environmental impact of the industry is under ever tighter scrutiny.

The industry has always adapted to different feedstocks, for example the recent shale gas revolution in the US. Now as we accelerate towards a future with net zero and circularity at the forefront of our thinking, and as brand owners of consumer facing products make strong commitments to sustainability and decarbonisation, we must be creative in finding new low carbon solutions. We're at the start of a revolution in our industries, but one at which efficient and effective catalyst technology sits at the heart. Industry's current skills in deploying improved thermo catalysis will be complemented by advances in bio, electro and possibly photocatalysis.

There'll be no one silver bullet, but finding renewable feedstocks and energy sources to replace fossil fuels will play a key role. We've been working on some projects recently that are great examples of this. These include advancements in real world sustainable aviation fuels, bioaromatics that can be used to produce renewable fuels and plastics, and a project that will turn wind power and CO2 captured from the air into methanol.

These are important steps in demonstrating how renewable feedstocks can be used to help decarbonise chemicals production, and a perfect challenge for JM's catalyst and process engineering expertise and capabilities.

Suzanne Ellis Innovation Director

Review of the year

PGM Services sales grew strongly, benefiting from higher average pgm prices

Sales increased 25% reflecting strong growth in our refining and trading businesses as we benefited from more volatile and higher average precious metal prices driven by tight market conditions for these critical materials. Sales grew in chemical products supported by the supply of catalysts for fuel cells. Industrial products containing pgms were slightly down.

Refinery backlog volumes at historically low levels

We continue to make excellent progress in reducing our refinery backlogs. Our backlogs are now at historically low levels, reflecting a strong operational focus and improvement in the management of precious working capital. These improvements support the group's balance sheet efficiency and strengthen our position as a trusted supplier of scarce critical materials.

Advanced Glass Technologies

Advanced Glass Technologies mainly provides black obscuration enamels and silver paste for automotive glass applications. Sales were lower across both non-automotive and automotive segments primarily driven by lower demand due to COVID-19 in the first half, although we saw a strong rebound in the second half as markets recovered.

Diagnostic Services

Diagnostic Services provides specialised detection, diagnostic and measurement solutions for our customers in the petroleum industry. Sales were down impacted by COVID-19 which limited travel to customer sites, the lower oil price and lower oil consumption.

Underlying operating profit

Operating profit grew 6% and margin expanded 1.6 percentage points. This was primarily driven by a circa £80 million benefit from higher average pgm prices and strength in our PGM Services trading business in a more volatile price environment as well as efficiency benefits. This was partly offset by weaker performance in Catalyst Technologies, Diagnostic Services and Advanced Glass Technologies affected by COVID-19.

ROIC

ROIC increased 8% to 25.2% driven by lower precious metal working capital and higher underlying operating profit.

Sector review: Health

We operate in a number of fast growing market segments, and our job is to be agile and responsive to commercialise the right opportunities out there. It's an exciting time for our sector."

Niek Stapel Sector Chief Executive, Health

Sales

£237m +8%

Underlying operating profit

£31m +15%

Margin

13.1%

6.4%

ROIC

Employees

958 Sales by sector

■ Generics 62% ■ Innovators 38%

Joining a new business is always a challenge.

But doing so at a time when the whole world is responding to the COVID-19 pandemic has made my first six months as Johnson Matthey's Health Sector Chief Executive particularly interesting.

Of course, we have all had to adapt to new ways of working, including strict new safety measures for our operating teams and a lot more video calls for those of us working from home. Nevertheless, I am delighted by the way everyone has risen to the challenge and kept our facilities running safely throughout the pandemic.

COVID-19 aside, I'm incredibly excited to have joined a business that has such a positive influence on society. One that is completely aligned with Johnson Matthey's broader vision for a cleaner, healthier world. This is a fantastic team that is rightly proud of the work they do. And no wonder – the services and products we provide help our pharmaceutical customers create life changing medicines. It is a pride I have come to share in just six short months.

A solid financial performance despite the pandemic

Financially, it was a good year for us. Our sector isn't typically affected by the ups and downs of the economic climate, so COVID-19 has had little direct impact. The pandemic actually resulted in some growth since our active pharmaceutical ingredients (APIs) play an important role in the pain medication used to support COVID-19 patients needing ventilation.

In our business we partner with both 'innovator' customers (companies developing novel medicines) and 'generic' customers (who make existing drugs that are no longer under patent). Growth was fuelled by the progression of existing innovator customer programmes, new innovator related contracts, as well as new generic customer contracts for APIs used in opioid addiction therapies.

COVID-19 has not changed our broader market outlook either. A growing global population, the ongoing rise in average age and greater consumer expectations were already driving up healthcare demand. If anything, COVID-19 has only made people more aware of the importance of healthcare.

review

So we expect our end markets to keep growing – the market for APIs will grow around 7% per year, but in some of our segments growth could be much higher in the coming years.

To make the most of these opportunities, we've worked hard to improve commercialisation prospects in our 'generic' API product pipeline. In addition, we have worked closely with our innovator customers supporting the development and advancement of various clinical programmes. We have also supported their growing commercial programmes by investing in the expansion and scale up of our manufacturing capabilities. Furthermore, to position ourselves for the future, we are providing our customers with development and manufacturing services in high growth market segments such as high potency APIs, RNA based technology platforms, and linker technology required in the development of antibody drug conjugate based (ADC) therapies.

More agility for more productivity

I believe we now have the right portfolio, focusing on the right market segments. And we are continuing to invest in our product pipeline to bring new APIs to the market. But we're now doing that more efficiently, with a new analytical approach of assessing projects at each stage of the development cycle, which will improve our ability to forecast the best commercialisation opportunities.

We're also enhancing the way we run our plants to improve productivity and efficiency, while looking for ways to create an even more integrated supply chain. The focus will be on getting the most from our assets and equipment and also on a fully integrated sales and operations planning process.

Excellent prospects for growth

The work we have done – and are doing – is positioning us well for the strategic review of the sector that we announced just after the year end. This review is part of Johnson Matthey's ongoing work to focus our portfolio to ensure we deliver the best value for our shareholders.

There is still plenty to do in Health and we have a great team whose work is fundamental to our vision. It's a time of huge opportunity. We have a business with exciting prospects and we're working with fantastic partners and customers to help create the next generation of medicines. I am very confident that we will see plenty more organic growth in the years to come because what we do is so essential for society.

At a glance

Sector

review

Description

We make the vital compounds – known as active pharmaceutical ingredients (APIs) – and other specialist products used in drug development that pharmaceutical companies need to create life changing medicines.

Our key customers

• Pharmaceutical companies.

Our products

Complex active APIs used in existing, off patent drugs (generic drugs) and in new to market treatments (newly developed 'innovator' drugs).
Drug development and synthesis services.

projects in our pipeline

6 manufacturing plants Risk

business

innovation

Sector review: Health continued

Operating results: Health

	Year ended 31st March
	2021 £ million	2020 £ million	% change	% change, constant rates
Sales Generics Innovators	146 91	134 89	+9 +2	+11 +3
Total sales	237	223	+6	+8
Underlying operating profit Margin Return on invested capital (ROIC) Reported operating profit	31 13.1% 6.4% 14	27 12.1% 5.3% 10	+15	+15

Sales and operating profit growth supported by new customer contracts

Sales growth in Generics and Innovators driven by new multi-year customer contracts.
Underlying operating profit grew 15% reflecting stronger business performance and efficiency benefits, partly offset by higher costs.
We made further progress towards delivering circa £100 million of operating profit from our pipeline of generic and innovator APIs, and launched one innovator and one generic in the period.
Strategic review of sector in progress as previously announced.

Generics

Our Generics business develops and manufactures generic active pharmaceutical ingredients (APIs) for a variety of treatments. Sales grew 11%, primarily driven by speciality opiates where we benefited from new supply agreements.

Growth driven by new multi-year supply agreements for opioid addiction therapies

In the year, sales of controlled APIs were up. Sales of speciality opiates grew strongly primarily driven by opioid addiction therapies where we benefited from new multi-year supply agreements with generic partners. Sales of APIs for ADHD treatments were lower as one of our customers moved to dual sourcing for some high margin APIs although we remain well positioned in this growing market with our portfolio of APIs for ADHD treatments. We are advancing development of our ADHD portfolio which includes lisdexamfetamine – a generic which is currently awaiting regulatory approval. Sales of bulk opiates in Europe were down.

Sales of non-controlled APIs were broadly flat reflecting mixed performance across a number of products.

Innovators

Our Innovators business provides custom development and manufacturing services for active ingredients of new drugs during their lifecycle, including for initial clinical evaluation and subsequently for commercial supply post regulatory approval.

Sales growth and continued progress with innovator customers

Our innovators business grew 3% in the year. This largely reflected increased demand from Gilead (formerly Immunomedics) as we execute on a multi-year contract for the supply of an immuno-oncology drug linker used in a treatment for triple negative breast cancer. We expect continued growth in the coming year and remain excited about our future prospects particularly in light of Gilead's recent approval from the FDA (Food and Drug Administration) for a further indication of the drug for the treatment of bladder cancer. Sales were also supported by higher demand from Sarepta as we continue to supply materials and treatments for their Duchenne Muscular Dystrophy treatment. As previously reported, sales were impacted following the cancellation of a customer's project in the second half of the prior year as they did not receive regulatory approval.

Case study

Helping tackle opioid addiction with buprenorphine

There's nothing more rewarding in your job than knowing that what you're doing is having a positive impact on people's lives.

That's why I'm really proud of our product buprenorphine, a leading treatment for anti addiction of opioids that helps change the lives of people living with addiction. We've been manufacturing buprenorphine since the 1990s in both the UK and US. Leveraging our expertise in solid form chemistry, we offer leading micronisation services to provide our customers with various particle sizes for their formulation needs. And our recent expansion to our Annan facility in Scotland has resulted in JM more than doubling our annual capacity allowing us to better serve our customers.

Our work with anti addiction therapeutics such as buprenorphine is just one of the ways we provide our customers with expertise in complex active pharmaceutical ingredient development and manufacture, solid form sciences, particle engineering, and catalysts.

It's a good feeling to know that what you do every day is helping enhance the lives of people all around the world.

Laurie Seifert Global Business Director

Review of the year

API product pipeline

We continued to develop our new product pipeline across both our Generics and Innovators businesses and made further progress towards delivering circa £100 million of operating profit from this. To date we have launched six products which delivered sales of circa £60 million in the year.

To support the development of our product pipeline, we have enhanced our new global product introduction process. This ensures resources are focused on the right opportunities, with a disciplined approach to project stage gate reviews alongside effective governance including intellectual property and regulatory approval.

Overall, our pipeline comprises 59 molecules across generic APIs, innovator APIs and new applications. This includes the six launched molecules, including one innovator (Gilead) and one generic oncology treatment which both launched in the period. We have 11 generic molecules awaiting regulatory approval and one innovator project in late stage testing.

Underlying operating profit

Operating profit grew strongly, up 15%, and margin expanded 1.0 percentage points reflecting stronger business performance and efficiency benefits, partly offset by higher costs.

ROIC

ROIC increased 1.1% to 6.4%, reflecting higher operating profit and lower working capital.

Sector review: New Markets

We're getting very encouraging feedback from key European customers who see Johnson Matthey as a credible supply partner for the battery materials technology of the future."

Christian Günther Chief Executive, Battery Materials

Sales

£356m -6%

Underlying operating profit

£9m

(2019/20: £1m underlying operating loss)

Margin

ROIC

2.5%

Employees

2,132

Sales by business

■ Alternative Powertrain 63% ■ Medical Device Components 17% ■ Life Science Technologies 15% ■ Other 5%

It's been a busy year for our New Markets Sector, notably in Battery Materials and Fuel Cells, as the transition in our global transport system towards electrification gathers pace.

On track to commercialise our advanced battery materials

For the battery electric vehicle (BEV) market to grow at scale, we need the driving experience itself to match or better that of a traditional fuel powered vehicle, and that needs new materials. So our family of advanced high nickel eLNO cathode materials has been developed with consumer priorities in mind: driving range, safety, acceleration, recharging and total cost of ownership, as well as sustainability across the entire value chain. And I am delighted with the progress we have made in eLNO this year – we remain on course to commercialise despite the challenges COVID-19 threw at us. Construction at our first commercial plant in Konin, Poland, is progressing well and we expect to start commissioning in 2022 so that we are producing material for commercial use in 2024. And, because we want to embed sustainability into every part of our supply chain, our Polish facilities will be powered entirely by renewable electricity from day one of production.

Plans for our next plant are well underway and we have started the design work. This plant will be located in Vaasa, Finland, and will have approximately three times the capacity of our plant in Poland – producing enough material each year to power 300,000 BEVs. Like our Polish plant, our Finnish one will also be powered entirely by renewable electricity. Both plants are close to major central European automotive customers and battery cell manufacturers. And, to help create a more circular economy within the broader industry, we are a member of the Global Battery Alliance, which is developing a 'battery passport' system to document a battery's provenance.

review

Encouraging feedback from customers

We continue to see considerable interest with new customers entering testing and our existing customers are progressing well. Two customers already in full cell testing – which typically takes one to two years – are now at more advanced stages. Additionally, Wildcat Discovery Technologies, an independent third party technology company with significant original equipment manufacturers (OEMs) experience in battery materials, has recently performed evaluation and benchmarking on our family of eLNO materials. That confirmed eLNO met or exceeded current automotive targets that are continuing to move forward, giving us further confidence in the attractiveness of our technology to OEMs. These are positive developments in anticipation of signing our first automotive contract for commercial production of our materials in 2024.

All of this gives me great confidence that we are on track to becoming a significant player in the European Battery Materials market.

Rapid growth in fuel cells and commercialising green hydrogen technology

Meanwhile, in fuel cells, we saw another year of rapid growth driven by our supply of key components to the transport and power industries. We signed a memorandum of understanding with a major European automotive supplier for the long term supply of components for new fuel cell technology for automotive applications. And we doubled our manufacturing capacity in the UK and China.

Our expertise in fuel cell technology, in particular proton membrane electrode assemblies, also positions us well in another exciting growth area: green hydrogen. We announced new manufacturing capacity here too, based in our state of the art facilities in Swindon, UK, and expect our first commercial sales in 2022.

While there is still some uncertainty about when exactly the transport and energy transitions will occur and which technologies will eventually be most successful, it's clear that they will happen faster than we thought before the pandemic. This will be driven by tightening government regulation, automotive and energy companies looking to deliver their net zero targets, and growing societal expectations, post-COVID, to 'build back greener'.

Looking ahead – solutions for key challenges

One of the biggest issues the market faces in meeting increasing demand for BEVs is raw material supply. And so, with materials such as nickel, cobalt and lithium all forecast to be in deficit over the coming years, we have moved to secure a sustainable, responsible supply through new partnerships with Nornickel and SQM.

We've also begun working on a solution to treat sodium sulphate, a common byproduct of the manufacturing process for battery materials that is a big challenge for the industry. I was pleased with this development as it helps provide a sustainable supply chain to conserve natural resources and protect the local environment.

There is a lot of work still to do to keep growing in fuel cells, green hydrogen and commercialising battery materials, but I am excited to be leading one of the teams that is helping to build the future of our company, and enable the transitions the world needs for a sustainable future.

At a glance

Sector

review

Description

We design and make advanced battery materials, battery systems and fuel cell technologies for the automotive and power industries. We also create specialist catalysts for the pharmaceuticals and agricultural chemicals markets and make products found in devices used in medical procedures.

Our key customers

Vehicle producers.
Battery cell makers.
Fuel cell manufacturers.
Companies using battery packs for cordless power tools and e-bikes.
Pharmaceutical, fine chemical and agrochemical manufacturers.
Companies that make medical devices.

Our products

Advanced battery cathode materials.
Catalysts and complex components for fuel cells.
High performance battery systems.
Catalysts and specialist chemicals for life science applications.
Precision engineered components used in medical devices.

211,000 tonnes

CO2 equivalent avoided by our battery materials and fuel cell technology in 2020/21

business

innovation

Sector review: New Markets continued

Operating results: New Markets

	Year ended 31st March
	2021 £ million	2020 £ million	% change	% change, constant rates
Sales Alternative Powertrain Medical Device Components Life Science Technologies Other	225 61 53 17	237 72 50 30	-5 -15 +6 -43	-3 -13 +8 -41
Total sales	356	389	-8	-6
Underlying operating profit / (loss) Margin Return on invested capital (ROIC) Reported operating loss	9 2.5% 3.4% –	(1) -0.2% -0.3% (62)	n/a	n/a

Progress in the commercialisation and scale up of eLNO and continued strong growth in Fuel Cells

Sales decreased 6%. Strong growth in Fuel Cells was offset by Battery Systems and Medical Device Components which were weaker due to the impact of COVID-19, as well as the disposal of other businesses in the second half.
Operating profit grew to £9 million, largely due to the absence of a one-off £8 million impairment in the prior year relating to the eLNO demo plant.
Commercialisation of eLNO remains on track and we announced plans to scale up beyond our first commercial plant.
Strong sales growth in Fuel Cells with 2GW of capacity on stream, and planning further expansion.

Alternative Powertrain

Alternative Powertrain provides battery systems for a range of applications, fuel cell technologies and battery materials for automotive applications. Our Battery Materials business comprises lithium iron phosphate (LFP) materials as well as eLNO, our portfolio of leading nickel rich advanced cathode materials.

Sales declined 3%. We saw continued strong growth in Fuel Cells. This was offset by lower sales in Battery Systems due to a weaker sales mix and impact from COVID-19.

Fuel Cells continues to grow strongly

Sales in Fuel Cells increased 24% to £41 million as we continue to see increased demand for fuel cells in automotive applications in Asia. The recent expansion programme to double our manufacturing footprint is now complete, with 2GW of capacity across the UK and China. We will add new capacity quickly to meet market demand.

Medical Device Components

Our Medical Device Components business leverages our science and technology to develop products found in devices used in medical procedures. Sales were down 13%, weighted to the first half where we saw postponement of some elective procedures as a result of the COVID-19 pandemic.

Life Science Technologies

Our Life Science Technologies business provides advanced catalysts to the pharmaceutical and agricultural chemicals markets. Sales were up 8% as we saw increased demand for some products.

Other

Other comprises Atmospheric Control Technologies and Water Technologies, which were disposed of in November 2020.

Underlying operating profit

Underlying operating profit increased to £9 million, reflecting the absence of a one-off £8 million impairment in the prior year relating to the eLNO demo plant.

ROIC

ROIC increased 3.7% to 3.4% reflecting the increased underlying operating profit in the year.

Partnering for pole position

I'm excited to be part of the JM team creating a sustainable supply of battery cathode materials to support growing demand for EVs. We've made good progress towards commercialising eLNO, and my role is all about developing partnerships to help us to go even faster.

For example, announcing our new partnership with leading Formula E racing team Envision Virgin Racing was a big moment for us. Formula E is the ultimate showcase for e-mobility, using only high performance battery EVs in its races. As well as sponsoring their races, we're working together to develop the first ever two seater electric race car powered using eLNO. The project will act as a test bed for our technology, giving us valuable experience of a challenging application. This, in turn, will help us continue to develop eLNO as a high performance, customisable material for passenger cars. It's amazing to see the progress, and I can't wait until we can watch an ultra high performance car zooming down the tracks, powered by eLNO.

Srinivas Popuri Strategic Partnerships Project Manager Review of the year

Fuel cells

What they are and how they work

Fuel cells are used to provide back-up power for buildings and in transport, especially heavy duty trucks, where they are lighter and quick to refuel compared to some battery technology.

We have decades of experience in using pgms to make the highly specialised, catalyst coated membranes (CCMs) that are at the heart of a fuel cell unit (called a 'stack'). They help convert hydrogen (the fuel) into electricity and, over the years, we have perfected the formula of our CCMs to help make more electricity using less pgm.

Science and innovation

Driving innovation through R&D is key if we are to help the world realise its net zero goals and successfully bring about the four essential transitions."

Maurits van Tol Chief Technology Officer

A lot of what we do at JM starts with R&D.

It's where we bring our scientific skills to life so we can design and scale up technologies and solutions that help our customers address their most complex challenges. If innovation is defined as the entire process from idea to 'money in the bank', R&D is at the core of it.

Driving innovation through R&D is also key if we are to help create a sustainable future and successfully bring about the four essential transitions needed in transport, energy, decarbonising chemicals production and the circular economy. We'll need to progress at a pace that matches society's expectations. So, while our strong balance sheet will help us continue to invest in new R&D, we've also taken several steps to ensure we can respond in an agile way as we move through those transitions.

For example, we've expanded our technology horizon scanning out to 2050 and we look at a range of likely future scenarios. These help us make portfolio decisions today for the technologies we'll need tomorrow, and for much, much later. We have also reshaped our R&D portfolio around key programmes to accelerate innovation and help us commercialise new products with focus, at speed.

Embracing data to accelerate innovation

One of our programmes is called Labs of the Future, which we've set up to help us develop new ways of doing our research. For example, we're using machine learning to speed up the generation of results and the output of our R&D. We're also looking at ways to use and share data more effectively and we are introducing more automation to carry out repetitive experiments. This will give our scientists more of the space they need to do what they're brilliant at – creative thinking and innovation. And it is my conviction that these novel approaches will result in an increased 'RoI': return on innovation.

Attracting a new generation to help drive the transitions

R&D – no matter what we're developing – requires talent. While we have that in abundance in our team today, we continue to help our people develop new, transferable skills so they can grow their careers with us.

We are also looking for the next generation and that will be tough given the growing shortage of scientists and engineers to match the number of available jobs. At a grassroots level, Johnson Matthey's new long term £1 million science education fund will help improve access to quality science education in schools and encourage more young people to consider science careers. We need young people to select science subjects at school and university, as it is my strong belief that many of the problems humanity and the planet face need technological solutions.

One of the key ways in which we can attract new talent is through our partnerships with some of the world's leading universities and academic institutions. These relationships create important connections with the scientific community, and many of the PhD students we sponsor eventually come to work with us. These partnerships also give us the opportunity to understand and participate in the latest academic research in clean and sustainable technologies and tap into the start-up communities that so often flourish around universities.

Forming new partnerships to turn carbon into valuable products

To reach a net zero world, we have to work with others. So I'm particularly pleased to represent Johnson Matthey on the new Carbontech Leadership Council, part of an early stage technology investment initiative called Carbon to Value (C2V). The initiative is designed to stimulate R&D in technologies that turn carbon emissions into valuable products. Members join by invitation and come from business, academia and politics. Together, we're working on a 'carbontech' roadmap and will be working closely with the start-ups who join C2V.

Number one in the UK for chemical patents

As we move through the next decade of societal transition, we must ensure that we protect the competitive advantage that our technologies create. I am pleased that we are the number one chemicals company in the UK when it comes to filing patents¹ – and we must maintain that leadership.

The work we do in R&D has the potential to change the way we live. It is fundamental to Johnson Matthey's vision for a cleaner, healthier world. But it will take all our skills in metals chemistry and creative thinking to make a sustainable planet a reality. There will be challenges along the way of course – but it's what we thrive on. I've never met a scientist or an engineer who didn't relish a challenge! ¹ EPO status, 1st February 2021.

business

Science and

innovation

Review of the year

review

Case study

Using electrochemistry expertise to create new technologies for a sustainable future

The world is going to need new energy technologies if it is to meet its ambitious net zero targets. Many of those technologies rely on complex electrochemistry to turn energy from chemical reactions into electricity or electricity into chemical reactions. For example, fuel cells use special membrane technology to convert hydrogen and oxygen into electricity and water.

That's where JM comes in. For many years we've made the catalyst coated membranes inside proton exchange membrane (PEM) fuel cells that trigger this conversion.

But PEM technologies can also be used to make 'green' hydrogen, using renewable electricity to split water into hydrogen and oxygen. So we're developing new metal containing products to help make green hydrogen and have developed the manufacturing skills we need to make sure we can scale our business quickly as demand grows.

We're also combining our metals chemistry expertise and electrochemistry skills to develop advanced new battery materials. These materials will help charge the next generation of battery electric vehicles more quickly and allow EVs to travel farther on a single charge.

Read more about electrochemistry in action.

Decarbonising heavy duty transport on page 5

Enabling the transition to a hydrogen economy on page 7

World's first climate neutral methanol plant on page 9

Creating a sustainable battery supply chain on page 11

Awards won by Johnson Matthey over the past year

IChemE Energy Award for low carbon hydrogen process
IChemE Industry Project Award for formaldehyde technology
Best Process award winner at ICIS Innovation awards
Best Innovation Project at the Fuel Cells and Hydrogen Joint Undertaking Awards

At a glance

Sector

review

We use our deep understanding of metals chemistry to research, design and customise the next generation of technologies, products and solutions that will make the world cleaner and healthier.

Number of R&D employees

1,600

Gross R&D expenditure in 2020/21

£194 million

(including £22 million of capitalised R&D)

Annual gross R&D expenditure

% R&D spend contributing to four priority UN Sustainable Development Goals

Sustainable business

Annette Kelleher, Chief HR Officer Ron Gerrard, Chief Environment, Health and Safety and Operations Officer

New targets and commitments for a sustainable future

Ron and Annette reflect on a challenging year and discuss our new sustainability goals.

Looking back on a challenging year

Q It's been an extraordinary year. How did JM respond to the challenges of COVID-19?
AK I am so impressed with the way that our people adapted, which makes me feel very proud to be part of JM. At a high level, we gave guidance and put processes in place, and we trained leaders on how to spot signs of stress. However, we empowered our local leaders to make decisions appropriate to their locations and circumstances. I'm delighted by the tremendous positive feedback from yourSay, where our people told us how much they appreciated the support we gave them.
RG I'd add to that and say that this past year has been a great example of JM coming together as one team, particularly since we also continued to work through our transformation programme. That has meant additional organisational change for lots of people, including my team in Environment, Health and Safety (EHS). For example, we've introduced a new operating model to create clearer accountabilities and a new auditing standard. We've also created new process safety and product stewardship centres of expertise to allow for more efficient allocation of specialist skills and resources. As a result, we've identified some areas where we want to grow the team, but I'm aware that isn't the case in every part of the business.
AK That's true. We said that we expect about 2,500 redundancies over the course of the three year programme, which started last summer. We're doing everything we can to help those who are affected, including identifying other potential roles within the company. We realise change is often quite unsettling, but I'm pleased we held off our planned redundancies until after the first peak of the pandemic.

Q What were the highlights of 2020/21 for you?

AK Firstly, I'm thankful for the way our leaders and managers supported our people during the pandemic, showing enormous empathy, flexibility and focus. I'm thrilled to see the business progress we made thanks to our employees' adaptability and resilience. I personally learned a lot, and we've made several changes in our approach to learning, recruitment and how we induct new colleagues into JM. We shifted many development opportunities online and saw more employees take them up; this will be great for the future. Also, we've been able to adjust our induction process so that our new recruits still get the chance to learn about the business and a feel for our culture despite a pandemic.
RG I was one of them! I joined in August 2020 and am impressed with the way the company has kept people connected.
AK Although many of us couldn't meet face to face, we reached many people virtually, through town halls and Q&A sessions. We learned a lot about keeping the best parts of working differently in future. Our leadership engagement forums are a great example. We had super engagement on our new sustainability goals. More broadly, we saw a 10% rise in the number of yourSay responses and over 80% of survey participants shared information about diversity and inclusion for the first time ever. I'm so pleased with that – I think it shows that people want us to be a more inclusive place and that they trust us to use their data responsibly.
RG The progress we've made in our sustainability agenda has been a big highlight for me. We've made really good progress against our 2025 target to source 60% of our global electricity demand from renewables and we issued a new Supplier Code of Conduct that demonstrates our ambition to lead the sustainability agenda through our supply chains. But the most exciting element is working towards setting goals to increase our societal impact through our R&D and products.
Successful businesses are built on trust...and we can only maintain trust by continuing to hold ourselves to the highest standards."

Ron Gerrard

If we want to help others achieve their climate and sustainability goals we have to do the same ourselves."

Annette Kelleher

New targets and commitments for a sustainable future

Q You have some very ambitious 2030 sustainability targets and goals. Why now?
RG Sustainability has always been at the heart of what we do and we're very proud of the fact that our products and services already make a huge contribution to society. But the world is changing far more quickly than anyone imagined and COVID-19 has increased the pressure on governments and companies to help build a cleaner, healthier world. So these targets are about making sure that we do everything we can internally to be a sustainable business. But they will also enable us to accelerate growth in our new businesses and help our customers achieve their own net zero goals. That's an exciting prospect.
AK Yes, I agree with this. We've always had this fabulous spirit to use our science and innovation skills to make a difference in the world. But we have to keep adapting and evolving. The six sustainable business goals that we set in 2017 were completely aligned with the material issues that faced our stakeholders at the time. But now we need to push ourselves further given the pace of change in the sustainability agenda and the ever increasing expectations on companies to act, and report on their progress. We are also taking the opportunity to align our work even more closely with the United Nations Sustainable Development Goals (UN SDGs). Again, we'd started that work in 2017, but now we're refining our targets to focus on four UN SDGs (see pages 64 and 65).
Q The targets are shaped into three pillars products and services for a cleaner, healthier world, our operations, and people. Why these and what will they help you deliver?
RG Our products and services are the clearest expression of our purpose to create a cleaner, healthier world. They are also how we will help our customers and society reach net zero. To support that, we've set science based targets (SBTs) to reduce our Scope 3 emissions by 20% by 2030. But we also have to look at every aspect of our own manufacturing processes. So our SBTs also include a target to reduce our Scope 1 and 2 emissions by 33% over the same period. And we are setting specific targets on water use and hazardous waste management. Together, they will help us protect the planet.
AK Our people pillar is our recognition that none of this is possible without people – those who work for us and with us and the communities that live near our facilities. So we've set targets that will help us build teams that reflect the world we live in, get the right processes in place to protect their wellbeing and create a highly inclusive organisation. We also have targets to ensure we uphold human rights in our supply chain and invest more in our local communities.

Q Stakeholders will want to know that you are measuring and sharing progress. How will you do that?

AK We have a transparent, open culture and actively promote feedback and dialogue. Our Group Management Committee (GMC) regularly reviews our people plans and targets and our board ensures that we challenge ourselves and deliver on our promises. We track employee sentiment through channels like our yourSay survey and new employee forums hosted by our non-executive directors. I was particularly pleased that we kept those running virtually in 2020. Our recognition processes will call out and reward the behaviours we appreciate and need to deliver our plans. From this year, every member of the GMC will have a new sustainability target in their annual bonus plan. We will incorporate targets into our performance share plans in 2022 and will pilot this in 2021.

Thoughts for the future

Q What challenges will you need to overcome to achieve your new targets?
RG We've made some ambitious commitments, so the first challenge is to start demonstrating progress straight away. But we also need to match that progress to the speed at which the world around us changes. After all, our direct impact on the world is small compared with the impact our products have through our customers. And because of that, everything we've said we want to achieve depends on governments, other companies and society continuing to show support and commitment for tackling climate change. We will continue to use our voice to advocate for this.
AK Many of our people choose to develop their careers with JM because they believe in our purpose and impact. As we accelerate our growth, I want to make sure we have the right broad set of skills in place. We've got fabulous people and world beating knowhow and experience in R&D, technology and science. Now we are deliberately strengthening our commercial capabilities to support our growth plans. That's why we set up a new commercial council this year to bring together all our commercial leaders to structure career paths, understand our gaps and opportunities and build the skills we need for the future.

Q Why is being a sustainable business important for the future of JM?

RG We think this is critical. Successful businesses are built on trust, whether that's with employees, suppliers, partners, customers or communities. And we can only maintain that trust by continuing to hold ourselves to the highest standards and by working with others to encourage them to do the same.
AK I agree. You don't get to be a 200 year old business without trust. It's what gives us the licence to deliver our strategy and our purpose. And frankly if we want to help others achieve their climate and sustainability goals, we must also set – and meet – our own rigorous targets.

Sustainable business continued

Our sustainability strategy and framework

We have a responsibility to ensure that the products we make – and the way that we make them – is as sustainable as possible, whether that's keeping our people safe at work, adopting ethical business practices or reducing greenhouse gas emissions from our facilities.

Our goals are set out under three pillars:

Products and services

This is where we will have the greatest impact in accelerating progress towards a cleaner, healthier world.

Operations

We are also tackling the environmental footprint of our own operations.

People

We need the right people in our company and value chain to achieve this, and we will treat them and our communities in an ethical and respectful manner.

Our sustainability reporting

Our sustainable business report contains all the mandatory non-financial disclosures required by the UK Companies Act, including SECR regulation. We also report against several voluntary non-financial reporting initiatives, as outlined below.

Global Reporting Initiative (GRI) standard

As in previous years, we report to the GRI protocols. The GRI index on pages 272 to 273 references the relevant GRI code and indicates where in the annual report the disclosure can be found.

Materiality assessment

Through talking to stakeholders, we have identified the topics that are material to them. Our materiality map highlights our areas of environmental, social and governance (ESG) focus and is available on our website at matthey.com/materiality.

Sustainability Accounting Standards Board (SASB)

In this year's report we make disclosures aligned to the SASB chemical sector reporting requirements for the first time, to provide increased transparency for our stakeholders. The SASB index is set out on page 271 of the annual report.

Independent external assurance to the ISAE3000 standard has been provided by Avieco. It confirms Johnson Matthey's global Scope 1 and 2 GHG emissions, energy consumption specified environmental performance indicators, waste disposed, water consumption and specified health and safety indicators.

The Financial Stability Board's Task Force on Climate-related Financial Disclosures (TCFD)

The TCFD recommendations are followed within the Sustainable business section of this annual report (pages 86 and 87). We provide a summary report on the progress made during the year in each of the four pillars of TCFD and plan to demonstrate full compliance in our 2022 annual report.

Other disclosures

During the year we also report our sustainability performance to a number of leading environmental, social and governance (ESG) surveys, including CDP Investor, CDP Water, S&P Global (Dow Jones Sustainability Index), FTSE4Good, MSCI, Sustainalytics, Equileap and Institutional Shareholder Services Inc.

Independent external assurance

Avieco, a sustainability consultant, has provided independent assurance of our greenhouse gas (GHG) emissions and key metrics quantifying our environmental, health and safety performance.

Their statement can be found on page 265 and the full report is available on our website at matthey.com/avieco-21.

Review of the year

Accelerating the transition towards a cleaner, healthier world

Products and services
Goal	2030 targets
Produce and innovate products for a cleaner, healthier world	>95% of sales contributing to four priority UN SDGs
	>95% of R&D spend supporting four priority UN SDGs
Drive lower global greenhouse gas emissions	Tonnes of GHGs avoided by using JM's products and solutions – target to be set 2021/22
Enable less harmful air pollution globally	Tonnes of oxides of nitrogen (NOx) emissions removed by using JM's products – target to be set 2021/22
Conserve scarce resources	Percentage of JM's products sold with an end of life recycling solution – target to be set 2021/22

Our commitment

• Provide back to source transparency for all our critical metals to OECD due diligence standards.

Operations
Goal	2030 targets
Achieve net zero by 2040	33% reduction in Scope 1 and Scope 2 GHG emissions
	20% reduction in upstream Scope 3 emissions
Reduce water consumption and waste	25% reduction in net water usage
	50% reduction in total hazardous waste produced
Minimise environmental footprint	40% reduction in nitrogen oxides emissions from our operations
	Make cradle to gate lifecycle analysis (LCA) information available for >95% of our products

Our commitment

• Joined the Business Ambition for 1.5°C and committed to net zero by 2040 – April 2021.

People
Goal	2030 targets
Keep people safe	Achieve a total recordable injury and illness rate (TRIIR) for employees and contractors below 0.25
	Reduce our ICCA process safety severity rate to 0.4
Create a diverse, inclusive and engaged company	Achieve an employee engagement score of >75%
	Achieve >40% of female representation across all management levels
Uphold human rights in our value chain	100% of value chain partners assessed for human rights risks and remedial plans in place where high risks identified
Invest in our local communities	>6,000 days of corporate volunteering annually

Our commitments

Join the UN Global Compact for Human Rights.
Accredited as a Real Living Wage employer in the UK February 2021.
Be recognised as a promoter of diversity and inclusion.
Signed "If Not Now, When?" and "Change the race" commitments to take actions on black inclusion December 2020.
Deliver against Valuable 500 objectives for disability inclusion and be recognised in global LGBT+ indices.
Invest at least £1 million annually in community engagement.

Products and services

For more than two centuries our products and services have helped enable human progress. Using our expertise in metals chemistry, we've designed solutions for automotive customers that reduce air pollution, developed chemical process technologies for customers who make life changing products and pioneered some of the world's most advanced metals recycling processes.

Every product and solution we make is driven by our belief in the transformative power of science and our passion for creating a cleaner, healthier world. Now, as we stand at a decisive moment in modern history, we need that passion and belief more than ever.

While the products and services we make today already have a hugely positive impact on society, the ones we're making for tomorrow have the potential to transform the world around us. They are at the centre of society's ambitions to reach net zero and they will play a pivotal role in driving the four essential transitions in transport, energy, decarbonising chemicals production and the circular economy.

That's why we're investing in exciting new markets like battery materials that will help electric vehicles travel farther on a single charge, fuel cell solutions for a new generation of transport, and hydrogen technologies that will help some of the world's biggest industries achieve their decarbonisation goals.

It's why we will continue to invest in new, more efficient catalysts that require smaller quantities of precious metals and keep designing products with end of life recycling in mind.

And it's why we've set ourselves a new commitment to provide our customers with back to source transparency for all the critical metals we use, in line with OECD due diligence standards.

This commitment will ensure we keep making products and solutions in a way that delivers our purpose as we move through the next transitional decade. But we must also back them up with action. To that end, we've developed four new key goals.

1. Produce and innovate products for a cleaner, healthier world

Without innovative thinkers, Johnson Matthey would not have succeeded these past 200 years. It is our blend of creativity and metals chemistry expertise that helped us shift from assaying metals to making products that protect people and the planet. It is that same blend that helps us design highly efficient chemical plants and manufacturing processes for our customers and steadily reduce the quantity of precious metals that we use in our technologies. Innovation is core to everything we do, and we're proud of the positive impact that our products already have today because of it. And there's plenty more to come as we grow our exciting new businesses, and help the world tackle climate change and tread a more sustainable path.

Our targets

We track our progress against this goal by measuring the percentage of our product sales that make a positive contribution to our four priority UN SDGs. Our original 2025 target was to have more than 90% of sales coming from products that positively contributed to all 17 goals. As part of setting our 2030 targets, we have refined this to focus more specifically on four UN SDGs – good health and wellbeing (#3), affordable and clean energy (#7), responsible consumption and production (#12) and, critically, climate action (#13). We've also increased our target to more than 95% of sales. And to ensure we invest in the right technology areas of the future, we will also measure the potential of our R&D spend in the same way.

2. Drive lower global greenhouse gas emissions

The world will need a range of low carbon solutions if we are to decarbonise our transport, energy and industrial systems and reach net zero. Solutions like clean running hydrogen, which can power fuel cell vehicles, provide back-up power storage and run big industrial turbines, and battery materials to help drive the electric vehicle (EV) revolution.

Our deep understanding of the way in which the chemistry of precious and other metals can be used to create powerful effects means we are already making the next generation of catalysts, membranes and electrolysis technologies. It's these technologies that will help bring about the hydrogen economy and create the materials that allow EVs to travel farther on a single charge.

Our targets

Our products and services already help our customers avoid and remove millions of tonnes of GHG emissions every year. Over the next decade we aim to increase our impact further, through a combination of new and improved low carbon offerings. We expect products and services such as our battery materials, fuel cell components, and technologies to produce clean hydrogen, sustainable fuels and chemicals, to make a significant contribution to lowering GHG emissions. We will measure and track the quantity of GHGs reduced by our products and will be setting an ambitious new target for 2030, which we will announce next year.

By 2030, our targets are:

More than 95% of product sales will contribute to our four priority UN SDGs.
More than 95% of our R&D spend will support our four priority UN SDGs.

3. Enable less harmful air pollution globally

We know the automotive industry well. We've been working with some of its biggest names for decades, using our catalyst expertise to design emission control systems that help them meet strict air quality regulations. For the past four decades those systems have helped prevent millions of tonnes of harmful emissions, such as carbon monoxide, NOx and particulates, from entering the atmosphere, improving the health of millions of people living and working in cities around the world. Today, one third of new cars are fitted with one of our catalytic converters.

Now, we are using that same expertise to develop and commercialise new battery and fuel cell technologies that will help our customers create the lower emission vehicles of the future. But that doesn't mean the internal combustion engine is going to disappear overnight, so we will keep innovating and advancing all our products to help our automotive customers ensure tailpipe emissions are as clean as possible, no matter how the vehicle is powered.

Our targets

One of the simplest ways in which we can demonstrate our impact in improving global health is by tracking increases in the quantity of harmful NOx emissions that our technologies remove from vehicle tailpipes before they reach the air we breathe. We intend to go further than before, increasing the proportion of vehicle related particulate matter and NOx emissions that is destroyed by JM technology globally. Over the next year we will set a 2030 target for this.

4. Conserve scarce resources

Many of our products and solutions rely on metals that are already scarce in the earth's crust, such as platinum group metals. Others, such as cobalt and lithium, may become increasingly difficult to source as demand for electric vehicles and fuel cells rises.

And so our R&D teams have spent decades designing and redesigning catalysts that use minimal quantities of these important resources. And we are already the world's biggest recycler of platinum group metals (pgms). As well as helping us do more with less, recycling helps us avoid greenhouse gas emissions, since the carbon footprint of recycled pgm is around 50 times lower than the carbon footprint associated with mining, refining and transporting new primary pgm from a mine to its point of use.

Since the world is going to need more of these scarce metals as we decarbonise our transport, energy and industrial systems, circularity will be essential. And it's not only the metals, there are other raw materials in the products we are designing for a low carbon future, and it will be important to create circular solutions for these to conserve the earth's resources and reach net zero. That means thinking about how we source, use and recycle all our critical raw materials and products while they are still on the drawing board.

Our targets

Going forward, we will be designing for recycle for a sustainable future. We will track our progress through a new 2030 target, which will aim to increase the percentage of our products sold with an end of life recycling solution, either on our own or in partnership with others.

Our performance in 2020/21

% sales from products contributing to priority UN SDGs

% R&D spend assigned to priority UN SDGs

Amount of GHGs avoided

211,000 tonnes CO2 eq

GHGs avoided by consumers using our fuel cell and battery materials products

Amount of GHGs removed

11.5 million tonnes CO2 eq

GHGs removed by our customers using our nitrous oxide abatement solution on nitric acid production plants

Sales of products designed for in-use resource efficiency

£804 million

Our products have a major impact on delivering our vision for a cleaner, healthier world. And they will have a huge role to play in driving the four essential transitions in transport, energy, decarbonising chemicals production and the circular economy that will help combat climate change and create a sustainable future for all.

As we work to realise our ambition to lead in sustainability, we must ensure that we design, make and move our products in ways that reduce our own impact on the planet.

That's because the work we do uses energy, creates emissions and generates waste products. For example, some of our manufacturing processes require high temperatures to trigger chemical reactions. As a result of both our chemical reactions and generating the heat needed for our processes, the work we do generates GHGs, including carbon dioxide (CO2 ), nitrogen oxides and volatile organic compounds (VOCs). These can all contribute to climate change and local air quality issues, if not effectively managed.

We also use water in many of our production processes, as well as to heat and cool some of our operations. And our work produces waste, some of which can be hazardous and requires specialist treatment by external companies.

The good news is that we already have many processes in place to help us lower our environmental impact. For example, wherever possible, we recover and recycle waste materials that contain pgms. These metals can then be reused in new products.

But we know we can – and must – do more. So we are setting ourselves three bold new goals to continue lowering our footprint and help protect the planet.

Those goals are:

Achieve net zero by 2040.
Reduce water consumption and waste.
Minimise environmental footprint.

These goals are underpinned by a series of tough 2030 targets, including science based targets (SBTs) to reduce our GHG emissions. More information about all our targets can be found in their relevant section and are summarised in the table below.

We already share detailed environmental lifecycle analyses (LCAs) of some of our products with our customers on request. Now we are setting ourselves a target to ensure we can offer this service for more than 95% of our products by 2030. This will help us demonstrate the ways the positive environmental benefits of our products outweigh the impacts associated with making them, particularly when used in other end products.

Our goals and targets

Goal	Sustainable business goal	Sustainable business KPIs	Baseline measure	Baseline	2020/21	2030 target
Net zero by 2040	Reduce our Scope 1 and 2 GHG emissions by 33% by 2030	Tonnes annual GHG emissions (Scope 1 and 2): market method	CO2 eq emissions in 2019/20	391,459	388,904	237,914
	Reduce our Scope 3 GHG footprint: Purchased goods and services category by 20% by 2030	Tonnes annual GHG emissions (Scope 3): purchased goods and services	CO2 eq emissions Scope 3: purchased goods and services in 2019/20	3,859,969	3,139,540	3,087,975
Reduce water consumption	Reduce water consumption by 25% by 2030	Net fresh water consumption (megaLitre)	Net fresh water consumption in 2019/20	2,254	2,039	1,690
Reduce waste	Halve the amount of hazardous waste produced by JM by 2030	Total hazardous waste shipped to third party for treatment (tonnes)	Total hazardous waste shipped to third party for treatment in 2019/20	56,751	57,213	28,375
Reduce emissions to air	Reduce NOx emissions to air by 40% by 2030	NOx emissions (tonnes)	NOx emissions (tonnes) in 2019/20	301	299	181
Provide LCA information	Make cradle to gate LCA information available for >95% of our products	–	–	0%	6%	>95%

review

Sector

review

We have been measuring and reporting our Scope 1 and 2 GHG footprint since 2007. This is the part of our footprint we can directly affect by changing the way we use energy in our factories. However, we recognise that this is not our only contribution on GHG emissions.

Total footprint – Scopes 1 and 2 and 3 2020/21 (Tonnes CO2 eq / % of JM carbon footprint)

Made up of Scope 1 203,930 (4%) Scope 1 and Scope 2 footprint
Made up of Scope 2 (market based) 184,974 (4%)
Scope 3 4,578,945 (92%)

During 2020 we worked with sustainability consultant Avieco to calculate our Scope 3 GHG footprint across all 14 categories for the first time. The full breakdown is shown on page 267.

Total GHG footprint 4,967,849 -12%

388,904

Sustainable

business

innovation

In total, 92% of our GHG footprint comes from Scope 3 emissions embedded in our value chains. By far the largest component of our footprint is the embedded carbon in our raw material procurement, which is part of purchased goods category. That's why our 2030 target focuses solely on reducing our upstream Scope 3 emissions in this category.

Overall our Scope 1, 2 and 3 footprint has reduced by 12% in the last year (2019/20: 5,646,779 tonnes CO2 eq.), broadly in line with temporarily lower production volumes of 8%, due to COVID-19.

Our Scope 1 and 2 GHG performance

Over the last four years we have made a lot of progress. In that time we have reduced our:

Absolute Scope 1 and 2 emissions by 15%.
Absolute Scope 1 emissions by 5%.
Absolute Scope 2 (market based method) emissions by 20%.

These improvements demonstrate our commitment to the Paris Pledge for Action. The more significant reduction in Scope 2 emissions is due to good progress in sourcing renewable electricity (see page 68). We also emit some CO2 directly from our processes.

While production output across JM was lower overall this year because of COVID-19, our Scope 1 emissions increased slightly mainly due to increased production at our largest natural gas using site in Clitheroe, UK. In addition, we started full operation of our natural gas fuelled combined heat and power plant at our site in Royston, UK, following a project to upgrade the equipment with more efficient engines. Our Scope 2 market based emissions were lower this year due to reduced production and also because some of our large production sites have used energy with a lower carbon emissions factor, such as Skopje, North Macedonia.

Achieving net zero by 2040

Our products have huge potential to help our customers achieve their net zero ambitions. At the same time, we also have a responsibility to address our own GHG footprint and help enable the transition to a low carbon world.

That's why we have set a bold new commitment to reach net zero by 2040 and in April 2021 we signed up to the UN Global Compact's Business Ambition for 1.5°C. This commitment reflects our recognition of the Intergovernmental Panel on Climate Change's (IPCC) science on climate change. It also supports our earlier climate actions, including signing the Paris Climate Pledge to keep the global temperature rise below 2°C and our commitment to the UN SDGs, including UN SDG 13 (climate action).

If we are to get to net zero by 2040, we must start making progress today. To that end, we are introducing science based GHG targets. From 2020 to 2030 we aim to:

Reduce our Scope 1 and 2 emissions by

33%

services by

Reduce our upstream Scope 3 emissions from purchased goods and

And we intend to have these targets independently verified by the Science Based Targets initiative (SBTi) in the next year. To make early progress towards our Scope 1 and 2 GHG

reduction target, we will continue to work towards increasing the amount of renewable electricity we purchase to more than 60% by 2025. We will continue to improve energy efficiency of our existing processes. We will also introduce technology that removes nitrous oxide (N2 O) – a gas with a greenhouse effect 250 times more powerful than CO2 – from our emissions to air at some of our biggest plants. For new facilities, we will design and build for a net zero future, as we are doing for our first large commercial plants for our Battery Materials business.

In the medium term, we will look to reduce our dependence on natural gas as a source of energy at our existing manufacturing plants as part of our asset renewal programme. We will introduce new technologies that capture CO2 , and convert equipment to use clean energy, such as hydrogen, when they become available locally. We will electrify other equipment where cost competitive renewable energy is available. Asset renewal programmes are typically long term investments and in setting our SBTs we recognise that most of the impact on our emissions from these activities will not be realised until the 2030s. We are currently considering the benefits of introducing an internal carbon price into our capital investment process to ensure that we are future proofing all our investment decisions for a net zero future.

Operations continued

Some of our facilities operate in territories where there are specific regulations aimed at reducing carbon emissions, for example under the EU Emissions Trading System. A quarter of our Scope 1 carbon emissions are covered by such schemes. Because of the way we source renewable electricity, none of our Scope 2 emissions are subject to any carbon emission limiting regulations.

Our Scope 3 GHG performance Scope 3 emissions (tonnes CO2 eq)

Purchased goods and services
3,139,540 ■ Use of sold products 1,057,318
Capital goods 266,513
Fuel and energy related transport
and distribution losses 40,515 ■ Upstream transportation and
distribution 37,859

For a full breakdown and prior year data see page 267.

Several Scope 3 GHG emissions categories fell substantially because of COVID-19:

• Our production volumes reduced 8%, so we procured fewer raw materials.

Total 4,578,945 tonnes CO2 eq

Transportation of goods and business travel also fell.
With more employees working from home, we expect that emissions caused by commuting fell, but we do not have the information available to support that.

Making progress towards our renewable electricity target

Shifting our energy supplies to renewable sources is an important element of our journey to net zero. This year we continued to make good progress against our aim to source 60% of our global electricity demand from renewable sources by 2025.

Globally, 31% of our electricity use in 2020/21 came from sources with a Renewable Energy Guarantee of Origin (REGO) certificate (2019/20: 27%)¹ .

Just over 1% of our electricity supply came from local solar power facilities that are not grid connected. Where we don't use renewable electricity, and market choices exist, we actively manage our electricity purchasing to minimise the associated carbon footprint.

As part of our net zero plans, we will look to power new facilities using renewables. Our two new battery materials plants in Poland and Finland will both use 100% renewable electricity when they start production.

Driving energy efficiency in our operations

While more renewable energy will be critical in helping us lower our GHG emissions, particularly over the first decade of our plans to reach net zero by 2040, we also continue to improve energy efficiency in our operations.

Regional lockdown measures caused by COVID-19 meant we had to temporarily stop production at some of our sites, which lowered our energy use. Energy use at our facilities fell by 3%. Electricity use across the group fell by 5% and gas use dropped by 2%. COVID-19 also affected our energy efficiency, as we needed to run our plants in non-optimal ways to meet sudden geographical changes in demand for products.

As we return to normal operation, we continue to make progress with our existing energy efficiency projects around the world. For example:

At our Brimsdown facility in the UK, we have improved the reliability of our furnace burner used in our pgm refinery.
In Nilai, Malaysia, we have replaced existing gas discharge lighting with LEDs, improved our air conditioning systems and optimised our ovens.
In West Whiteland, US, we reviewed the use of compressed air on site and reduced the operational pressure in several locations.

Of the total energy used by JM, 39% (1,840,544 GJ) was grid supplied electricity. JM sources renewable electricity at a number of locations and the total amount of renewable energy sourced was 615,809 GJ or 13% of the total energy we used.

Energy mix (GJ)

Non-renewable grid-supplied
electricity 1,250,156 (26.5%)
Certified renewable electricity from grid 590,388 (12.5%)
Renewable electricity generated locally and not grid-connected 25,421 (0.5%)
Natural gas used on site
2,416,909 (51.2%) ■ Other fossil fuels 313,052 (6.6%)
Non-renewable steam
112,445 (2.4%)
Non-renewable fuel used on public roads by vehicles on company business 15,131 (0.3%)

A number of our sites generate electricity using combined heat and power (CHP) plants. We use natural gas as a fuel in our CHP plants and this energy is included in the natural gas section of the chart above. In total, 126,834 GJ of electrical energy was generated this way. Our total electricity consumption is therefore 1,992,799 GJ. From our total consumption of electricity, we used 615,809 GJ (30.9%) that was certified as renewable.

This year we spent £64 million on energy versus £68 million in 2019/20.

Further GHG-related disclosures are given on pages 266 and 267.

¹ Restated following review and reclassification of data submitted by some sites after the year end.

Review of the year

Reduce water consumption

Net fresh water consumption ('000m³ )

We use water as a raw material to make some of our products and to heat and cool our operations.

Since water is one of our planet's most precious resources, we endeavour to use it in a responsible, sustainable way, not just for our operations but the communities who live near our facilities. To reaffirm our commitment to sustainable water management in our operations, we have set a new target to reduce our net fresh water consumption by 25% by 2030. To reach this target we will need to invest more in our existing and new facilities to ensure they meet high standards of water recycling.

Reduce our net fresh water consumption by

This is particularly important at our 28 facilities that withdraw and consume water in locations that have a high or extremely high baseline water stress level (as determined by the World Resources Institute's Water Risk Atlas tool). The water we use at these facilities accounts for 24% of our net fresh water consumption and 24% of our water withdrawal.

Wherever possible, we look for ways to reduce our consumption of fresh water and reuse treated water within our facilities. For example, our Germiston facility in South Africa is located in a highly water stressed area. So, we have invested in a reverse osmosis plant that allows us to treat and reuse 80 to 100m3 of water each year. The process also allows us to recover small quantities of valuable pgms.

Our facilities source 93% of their water from mains supplies with the rest extracted from groundwater sources.

In 2020/21, we consumed 10% less water than the year before because of the affect of COVID-19 on our manufacturing output. We also upgraded pipework at our Brimsdown site, which led to an 18% reduction in water use and a 2% reduction in JM's overall water consumption.

We also treated 1.150 million m3 of waste water on site, 24% of which we recycled back into our processes instead of discharging. We are pleased to report that there were no non-compliances against water quality permits or regulations.

As part of our adoption of the scenario based risk assessments and reporting standards set by the TCFD, which we will report on in full from next year, we also intend to carry out a full climate assessment on our facilities, which will include water risks, such as drought, flooding and hurricanes. Read more: our 2020/21 TCFD on pages 86 and 87.

A full breakdown of our water management performance over five years is shown on page 268.

Reduce waste

Type of waste (tonnes)

We have a responsibility to make sure that we dispose of our waste in a safe manner, including working with specialist treatment companies. We also look for ways to reduce and recycle wherever possible. For example, we recover materials that contain pgms to our refineries to be reused. We also ensure that all our other waste is treated within local regulations.

Our manufacturing processes produce different types of waste, 65% of which is hazardous. If we are to help the world tread a more sustainable path, we know we must do more in this area. That's why we have set ourselves a tough new target to reduce our hazardous waste by 50% by 2030, using our 2020 data as our baseline.

This will be a big challenge, but we understand the issues and where our biggest areas of concern lie. And we are already looking for ways to introduce new processes or upgrade our facilities to meet this target.

In 2020/21, we produced 87,546 tonnes of waste. This is 10% higher than 2019/20. This is mainly due to an increase in effluent discharge at our Annan site, Scotland. The site is licensed to discharge effluent via pipeline using tidal discharge. The tidal discharge pipe became damaged and the site is currently not able to use this method to dispose of effluent waste. While we worked to fix the issue we temporarily used a waste vendor to tanker the material off site to ensure compliance.

In 2020/21, we incinerated 2,560 tonnes of our waste within our own facilities. This was mainly waste that is sent to our refineries for precious metal recovery.

We also produced 57,213 tonnes of hazardous waste. This is 1% higher than 2019/20. Of this total, we recycled or reused 20% (11,332 tonnes). This compares to 19% in 2019/20. Meanwhile, 3% (1,350 tonnes) of our waste is solid material that is not reused after it is sent off site.

The amount of hazardous waste we produced was similar to last year, despite a reduction in overall output due to COVID-19. Much of our hazardous waste is liquid and it is often generated in our effluent plants and abatement scrubbers. These remained fully operational, even though our overall output of finished product was lower in the year.

Waste treatment (tonnes)

Reuse 1,895
Recycling 25,845
Off site incineration with energy
recovery 3,314
Off site incineration without energy recovery 52,891
Landfill 3,601

² Dow Jones Sustainability Index (DJSI) definition of hazardous waste.

Operations continued

Reducing our other emissions to air

	2020/21	2019/20
NOx (tonnes)	299	3011
SOx (tonnes)	49	28
VOC (tonnes)	83	99
Sites covered	74%	67%

As well as GHGs, our operations produce other emissions, including NOx, dioxides of sulphur (SOx) and VOCs. These emissions arise when we burn fuels in our furnaces to generate heat and are also produced as byproducts in some of the chemical reactions that are involved when we make our products.

All our licensed sites monitor these emissions to ensure that they comply with local regulations. They also set their own absolute emissions reduction targets as part of their local EHS improvement plans.

To keep pushing ourselves, we've set a new target to reduce our NOx emissions by 40% by 2030, using 2020 as our baseline data. We will also improve our NOx monitoring processes to help us increase data coverage and accuracy.

Reduce our NOx emissions by

In 2020/21, our NOx emissions fell slightly to 299 tonnes due to more accurate data and lower production. Meanwhile, our SOx emissions rose to 49 tonnes. However, this rise is again partly due to better coverage of reporting data and an increase of measured SOx at our Brimsdown facility due to changes in feedstock. Our VOCs fell by 16% to 83 tonnes partly reflecting lower manufactured output.

How we manage environmental performance

Together with our environmental strategy, we have group policies, processes and systems that help us manage our environmental performance to a high standard. We also set out corporate standards in five key areas of environmental performance and assess sites against those standards during regular audits.

Our EHS Leadership Committee is responsible for agreeing our overall approach to carbon emissions and our GHG reduction through ensuring leading environmental performance from our manufacturing facilities.

In all, 85% of our manufacturing sites operate environmental management systems that meet the ISO 14001:2014 standard. Many of our operations are covered by environmental permits or licences and, as a minimum, we ensure that we comply with all conditions set up by regulatory bodies in the locations where we operate.

We use an electronic reporting system to measure key environmental indicators and use this data internally to improve performance.

Reporting environmental incidents

We expect all our sites to report any incident that impacts the environment using our robust management system. We classify any spills that occur on unmade ground or near drinking water sources as significant. We are pleased to report that there were no significant spills during 2020/21.

¹ Restated. See basis of reporting on page 260.

Review of the year

Everything we do at Johnson Matthey is designed to have a positive impact on people's lives. Our products help us realise our purpose to create a cleaner, healthier world, but equally important is our responsibility to make sure that the way we make them, and the impact they have more broadly, is positive too.

That means we work hard to look after our employees and provide a good quality place to work. And we have a responsibility to treat them, and our suppliers, customers and the communities who live near our facilities with dignity and respect. It means ensuring that our manufacturing facilities are well run so that our people can go home safely after every shift. It means designing our products in ways that minimise the quantity of hazardous materials within them. And when we can't remove those materials, it means making sure we provide clear, simple guidance on how to use them safely to protect people and the environment. It means training our teams and providing them with development opportunities, as well as recognising their efforts.

All our actions are guided by our commitment to safety and by our JM values, which help us act ethically and respectfully, both inside our company and within our supply chains. These help to create an inclusive culture that will deliver our vision and business strategy.

We want to lead in sustainability and help enable the world to move through the essential transitions in transport, energy, decarbonising chemicals production and the circular economy. People continue to be central to our success, which is why we have chosen 'People' as one of our sustainability pillars.

Our goals and targets

Sustainable business goal	Sustainable business aim	Baseline measure	Baseline	2020/21	2030 target
Keep people safe	Achieve a TRIIR for employees and contractors below 0.25	Recordable cases per 200,000 hours worked in 2019/20	0.79	0.54	<0.25*
	Reduce our ICCA Process Safety Severity rate to 0.4	Points per 200,000 hours worked in 2019/20	1.2	0.81	0.4
Create a diverse, inclusive and	Achieve an employee engagement score of >75%	Score in 2019/20	63%	65%	>75%
engaged company	Achieve >40% of female representation across management levels	% female representation in management in 2019/20	30%	27%	>40%
Uphold human rights in our value chain	100% of direct value chain partners assessed for human rights risks and remedial plans in place where high risks identified	% assessed in 2019/20	New measure	–	–
Invest in our local communities	>6,000 days of corporate volunteering annually	Number of days in 2019/20	2,682	431	>6,000

Setting new commitments

We have made a series of new people orientated commitments as part of our broader new sustainability goals. Those commitments are to:

Join the UN Global Compact for Human Rights.
Accredited as a Real Living Wage employer in the UK February 2021.
Be recognised as a promoter of diversity and inclusion.
Signed "If Not Now, When?" and "Change the race" commitments to take actions on black inclusion – December 2020.
Deliver against Valuable 500 objectives for disability inclusion and be recognised in global LGBT+ indices.
Invest at least £1 million annually in community engagement.

* This target includes employee + contractor incidents and hours in line with best practice companies.

Our people

Our people are what make Johnson Matthey a great place to work. Without their passion, skills, and creativity, our products would not have existed these past 200 years. Every day they demonstrate their commitment to our vision for a cleaner, healthier world.

Even through a global pandemic our people worked hard to keep each other safe and our operations running. For more on how we helped our people stay connected and supported their wellbeing during the pandemic, see page 76. For more on how we protected our people at our facilities, see page 78.

We are proud of our team and we will need their capabilities even more than ever as we play our full role in the big transitions happening today. To do that we intend to continue to find ways to enable our people develop their skills, give them new experiences, protect their wellbeing and remain engaged with our vision.

Engaging our people

Our new target to score more than 75% in our employee engagement survey by 2030 would put us on an equal footing with the highest performing companies.

We have made an excellent start. In 2021, we saw employee engagement in our yourSay survey rise two points to 65% and our enablement scores rise five points to 67%. This is a remarkable achievement in an unprecedented year in which our people have had to adapt to COVID-19 and our broader transformation programme.

Clearly there is more to do to reach our target and every Johnson Matthey leader has a role to play in helping us get there. This includes our board members. In October 2020 and in April 2021, we held virtual engagement focus groups in China, UK, Germany and the US. These were attended by a diverse mix of 25 employees and hosted by our non-executive directors. In these sessions we heard many positive comments about the support offered to employees during COVID-19 and the positive impact of improved manager communications. However, the feedback also suggests there is more work to do to help people feel more connected to JM as a whole – something that will form a key part of our engagement strategy this year.

A great place to work

We want our current and future teams to see Johnson Matthey as a great place to work, a place where innovation and performance are recognised. We want our people to feel like they belong regardless of gender, nationality, religion, race or disability and empowered to develop their skills and grow their career with us. We also want our colleagues to feel part of a company that acts ethically and treats people with the highest standards of integrity.

Accelerating our people strategy through a time of change

The world is going through a period of enormous change. COVID-19 has transformed the way we live and work in the past year, but there are also big, long term societal changes on the horizon.

Governments want to build a greener, cleaner post-COVID world and as stakeholder expectations on environment and climate change rise more and more nations and companies are setting ambitious net zero targets. We have set our own net zero target too (see pages 66 and 67). But beyond that, we have a unique opportunity to help the world achieve its ambitions through our products and to do that we must transform our own business to drive down costs and become simpler, more efficient and ready to accelerate future growth.

We began that transformation process during 2020/21 and expect some elements to continue for another couple of years. In this first year, the programme focused on reshaping our operating models in our group functions and Clean Air business.

To support the transformation work and execution of our business strategy we are also accelerating the roll out of our people strategy with a focus on four areas:

1. Creating an inclusive JM and embedding our culture ambition.
1. Creating a simplified, agile organisation that is global in outlook and reflects the communities in which we work.
1. Building our leadership skills and helping our people develop new skills for the future JM.
1. Enhancing employee recognition and wellbeing to strengthen their resilience, help them feel included and want to build their career at JM.

Protecting people	Acting with	Working	Innovating	Owning
and the planet	integrity	together	and improving	what we do
We practise the highest standards of health and safety, promote wellbeing for people both inside and outside of work, and seek to safeguard our planet.	We do the right thing, for people and for the world. We do what we say we'll do, expect the same of each other and speak up when there's a problem. We place importance on relationships internally and externally, treating others with respect and care.	We encourage collaboration inside JM and out, sharing and embracing diverse viewpoints. We tackle problems together, put our ideas into practice and take pride in combining our contributions to create something better for JM and our customers.	We adapt and embrace new ideas to make us stronger and our world cleaner and healthier. We are confident and resilient through change, growing and developing ourselves and JM, to ensure we are a leader in our chosen markets.	We take accountability for our own work, and know we are also part of something bigger. We take the initiative, seek clarity and demand high standards from ourselves and our colleagues.

review

1. Creating an inclusive JM and embedding our culture ambition

Passionately	Creating	Boldly drive
purpose driven	shared value	performance
Working together	Courageously facing	Embracing change
to make the world	outwards, we lead	with a real sense
cleaner and healthier,	and shape markets,	of pace and focus,
being innovative	collaborating as	together we go
and curious to create	one JM across	the extra mile
value from our	boundaries to create	to deliver results.
science, learning	great solutions for	Because we care,
and growing from	our customers and	we are open,
what we do so	constantly find	honest, and hold
JM can continue	smarter ways to	ourselves and
to evolve.	achieve our goals.	others to account.

Our culture ambition sets out the working practices we need to deliver our purpose and business strategy. That includes ways of working that will create new market opportunities and allow us to move at pace, delivering our JM wide plans while supporting an inclusive working environment.

In 2021, we launched a new employee engagement programme to help our people feel more connected with our strategy and adopt our culture. As part of that programme, we created opportunities for two way conversations to encourage employees to share their lived experiences and feel empowered to take action to address issues when they see them.

Diversity and inclusion

People will always be at their best when they feel like they can be themselves at work. And research shows that companies who embrace diversity and create a sense of inclusion consistently outperform those that don't.

As a global company we also have a responsibility to ensure that our teams reflect the communities in which we work, which means recruiting, developing and recognising employees from all backgrounds. To that end, we have created a diversity and inclusion (D&I) ambition that aligns with our 2030 sustainability commitments, as well as specifically for the year ahead.

Our equal opportunities policy

Johnson Matthey recruits, trains and develops employees who are best suited to the requirements of the job, regardless of gender, ethnic origin, age, religion or belief, marriage or civil partnership, pregnancy or maternity, sexual orientation, gender identity or disability.

Supporting employees with disabilities

Our equal opportunities policy recognises that disabled people are often denied a fair chance at work because of misconceptions about their abilities. However, very often, it is the way that our society is built that prevents disabled people from fulfilling their true potential in the workplace. So we look for ways to help overcome these obstacles, including modifying equipment, restructuring jobs and safely improving access to our offices and facilities.

Working with employees to create an inclusive culture

Our employee resource groups (ERGs) do a great job in helping raise awareness of the experiences of individuals within certain communities. We currently have five groups – LGBT+, gender, disability, black employees and early careers. During the year some groups spent time with the GMC and with many of our leaders to discuss employee perceptions and explore actions that leaders could take to support further change.

For the first time we included questions in our 2021 yourSay survey that asked employees to share diversity and inclusion information, such as gender and ethnicity. We were delighted that over 80% of participants who responded to the survey answered these questions. This information will help us better shape our approach and actions to encourage greater diversity in the future.

Gender diversity statistics

The table below shows the gender breakdown of the group's employees as at 31st March 2021.

As at 31st March 2021	Male	Female	Total	% male	% female
Board	5	2	7	71%	29%
GMC	5	4	9	56%	44%
Subsidiary directors	95	16	111	86%	14%
Senior managers*	41	21	62	66%	34%
New recruits	1,117	475	1,592	70%	30%
Total group	9,857	3,783	13,640	72%	28%

* Senior managers are defined as the direct reports of the GMC. For the purposes of the UK Corporate Governance Code 2018 disclosure, senior managers are defined as the GMC and Company Secretary. This disclosure is stated within the GMC statistics above and their direct reports are included within this senior managers disclosure. Some individuals are included in more than one category.

Improving our gender diversity

As at 31st March 2021, women represent 29% of our board members and 44% of our GMC. We have made significant progress improving gender balance in our senior leadership roles, with women now holding 34% of all relevant jobs – up from 25% in 2018. Given this progress and our new yourSay data, we plan to refresh our diversity and inclusion ambition. We have high aspirations for D&I as this agenda is fundamental to our vision. We ultimately aim to have gender balance across all levels of our organisation and have set a target of over 40% of female representation in all managerial levels by 2030 as a key milestone on this journey.

Gender pay gap

We saw a small increase in our UK gender pay gap from 6.0% in 2019 to 6.7% in 2020, which remains low relative to our peers and the national average, which was 15.5% in 2020. While good progress has been made in addressing gender imbalance in our senior management roles, we must focus on the broader population where we have seen little movement to positively shift our gender pay gap. Our new sustainability target related to gender diversity across management levels will support this. A full copy of our UK Gender Pay Gap Report can be found on our website.

At a glance

Total employees by region

Gender diversity

New joiners

Employee turnover by region %

Review of the year

Involuntary turnover Our total turnover increased this year from 11.8% to 15.7% as the restructuring as part of our ongoing transformation led to the removal of roles. However, our voluntary turnover fell from 9.0% to 8.2%.

Voluntary turnover

2. Creating a simplified, agile organisation that is global in outlook and reflects the communities in which we work

As well as talented people we will need an organisation that is fit and ready to support our ambitious growth plans and adapt to changing markets. Our transformation programme is helping us achieve that.

Ongoing transformation is a necessary part of our ability to execute our strategy. In 2020 we shared an intent to reduce the number of roles in our organisation by 2,500. This year our restructuring led to the removal of 1,128 roles. By focusing on redeployment and not filling vacancies we were able to reduce redundancies by over 10%. Further changes are expected over the next three years, however they will have less of an impact than expected on organisation structures largely due to strong performance in our core businesses and predicted future growth. We now estimate a further reduction of around 900 roles over the next three years to complete this phase of the transformation journey.

When the pandemic hit, our priority was the safety and wellbeing of our people. We paused redundancies in June 2020, resuming again when people were more able to find alternative employment. In managing through the pandemic, we did not furlough any employees or seek any government financial support.

Meanwhile, we implemented transition principles to retain our best talents and voluntary turnover fell from 9.0% in 2019/20 to 8.2%. We have provided leaders with change management support, learning and development programmes and communications training to help them lead their teams through this transformation.

The future of work in a post-COVID world

During the pandemic many of our employees worked in very different ways, with many more colleagues working from home. While this has been challenging for some people, many of our employees told us that they have appreciated the extra flexibility in working hours and location. So we are now in the process of shaping a new 'future of work' approach that will encourage more flexible ways of working. For employees who may work more remotely in the future, we will be making sure they still feel well connected and part of JM. We anticipate we will make use of office time to collaborate with team members to innovate and learn.

3. Building our leadership skills and helping our people develop new skills for the future JM

To play our part in the big transitions and help the world reach net zero we need to do two things: help our teams develop the skills they'll need to accelerate growth in our new business areas and hire new people into our teams.

Digital training and careers events in the COVID era

Although COVID-19 affected face to face training, we continued to provide training via our online iLearn portal. During 2020/21, more than three quarters of our people accessed the portal, a significant increase for the third year in a row. There was an 82% increase in the number of courses and resources accessed compared to 2019/20, and a four-fold increase in people registering for online courses.

We also turned our successful global careers weeks into virtual events, running everything from career coaching drop in clinics to external speaker webinars. This year inclusivity was a strong theme, with external speakers talking about diversity in careers. Our ERGs also ran a range of sessions to increase awareness and provide support.

Accelerating development of our high potential people

Our high potential people are our leaders of the future, so we want to support them with good quality development plans, clear career paths, senior level sponsorship and job rotations. Approximately 50% of those identified are female to help accelerate towards our gender balance targets.

As a result of our investment in internal career and talent management, internal appointments rose to 47% of total hiring from 33% in 2019/20.

A new leadership framework for a new culture

During 2020/21, we introduced a new leadership behaviour framework that is aligned with our culture ambition. We will use it to develop, assess and recruit leaders that inspire others to deliver great performance and our business strategy. To help embed the new framework, all our senior leaders, around 100 in total, took part in a 360° review to provide them with feedback and all are attending a new coaching programme to support their development.

Despite the pandemic, we continued the roll out of our 'Aspire' leadership programmes, which help everyone, from first line leaders to senior executives, develop consistent skills and behaviours. To date 1,500 managers have attended at least one of the programmes and while face to face training was suspended we ran a virtual programme with 125 managers. We are refreshing our other programmes to make them suitable for agile delivery and to incorporate our leadership expectations, culture ambition and sustainability goals.

Recruiting our next generation of creative thinkers

To build the Johnson Matthey of tomorrow we will need to continue to grow our overall capabilities, and in particular we will have opportunities for more commercially minded scientists, engineers and technologists. With their help we will be able to accelerate our growth and realise our business and sustainability ambitions. So, we continued to recruit new people into key roles, despite the pandemic. In all, we hired 1,592 new people, with the majority of those in our growth businesses in the UK, China, Poland and the US.

Crucially, we also continued to hire graduates into science, operational and commercial disciplines. So far we have recruited 33 graduates for our 2021 programme from the UK, US and China, 58% of whom are women.

4. Enhancing employee recognition and wellbeing to strengthen their resilience, help them feel included and want to build their career at JM

We want our employees to feel they belong at Johnson Matthey and to know that we have the tools and processes in place to help them build a career with us. Recognising and rewarding them for excellent performance, as well as supporting their wellbeing, is an important part of how we do this.

Supporting employee wellbeing during the pandemic

One thing that the COVID-19 pandemic has demonstrated is that our mental health is just as important as our physical health. So while we put lots of measures in place at our facilities to protect people's physical health and safety (see page 78 for more on this), we also supported their overall wellbeing:

Time to Talk our campaign, first launched in 2019, to help reduce stigma around mental health.
Communications to increase access to our dedicated wellbeing resources such as Elements, our wellbeing portal.
Intranet articles on topics such as stress management, nutrition and maintaining social connections.
Virtual coffee sessions to keep people connected.
'Say Thanks' and 'Career Celebrations' programmes in the US to recognise the contributions of our colleagues, now being rolled out across JM.

Supporting wellbeing for future success

Taking care of wellbeing isn't just about responding during a pandemic. We will continue focusing on it as the big global transitions speed up and we accelerate our growth. To that end, we continued to grow our wellbeing ambassador network around the world, with 140 people helping us promote wellbeing issues at a local level. Meanwhile, in the week running up to World Mental Health Day in October 2020, we published intranet articles and ran webinars and activities to help our employees learn about and discuss wellbeing issues.

Recognising and rewarding our people

We continue to make sure that employee remuneration and benefits are competitive and in line with local markets. This year we also:

Acknowledged the tremendous effort and commitment of our people as they came together to keep our operations running safely during COVID-19 with an additional one-off recognition payment of £250 (or local equivalent) for non-managerial employees.
Celebrated the achievements of our people and great examples of teams demonstrating our values at our annual JM Awards, which we held virtually this year.
Signed the UK's Living Wage Commitment as part of our ongoing commitment to paying people fairly.

Review of the year

Ethics and compliance

Being a responsible business means living by our value to act with integrity and upholding the highest ethical standards when working with our customers, suppliers and local communities. This responsibility underpins our purpose and strategy and is expressed through our Code of Ethics. This Code has been particularly important during the pandemic, helping our teams make good decisions in difficult circumstances.

We continue to assess our ethics and compliance programme against changes in legislation in the locations where we operate and to understand any gaps or weaknesses that we need to address.

Maintaining our ethical stance during the pandemic

COVID-19 has created extra pressure and uncertainty in all our lives. Stress can have a negative impact on our ability to make good decisions and, unless carefully managed, ethics and compliance can sometimes suffer.

To help manage the additional risk, our Group Ethics and Compliance team created a series of global video communications offering employees practical support and guidance. The videos highlighted the risks and provided a refresher on our key ethics and compliance principles. We also used our communications channels and training to reinforce the importance of using our Code to make good decisions. Our values and compliance obligations can never be compromised, and our teams were encouraged to continue supporting others in doing the right thing, recognising that the pandemic posed increased commercial pressures externally and internally.

We also continued to grow our global network of ethics ambassadors with more than 130 employees now involved. These ambassadors act as a sounding board for their colleagues and offer guidance on navigating difficult situations. They also help employees seek extra help and play a vital role in helping us run our annual 'Ethics Week' celebrations.

Embedding an ethics and compliance programme

We set out our global ethics and compliance standards using a two pillar approach that is supported by our Code:

1. Promoting an ethical culture across the company.
1. Implementing a compliance programme framework applied to each risk area.

Our compliance programme brings together our approach to risk management, internal controls and work to promote an ethical culture across the company. Our key compliance risks include:

Bribery and corruption.
Data protection.
Export controls and sanctions.
Conflicts of interest.
Competition / anti-trust issues.
Financial crime (including the corporate criminal offence of failing to prevent the facilitation of tax evasion).
Supply chain compliance.

Continued focus on ethics and compliance training

Some of our employees work in jobs that expose them to a higher risk of ethical and compliance issues. We provide these individuals with additional, targeted compliance training to help them manage those risks. During the pandemic we shifted this programme online, providing 'live' ethics and compliance training sessions to our employees globally.

Meanwhile, 71% of employees completed our annual Code of Ethics training – this is higher than the previous year (66%) following a concerted engagement effort during our Ethics Week. We also continued to deliver our global compliance training via our e-learning portal, with classroom training options for employees who do not have regular access to a computer. These face to face sessions were run in line with local COVID-19 regulations.

Helping our people speak up

We encourage our employees and anyone with whom we do business to speak up when they have a concern or are unsure about how to do the right thing. There are several ways in which people can raise a concern, including via their manager, ethics ambassador, HR and legal. Those who are not comfortable using these routes can contact our independent speak up helpline and online chat function. Where local law permits, these calls and conversations are anonymous.

All Speak Ups are investigated and we take appropriate action whenever an issue is identified. Those investigations are overseen by our senior leadership Ethics Panel who also report back to the board, particularly on any themes or opportunities to improve our working practices. In 2020/21, we received 129 Speak Ups (see page 269 for a full breakdown by issue type). There were some that related to questions or concerns about COVID-19 protocols, which enabled us to clarify misunderstandings and further enhance practices in other instances.

While the number in the 'discrimination' category is higher than other categories, this is in line with industry norms. All reports are taken seriously, and we view the total number of Speak Ups as a positive reflection of the confidence in the process.

Occupational health and safety

Nothing is more important than keeping people safe at work. COVID-19 only made that commitment more acute, reminding us all that every Johnson Matthey employee has a responsibility to look after themselves and each other. The pandemic was also a stark reminder of the importance of protecting people's mental health as well as their physical health and safety. Here we discuss safety at our facilities. For more on how we support people's wellbeing and mental health, see page 76.

We are proud of the way our people came together, helping each other and adapting to new ways of working without ever losing sight of the bigger health and safety picture. Their hard work can be seen in our results.

But keeping people healthy and safe is always a work in progress. We must keep asking ourselves 'what more can we do?' and then putting the processes and procedures in place to keep improving. To that end, we have set ourselves an ambitious new TRIIR target as part of our new sustainability goals for 2030: achieve a TRIIR of 0.25. This is equivalent of a one in 400 years risk of such an injury to any individual worker, be that our employees or contractors.

In 2020/21 we continued to focus on:

Process safety, which is about how we safely manage our most hazardous processes and design, operate and maintain our factories safely.
Occupational health and safety, which is about incidents that happen more frequently but are usually less severe, like slips, trips, falls, cuts and sprains.

Protecting operational teams during COVID-19

When COVID-19 hit, we quickly put safety measures in place at our facilities around the world to protect our operational teams and reduce the spread of infection. While we developed site guidance at a corporate level, local leadership teams also worked with our EHS experts to ensure measures met national and regional health guidelines and relevant COVID-19 laws.

Some of the measures we put in place at our sites include:

Checking temperatures as employees arrive.
Installing new cleaning and hand sanitiser stations.
Implementing social distancing and one way systems.
Issuing personal protective equipment.
Introducing site response pandemic guidance.

In some parts of the world, regulators have carried out spot checks to review our onsite COVID-19 controls. In all instances, those audits have commended our facilities for their actions.

To assure ourselves internally we also set up a global outbreak response team. This team is responsible for continually monitoring and assessing the health situation at an international, national and regional level and, when needed, escalating strategic decisions to the GMC. They also developed our internal COVID-19 standards, including a work from home plan for our office based employees. And they talked to other companies and experts to benchmark ourselves and share examples of good practice.

We are acutely aware that efforts to prevent virus transmission at our sites raises the risk of distractions when it comes to process safety. To manage this risk, we drew on external sources for COVID specific lessons, and senior managers hosted process safety conversations with site teams to maintain vigilance.

The steps we have taken have kept our facilities operating and our people safe. But since we're still living with the virus, we continue to assess the situation and will introduce additional safety measures if needed. As countries start to ease their lockdown restrictions, we will help home based employees get back on site. But we will only do this in line with our own alert level status guidance and in compliance with national and local requirements.

Safety metrics and policies to protect lives

Everyone is responsible for health and safety at Johnson Matthey. That's why every employee is expected to follow our clear, simple safety principles. We also expect every employee to include a health and safety objective in their annual performance review. At a company level, our approach to health and safety is guided by our Group EHS Policy and underpinned by eight core health and safety policies. We call these our 'lifesaving policies' (LSPs) and make them available in local languages. Our LSPs address high risk topics, such as working at height and driving on company business, where any breach might endanger life or lead to serious injury. We provide sites with guidance on how to implement our LSPs and expect them to create and follow their local procedures to meet these policies. We also monitor compliance through EHS audits. COVID-19 affected the audit programme as travel was severely disrupted by lockdowns. The assurance team took two months to prepare and test a new remote audit protocol and then proceeded to audit on a priority basis using that tool.

It's six years since we first introduced our LSPs so, to ensure employees stay up to date, we introduced a refresher e-training programme. By March 2021, more than 80% of our employees had completed the course.

Review of the year

Process safety – good progress under difficult circumstances

Process safety is all about ensuring our operational equipment remains in good working order and is managed in a way that reduces risk of failures that could lead to significant injury, significant impact to the environment or significant asset damage. It relies on good design principles, strong engineering, operating and maintenance practices. It also means making sure that our employees have the skills and training they need to follow our procedures and policies.

Our process safety performance indicators showed significant improvement in 2020/21 with the number of potentially life threatening incidents falling from ten to three. While these incidents damaged equipment, they did not cause major injuries.

Meanwhile, our process safety severity rate (based on the actual impact of incidents as defined by the International Council of Chemical Associations – ICCA) fell from 1.20 in March 2020 to 0.81 in March 2021. Our Tier 1 process safety event rate increased from 0.11 to 0.15 due to better reporting of process safety events from our sites. We had five Tier 1 process safety events during the year. This compared to four in 2020. A definition of a Tier 1 Process Safety Event and our performance is given on page 269.

ICCA process safety severity rate

Investigating the root causes of safety events

We investigate every process safety event to understand both the root cause and the actions a site took to correct the problem.

In 2020/21, our most serious event occurred when a reaction hazard generated excess hydrogen at our site in West Deptford in the US. This caused an internal explosion and ruptured a reactor. Detailed root cause analysis found flaws in the operating instructions. To address this, the team improved its approach to reaction hazard processes. Meanwhile, we implemented a group wide review of the basis of design safety for selected chemical processes in which conditions might generate excess flammable gas.

Embracing digital ways of working to address process safety

The pandemic has made it difficult to carry out in person hazard identification, risk assessments and group level site audits. So, we have adapted, using digital tools to assess process safety on some of our biggest projects while keeping progress on track through our metrics reporting. We also:

Continued running one day process safety leadership training with 100 new senior managers online.
Offered online process safety training, with 4,000 operational employees trained so far.
Ran a three week virtual global process safety conference, with employees attending 2,700 sessions.
Started rolling out a new programme that assesses individual competencies for critical operational roles against 18 key process safety areas, such as knowledge, competency, engineering and design, following a successful two year pilot with 60 participants.

During 2021/22, we will continue to implement our process safety strategy as part of our overall EHS roadmap, with plans that include further training, competency assessments, managing safety critical equipment and further embedding our leading and lagging metrics.

glance Occupational health and safety performance in 2020/21

We use leading and lagging indicators to track our occupational health and safety performance and saw improvements in both during 2020/21.

In our indicators for employee health and safety we reduced our:

Lost time injury and illness rate (LTIIR) by 20%, falling from 0.35 to 0.28. We have set ourselves a target to reach 0.20 by 2025.
TRIIR by 28%, falling from 0.79 to 0.56. This is lower than our previous target for 2025 of 0.6. We have a new target for 2030, covering both employees and contractors, of 0.25.
Reduced our OSHA severity rate1 by 15% to 15.7 (at end of March 2021 compared with the 12 months to March 2020).1
Reduced the number of lost and restricted days by 847, down from 3,053 in 2019/20.

2020/21 was another year without a fatal accident on any JM facility. It is now five years since our last fatality.

Our occupational health statistics remain relatively low, falling to only two cases in 2020/21 and a rate of 0.01 per 200,000 working hours in a rolling year. By comparison, we recorded 14 cases and a rate of 0.09 in 2019/20. These are exceptional reductions and could, in part, be due to fewer employees on site during pandemic restrictions.

We have not identified any transport related incidents among our employees during the year.

Reporting and learning from our near misses, narrowly avoided injuries and unsafe practices is as important in occupational safety as it is in process safety. This year the number of near misses rose by 26%. This is the second year running that the number has risen and reflects a good reporting culture which has helped us to reduce injuries. Currently 36% of our sites have ISO 45001 / ISO 18001.

We received an administrative penalty notice from the local emergency bureau for our site in Yantai, China, for CNY 135,000 on 29th June 2020 for over storage of hazardous chemicals and failure to conduct a physical hazards assessment. We were also fined CNY 25,000 for the lack of an emergency plan drill during the period of 13th June 2020 to 18th January 2021. All actions from these notices have been completed and closed to the satisfaction of the local emergency bureau.

Encouraging a culture of safety from the top

We expect leaders at all levels – from the GMC to the front line – to have a personal safety action plan in place. This plan includes practical safety activities to encourage safety behaviours and promote a proactive safety culture. During the year, our leaders carried out regular communications on safety and also conducted reviews for serious incidents.

Lost time injury and illness rate (LTIIR)²

per 200,000 working hours in a rolling year

Total recordable injury and illness rate (TRIIR)²

per 200,000 working hours in a rolling year

Occupational illness cases2

2 Data relates to employees only.

¹ Severity rate (as defined by the US Occupational Safety and Health Administration, OSHA) measures the average number of lost or restricted work days per injury event in the workplace.

We have launched a global EHS induction programme for new leaders and managers. The interactive training includes videos, personal action plans and discussion forums so that participants can discuss safety issues with other employees.

Raising health and safety awareness among employees

During 2020/21, we increased the frequency and quality of our health and safety communications with campaigns that raised awareness and increased engagement and personal ownership.

For example, we launched a six month 'Work Safe Home Safe' campaign to inform employees about the common musculoskeletal disorders that represent our highest injury rates, and how, for example, good desk ergonomics can help prevent them. We issued ergonomic guidance regarding correct set up of equipment to employees working at home due to COVID-19.

As part of the campaign we ran a competition to find out which site had made the most changes thanks to the campaign. We received more than 60 entries and the campaign prompted more than 100 local improvement actions.

Managing chemical hazard exposure risks

Some of the materials we use to make our products are hazardous and must be handled carefully. To help assess, monitor and reduce employee and contractor exposure to these hazards, we have developed a series of EHS standards and guidance. These cover a range of issues, such as exposure management to chemical, physical and biological agents, and set out our requirements when planning to work with hazardous materials.

Every site also has its own exposure monitoring plans to help identify potential exposure against regulatory or internal JM limits and lays out the control measures in place to reduce or eliminate exposure.

Our Group EHS team regularly audits against our EHS standard requirements to ensure we continuously improve our operating practices. The team also works closely with other functions to share guidance on good practice and provide tools to continuously improve safety standards, and they conduct frequent reviews of our industrial hygiene exposure risk evaluation and control programmes to make improvements.

Our Group Industrial Hygiene and Occupational Health team runs regular reviews with sites to make sure they have a strong programme of health management in place and help develop improvement action plans when needed. In the UK, we have partnered with a single national occupational health service provider to help drive consistency, efficiency and cost savings.

We also work with our industry peers as a member of metal associations like the International Platinum Group Metals Association and European Precious Metals Federation. When needed, we proactively participate in and promote sector wide health studies and reviews.

Keeping our contracting community safe

We are currently working on several large capital investment projects around the world, which means we have more contractors on site than in a typical year. We work with our contracting partners to help them understand our EHS expectations and regularly monitor their compliance. As a result, we have seen a reduction in our contractor LTIIR over the past 12 months from 0.27 to 0.23 and in TRIIR from 0.80 to 0.45. Our five year contractor LTIIR and TRIIR performance is on page 269.

Product stewardship

Some of the materials we use to make our products and the products themselves are inherently hazardous – and if not managed correctly, could present an environmental risk or negatively affect someone's health. We extend our responsibility beyond our manufacturing sites, to think about the complete lifecycle of the products we make and ensure that risks are managed at every stage.

Reassuring customers on product safety

Naturally our customers expect to see evidence that we understand these inherent hazards and we provide accurate information on how to manage any risks appropriately. We assess all potential chemical hazards in our products and create legally compliant safety data sheets. These provide information on the chemical, the hazards it presents, how to handle it safely and what to do in the event of a spill or an emergency. We also submit this information to national poison centres around the world.

Meanwhile, other external stakeholders want assurance that we are managing any potential risks to the environment, our employees and customers. As such our product stewards, toxicologists and industrial hygienists meet regularly to review new hazard and exposure data and identify ways to reduce operational risks. This may include reducing, eliminating or replacing hazardous materials in our processes and products. And our businesses use a robust new product introduction process to make sure we're always pushing our standards in this area.

Setting a high standard for product stewardship

Our licence to operate depends on high standards of product stewardship. At its simplest level, that means we comply with all relevant chemicals regulations in the regions where we operate. We have procedures in place that help us identify our current and future regulatory obligations and our group wide policies are written in line with the Strategic Approach to International Chemicals Management's (SAICM) global framework. These product stewardship policies are an important part of our EHS audits to ensure compliance at a site level.

We also encourage voluntary stewardship activities across our value chain. We work with customers to understand how they use our products to see if we can further control and minimise safety risks and any adverse effects on human or animal health and on the environment. We also look at opportunities to develop products with improved health and environmental attributes. We're proud of this work, and we want to add more rigour to the way we measure progress.

To help increase understanding, and encourage proportionate regulation, of our chemistries and products, we are actively involved in several trade associations and organisations. We are a signatory of voluntary European industry initiatives set up to improve the quality of hazards and risk management information submitted under the EU's Registration, Evaluation, Authorisation and Restriction of Chemicals (EU-REACH) regulation. To support those initiatives, we updated more than 20 of our EU-REACH registrations in 2020.

Finding safer alternatives for hazardous substances

We seek to replace 'high hazard' substances – chemicals with significant potential, if poorly managed, to harm human health or the environment – where safer and economic alternatives are available, and always when legally required. In our Fuel Cells business, for example, we substituted a key chemical in our manufacturing processes with a less hazardous one, avoiding costly regulatory consequences for JM and a key energy customer in the US.

Sometimes, however, it simply isn't currently possible to replace a substance. In those instances, we carry out a detailed risk assessment and ensure both our operations and customers have robust risk management processes in place.

Designing risks out of new products

Whenever we develop a new product, we assess all the materials we need to make it against internal guidelines and regulations. We do this early in the development process and, in line with our policies, always investigating the availability of safer alternatives. Higher hazardous chemistries are subject to risk assessments and require senior level approval for their time limited use.

The number of substances we use that are 'regulated'1 , or are considered to be 'of international concern'2 is limited. Approximately 5% of our sales come from products that are manufactured using or containing these substances.

Meanwhile, a very small proportion of our products (less than 0.01% of sales) are made using genetically engineered microorganisms. These are found in our biocatalysts (enzymes) but do not contain live organisms at the point of supply. Biocatalysts are highly selective and can help us produce more of the desired chemical products and fewer undesirable byproducts.

Complying with regulation

We operate in a number of regulated industries, with some of our products subject to strict rules on their use. Our regulatory teams actively monitor and assess any changes to these regulations and their potential impact on our supply chain and make sure we always meet our obligations.

Meanwhile, we track our operational and product performance every year through our product stewardship reporting programme. This year the programme found no reports of significant health effects from use of our products, and confirmed full compliance with health and safety, labelling and marketing regulations and voluntary codes. There were no significant transportation incidents reported either.

Putting our Brexit plans into action

During 2020/21, we put into practice our readiness plans for the post-Brexit regulatory regimes. This included transferring more than 90 UK registrations to EU legal entities to ensure the products we export to the EU remain compliant with EU-REACH. In addition, we hit the first UK-REACH deadline for 'grandfathering' our relevant EU-REACH registrations so that we can maintain our access to the UK market.

Management of the regulatory environment

We are a member of a number of industry bodies, including the Chemical Industries Association (CIA) in the UK, the European Chemical Industry Council (CEFIC) and Eurometaux in Europe. These industry bodies allow us to take part in government consultations whereby we can review and comment on upcoming environmental policy proposals or legislation that could affect our business. This allows us to understand the impact of the change being proposed either for new or existing legislation early and subsequently make plans to ensure we deliver compliance with government regulations and policy.

¹ e.g. SVHCs (substances of very high concern) under REACH, RoHS or California Prop 65 listed substances.

² e.g. controlled by the Montreal Protocol, Stockholm and Rotterdam Conventions, GHS category 1A/1B carcinogens, mutagens or reprotoxins, etc.

Upholding high ethical standards in our value chain

In addition to maintaining the highest standards in our own operations, we are committed to ensuring that our whole value chain upholds the highest environmental, social and governance standards.

As part of our new sustainability framework our goal is to uphold human rights throughout our value chain. Our target for 2030 is to:

Assess

100%

of value chain partners for human rights risks and put remedial plans in place where high risks are identified

We will use a risk based approach in our assessments and where high risks are identified we will work closely with our value chain partners to put any necessary action plans in place.

What we mean by upholding human rights

We support the principles set out in the UN Universal Declaration of Human Rights, UN Guiding Principles on Business and the International Labour Organisation Core Conventions, including the conventions on child labour, forced labour, non-discrimination, freedom of association and collective bargaining.
We support the principles endorsed under the UN Global Compact and have committed to formal membership by the end of 2021.
We have also made a commitment to encourage greater diversity across our value chain through the introduction of a structured supplier diversity programme during 2022.
We ensure we carry out a full human rights risk assessment whenever we enter a new territory, make an acquisition or enter into a joint venture.

Transparent supply chains founded on strong partnerships

Our commitment to developing a sustainable ecosystem is critically important to our customers. Raw materials such as nickel, cobalt and lithium are forecast to be in deficit over the coming years due to increasing numbers of EVs. Through our strategic partnerships with SQM and Nornickel we are providing long term security of supply while delivering sustainable and responsibly sourced critical raw materials. We have also formed a strategic partnership with mining group Sibanye-Stillwater to secure supplies of critical pgms required to accelerate new technologies for a low carbon future. The partnership will drive circularity and reduce carbon footprints in critical metal supply chains for customers across many global industries.

Due to the varied nature of our businesses, the principal risks in our supply chains are complex. To manage our key relationships and risks we have policies and processes in place within our procurement function and as part of our ethics and compliance framework. In March 2021 we issued an enhanced Supplier Code of Conduct, which sets out the standards we expect all our supply partners to share with us. It forms the foundation of our new supplier due diligence programme, which will roll out in phases during 2021/22. This programme will help us strengthen our supplier relationships, support our goal to reduce our Scope 3 GHG emissions and address human rights risks across the lifecycle of our products.

We expect our supply partners to complete self assessments under our Code of Conduct to demonstrate activity that already

meets our expectations, any elements that they have committed to adopting or areas they are unable to support in the foreseeable future. This creates a level of transparency that helps us work with our partners to identify and address areas of risk and agree future action plans.

Responding to COVID-19

We have global, multi tiered supply chains, so it was essential to react quickly to COVID-19. This was possible thanks to strong supply partner relationships and contracts, and the positive way that our people adapted to remote working. Together, this helped us avoid COVID-19 related costs worth £19 million. As part of our response, we:

Identified the suppliers critical to business continuity, such as logistics and facilities management, and worked closely with those delivering services to our sites to manage supplies as different lockdown measures hit different geographies.
Put contingency plans in place, including supplier and services risk mapping, and kept in regular contact with critical suppliers to secure continuity of supply.
Offered extra support to smaller or niche suppliers, such as paying invoices early.
Worked with our key travel providers to track employee locations and arrange travel and repatriation where necessary.
Sourced critical personal protective equipment through strategic supply partners when supplies were tight.

Where we source strategic raw materials

We procure goods and services globally and our supply chains are multi tiered. Supply failure is a principal risk (see page 93). Monitoring and understanding that risk is challenging but essential. Some of our strategic raw materials are only available from a limited number of countries. The countries we rely on for these materials are highlighted in the map below.

Doing business in higher risk jurisdictions

We don't just want to abide by the laws in the regions where we operate, we want to help raise industry standards within them. The requirements and expectations that we set other businesses help us do that and that's why, in April 2020, we introduced a new Doing Business in Higher Risk Jurisdictions Policy. This formalises our approach to third party risk management and due diligence in regions that represent the highest risk for our operations.

Since then, we have reviewed 426 counterparties against legal, compliance and reputational criteria and taken risk based decisions on their suitability as a JM business partner.

Reducing the risk of modern slavery in our supply chains

In line with the UK Modern Slavery Act 2015, we publish an annual public statement that demonstrates the actions we've taken that year to ensure modern slavery and human trafficking do not occur in our businesses or supply chains. There were no human rights grievance reports made against Johnson Matthey during the year. Our 2020 Modern Slavery Statement is available on our website.

Creating ethical supply chains for battery materials

We rely on critical raw materials such as lithium, nickel and cobalt to make our battery materials, some of which are often mined in parts of the world where human rights abuses, including modern slavery and child labour, are well documented. For example, the Democratic Republic of Congo (DRC) holds about 50% of the world's cobalt reserves and, while some mines are operating ethically, there is a significant amount of illegal artisanal mining in uncontrolled conditions.

We are committed to only using ethically sourced raw materials in our Battery Materials business. To help us do that we have implemented an enhanced due diligence programme for battery materials designed with third party experts RCS Global. This gives us full 'back to mine' transparency on all our raw materials that contain lithium, cobalt and nickel.

RCS Global audits are carried out in line with the OECD's Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas. In September 2021 we will publish our annual statement in line with this guidance. COVID-19 restrictions meant we had to pause onsite supplier audits in 2020. However, we were able to continue self assessment audits and introduce several virtual audits of new strategic partnerships.

As the market for high performance batteries for EVs takes shape, we want to help instil high ethical standards across the whole industry from the outset. To that end we are active members of the Global Battery Alliance and are committed to its ten guiding principles to create a sustainable battery supply chain by 2030. We are also members of the Cobalt Institute and intend to align our corporate reporting framework and policies with the Cobalt Industry Responsible Assessment Framework guidance later this year.

Responsible sourcing of our platinum group metals

Our Platinum and Palladium Supply Chain Policy Statement, available on our website, sets out our commitments and actions to the responsible sourcing of pgms. Johnson Matthey Plc and Johnson Matthey Inc are accredited as good delivery refiners on the London Platinum and Palladium Markets (LPPM). This means that all the materials that pass through our UK and US refineries are subject to the LPPM's responsible platinum and palladium guidance. In 2020, we achieved third party assurance, from LPPM accredited auditors from RCS Global, that our pgms due diligence programme complies with the standard. The audit report is published on LPPM's website.

We also work with our customers through the International Platinum Group Metals Association (IPA) to ensure that we source our pgms in an ethical manner. All mining members of the IPA have committed to obtaining third party assurance of their ethical mining practices to independently recognised standards, such as IRMA and ICMM.

Conflict minerals

The term 'conflict minerals' refers to tin, tungsten, tantalum and gold (3TG). They are found in the DRC and surrounding countries, particularly areas of military conflict where mining is often illegal and linked to serious human rights abuses, including modern slavery and child labour. Johnson Matthey uses small quantities of these metals in some of our products, most notably tungsten in some of our automotive catalysts.

Because of the problems associated with conflict minerals we have enhanced our due diligence process based on OECD guidelines, in line with the European Union Conflict Mineral Regulation. This includes keeping records that allow us to track the suppliers of all the raw materials we use and identify which smelter the conflict minerals came from. We only use materials from refiners and smelters that meet the Responsible Minerals Assurance Process (RMAP) assessment protocols and that are listed on the Responsible Minerals Initiative database.

We keep an in house database on the provenance of our 3TG supplies so that we can answer any specific questions our customers might have about the minerals in our products. In 2020/21, we responded to 104 customer requests for information, an increase of 21% on the previous year.

We revised our global Conflict Minerals Policy during 2020 and it is available on our website. We train our employees annually on this policy as part of our ongoing ethics and compliance e-learning programme. In September 2021, we plan to publish our first annual conflict minerals statement on our website.

Our communities

We have a long tradition of supporting our local communities through our global volunteering programme, which grants employees two paid volunteering days a year. This allows them to give something back to organisations that they care about. Meanwhile, our match funding programme doubles the money that our people raise for charity, up to £1,000 a year per employee.

Now we are going further, with a commitment to invest at least £1 million every year in community engagement. This investment will be used to address the needs of our local communities, and fund the core elements of our flagship programme, Science and Me.

We will also introduce a new key performance indicator to measure the impact of Science and Me. And because we're so proud of the voluntary work that our employees do, we have set a target for 2030 to:

Achieve

days of corporate volunteering a year

Bringing science to life for the next generation

The COVID-19 pandemic has been extraordinarily challenging for young people and created major uncertainty for the next generation. But what it has shown is that science is a key part of the solution to this and many of the other global challenges we're facing, like climate change. We're going to need many more scientists, engineers and technologists to help tackle those challenges.

That's why we've created Science and Me, using a £1 million fund created as part of our COVID commitments made last year. There are two parts to the programme. The first gives our sites access to funds to run science education projects in their communities with local partners through a grant scheme. And because science inclusion is at the heart of Science and Me, the programme will target students who typically miss out or don't engage with science because of factors such as socioeconomics, gender or ethnicity. Widening participation is essential to a widespread change of attitude towards science and science careers. The second part will increase our global impact through a new corporate level charity, which we plan to announce later this year.

Despite the pandemic, we were able to run our first set of projects online, connecting with young people. These included volunteer activities in which our colleagues connected with students through online chat forums to answer their science questions and developed science activity packs for disadvantaged children to use at home.

We also continued to provide mentoring, and skills and careers talks for young people around the world. Throughout the year over 200 employees took part in our online activities and we reached more than 1,500 students. We will continue to run virtual events to supplement face to face activities, as they've proved highly effective.

We were delighted to win the Best Online External Event Award at the 2020 COVID Comms Awards for our Virtual Work Experience Week. During that week, more than 100 UK students worked online, completing team and individual activities set and run by our people. More than 45 employees took part, including our Chief Executive, Robert MacLeod, who discussed 'a day in the life of the Chief Exec' and took part in a Q&A with the students.

Employee generosity despite COVID-19

We are proud of our employees' generosity despite the challenges of the pandemic. In 2020/21, employees volunteered 431 days. COVID-19 restrictions meant that our volunteer contribution was significantly lower than the 2,682 days volunteered in 2019/20. Nevertheless, it still represents hundreds of hours of activity. We shifted many activities online, such as our virtual volunteer week, which helped to maintain all important connections with our local communities.

Johnson Matthey also donated £80,000 to match funds raised and donated by our employees, up from £77,000 in 2019/20. As a response to the pandemic, we extended our match funding programme to cover employees' personal donations to COVID-19 relief efforts.

Community investment summary

	Investment in 2020/21 £'000	Investment in 2019/20 £'000	% change
Direct expenditure	1,374*	940	+46%
Indirect expenditure	98	573	-83%
Employee volunteering time	98	573	-83%
Total group	1,472	1,513	-3%

* includes £1 million earmarked for the Science and Me programme.

Taskforce on Climate-related Financial Disclosures

This year we have continued to embed the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) into our management and reporting frameworks.

Our leadership team owns our sustainability 'journey' and they have engaged the global sustainability consultancy Environmental Resources Management (ERM Ltd) to undertake a robust review of JM's internal processes and external reporting against the TCFD framework to help us align it with best practices by the end of 2021. The review includes a detailed assessment of JM's approach to identifying and managing both risks and opportunities related to the low carbon transition and physical climate change. ERM will also evaluate JM's climate scenarios and how they are used to assess the potential implications for our business strategy. Adapting to climate change is an ongoing journey. We will continue to integrate it into our strategy, systems and processes and will be ready to be fully compliant with upcoming UK regulation on TCFD reporting for our annual report 2022.

Here is a summary of our current progress under each of the four pillars of the TCFD framework:

1. Governance of climate-related impacts

The board is responsible for oversight of our strategic direction and progress against our strategic priorities to ensure we are positioned to deliver long term sustainable business performance. During discussions on strategy, the board considers the market drivers we are exposed to in our diverse business portfolio, including market responses to climate change, the resulting opportunities and challenges that can impact our business strategies and how we are responding. A number of board sub committees play a key role in determining how JM governs climate change.

2. Climate strategy

During the year a substantial business review has been undertaken to identify climate related opportunities for JM over the next decade.

Transition risks

Our largest transition risk is the rate at which the automotive powertrains will transition from internal combustion engine vehicles to battery electric and fuel cell vehicles. We are carefully managing the transition as tighter regulations for vehicle tailpipe emissions are debated to ensure we maintain a profitable business in autocatalysts for as long as the market requires these products. At the same time we are developing our new businesses in high performance cathode active materials for electric vehicles, membrane electrode assembly components for fuel cell vehicles and technology for hydrogen production used to power those vehicles, in order to be prepared for the transition at whatever pace it occurs. We are also investing in a broader portfolio of low carbon solutions linked to clean energy, decarbonising chemicals production and circularity.

Read more: Technologies to drive down transport emissions on pages 4 and 5

Read more: Clean energy, decarbonising chemicals production and circularity on pages 6 to 11

Review of the year

The rate and extent of change in our key markets in response to climate change is the subject of extensive ongoing scenario planning. We have developed four in house scenarios for the mobility sector, including one which is closely aligned with the 2DS scenario of the Paris agreement; other scenarios are aligned with rates of market evolution informed by customer announcements and driven by progressive tightening of regulatory standards, and we also include a 'business as usual' scenario. We have also taken into account the variance of regulatory tightening in different geographies and other market factors such as car sharing and urbanisation.

Physical risks

Climate change increases the risk of extreme weather events which can impact our operations or supply chains. We manage this disruption via our business continuity plans which detail actions and alternate supply routes for various situations. We have completed an assessment of climate risk on all our facilities in partnership with our insurance providers. Where there is an exposure to extreme weather events, such as hurricanes on the eastern seaboard of the USA, we have designated shelter areas for employees. The impact of climate change on water availability is also important and we periodically assess our sites for water risks using the World Resources Institute's Water Risk Atlas tool.

3. How we manage climate-related risks

Climate change is incorporated into our risk management process as a driver of certain principal risks, especially 'Future growth', 'Environment, health and safety' and 'Asset failure' and is considered when compiling those risks. We recognise that effective management of climate change risks is crucial to deliver our growth strategy and inspire confidence in our stakeholders. Our risk governance framework is described in detail on page 90.

Future growth risk on page 92, Environment, health and safety risk on page 93 and Asset failure risk on page 95

Our programme of work with ERM will particularly focus on how to ensure climate risk is integrated into our overall risk management framework.

4. Metrics and targets to manage climate-related impacts

Johnson Matthey is committed to net zero by 2040 across its GHG footprint. In April 2021 we joined the Business Ambition for 1.5C and committed to setting science based GHG reduction targets for Scope 1, 2 and 3. Our proposed targets for 2030 and baseline performance are outlined in our sustainability goals table on page 63 and we will proceed with independent verification of these targets according to the SBTi methodology during the next year. In addition, we will continue to monitor our progress towards our renewable energy target, where 60% of our electricity must be certified renewable by 2025, and our progress towards our reduction in net water usage.

Read more: Renewable energy on page 68

Risks and uncertainties

Reflection of the previous year – managing risks effectively

This year really proved the value of our risk management process. COVID-19 had a significant impact on business and society, and JM was no exception. We also felt the consequences of the economic changes caused by Brexit. Nonetheless, we were able to navigate these uncertainties well, thanks to the strength of our risk management framework which guided our approach. It helped us understand the risks better, and shape the actions we took to mitigate them.

As a result, we were not distracted from rolling out our key business transformation programmes. These programmes will help us respond more quickly, driving growth as we enable the four global transitions the world needs in transport, energy, decarbonising chemicals production and circularity, through our scientific knowhow, products and technologies.

These key strengths, and the products we are developing to help our customers decarbonise, are at the heart of how we will help the world achieve the goal of net zero. But within this context we also need to do more ourselves – as set out in our new sustainability commitments (pages 62 and 63). We have therefore also increased our commitment to reducing our own greenhouse gas emissions. As part of this, we have set up a new Working Group for the Task Force on Climate-related Financial Disclosures (TCFD) to ensure that our enterprise risk framework incorporates all relevant requirements and addresses our own climate scenarios, and that we have the right business processes in place to deliver our sustainability commitments.

Managing JM's risks

JM applies a holistic approach to risk management which enables the business to protect value, proactively manage threats to the delivery of strategic and operational objectives while enhancing the realisation of opportunities. We have a risk management and internal controls framework to identify, assess, mitigate and monitor the risks and uncertainties we face as a business. It helps deliver a balance between risk and opportunity underpinned where appropriate by other tools available to us such as insurance.

We have a culture of continuous improvement; our risk environment continues to be enhanced as we embed stronger risk management practices and make positive progress to reaching our desired level of maturity. To fully embed risk management practices, we have focused on our risk culture through a series of workshops with risk owners and sponsors, clearer definitions of risk causes and sharing of this understanding across the group.

Effective risk management helps us:

Pursue new opportunities while mitigating our risks in a rapidly changing external environment.
Deliver our strategic objectives through prioritised planning.
Focus our assurance resources on specific areas of risk and uncertainty.
Implement relevant controls to mitigate or prevent risks from occurring.
Drive continuous improvement and close collaboration between our corporate functions and sectors.
Comply with UK Corporate Governance Code requirements.

2020/21 process developments

We have made several enhancements over the last 12 months in the way we address and monitor risks:

Mitigating action prioritisation. Key activities identified as having the most significant impact in reducing JM's risk exposure will be tracked and monitored.
Risk champion and sector risk forums have been established to provide practical support to the business in operationalisation of the risk process. We have also enhanced risk reporting through utilisation of supporting dashboard and visualisation of key risk information as well as the actions required to support achievement of desired outcomes.
Further definition of improved key risk indicators (KRIs) framework. Expanded approach in detailing metrics which demonstrate when tolerance levels for each principal risk may be breached. This provides the board, risk sponsors and owners greater visibility and awareness of mitigating action effectiveness in driving the net positions towards the defined appetites.

Emerging risks and opportunities

Given the rapidly changing nature of the external environment, the process to determine emerging risks is included within our Group Risk Management framework. We have systematised our approach to tracking key signposts and indicators relating to decarbonisation policy and private sector commitments, which also includes consideration of JM's climate scenarios. We are using this to better understand the market context for our new growth opportunities, for example in hydrogen, and adjust our strategy as needed. Automotive / powertrain scenarios have been developed and will be expanded over the next financial year to provide a clearer view on oil demand and key chemical value chains while continuing to develop our thinking on other group wide macroeconomic drivers (e.g. carbon pricing). We have also reviewed internal and external environment changes / movements at the board and Group Management Committee (GMC) to ensure that the top down risk management process continues to be informed.

Review of the year

Determining our risk appetite

As part of our risk assessment process, our board and GMC consider the nature and extent of our risk appetite of the group's principal risks. The outcome of this exercise informs our strategic planning activities and helps us to set the level of mitigation needed to achieve our strategic objectives – accepting, of course, that some level of risk taking is necessary.

JM's Board of Directors has overall accountability for the risk management process. Supported by the GMC, assessments are carried out against the principal and emerging risks facing the business to ensure that the risks identified are relevant to JM's goals and strategic objectives. We recognise the emerging nature and velocity of some of the more dynamic aspects of emerging risks, which we are developing. Read more in our TCFD statement on pages 86 and 87. The Audit Committee assists the board in monitoring the effectiveness of the risk management and internal control policies, procedures and systems.

The risk management framework incorporates both a top down approach to identify the group's principal risks as well as bottom up to identify operational risks. They are run in parallel and we are improving the connection and alignment between them. The visibility of all risks is ensured through our group principal risk reporting dashboard, which includes a consolidated view of operational risks. We are working on the implementation of JM's risk universe and its digitisation will improve live visibility and comparability of risks across the sectors and sites as well as emerging themes.

Each principal risk is individually sponsored by a GMC member who drives progress through regular review considering related emerging risk factors, current responses and further mitigating actions to manage to our defined risk appetite. The GMC also periodically focuses on selected risks and performs deep dive reviews to support relevant strategic topics on the GMC agenda. The risk reviews are embedded within the relevant business and / or functional reviews to ensure that they are considered in the context of JM's values and strategic objectives.

JM's risk approach

Risks and uncertainties continued

How we manage risk

A standardised framework is used across the business to ensure risks are identified, analysed, monitored and reported in a consistent manner. Likelihood of occurrence and the potential impact on objectives are considered and scored using a broad range of impact measures. The effectiveness and adequacy of existing controls are assessed regularly with risk sponsors and owners. A subset of the most relevant controls are reported at least once a year via the key controls questionnaire process.

Functional leaders, sectors and site teams are responsible for identifying, assessing and prioritising their risks, considering the likelihood of occurrence and their potential impact on JM's objectives. This review includes assessing any movement in the risks, the strength of the controls we use to manage them and the status of mitigating actions.

Site risks are analysed for trends and anomalies which are reviewed by sector leadership teams. Risk insights are then incorporated into strategic planning and budgeting. The Group Risk Register is subject to a detailed review and discussion by GMC, and this includes discussion of emerging risks.

The board assesses the outputs from this process and is committed to further maturing JM's 'three lines of defence' risk assurance model. The first line represents operational management who own and manage risk on a day to day basis, utilising effective internal controls. Group functions and sectors monitor and oversee these activities, representing governance and compliance at the second line. The third line is the independent assurance over these activities provided by the Group Assurance function and other third parties. This model is subject to continuous improvement and requires further strengthening with the aim to mature management assurance functions and approaches.

We are currently enhancing our enterprise risk management structure to facilitate the implementation of a Governance, Risk and Compliance (GRC) tool which will support visibility of our processes, controls and risks and are developing JM's risk universe.

Risk management framework

Group Assurance

Constructively challenges and assists the board, Audit Committee, GMC risk sponsors, sectors and functions in considering the range of risks identified and their materiality.
Focus is provided to the progress of mitigating actions / projects in terms of their successful implementation and their likely effectiveness in reducing risk in line with our appetite.

Identify, monitor, report and mitigate risks at operational level

Defines risk appetite;

identify, monitor and

Top down

mitigate risk at group level

Bottom up

Board of Directors

Overall responsibility for sponsoring the approach to risk management and internal controls. Sets the tone on risk management culture and approves risk management policies, guidelines and processes.

Audit Committee

• Reviews the effectiveness of the group's risk management framework and internal controls system.

GMC

Develops company strategy in line with board risk appetite.
Reports on principal risks and uncertainties to the board and Audit Committee.
Carries out top down, bottom up and emerging risk identification and review.
Owns risk definitions, mitigation plans and monitors progress towards the appetite of our principal risks.

Sectors

Carries out a top down review of activities on a regular basis. Responsible for ensuring that sites and functional areas have developed risk registers in place. Reports to the GMC on sector risk and issues.

Sites / Functional Areas / Programmes / Projects

Reports top risks to sector. Carries out regular reviews on effectiveness of existing controls and progress with control implementation.

Insurance

Our risk management process allows us to respond to risks through the use of insurance to treat and manage risks. Our insurance strategy is to prioritise our mitigation resources on the most significant areas of risks and / or where JM has a legal or contractual requirement. We also consider using insurance cover as a risk mitigation tool where it is available on commercially reasonable terms from leading insurance companies. We currently have insurance programmes in place to cover a number of risks including employers' liability, workers' compensation, stock and transit, public and products liability, property damage, business interruption, and directors' and officers' liability. We utilise a captive insurance company to provide insurance cover for the portion of some of the risks we retain, ensuring there is an appropriate and economically beneficial balance of risks between JM and its external insurers.

The type and limit of insurance purchased from the external market is reviewed to ensure its alignment with our assessment of the relevant risks and with our external obligations. For example, we currently mitigate the potential financial impact of extreme weather events through our property damage and business interruption insurance programme.

JM's principal risks and uncertainties

Principal risks are regularly reviewed to ensure that JM meets the challenges facing the business and strategic objectives. To understand the current risk universe for JM, GMC risk sponsors have assessed changes to their risks, prioritising principal risks as required, with focused mitigation plans. This has been enabled by the risk management process facilitated by the Group Assurance and Risk function.

The following provide an insight into the way we have further shaped our risk coverage, and clarity on opportunities and relevant actions in 2020/21:

Climate change is an important part of our risk management process, driving certain principal risks, such as 'Future growth', 'Environment, health and safety' and 'Supply failure'. We recognise that we must manage our climate change risks effectively if we are to deliver our growth strategy and inspire confidence in our stakeholders. The rate and extent of change in our key markets in response to climate change is subject to extensive scenario planning as part of our TCFD preparations and we are carrying out further analysis on the validity of a stand alone risk for this area.
We refined our 'Failure of operations' risk to focus specifically on 'Asset failure'. This better reflects the primary cause of this risk and the level of potential exposure across the business. Following discussions with our sectors and other principal risk owners, we have put in place sector focused actions to reduce our exposure.
We reviewed our 'Quality' risk and developed sector specific views to acknowledge the different applications of this risk. We continued to work with sectors to help them own the risk, monitor its likelihood and ensure any specific actions are tracked.
Cyber attacks remain a significant risk because of the evolving external landscape and a rise in the number and sophistication of those attacks. Under our 'Information technology and cyber security' risk (previously Applications, systems and cyber) we continue to develop our controls in line with good industry practice to help us respond to these new challenges. We developed our ongoing programme of work with independent oversight and will track and report progress within this risk.
Following an assessment of JM's legal risk landscape, we have introduced 'Customer contract liability' as a new principal risk. This risk recognises our potential exposure to loss or damage because of existing or future customer contracts having potentially unfavourable terms against the backdrop of increasing regulation and collective actions, particularly in the automotive and pharmaceutical sectors.
The Precious Metal Management (PMM) team has continued to enhance the governance procedures over our metal management. Despite initial disruption caused by the pandemic it has not had an immediate impact on our supply positions and JM has benefited from the volatile and higher than average precious metal prices. In addition, significant advances have been made in reducing the amount of working capital which has been assisted by the advances made by reducing our refinery backlogs.

The table below sets out our principal risks and uncertainties and the actions we have put in place to mitigate them. The risks discussed below, either individually or in combination, could have a material adverse effect on our strategy, business, financial performance, operations, cash flows and liquidity, prospects, shareholders value and reputation. We analyse the extent of the mitigation plans we need, knowing that our risk profile and the potential impact of each risk changes over time. JM's strategic risks are listed first followed by operational risks. Each principal risk is also linked to one or more of our three strategic priorities:

Invest in growth areas targeted at climate change and circularity

Manage our established businesses to support growth
-

Promote a fast paced, efficient business and high performance culture

Risks and uncertainties continued

Invest in growth areas targeted at climate change and circularity

Manage our established businesses to support growth

Promote a fast paced, efficient, high performance culture

1 Existing market outlook

GMC sponsor: Robert MacLeod

Risks, opportunities and impact

Changing assumptions in our key markets could have an unplanned or unforeseen impact that we are not agile enough to respond to. This risk includes the potential impact of legislative changes, other market movements outside of our predictions, the extended impact of global pandemics, and emerging trends, such as tariffs, as well as regional and global slowdowns to which our business may be sensitive.

Key mitigations

We continue to execute our strategic planning process to assess and understand external trends and the associated effects on our sectors. This includes the balance, scale and focus of our investments.
We regularly review our portfolio to ensure that each part of the business is providing value to the group. In turbulent times the resilience of our portfolio demonstrates its benefits.
We monitor key viability and liquidity metrics, such as balance sheet strength, as part of our budgeting and going concern testing.
We monitor changes to key drivers, such as GDP and market assumptions, carry out scenario planning and adjust our business plans accordingly.
We have developed response mechanisms to ensure that we can react quickly when unforeseen market events take place.

Changes since 2020 annual report

Increased since 2020 annual report

Decreased since 2020 annual report n/a Risk movement not applicable as new risk

No change

Coverage of this risk has evolved to reflect potential unforeseen changes in our key existing markets and our ability to respond at speed. We have split our risk scoring into two categories: 'normal' fluctuations in the business cycle that are identified through our strategic planning, and lower frequency 'black swan' events, such as COVID-19, which are intrinsically unforeseeable. As a result, we have strengthened our market intelligence across all sectors and we continue to monitor global macroeconomic factors and are improving our sensitivity analysis through our strategic planning and budgeting process. Furthermore, we have improved our ability to react to unexpected market changes.

2 Future growth

GMC sponsor: Christian Günther

Risks, opportunities and impact

Ineffective execution of our strategic initiatives and investments could lead to failure to deliver planned growth and create value.

Key mitigations

We continually review our strategy in light of new information, and our Strategic Transformation Office tracks our execution via a business review process.
We review and monitor new technologies and market competitiveness on an ongoing basis.
We invest in research and development, capital projects and people with the specific skills we need to deliver our strategy.
We work proactively with current and potential customers, as well as industry bodies, such as the Hydrogen Council, to understand future needs and potential product and market evolution.
Our dedicated group capital projects team conducts regular reviews of all strategic capital projects.

Changes since 2020 annual report

We have further refined this risk to focus not just on the growth opportunities we see in our two main core businesses (Clean Air and Efficient Natural Resources) but also on the key growth platforms that relate to our Battery Materials, Hydrogen and Fuel Cells businesses.

Our future growth is in part driven by global macro trends, including climate change, acceleration of EV penetration and fuel cells, and an increase in the rate of decarbonisation that, on balance, create a suite of opportunities for JM.

To drive growth, we recognise that we need to leverage our core businesses to support our growth platforms, identifying opportunities, strengthening our IP positions, developing the products and services that customers need and building the skills we need to deliver our strategy. We also recognise the inherent level of risk that embarking on new growth areas creates, including securing customer platforms.

Overall, our net scoring (currently mitigated position) has reduced, recognising our regular monitoring and increased control through the Transformation Office. However, our appetite (desired position) has increased to reflect the alternative growth streams required and the higher percentage of revenue at risk as we balance our portfolio, expanding from our existing core businesses.

Review of the year

3 Competitive advantage

GMC sponsor: Maurits van Tol

Risks, opportunities and impact

Failure to maintain our competitive advantage in existing markets and, as a result, not meeting customers' evolving needs as effectively and profitably as our competitors.

Key mitigations

We maintain strong customer relationships through our technical proposition, good
market reputation and a high level of technical service.
We conduct research and development and use our capital management process to ensure resources are prioritised against the areas of greatest opportunity.
We maintain a strong innovation portfolio using our new technology platform and product development process.

Changes since 2020 annual report

We have processes in place to enable effective decisions to allocate innovation resource and capital. Through our innovation excellence programme, we continually improve the processes that further expand JM's product, application and technology toolbox.

We added further mitigating actions to ensure we have the capabilities to 'place the right innovation bets' and respond to emerging opportunities at pace.

4 Environment, health and safety (EHS)

GMC sponsor: Ron Gerrard

Risks, opportunities and impact

Like other high hazard manufacturing companies, our business operations are subject to a wide range of challenging health, safety and environmental laws, standards and regulations set by government and non-governmental bodies around the world.

If we fail to operate safely, we could injure our people or breach applicable laws, which could have a negative impact on our employees. This could result in lost production time and potentially attract negative interest from the media and regulators.

Key mitigations

We have embedded a health and safety culture across the business. This includes clear policies, guidelines and standards, continual training and awareness activities and audits.
We continue to conduct process safety reviews at applicable sites.
We carry out investigations to determine the root cause of incidents and accidents and develop remediation plans to address the issue.
We manage and report on environmental data associated with our sites.

Changes since 2020 annual report

The health and safety of our employees is our priority. COVID-19 has continued to affect the way in which many of our employees work and we have adapted our processes to ensure that training, online hazard studies and other assessments can continue despite the pandemic.

We have updated this risk to clearly articulate how we manage our exposure to health and safety risks, and to specifically include all relevant areas, such as our environmental impact.

5 Supply failure

GMC sponsor: Jane Toogood (metal) and Ron Gerrard (other sourcing)

Risks, opportunities and impact

The nature of JM's operations means there are limited suppliers from which to source certain strategic raw materials including precious metals. Any significant breakdown in the supply of these materials would lead to an inability to manufacture our products and satisfy customer demand.

Key mitigations

We manage our supplier relationships through regular reviews and discuss their constraints and quality management processes.
Where appropriate, we carry strategic stocks of raw materials and regularly monitor our levels against changes in the external landscape.
We regularly investigate alternative materials as part of our research and development.
We continue to invest in our pgm refining business to ensure access to recycled precious metals.
We conduct ongoing market research to understand and monitor the impact of short term events on the longer term supply of metal.

Changes since 2020 annual report

We have continued to implement our procurement strategy and have further sharpened our supply chain understanding across the sectors, including our capital projects supply chain.

We continue reviewing critical direct raw material suppliers to meet our product portfolio strategies.

We have also continued to reduce the precious metal backlogs in our refineries, reducing pressure on our precious metal sources.

Risks and uncertainties continued

6 People

GMC sponsor: Annette Kelleher

Risks, opportunities and impact

To successfully execute our strategy and deliver growth, we need an appropriate culture and a breadth and depth of leadership skills to drive a motivated, inclusive and engaged workforce, underpinned by adequate people data.

Key mitigations

Our values and behaviours are embedded in all our internal processes, including hiring and performance reviews.
We run culture focused sessions with our leaders and have developed a culture statement roadmap.
We run ongoing leadership development and wellbeing programmes for our employees.
We conduct a global employee engagement survey every two years and intermediate pulse surveys. We then develop targeted action plans based on the feedback from them.

Changes since 2020 annual report

We have increased our scoring to reflect the pandemic and also the level of change we are currently undertaking.

We have continued to prioritise our employees' health and safety, maintaining social distancing measures and supporting many homeworking employees. We have a series of leadership engagement and employee communications planned on a regular basis to support colleagues in times of uncertainty and maintain motivation across the group.

7 Security of metal / highly regulated substances

GMC sponsor: Jane Toogood

Risks, opportunities and impact

We store and transport significant quantities of high value precious metals or highly regulated substances. Loss or theft due to a failure of our associated security management systems may result in financial loss and / or a failure to satisfy our customers, which could reduce customer confidence or result in legal action.

Key mitigations

We have delivered the first year of a three year security improvement roadmap to further strengthen the function.
We continue to implement and apply our Group Security policies across all sites.
We regularly carry out security assessments and audits at sites.
We are members of intelligence groups that help us carry out regular threat evaluation and horizon scanning.
We run ongoing security awareness campaigns and training, including rigorous follow up of thefts and continuous learnings.

Changes since 2020 annual report

Our level of control continues to increase through the delivery of the security improvement roadmap, which includes implementation of control measures across our critical sites.

With the increase in metal prices comes a potential increase in the risk and we adapt our controls in line with the changing security risks to our materials.

8 Intellectual property management

GMC sponsor: Maurits van Tol

Risks, opportunities and impact

Failure to adequately manage our own, and third party, intellectual property, knowledge and information could lead to a loss in business advantage, loss of freedom to operate and reputational damage associated with litigation.

Key mitigations

We carry out an annual review of our intellectual property portfolio against JM's strategic priorities to ensure continued alignment.
We regularly review our sector level intellectual property strategy to ensure consistent monitoring of intellectual property activity.
We actively manage our intellectual property portfolio and use digital tools to support governance.
We continue to provide training on, and raise awareness of, our Information Classification Policy.
Intellectual property lawyers provide specialist guidance, including on the use of intellectual property as a business tool.

Changes since 2020 annual report

The intellectual property landscapes for the technologies in which JM operates continue to be inherently challenging as, for example, sustainable technology development is a very dynamic space.

To continue reducing our risk exposure, we are developing and implementing a trade secret management policy to ensure JM has a register of all its trade secrets and key knowhow. This will allow us to better manage our intellectual property and guard against loss, either inadvertent or deliberate.

Review of the year

review

Sector

review

Risk

business

9 Asset failure

GMC sponsor: Ron Gerrard

Risks, opportunities and impact

We may experience critical asset failures resulting in a material impact on the supply, performance, share value and reputation of JM.

Key mitigations

We are implementing robust asset management programmes and rigorous operational technology support systems.
We have developed and embedded engineering standards.
We are prioritising key insurance review actions and business continuity planning.
We are detailing and prioritising critical spares and capital expenditure for ageing assets and infrastructure.
We are delivering competency programmes.

Changes since 2020 annual report