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rolls-royce.com

LEADING THE TRANSITION

TO NET ZERO CARBON

Last year when we joined











net zero by 2050.

FOREWORD

OUR TRANSITION TO NET ZERO CARBON

CONTENTS



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



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rolls-royce.comLEADINGTHETRANSITIONTONETZEROCARBONLastyearwhenwejoinedtheUNRacetoZerocoalition,wepledgedtoplayaleadingroleinenablingthesectorsinwhichweoperatereachnetzeroby2050.FOREWORDOURTRANSITIONTONETZEROCARBONCONTENTSTocombattheclimatecrisis,weknowthatpowermustbemadecompatiblewithnetzerocarbonemissions.Forusthisisasocietalimperativeaswellasoneofthegreatestcommercialandtechnologicalopportunitiesofourtime.Ourcustomersuseourproductsandservicesinindustriessuchasaviation,shippingandenergygeneration,wheredemandforpowerisincreasingastheworld’spopulationgrows,becomesincreasinglyurbanised,moreaffluentandrequiresmoreelectricity.Thesearealsoamongtheindustrieswhereachievingnetzerocarbonishardest.Asotherpartsoftheglobaleconomydecarbonise,theywillcontributeamoresignificantproportionofremainingemissionsunlessthetechnologiesandtheinfrastructuresunderpinningthemarecompletelyreimagined.Asaresult,ourinnovationinsectorswherereducingemissionsissotough,hasafundamentalroletoplayinenablingandevenacceleratingtheoverallglobaltransitiontoanetzerocarbonfuture.Ourpioneeringworkcanhaveapositiveimpactacrossmultipleareasoftransport,energyandthebuiltenvironment,threeofthe‘systems’definedbytheUNRacetoZeroasrequiringthetechnologicalbreakthroughsthatwecanhelpcreate.Wehavealwayssoughttomakeourproductsmoreefficient,butweneedtogofurther.LastyearwhenwejoinedtheUNRacetoZerocoalition1,wepledgedtoplayaleadingroleinenablingthesectorsinwhichweoperatereachnetzeroby2050.Wearealreadyfocusingthelion’sshareofourresearchanddevelopmentinvestmentonthenecessarylower,netzeroandzerocarbontechnologiesweneedtoachievethatambition.03FOREWORDBYWARRENEAST,CEO06THECHALLENGEWEFACE,THEBREAKTHROUGHSWENEED08OUREMISSIONSFOOTPRINT10OURDECARBONISATIONSTRATEGY-MakingRolls-Royceanetzerocarboncompany-Mobilisingourvaluechain-Decarbonisingcomplex,criticalsystems28CREATINGANENABLINGENVIRONMENT34OURDECARBONISATIONPLANONAPAGE36GLOSSARY&REFERENCESWarrenEastChiefExecutiveOfficer,Rolls-RoycePLCAtRolls-Royce,webelieveinthepositive,transformingpotentialoftechnology.Wepioneerthepowerthatmatters.Powerthathasanimpactandiscentraltothesuccessfulfunctioningofthemodernworld.ByWarrenEast,ChiefExecutiveOfficer,Rolls-Royce0302ROLLS-ROYCELEADINGTHETRANSITIONTONETZEROCARBONrolls-royce.comWearenowlayingoutourtechnologypathwaytonetzeroandcommittingtoensuringournewproductswillbecompatiblewithnetzerooperationby2030,andallourproductscompatibleby2050.Ourdecarbonisationstrategyisfoundedonourunderstandingofthelevelsofcontrolandinfluencewecanhaveovertheemissionswithwhichweareassociated.Itstartswithemissionsinourownoperations,whichwehavealreadyhalvedoverthepastfiveyearsandplantogettonetzeroby2030–fasterinsomeofourfacilities.Itthenextendsintoourvaluechainandultimatelyfocusesonthecontributionwecanmaketotheglobaltransition.Weaimtomeetournetzerogoalfirstlybyworkingtowardsenablingourproductstobeusedinawaywhichiscompatiblewithnetzeroemissions.Wehavealreadymadeconsiderableprogressthroughthetestingofsustainablefuelsandthedevelopmentofnewproductsandenginearchitectures,whichwillfurtherincreasefuelefficiencyandhelpimprovetheeconomicsofnewformsofenergystorage.Wearenowsettingoutclearshort-termtargets,connectedtoexecutiveremuneration,tomakeallthecommercialaeroenginesweproduce,andourmostpopularreciprocatingengines,compatiblewithsustainablefuelsby2023andtoworkwithourarmedforcescustomerstoachievethesamegoalfortheRolls-Royceenginestheyuse.Secondly,wearepioneeringnewbreakthroughtechnologiesthatcanhelpdecarbonisethecomplex,critical,carbon-intensivesectors,includingtransportandenergy,inwhichweoperateanddrivesustainableeconomicgrowthforthefuture.Ourinnovationistakingusintoexcitingnewareas,withnoveltechnologiesopeningupnewmarketsandsignificantgrowthopportunities:fromall-electricurbanairmobilityandregionalaviation,tohybrid-electricsystems,fuelcells,microgridsandbatterystorage.Ourinnovationwithsmallmodularnuclearreactors,meanwhile,willseeusdevelopexistingtechnologytoenternewmarketsandsectorswherewecanoffertechnologicalsolutionsthatcanabateemissionsoutsideofourcurrentfootprintandprovidefurtherglobalgrowthopportunities.Ourbeliefinthepoweroftechnologyasaforceforgoodmeansweareultimatelyoptimists.Wedobelievethatastheworldemergesfromthepandemicandlookstobuildbackbetter,globaleconomicgrowthcanbecompatiblewithanetzerocarbonfuture.Thereis,however,noonesingletechnologicalanswertodecarbonisingtheindustriesinwhichweoperate.Weneedtobringourlegacyofinnovationtobearinmultipleareas.Furthermore,noindividualplayerholdsallthecards.Weareforgingnewpartnershipswithleadersinotherindustriestoimprovetheeconomics–andscalability–ofnetzerosolutions.Wewillalsostepupouradvocacyfornetzeropoliciesthatcanunlockandaccelerateaction.Weneedtoworkacrossborders,industriesandtechnologiestosucceed;andworkwithpartnerswhoareequallydriventowardscreatingsystembreakthroughs–inareassuchassustainablefuels–becauseemissionsaregoingtoriseuntilwecanscaleasolution,andthatscalinguprequireswholeecosystemsnotjustindividualcompanies.Thisis,andwillbe,acomplexanddifficultprocess,butthelongercarbonemissionsrise,themorepainfulanddisruptivethetransition.Thechoiceswemakenowwilldeterminethefutureforourgenerationandforthosetocome.ThedesiretobepartofthesolutiontoclimatechangeisstrongthroughoutRolls-Royceandtheambition,ingenuityandskillofourpeoplewillbeinstrumentaltooursuccess.Asanengineer,Ireadilyadmittobeingenviousofmyyoungercolleagueswhoarejuststartingoutontheircareerswithus.Thetechnologicalinnovationstheyarehelpingtopioneerandthattheywillbecriticalinimplementing,willhelpshapeourplanet’sdestinyandtheveryfutureofhumanity.Inaworldthatisatlastbeginningtoreallyconfronttherealityofwhatsciencetellsusabouttheclimatecrisis,webelievewithgreaterclaritythaneverbeforethatthepowerweprovidesocietymustbenetzerocarbon.Pioneeringsustainable,netzeropowernowsitsattheheartofourstrategy,futureinnovationandgrowthagenda.OurdecarbonisationstrategywillensurethatRolls-Royceisnotonlycompatiblewith,butactivelysupportinganetzerofuture.Thesocietalneedisgreat.Thebusinessimperativeisclear.Thecommercialcaseisattractive.TherearefewcompaniesbetterplacedthanRolls-Roycetopioneerthevitalsolutionsweneedtocreateanetzerofuture.WarrenEastChiefExecutiveOfficerRolls-RoycePLC0504ROLLS-ROYCELEADINGTHETRANSITIONTONETZEROCARBONrolls-royce.comThisrequirestheworldtohalveitscarbonemissionsoverthenextdecade,halvethemagainduringthe2030sandthendosoyetagainoverthesubsequenttenyearstoachievenetzeroemissionsby2050,accordingtotheIntergovernmentalPanelonClimateChange³.TheCOVID-19pandemichasgivenusaglimpseatthescaleofthetransformationrequired;2020sawthegreatestreductioninCO₂sinceWorldWarII,around8%⁴.Tolimitglobaltemperatureriseto1.5ºC,sciencetellsusweneedtoachieveasimilarlevelofreductionseveryyearforthenextthreedecades.Achievingnetzerocarbonwillrequireawholesaletransformationofthesystemsthatmakeupthebackboneofourglobaleconomy,includingtransport,energyandthebuiltenvironment–someofthesectorsinwhichreducingemissionsishardest.Inshowingwhatasystemicshockcanlooklike,COVID-19hasalsodemonstratedtheimportanceofpreparednessinacrisisandstrengthenedthecaseforacceleratedactiononclimatechange.Countries,regionsandcitiesthathavesetanetzerocarbongoalorannouncedanintentiontodosonowaccountfor70%ofglobalGDPandtwo-thirdsofcarbonemissions(66%)⁵.Suchcommitmentsareonlylikelytogrowinbothcoverageandambitionastheimpactsofclimatechangeincreasinglymanifest,andmoregovernmentsareforcedtoact.WerecognisetheurgencyoftheclimatechallengeandclimatechangeisoneoftheprincipalrisksrecognisedwithinourAnnualReport.Wearecommittedtoplayingourpartintheglobaljourneytonetzero.Undoubtedly,theverynatureofthistransitionwillmeanthattheremaybegeneralandsectorspecificcircumstanceswhichwillinfluenceourabilitytodeliverourcommitments.Wehavesettheseoutmorefullyonpage33ofthisreport.Theeffectsofclimatechangearebeingfelttoday.However,itiscrucialthatthesolutionswhichareadoptedtoaddresstheimpactsofclimatechangemustbuildinadaptationandresiliencerequirementstoensuretheymeetboththeimmediateandlong-termneedsofsociety,supportinclusivegrowthanddonotinadvertentlycreatenegativeimpactsonpeopleorthenaturalenvironmentelsewhere.AtRolls-Royce,webelievethatthecallforpowertobemoresustainableandnetzerocarbonwillbestrongerthaneverasweemergefromtheaftermathofthepandemicandlooktobuildbackbetter.Weareascience-ledbusiness,andthesciencetellsusthattoavoidtheworstimpactsofclimatechange,societymustlimitglobalwarmingto1.5ºCbytheendofthiscentury.That’swhywejoinedtheUNRacetoZerolastyearandhavepledgedtoplayaleadingroleinenablingthesectorsinwhichweoperatereachnetzeroby2050.Webelievethatthecallforpowertobemoresustainableandnetzerocarbonwillbestrongerthaneverasweemergefromtheaftermathofthepandemicandlooktobuildbackbetter.Weareascience-ledbusiness,andthesciencetellsusthattoavoidtheworstimpactsofclimatechange,societymustlimitglobalwarmingto1.5ºCbytheendofthiscentury.THECHALLENGEWEFACE,THEBREAKTHROUGHSWENEEDThescienceisclear–toavoidtheworsteffectsofclimatechange,societymustlimitglobalwarmingto1.5°Cbytheendofthiscentury.Anaverageglobaltemperatureriseabovethatlevelwouldcreaterisksthattheglobaleconomyisnotequippedtowithstand.0706ROLLS-ROYCELEADINGTHETRANSITIONTONETZEROCARBONrolls-royce.comWeestimatethattotaldirectandindirectgreenhousegasemissions,acrossscope1,2&3categoriesassociatedwithRolls-Royce,wereapproximately276MtCO₂ein2019,representingapproximately0.6%ofglobalman-madeCO₂emissions.Emissionsfromourownmanufacturing,productionandofficefacilities(scope1&2)makeupaverysmallbutimportantproportionofourfootprint.Theseemissionssitclearlywithinourimmediatesphereofinfluenceandunderourdirectcontrol.However,themajorityofouremissionsprofilecomprisesvaluechainemissions,upstreamanddownstreamofourcompanyactivities(scope3).Thisincludesemissionsassociatedwithoursupplychain,particularlytheextractionofrawmaterials,andemissionsfromtheuseofoursoldproducts.Weoperateinsomeofthemostcarbonintensivesectors–transport,energyandthebuiltenvironment–andtheuse-phaseemissionsgeneratedbyourproductsaresubstantial,typicallymorethan99%oftheproductlifecycle,duelargelytothecarboncompositionofthefuelcombustedwhenanengineisinservice.Asaresult,abatingproduct-relatedemissionsisthesubstantivefocusofourdecarbonisationplan.Theextenttowhichwecancontrolthesescope3emissionsislimitedbyotheractorswithinthesystem.Forgasturbineandreciprocatingenginesthisisparticularlydependentuponwhichfuelthecustomerchoosestouse,whichinsomecasesiscontrolledthroughregulation.Astheglobalpopulationcontinuestogrowandeconomicdevelopmentincreasesdemandforpower,withoutintervention,thatemissionsprofilecouldhypotheticallydoubletomeetsocietalneedforincreasedenergy,transportandpower–inreality,weknowthisemissionsgrowthwillneverberealisedassocietytransitionstowardsnetzero.Wearecommittedtoensuringournewproductswillbecompatiblewithnetzerooperationby2030,andallourproductscompatibleby2050.Wewillcontinuetoadvocateforthenecessaryenablingenvironmenttoachievethis.OUREMISSIONSFOOTPRINTWeareascience-ledbusinessandournetzerostrategyisgroundedindata.Ouremissionsfootprintreflectsthescaleofourbusinessactivities.NOTES:WehavecalculatedourGHGemissionsfootprintinaccordancewiththeWRI/WBCSDGHGProtocolScope3Standard(2011),whichclassifiesemissionsaccordingtothreescopes:scope1includesdirecton-siteemissions.Scope2includesindirecton-siteemissions(e.g.purchasedelectricity).Scope3includesupstreamordownstreamemissionsinthevaluechainoutsideacompany’sownoperations.Theemissionsdisclosedarebasedon2019datagiventheimpactofCOVID-19onourbusinessactivitiesandproductoperationsduring2020.Thiscontainssomeestimationsbasedonbestavailabledataandmethodologyattimeofpublication,informedbyapreliminaryscopingexercisetodeteminewhichscope3categories,besidesemissionsassociatedwiththeuseofsoldproducts,arerelevant.Wecontinuetofocusonimprovingthecompletenessofourdatawhichmayleadtofurtherdisclosuresinfuture.Thisreportfocusesspecificallyoncarbondioxide,howeverwerecognisethebroaderenvironmentalandsocialimpactsassociatedwithRolls-Royce’sproducts.Thetechnologyleversdiscussedhavethepotentialtoaddresssomeoftheseimpactssimultaneously.0.1%0.1%0.1%0.02%0.01%2%97.67%275.8MtExistingfleet(useofsoldproducts):270MtPurchasedgoodsandservices(includingrawmaterials):5MtProducttestemissions:300ktOwnmanufacturing,productionandofficefacilities:285ktEmployeecommuting:200ktBusinesstravel:50ktLogistics:30ktOuremissionsfootprint0908ROLLS-ROYCELEADINGTHETRANSITIONTONETZEROCARBONrolls-royce.comOurdecarbonisationstrategystartswiththeemissionsinourownoperations,extendstoourvaluechain,andultimatelyfocusesonthecontributionwecanmaketotheglobaltransition.InlinewiththecommitmentswehavemadeundertheUNRacetoZerocampaign,wearealigningourentirebusinessmodeltotheParisClimateAgreementgoals,tolimitglobaltemperatureriseto1.5ºC.ThisplanwillputRolls-Royceattheforefrontofthehistoricinnovationandfuturegrowthopportunitythatthenetzerotransitionrepresents.Asnetzerointentgetstranslatedintonetzeroaction,itwillbecomeincreasinglycostlytobepartoftheproblemand–webelieve–increasinglyprofitabletobepartofthesolution.That'swhywewillcontinuetopivotourtechnologyplatformtowardspioneeringpowerforanetzeroworld.Ourdecarbonisationstrategyhasthreeinterconnectedpillars:1.MakingRolls-Royceanetzerocarboncompanythroughhowweoperate;2.Decarbonisingcomplex,criticalsystemsattheheartofglobalsociety,by:a.enablingourproductstobeusedinawaythatiscompatiblewithnetzero,and;b.pioneeringnewbreakthroughtechnologiesthatcanacceleratetheglobaltransitiontonetzero;3.Advocatingforthenecessaryenablingenvironment,withpublicandpolicysupporttoachievethisambition.Ourdecarbonisationstrategystartswiththeemissionsinourownoperations,extendstoourvaluechain,andultimatelyfocusesonthecontributionwecanmaketotheglobaltransition.TechnologydriventransitionWebelieveintheprimacyoftechnologicalinnovationtocreatelong-termsolutionstotheclimatecrisis,andweremainfocusedondeliveringthebreakthroughssocietyrequiresofusastechnologyleaders.Ourpriorityisthedevelopmentoftechnicalsolutionsthatcandirectlyabateorremovecarbonemissions,permanently.Forinstance,weexpectourBristol,UK,productionsitetobethefirstRolls-Roycefacilitytoachievenetzerocarbonstatusin2022.Wewillnotusecarbonoffsetstoachievethis.NetzerooperationsOurshort-termtargetistoeliminateemissionsfromkeypartsofourownoperations.Thismaybeasmallpartofourtotalemissionsfootprint,butitiswherewehavethemostcontrol.Wewillachievenetzerogreenhousegasemissionsfromouroperationsandfacilitiesby2030.Wewillbuildonthistomitigatetheemissionsassociatedwithproductdevelopmentandtest,whichalsoformpartofourscope1&2footprintbutwhicharecurrentlyexcludedfromourtarget.Throughourdecarbonisationstrategy,wewillbecomeanetzerocarboncompanyacrossourvaluechainby2050,atthelatest,andplayaleadingroleinenablingthesectorsinwhichweoperatetogettheretoo.OURDECARBONISATIONSTRATEGY1110ROLLS-ROYCELEADINGTHETRANSITIONTONETZEROCARBONrolls-royce.comCO₂emissionsfromarmedforcesareoftenasignificantportionofstate-ownedemissions.Thisincludesworkingwithkeypartners,liketheUKMinistryofDefence,tosupportthedecarbonisationoftheirestates,buildingonourexperienceinprogressingourown2030operationsandfacilitiestarget,anddevelopinglowandnetzerocarbontechnologysolutionstosupportdecarbonisingmilitaryoperations.WewillsupportourdefencecustomersinachievingnetzerobyshowingcompatibilitywithSAFinallproductsby2023,subjecttocustomerengagement.WealsointendtocertifythenewgenerationofourmtuSeries2000andSeries4000enginesforusewithsustainablefuelsby2023.Theserepresentthemajorityofthereciprocatingengineswemanufactureandareusedacrossarangeofapplicationsfrompowergenerationtorailandshipping.The2023targetsoutlinedabove,forproductstobeprovencompatible,throughtesting,withsustainablefuels,formpartofourexecutiveremunerationpolicy.GamechangersinlowandzerocarbonpowerBeyondensuringourproductsarecompatiblewithnetzero,wehaveamajorroletoplayinacceleratingtheglobaltransitionthroughpioneeringnewbreakthroughtechnologies.Thispresentsaverysignificantcommercialopportunity.Wearedevelopingnewtechnologiesthatwilltakeusintonewmarketssuchasurbanairmobility,regionalaviation,powergenerationthroughsmallmodularreactors,microgridsandfuelcells.Onthelattertechnology,wearetargetingtohaveintegrated2MWofhydrogenfuelcellsintooperationalmicrogriddemonstratorsby2023.Thatisenoughtopowerroughly400homes,orasmallcommunity,andthisdemonstratorwillprovideuswithfurtherinsightsintotheintegrationofmultiplepowersourcesinamicrogrid.WeexpectlowandnetzerocarbontechnologiestopresentsignificantgrowthopportunitiesforRolls-Royceoutto2030andbeyondandwillbeprovidingfurtherdetailsinthefuture.Wearealreadyboostingourresearchanddevelopment(R&D)expendituretopivottowardsmorelowercarbon,netzeroandzerocarbontechnologies:movingfromapproximately50%ofourgrossR&Dintheseareastodaytoatleast75%by2025.Weunderstandtheneedtosetoutfurtherdetailoncapitalallocationinthefuture.Thisreportsetsoutourroadmapforgettingtonetzero.ItispartofourstrategicplanningaswebuildbackbetteraftertheimpactoftheCOVID-19pandemic.Ourabilitytodeliveronourdecarbonisationroadmaphingesonanexternalenvironmentthatenablesustosuccessfullytransitiontoanetzerocarbonfuture.Tosupportthiswecontinuetoactivelyengagepolicymakersandotherstoadvocateforthenecessaryconditionssocietyneedstoachieveitsnetzerotarget.Overthefollowingpageswesetoutourvisionandtheactionswewillbetakingtoacceleratethattransition.Atpresentwecannotcertifyacivilaviationenginewithatestingregimethatsolelyuses100%unblendedSustainableAviationFuel[SAF].Currently,onlya50%blendwithtraditionalfuelsisapprovedforuseincommercialaviation.Weexpecttosetatargetfortheseemissionsinfutureasweplayanactiveroleinadvocatingforachangeinthecurrentregulatoryregime.Asaninterimmeasurewearecommittingto10%ofthefuelweuseinCivilAerospacetestinganddevelopmentactivitiesbeingSAFby2023andhavetiedexecutiveremunerationtothisgoal.ActionalongourvaluechainAlongourvaluechain,wehaveopportunitiestoreduceemissionsthroughtargetedinterventions,bothupstreamanddownstream.Forexample,workingwithsuppliersandpartnerstosetrobust,science-basednetzerotargetsorwithlogisticspartnerstoincentivisetheuseofloweremissionstransportoptions,includingutilisingRolls-Roycecapabilities.Weexpectourcompanyresourceefficiencytargetstoacttoreducetheemissionsassociatedwithwastegeneratedinourbusinessactivities,aswellascontributingtowardsreducingourneedforrawmaterials.However,asprovidersofproductstocustomersandorganisationswhoultimatelychoosehowtooperatethem,themajorityofthesevaluechainemissionslieoutsideourdirectcontrol.Wearealreadyworkinginpartnershipwithourcustomers,regulatorsandpolicymakerstocreatethenecessaryenablingenvironmenttoallowustodelivertherequiredtechnicaladvances,meetourtargets,and,moreimportantly,tosupportsocietyinitseffortstomeettheParisClimateAgreementgoals.Wewilluseourskills,capabilitiesandtechnologiestosupportthecomplexcriticalsectorswearepartof,inreachingnetzerocarbonby2050.Thismeansenablingourproductstobeusedinawaythatiscompatiblewithnetzerocarbon,andpioneeringnewbreakthroughtechnologiesthatwillacceleratetheglobaltransition.Trackingourshort-termprogressontechnologyleversandsettinginterimtargetsWearenowsettingoutclearshort-termtargets,linkedtoexecutiveremuneration,thatwillprogressthetechnologyleversweneedtopulltomeetour2050netzeropledge.Thisincludesmakingallthecommercialaeroenginesweproduce,andourmostpopularreciprocatingengines,compatiblewithsustainablefuelsby2023andtoworkwithourarmedforcescustomerstoachievethesamegoalfortheRolls-Royceenginestheyuse.Webelievethesetargetsareespeciallyimportanttomeasureprogressbecauseseveralofthesectorsinwhichweoperate–particularlyaviation–havelengthyresearchanddevelopmenttimescales,whichincluderigoroussafetytesting.By2030allournewproductswillbecompatiblewithnetzerooperation.Inmarketswithrelativelyfastdevelopmentcycles,wearesettingaclearinterimtargetforhowthosenewproductswillalreadybereducingemissionsby2030.Asaresult,ourPowerSystemsportfoliohassufficientlyreliabledatatobeabletodefineascience-basedinterimtargettoreduceby35%thelifetimeemissionsofnewproductssoldbythebusinessby2030,relativeto2019.Thisexceedsthecarbonemissionreductionsneededtocurbglobaltemperaturerisetowellbelow2ºCandisasignificantsteptowardsour2050netzerocarbongoal.Thesetargetsareinadditiontoourexistinggoaltobenetzeroinouroperationsandfacilitiesby2030,excludingproducttestinganddevelopment.AtthispointintimewearenotinapositiontosetaGroup-widescience-basedinterimtarget.Ourproductsoperateattheheartofcomplex,criticalsystemsandwedonotyethaveenoughclarityontheexactshapeofthesectordecarbonisationpathwaysofthesesystems,particularlyaviation,oronthefullextentofthepotentialfuturemarketsforallthebreakthroughtechnologieswearedevelopingtoday.Wewillworkwithpartnerswithinoursectors,andwithorganisationsliketheScienceBasedTargetsinitiativeandUNRacetoZerocampaign,togeneratebreakthroughconvergenceonthesignificant‘tippingpoints’thatmustoccurbeyond2030toreachnetzeroby2050,toenableustosetascience-basedinterimtargetinthenearterm.BreakthroughforsustainablefuelsWebelievethat,baseduponthecurrentscienceandplausibletechnologyscenariosavailabletoday,sustainablefuels(fuelswithalowerlifecyclecarbonimpactthanfossilfuels)willplayavitalroleinthedecarbonisationofcarbon-intensivesectors,particularlyaviation⁷,whichmakesupthemajorityofemissionsfromourproductsinuse.Wemustensurethatourproductsarecompatiblewithsuchfuels,knownasSustainableAviationFuels(SAFs)inaviation,inordertoacceleratetheirtake-up.Wearecommittingtohaveproven,throughtesting,thatallourin-productioncommercialaeroenginesarecompatiblewith100%SAFsby2023.ThisalignswiththeUNRacetoZerobreakthroughgoalof10%ofallfuelusedinaviationbeingSAFby20305.Byassistingourdefencecustomerstoreachnetzero,wecanplayamajorroleinassistinggovernmentstoachievetheirnationallydeterminedcontributionsundertheParisAgreementgoals,duetothefactthatEnablingenvironmentComplexcriticalsystemsOurvaluechain1312ROLLS-ROYCELEADINGTHETRANSITIONTONETZEROCARBONrolls-royce.comMakingRolls-RoyceanetzerocarboncompanyDeliveringnetzerocarbonemissionsfromouroperationsandfacilitiesisavitalsteptowardsour2050target,andwillhelpensureourbusinessismoreresilientforthefuture.WewillachievenetzeroGHGemissionsfromouroperationsandfacilitiesby2030,excludingproducttestinganddevelopment,andwillworktoabateourremainingscope1&2emissionstoensureweareacarbonneutral,climateresilientbusinessby2050.EmissionsassociatedwithourRolls-Royceownedandoperatedpropertyfootprintandoperationalactivitiessitclearlywithinourimmediatesphereofinfluencewherewecanexertmorecontrolovertheirreduction.WehavehadtargetstoreducetheGHGemissionsassociatedwithouroperationsandfacilitiesforoveradecadeandhavemadesubstantialprogress,halvingouremissionsinthepastfiveyearsalone.Thisprogresshasbeenachievedthrough:continuedfocusonimprovingenergyefficiencytoreduceouroverallenergydemand;investmentintheinstallationofon-siterenewableenergygeneration,includingutilisingourownmicrogridtechnologies;andthepurchasingofcleanandrenewableelectricity.By2030,wewillachievezeroGHGemissionsfromallenergypurchasedandconsumedintheoperationofourbuildings,facilitiesandmanufacturingprocesses.Thistargetiswellalignedwiththeambitionandemissionsreductiontrajectoryrequiredtocurbglobaltemperatureriseto1.5ºC.Tomeetourgoal,newtechniquesandsolutionswillneeddevelopingandscaling,drivenbyfurtherinnovationoverthenextfewyearsparticularlyinregionswhereviablezerocarbonenergyisnotyetavailableforpurchase.WeexpectourBristol,UK,manufacturingsitetobethefirstRolls-Roycesitetoachievenetzerocarbonoperationsin2022.Muchofourmanufacturinginvolvestheuseofspecificalloysandformingthemintocomplexshapes.Theextraction,supplyandsubsequentprocessingofthesematerialsisveryenergyintensiveandisresponsibleforthemajorityofthecarbonembeddedwithinthemanufactureofourproducts.Aswedelivermoreefficientandlowercarbonemissionproducts,theseprocesseswillremainanimportantpartofourproductionactivities.Assuch,innovationsinmaterialsupplyandcomponentmanufacturingtechnology,targetedspecificallyatincreasingresourceefficiencyandenablingcircularmaterialflows,areavitalelementofourroadmapformakingRolls-Royceanetzerocompany.Wearedevelopinganetzeromanufacturingstrategytomaximiseresourceefficiencyandreducecarbonimpactsacrossourglobaloperations.Oneofthetoughestbutmostimportantchallengeswithinourscope1&2emissionsislinkedtothenecessaryandrigorousproductsafetytestingwemustconduct.Productsafetytestingisacriticalpartofourenginedevelopmentandproductionprogrammes.Eachindividualengineisrequiredtoundergoanextensivesuiteoftestsbeforeitcanbedispatchedtoacustomer.Aswellasbeingintrinsicallylinkedtoproductsafety,robusttestingisanessentialcomponentofourresearchanddevelopmentactivities.Wewillseektomitigatetheemissionsassociatedwithproducttestingthroughasuiteofnewtechniquesandalternatives,includingdigitalmodellingandreplacingsomephysicaltestingwhereappropriate.Werecognisetheneedtoensuretheseactivitiesarealignedwithourdecarbonisationgoalsandarecommittedtoworkingwithcustomers,regulatorsandindustrypartnerstoexplorewaystomeetourproducttestingdemandswithoutgeneratingcarbonemissions.Someofthetestingwecarryoutmusttakeplaceusingthefuelsthathavebeencertifiedbytherelevantregulatoryauthoritiesforin-serviceuse.Forexample,atpresentwecannotcertifyacivilaviationenginewithatestingregimethatsolelyuses100%unblendedSustainableAviationFuel(SAF).Currently,onlya50%blendwithtraditionalfuelsisapprovedforuseincommercialaviation.Astheregulatorypathwaytowardsacceptanceof100%SAFbecomesclearer,wewillbesettingatargettoachievenetzeroinourremainingscope1&2emissions.Webelievethiscanbereachedbefore2050,withindustryandregulatorycollaboration.Asaninterimmeasure,wearecommittingto10%ofthefuelweuseinCivilAerospacetestinganddevelopmentactivitiesbeingSAFby2023andhavetiedexecutiveremunerationtothisgoal.TheactionswearetakingtomakeRolls-Royceanetzerocarboncompany:–Deliveringagainstourexistingtargetofzerogreenhousegasemissionsfromoperationsandfacilitiesby2030(excludingproducttestinganddevelopment);–Increasingtheuseofsustainablefuelsinourproducttestinganddevelopment,withaninterimmeasurethat10%ofthefuelweuseinCivilAerospacetestinganddevelopmentactivitieswillbeSAFby2023;wehavelinkedexecutiveremunerationtothisgoal;–Advocatingfortheregulatorymeasurestobeputinplacetoenableustoincreaseuseofsustainablefuelsinourtestinganddevelopmentactivities;–Continuingourwasteactionprogrammetoreducesolidandliquidwastefromourproductionprocesses,reducingourmaterialsconsumptionandinturnreducingcarbonemissionsfrommanufacturingactivities;–Developinganetzeromanufacturingstrategytomaximiseresourceefficiencyandreducecarbonimpactsacrossourglobaloperations.15rolls-royce.com14ROLLS-ROYCELEADINGTHETRANSITIONTONETZEROCARBONScope2INDIRECTScope3INDIRECTPurchasedelectricityandenergyEmployeecommutingBusinesstravelLogisticsLogisticsWastegeneratedinoperationEoLdisposalofsoldproductsServicesUpstreamRolls-RoyceDownstreamScope3INDIRECTScope1DIRECTGreenhousegasemissionsPurchasedgoodsUseofsoldproductsManufacturingProductionandof�cefacilitiesProducttestWherewasteisunavoidable,welooktodeploycircularmanufacturingpracticestomaximisetheuseofmaterialsandotherresources.Thisyear,wesetanewtargettoincreasetherecyclingandrecoveryrateofmaterialsusedwithinourmanufacturingandproductionoperationsto68%by2025,whilecontinuingtoprogresstowardszeronon-hazardouswastetolandfill.Thisnewtargetwillhelptodriveincreasedcircularity,andthereforereducecarbon,inourvaluechain.Anexampleofwherewearealreadyleadinginthisareaisouruseofcircular,closedloopmanufacturingpracticesforourtitaniumandnickelalloys,whichmakeupthemaincomponentsinourgasturbineproducts.Thismattersbecauseweusemorethan20,000tonnesofhigh-valuemetalalloyseachyear,equivalenttotwoandahalfEiffelTowers.Asaresultofinvestmentsalreadymade,morethan95%ofausedaeroenginecanberecycledtodayandaroundhalfoftherecoveredmaterialisofsuchhighqualityitcanbesafelyusedagaintomakeanewengine.Theremaindercanbeusedinothermanufacturingprocessesoutsideofaerospace.Thisprogrammeisalreadysavingaround300,000MWhoursofenergyayear,and80,000tonnesofCO₂comparedtousingvirginmaterials,andwehaveplanstofurtherexpandourrecoveryandrecyclingprogramme–wecallRevert–intooursupplychain.Workingwithoursupplychainpartnerstoidentifyopportunitiestoreducecarbonimpactswillbeakeypriorityovertheshorttomediumterm.Elsewhereinourvaluechainweareconsideringtheemissionsassociatedwithactivitiessuchasbusinesstravel,employeecommutingandlogistics.Weareworkingtoincentiviselowercarbonchoices,includingintroducingelectricvehiclesinourinter/insitelogistics.InmanycasesRolls-Roycetechnologiescanplayadirectroleindecarbonisingtheseactivities,particularlybusinesstravel,andairandseafreight.Whilewestillhaveworktodotofullyunderstandthescaleofourscope3emissionsoutsideofproductsinuse,wewillbesettingfurthertargetstoreachnetzeroacrossourvaluechaininthenearfuture.Theactionswearetakingtomobiliseourvaluechain:–Settinganewtargettoincreasetherecyclingandrecoveryrateofmaterialsusedwithinourmanufacturingandproductionoperationsto68%by2025;–Identifyinghighcarbonimpactareasofoursupplychainforprioritisedengagement;–Conveningourhighperformingsupplierstoactivelysharesustainability,resourceefficiencyanddecarbonisationbestpracticewithinoursuppliercommunity;–ExpandingourRevertprogrammeofhighvaluemetalsrecoveryandrecycling;–Workingwithlogisticsandtransportproviderstoimplementlowercarbonsolutions,includingutilisingRolls-Roycetechnologiestodecarboniseairandseafreight;–Developinganetzeromanufacturingstrategytomaximiseresourceefficiencyandreducecarbonimpactsacrossourglobaloperations.MobilisingourvaluechainMeetingthechallengeofnetzerorequiresustolookcomprehensivelyacrossouremissionsprofileandinnovatethroughoutourvaluechain,rethinkingwhatrawmaterialsweuseandhowweprocure,howwedesignandmanufactureproducts,andhowwemanageourproductsattheendoftheirlife–toenableustomeetthischallengeweareseekingtoenlistthesupportofourentirevaluechaintojoinusintheRacetoZero.Alongourvaluechainwehaveopportunitiestoreduceemissionsthroughtargetedengagementbothupstreamanddownstream,aswellasopportunitiestolearnfrombestpracticewithinthevaluechainandcollaboratetoaddresscommonchallenges.Ourexternalsupplychainrepresentsthesecondlargestproportionofouremissionsfootprintaftertheuseofproductsbyourcustomers.Thisisdominatedbytheprocurementofrawmaterials,criticaltothecomplextechnicalnatureofourproducts,butwhichalsocarryasignificantsocio-environmentalimpact.Improvingourresourceefficiencyandcontinuingtoimplementcircularbusinesspracticeswillhelpreducetheamountofrawmaterialsweneedtoprocure.Alongsideournetzeromanufacturingstrategyforaddressingourinternaloperations,wearealsodevelopingasustainabilityandnetzerostrategyforsupplierengagement,andworkingtoidentifyhighcarbonimpactareasofoursupplychainforprior-itisedengagement.Wehavetargetstoreduceourliquidandsolidwaste.Thislinkscloselywithourmanufacturingtechnologystrategy,incorporatinginnovativetechniquessuchasadditivelayermanufacturingandnearnetforging,aswellasdevelopingimprovementsintheefficientandresponsibleuseofwater,energyandconsumableresources.Thisisimportantforourownoperationsbutisevenmoreimportantforreducingemissionsinoursupplychain.Wearecollaboratingwithkeysupplierstoexploreopportunitiestoshareourknowledge,learnfromsupplierbestpractices,andexpandourresourceefficiencyprogrammesintothesupplychain.Meetingthechallengeofnetzerorequiresustolookcomprehensivelyacrossouremissionsprofileandinnovatethroughoutourvaluechain,rethinkingwhatrawmaterialsweuseandhowweprocure,howwedesignandmanufactureproducts,andhowwemanageourproductsattheendoftheirlife.ToenableustomeetthischallengeweareseekingtoenlistthesupportofourentirevaluechaintojoinusintheRacetoZero.Ourvaluechain1716ROLLS-ROYCELEADINGTHETRANSITIONTONETZEROCARBONrolls-royce.comAdvocacyAdvocacyPowerGenerationEnergyStorageMicrogridsSMRsFuelCellsCaptureAlternativeEf�ciencyElectri�cationFuelCellsMicrogridsBatterySMRsTransportBuiltEnvironmentEnergyAdvocacyRailShippingAviationIndustrialvehiclesDataCentresCitiesCommunitiesDirectFuelsStorageAirDecarbonisingcomplex,criticalsystemsAchievingnetzerocarbonwillrequireawholesaletransformationofthesystemsthatmakeupthebackboneofourglobaleconomy,includingtransport,energyandthebuiltenvironment,someoftheverysectorsinwhichreducingemissionsisthehardest.Webelievethatdecarbonisingthesepartsoftheeconomyisbothtechnologicallypossibleandeconomicallyvital.AtRolls-Royce,wewanttobringourcapabilitiesasaglobalpowergrouptothischallengeandbepartofthesolutiontohowsocietybuilds,movesandpowerstowardsanetzerocarbonfuture.Tokeeppacewithincreasingdemandforpower,wemustwidentheavailability,lowerthecost,andscale-upthedeploymentoflowcarbontechnologiesinthesecriticalsectors.Astheglobalpopulationrises,sotoowilldemandforpoweranditislikelywewillseeemissionsassociatedwiththesesectorsincreaseinparalleluntildecarbonisedsolutionscanbescaled.Asprovidersofproductstocompaniesandorganisationsthatultimatelyoperatethem,wedonotcontrolthefinalusageoremissionsofourproducts,butwecan–andwill–providearoadmaptoensuretheycanbeusedinawaythatresultsinnetzerocarbonemissionsby2050.Wewillcontrolwhatwecancontrol:toworktoprovidethetechnologytoenableapathwaytonetzero.Thecomplexnatureofthesectorsinwhichweoperatemeansthatthetransitiontowardsnetzerowillnotbeeasyorstraightforward;itwillrequireacombinationoftechnologyandpolicyleverstoexecuteandwhilesomeofthesetechnologiesareknowntoday,otherswemustcontinuetoexplore,developandultimatelyscale.Todecarbonisecomplex,criticalsystemswemustcontinuetoactacrossthreeareas:–Pioneeringnewlowandzerocarbontechnologiesandsustainablesolutions;–Acceleratingtheavailabilityandaffordabilityofsustainablefuels;–Continuingtoimproveengineefficiencyandenvironmentalperformance.Thesuiteoftechnologiesthatwehavedeveloped–andaredeveloping–todothis,havethepotentialtoactacrossthesystemsinwhichweplayapart.19rolls-royce.com18ROLLS-ROYCELEADINGTHETRANSITIONTONETZEROCARBONandgrowth.ThesetechnologiesaredepictedasadditionalcompensationactionsastheydonotabateemissionswithinRolls-Royce’scurrentscope3footprintbutinsteadsupportthedecarbonisationofothersectors.Ourstrategyincludesthedevelopmentanddeploymentofsmallmodularnuclearreactors(SMRs)whichwillplayavitalroleinsupportingthedecarbonisationoftheenergygridandmeetingincreaseddemandforcleanelectricity.SMRsalsohavepotentialapplicationasaroutetotheproductionofsustainablefuels,includingSAFsforaviation,hydrogenorothere-fuels,throughtheprovisionoflowcost,reliableandcleanpower.Wearealsoactivelyresearchingnewtechnologiesthatcandelivernetnegativecarbonemissions,forexampledirectaircapture(DAC).Thesetechnologies,whenscaled,havethepotentialtodeliverfurthercarbonbenefitstosocietybeyonddecarbonisingourcurrentproductportfolio.Applyingtechnicalpathwaystodecarbonisecomplex,criticalsystemsRolls-Roycepioneersthepowerthatmatters–powerthatiscentraltothesuccessfulfunctioningofthemodernworld.Fromland,seaandairtransport,toenergygenerationandpoweringthebuiltenvironment,wepower,connectandprotectsociety.Beinganintegralpartofsomanysystemsallowsustoplayafundamentalroleinhelpingthemachievenetzeroemissions.Thiswillrequireawholesaletransformationofthesystemsthatmakeupthebackboneofourglobaleconomy,includingsomeofthehardesttoabatesectors;transport,energyandthebuiltenvironment.Ourtechnologyleversoffercross-cuttingsolutionsthatcandeliversignificantcarbonsavings,directlyorindirectly.TransportLand,seaandairtransportcontribute23%ofglobalCO₂emissions8.Airtravelcontributes3%ofCO₂emissionstodaybutisexpectedtoincreaseinproportionasothertransportmodesdecarbonisefaster.Transporthasbeenpredominantlypoweredbyfossilfuels;theenergydensityofferedbyconventionalhydrocarbonfuelsallowsforefficienttraveloverlongdistance.Alternativessuchashydrogenandelectrificationarebecomingestablishedtopowerland-basedtransportsuchasautomotiveandrail.Forshippingandaviation,particularlylonghaul,thechallengeliesinfindingawaytotransitionawayfromcarbon-intensivefuelswithoutcompromisinglevelsofconnectivity,affordability,comfortandsafety.Theactionswearetakingtodecarbonisetransport:–Continuingtoinvestinimprovingtheefficiencyofthegasturbine,throughdevelopmentssuchasournextgenerationcivilaeroengine,UltraFan,whichwilldelivera25%efficiencyimprovementoverourfirstgenerationTrentengines;andreciprocatingengines;–Makingallthecommercialaeroenginesweproduce,andourmostpopularreciprocatingengines,compatiblewithsustainablefuelsby2023andworkingwithourarmedforcescustomerstoachievethesamegoalfortheRolls-Royceenginestheyuse;–Increasingtheuseofsustainablefuelsinourproducttestinganddevelopmentactivities,withaninterimmeasurethat10%ofthefuelweuseinCivilAerospacetestinganddevelopmentactivitieswillbeSAFby2023,alignedtotheRacetoZerobreakthroughgoalof10%SAFusageacrossaviationby2030;–Developingarangeofhydrogenproductsbasedonfuelcellsandhydrogencombustionenginesthatwillbereadyforserviceinthecomingyears;–Exploringtheapplicationofhydrogeninaviationrecognisingitspotentialopportunityasanalternativefuel;–Workingwithcustomers,industrypartnersandscientificinstitutionsonvariousinitiativestoexaminetheentirePower-to-Xeco-system–fromelectricityprovisiontofuelproductionandfinallyitsuseinvariousapplications;–Activelydevelopinganddeployinghybrid-electricandall-electricsolutionsforuseinaviation,marine,andrail,including:–Hybrid-electricPowerPacksforrailapplications;–Integratedhybridshippropulsionsystemsformarineapplications;–Hybrid-electricandall-electricapplicationsforaviation,particularlyintheurbanairmobility(UAM),commuterandregionalmarkets.EnergyTheprovisionofheating,electricityandpowercontributealmost40%ofglobalCO₂emissionstoday,primarilyfromtheextractionandcombustionofcoal,oilandgas⁹.Demandforelectricityisexpectedtoriseinordertomeettheneedtodecarbonisemultiplesectorsoftheeconomy.That'swhydecarbonisingtheproductionofelectricityandmakingtheshiftto100%clean,affordableandreliableenergyisamajorpartofachievingnetzero.Renewableenergysolutionswillneedtobescaled,andsocietywillneedtodrawonotherformsofaffordable,zerocarbonpower,likethetechnologiesRolls-Roycecanprovide.TechnologypathwaystonetzeroOurdecarbonisationpathwaysetsoutourtwoprimaryaims;toreducetheemissionsassociatedwithourproductstonetzero;and,topioneerbreakthroughnewtechnologiesthatcanacceleratethetransitiontoanetzerocarbonfuture.Achievingtheseaimswillrequireustoensureallourexistingfleetcanbeoperatedinanetzerocarbonmanner,andtointroducenewlowandnetzerocarbonproductstothemarketwhichcanacttoabateemissionsinareaswearenotpresentintoday.Thesepathwaysarebasedonourunderstandingofthetechnologicalsolutionsavailabletoustoday,andourcurrentunderstandingofthepotentialfuturemarketapplicationforthosetechnologies.EnablingourproductstobeusedinawaythatiscompatiblewithnetzeroToachievenetzerocarbonwemustensurethatourfleetiscompatiblewithnetzerocarbonoperationby2050,atthelatest.Thiswillbeachievedthroughfurtheradvancingtheefficiencyofourengineportfoliothroughnextgenerationtechnologiesandintroducingnewloworzeroemissionproducts,includingfuelcells,microgrids,hybrid-electricandall-electrictechnologies.Thesenewtechnologiesrepresentasignificantcommercialopportunity.By2030newproductswillbecompatiblewithnetzerooperation.Beyondthat,thescaleupofsustainablefuelswillplayacrucialroleinreachingnetzerocarbon.Toacceleratethis,wewillmakeallthecommercialaeroenginesweproduce,andourmostpopularreciprocatingengines,compatiblewithsustainablefuelsby2023andworkwithourarmedforcescustomerstoachievethesamegoalfortheRolls-Royceenginestheyuse.Weareworkinginpartnershipwithfuelsmanufacturerstoencouragetheramp-upofsustainablefuelsproductionandwithpolicymakerstocreatethenecessaryenvironmenttosupportthis.PioneeringnewbreakthroughtechnologiesthatcanacceleratetheglobaltransitiontonetzeroAswepivottobecomeanetzerocarbonbusiness,wewillenternewmarketsandsectorswherewecanoffertechnologicalsolutionsthatcanabateemissionsoutsideofourcurrentemissionsfootprint.ThiswillhelpfurtherdriveourfutureinnovationNOTES:Thehypothetical'noimprovements'linedepictedindicatesapotentialemissionsgrowththroughincreaseddemandforpower–inreality,weknowthisemissionsgrowthwillneverberealisedaswecontinuetoimproveengineefficiency.Theavoidedemissionslinetakesaccountof100%shareoftheexpectedenergyoutputfromSMRsbuiltbyconsortiumandunderlicence.ThischartassumesthattheelectricityproducedbySMRsisusedtodecarboniseactivitiesnotcurrentlycarriedoutbyRolls-Royceproducts,includinglarge-scalefossil-basedpowergeneration,and/orothersectorssuchasroadtransport,spaceheatingetc.whicharecurrentlylargelybasedonfossilfuelconsumptionbutareamenabletoelectrification.InthischartwehaveassumedthateachkWhofelectricityproducedbySMRsavoids400gramsofCO₂beingemitted.Theactualamountwilldependontheparticularcombustionactivitythatisbeingdisplacedandcouldbegreaterorlessthanthisassumedfigure.IntheeventthatsomeoutputfromtheanticipatedSMRfleetisusedtomanufacturesustainablefuelsspecificallyforusebyRolls-Royceproducts,thelowerlinewouldneedtobeadjustedupwardstoavoiddoublecountingwiththereductionsshownforsustainablefuels.Hypothetical'noimprovements'caseWithfuelef�ciency+newtechnologyWithfuelef�ciency+newtechnology+sustainablefuelsWithfuelef�ciency+newtechnology+sustainablefuels+SMRs’avoidedemissionsRolls-RoyceProductsinService:ChangeinAnnualCO₂Emissionsfrom2019to2050MtCO₂p.a.2019Time202520302035204020452050300200-100100-300-2000400500600700800900Technologyassumptions:Thesepathwaysarebasedonourbestunderstandingofthetechnologicalsolutionsavailabletoustoday,andourcurrentunderstandingofthepotentialfuturemarketapplicationforthosetechnologies.WehavecalculatedourGHGemissionsfootprintinaccordancewiththeWRI/WBCSDGHGProtocolScope3Standard(2011).Scope3emissionsaccountingincludesestimatesandassumptions,inthisinstancetheseassumptionsincludethelifecycleCO₂savingofsustainablefuelswillreach100%by2050,fromapproaching70%today.Inthischartwehavedepictedfuturebusinessgrowthopportunitiesinnewlow,ornetzero,technologiesthatservemarketsinwhichwearenotcurrentlypresent(e.g.SMRsforlargescalepowergeneration).TheyarethereforedepictedasadditionalcompensationactionsastheydonotabateemissionswithinRolls-Royce’scurrentscope3footprintbutinsteadsupportthedecarbonisationofothersectors.Technologypathwaytonetzero2120ROLLS-ROYCELEADINGTHETRANSITIONTONETZEROCARBONrolls-royce.comSignificantfutureopportunitieslieinthepivotoftheenergyindustrytodecarbonisedsolutions,includinggreenhousegasremovaltechnologies(ornetnegativeemissionsolutions),likedirectaircapture.Theactionswearetakingtodecarboniseenergy:–Supportingthescaleupofrenewableenergywithourmicrogridsolutions,whichprovidereliablebackuppowerandstabilityofsupplytosupportintermittentrenewablessuchaswindandsolar;–Usingmicrogridstosupportthedecarbonisationofourownoperationsandfacilities,andtohelpreduceourrelianceongridenergy;–Creatingaconsortiumwithpartnerorganisationstocommercialiseoursmallmodularnuclearreactor(SMR)concepttodeliverlowcost,lowcarbonenergy;–Developingarangeofhydrogenfuelcellsolutionsandtargetingtohaveintegrated2MWofhydrogenfuelcellsintooperationalmicrogriddemonstratorsby2023;–Launchingapilotdirectaircapture(DAC)projectintheUK.BuiltenvironmentCities,infrastructureandbuildings,andtheenergyrequiredtoheatandpowerthem,contribute10%ofglobalCO₂emissionstoday.Themajorityoftheworld’spopulationlivesincitiesandthatisprojectedtoriseto70%by2050.Theactionswearetakingtodecarbonisethebuiltenvironment:–Activelydevelopinganddeployinghybrid-electricandall-electricsolutionsforuseinaviation,marine,andrail,thatwillhelpdecarboniseairports,portsandinnercitycommuternetworksincluding:•Hybrid-electricPowerPacksforrailapplications;•Integratedhybridshippropulsionsystemsformarineapplications;Hybrid-electricandall-electricapplicationsforaviation,particularlyintheurbanairmobility(UAM),commuterandregionalmarkets.–Supportingthescaleupofrenewableenergywithourmicrogridsolutions,toprovidereliablebackuppowerandstabilityofsupplytosupportintermittentrenewablessuchaswindandsolar;andcanassistthedecarbonisationoffacilitiessuchasdatacentres,hospitals,officesandotheraspectsofthebuiltenvironment;–Creatingaconsortiumwithpartnerorganisationstocommercialiseoursmallmodularnuclearreactor(SMR)concepttodeliverlowcost,lowcarbonenergy;TechnologyleversEfficiencygainsandenginearchitectureCarbonemissionsarecloselylinkedtofuelburn.Bydevelopingandimplementingtechnologiestoimproveefficiency,wecansubstantiallyreducetheCO₂impactofourproductsinoperation.Inaviation,thankstocollectiveindustryeffortsandcontributionsfromanumberofgovernmentsandfundingpartnersaroundtheworld,flyingiscleanerandquieterthaneverbeforewithaircraftefficiencyincreasingby~1%everyyeartodate.CO₂emissionsperpassengerkilometrehavebeenreducedby80%sincethefirstcommercialjetaircraftinthe1950s,withemissionsgrowthdecoupled,inrelativeterms,fromtrafficgrowth.Improvementsinefficiencywillbecriticaltoreachingnetzero.Highlyefficientgasturbineswillbefundamentalformanyyears,bothforlargeraircraft,potentiallyfuelledbySAF,andforhybrid-electricaircraft.MoreefficientenginessuchasDemandforelectricityisexpectedtoriseinordertomeettheneedtodecarbonisemultiplesectorsoftheeconomy.That'swhydecarbonisingpowerandmakingtheshiftto100%clean,affordableandreliableenergyisamajorpartofachievingnetzero.22ROLLS-ROYCELEADINGTHETRANSITIONTONETZEROCARBON23rolls-royce.comourUltraFan,co-fundedbytheUKGovernmentand25%moreefficientthanthefirstgenerationofTrentengines,willassistinthetake-upofSAFsbyhelpingtoimprovetheireconomics.Weestimatethatupto30%moreefficiencycanbegainedfromthegasturbinetakingintoaccountpracticallimitsinthermalandpropulsiveefficiency.Beyondthat,afuelburnimprovementofupto5%canbeachievedbymakingthegasturbinemoreelectric.Wearealsocontinuingtoincreasetheefficiencyofourreciprocatingengines,suchasourexistingSeries4000dieselenginesformarineapplications.Ongoingprojectssuchaseffortstoreducefrictioninhighpowergasanddieselengineswilldrivefurtheremissionsreductions.Ontheground,wearedevelopingmoreefficientdieselandgas-poweredgeneratorsusedtopowerhospitals,datacentres,airports,manufacturingplantsandindependentpowergrids.Dieselgeneratorsetshavebeenrefinedtoprovidehighpowerdensityefficiently.TransitiontosustainablefuelsMovingawayfromtraditionalfossilfuelstolower,andultimatelynetzero,carbonfuelswillmakeasignificantcontributiontowardsnetzerocarboninbothtransportandenergy.Whilstthemajorityofourproductsmaytechnicallybecapableofrunningonsyntheticallyderivedlowcarbonfuels,wemusttestandvalidatetheirperformance,andindustryfacessignificantshortagesinsupplybasedinpartonthehighcostsassociatedwithmanufacturingsuchfuels.Weconsiderthequickestandmostachievablesolutiontosignificantlydecreaseproductin-serviceemissionsrelatedtoCO₂isthroughwidespreadadoptionofnon-fossilderivedfuels,thatofferasignificantlylowerlifecyclecarbonimpactthantraditionalkerosene.Wehaveakeyroletoplayinacceleratingtheavailabilityofsustainablefuels,includingadvocatingforthenecessarypolicychangesandmarketbasedmeasurestostimulatesupply,andensuringallourproductsarecompatiblewithnon-fossilderivedfuels,throughtestingandregulatoryapprovals.Toacceleratethistransition,wearesettingoutclearshort-termtargets,connectedtoexecutiveremuneration,tomakeallthecommercialaeroenginesweproduce,andourmostpopularreciprocatingengines,compatiblewithsustainablefuelsby2023andtoworkwithourarmedforcescustomerstoachievethesamegoalfortheRolls-Royceenginestheyuse.Wearealsoincreasingtheuseofsustainablefuelsinourproducttestactivities,withaninterimmeasurethat10%ofthefuelweuseinCivilAerospacetestinganddevelopmentactivitieswillbeSAFby2023,alignedtotheRacetoZerobreakthroughgoalof10%SAFusageacrossaviationby2030¹⁰.HydrogenasafuelHydrogenhasgreatpotentialforuseasafuelintransportandenergyapplications,particularlydecentralisedenergy,marineandrailtransport.WithinourPowerSystemsdivision,Rolls-Royceisdevelopingarangeofhydrogenproductsbasedonfuelcellsandhydrogencombustionengines.Wearealsoexploringtheapplicationofhydrogeninaviation,recognisingitspotential.Hydrogendoesneedtobecreatedinasustainableandscalablewayacrossitslifecyclethroughrenewableorzerocarbonenergy(greenhydrogen).Power-to-XE-fuelssuchase-hydrogen,e-methane,e-methanol,e-dieselore-ammonia,whichareproducedinaprocesscalled“Power-to-X”(PtX)fromrenewableenergysources,canbeconvertedintoelectricityandpropulsivepower.Wearecurrentlyworkingwithcustomers,industrypartnersandscientificinstitutionsonvariousinitiativestoexaminetheentirePtXeco-system–fromelectricityprovisiontofuelproductionandfinallyitsuseinvariousapplications.E-fuels,producedfromcleanelectricity,haveanimportantroletoplayinthetransitiontonetzero.Electrification&hybridisationWeareactivelydevelopinghybridelectricandall-electricsolutionsforuseinaviation,marineandrail.Hybrid-electricsolutionstypicallyuseacombustionenginetoproducepowerforanelectricalsystem(inaconfigurationknownasserialarchitecture)ortheycancombineaconventionalenginewithaparallelelectricaldrivetrain(parallelarchitecture).Thesesystemsworkwellintherailandmarineenvironmentswheretherearefrequentshiftsbetweenlowandpeakload.Theelectricmotorisusedforthepeakloadandthecombustionengineforotherloadranges.Hybrid-systemscanalsobeoperatedinelectric-onlymodewhereneeded,forexamplewithininnercitiesforrailapplicationsorwithinharboursformarineapplications.Thesesolutionshaveloweremissionsaswellasotherbenefitsforurbanenvironments,suchaslownoise.Intherailindustrywehavedevelopedahybrid-electricPowerPack,andinmarinewehavedevelopedarangeofintegratedhybridshippropulsionsystems.Inaviation,thereareopportunitiesforhybrid-electricandall-electricapplications,particularlyintheurbanairmobility(UAM),commuterandregionalmarkets.ThroughourACCELprojectandwithsupportfromtheUKGovernment,weareaimingtobuildtheworld’sfastestall-electricplane.Thezero-emissionSpiritofInnovationsingleseateraircraftispoweredbyaunique6,000-cellbatterypack.Ithasarangeofabout200milesonasinglechargeandatargetspeedof300mph(480kph)ormore.WewillbeusingthetechnologyfromthisprojectandapplyingittoproductsformarketsincludingUAM.OurelectricalpowersystemisalsosettopowerVerticalAerospace’sflagshipUAMaircraft.Thiswillbeintegratedintothepilotedall-electricverticaltake-offandlanding(eVTOL)vehicle,whichwillcarryuptofourpassengersfor100+milesatcruisespeedsofover200mphandisoncoursetocertifyin2024.WehavealsojoinedforceswithairframerTecnamandWiderøe,thelargestregionalairlineinScandinavia,todeliveranall-electricpassengeraircraftforthecommutermarket,tergetedtobereadyforrevenueservicein2026.MicrogridsRolls-Royceisattheforefrontofdevelopinganddeliveringmicrogrids.Microgridsareelectricitydistributionsystemscontainingenergysourcessuchasdieselorgasgenerators,combinedwithsolarandotherrenewableenergyandenergystoragethatcanbeoperatedinacontrollable,coordinatedway.Theycaneitherfunctionoff-gridorbeconnectedtothemainpowergrid.Theabilityofmicrogridstoseamlesslybalancetheenergydemandandproductionatlocallevelisimportantforaresilientgridandsupportingremotecommunities.Afurtherbenefitistheabilitytoseparateamicrogridfromthemaingridintheeventofapotentialpoweroutageoremergency,asadecentralisedenergysolution.Weareusingmicrogridstosupportthedecarbonisationofourownoperationsandfacilities,andtohelpreduceourrelianceongridenergy.Microgrids,coupledwithon-siterenewablepower,areinstalledatourFriedrichshafen,Germany,andAiken,US,sitesandwewillsoonbeginconstructionatourBristol,UK,site.NuclearSMRsAsaconstantandreliableenergysource,nuclearpowerprovidesstabilitytoelectricitygridsand,alongsiderenewables,willplayanimportantroleinthetransitiontoanetzerocarboneconomy.WehavebroughttogethertheUKSMRConsortium,across-sectorcollaborationofengineering,manufacturingandconstructionpartners.Theconsortiumproposestheconstructionof16SMRsintheUK,eachwithagenerationcapacityof470MW,inaplanthatcouldproducearound20%ofthecountry’sgridThroughourACCELprojectweareaimingtobuildtheworld’sfastestall-electricplane.Thezero-emissionSpiritofInnovationsinglepassengeraircraftispoweredbyaunique6,000-cellbatterypack.Ithasarangeofabout200milesonasinglechargeandatargetspeedof300mph(480kph)ormore.2524ROLLS-ROYCELEADINGTHETRANSITIONTONETZEROCARBONrolls-royce.comenergyby2050.Witheachpowerstationdesignedtooperateforatleast60years,theproposalcouldgeneratelong-termgreenjobs,skillsandprosperityincommunitiesacrosstheUK.OutsideoftheUK,fleetsofSMRscouldformthebackboneofdecarbonised,decentralisedandflexibleenergysystemsacrosstheworld.Nuclearpowerstationsaredesignedtofeedintolowcarbonelectricitygrids,howevertheirhighpoweroutputrelativetotheirsizealsoopensupfurtherapplications.Theycould,forexample,producezerocarbonpowerforenergy-intensiveactivities,suchassmelting,chemicalprocessing,desalination,andotherindustrialprocesses.SMRsalsohavepotentialapplicationasaroutetotheproductionofsustainablefuels,includingSAFsforaviation,hydrogenorothere-fuels,throughtheprovisionoflowcost,reliablepower.FuelcellsFuelcellshavethepotentialtoacceleratetheenergytransition.Theyconvertafuel’schemicalenergydirectlyintoelectricitywhichcanthenbeusedtopoweragrowingnumberofelectrifiedsystems.Thismakesthemespeciallyusefulforstabilisingthesupplyofenergyforemergencypowergenerationandasasupplyofpowerformobileapplications.Whenpoweredbyzerocarbonfuels,suchasgreenhydrogen,afuelcelloffersazerocarbonenergysolution.Wearedevelopingarangeofhydrogenfuelcellsolutionsincludingstationaryfuel-cellgeneratorswhichcanprovidenetzerocarbonemergencypowergeneratorsforsafety-criticalfacilitiessuchasdatacentres.Wearealsotargetingtohaveintegrated2MWofhydrogenfuelcellsintooperationalmicrogriddemonstratorsby2023.Directaircapture(DAC)Weareactivelydevelopingnewtechnologiesthatcandelivernetnegativecarbonemissions,particularlydirectaircapture(DACs).InpartnershipwiththeCSIRO,theAustralianGovernmentagencyresponsibleforscientificresearch,weareintheearlystagesofimplementingaUK-basedconceptdevelopmentprogrammecapableofremovingmorethan100tonnesofCO₂peryearfromtheatmosphere.BatterystoragetechnologiesWeareadvancingbatterytechnologiesacrossourbusiness.Decentralisedenergystorageisvitaltostabilisingthesupplyofrenewableenergytothegridandenablingremote,off-gridpowergeneration,anywhereintheworld.Batterypacksactasbufferstorageunitstoresolvequalityorstabilityproblemsinpowersuppliesandtocompensateforfluctuationsinthegrid,especiallyincombinationwithrenewableenergysourceslikesolarandwind.OurMTUEnergyPacks,forexample,alreadyprovidelowcarbongridstabilityonislandsinthepolarseaandstoresolarpowerinCostaRicaandtheSouthSeas.Fortheproductionofthesebatterycontainers,wehaveexpandedourplantinRuhstorf,Germany,toacapacityofupto50unitsperyear.Inaviation,wearedevelopingenergystoragesolutionstocomplementourelectricalpropulsionsystemstoensurethatwecanofferourcustomersthecompletepackagefortheirplatformwhetherthatisanUAMoracommuteraircraft.Batterypackdesignisinherentlyamechanical,thermalandcontainmentdesignchallengewithastrongfocusonsafetyandlowweight.TheseskillsarecoretoalltheproductsthatRolls-Roycehasalonghistoryofdeliveringintoaerospace.Thismakesusideallyplacedtodeliverindustryleadingsolutionsandtobeattheforefrontofprovidingpropulsionsystemsacrosstheaviationsector.Forexample,theSpiritofInnovationaircraftwillhaveanadvancedbatteryandpropulsionsystemthatisground-breakingintermsofelectricaltechnology.ThissystemandthecapabilitiesbeingdevelopedwillhelppositionusasatechnologyleaderofferingpowersystemstotheUAMmarket.26ROLLS-ROYCELEADINGTHETRANSITIONTONETZEROCARBON27rolls-royce.comDecarbonisingthecomplex,criticalsystemsinwhichweoperatewillrequireglobalcollaborationandconsistencyinpolicy.Fivecorepolicyprinciplesunderpinournetzeroadvocacy.ForRolls-Royce,twocoreexternalitiesarecriticaltoourabilitytodeliverourstrategy:thepaceandprioritisationoftechnologicalsolutions,andglobalconsistencyandcollaborationinpolicy.Determiningtheseexternalitiesisbeyondthecontrolofanyindividualcompanyorsector,butwehaveidentifiedtangibleactionswecantakeatagloballevel,andinourinteractionswithnationalgovernmentsandpolicymakers,tradeassociationsandotherpartners.GlobalpolicyprinciplesDecarbonisingthecomplex,criticalsystemsinwhichweoperatewillrequirecollaborationandconsistencyinpolicy.Weconsiderthattherearefivecorepolicyprincipleswhichnationalgovernmentsandotherpolicymakersshouldtakeaccountof.Theseunderpinournetzeroadvocacy.TheyarealignedwiththeframeworkfordecarbonisingheavyindustrysetoutbyTheClimateGroup¹¹andthesectorbreakthroughgoalsoftheUNRacetoZerocampaign.1.GlobalconsistencyGovernmentsshouldlooktotakenationalleadershiponclimateaction,buteffectiveco-ordinationandconsistencyinpoliciesbetweencountriesandregionsshouldbeestablishedtoensureconsistentregulationacrossoperatinglandscapesandultimatelypreventemissionsleakagebetweeneconomies.Governmentscanembracethisconveningroletodrivepositivechangeandtechnologyuptake.2.PrioritisetechnologicalsolutionsSolutionsthatcanabateorremovegreenhousegasemissionsshouldbeprioritisedovermeasuresthatlooktoneutralise(oroffset)emissions.Policiesshouldbeagnosticonthetechnologicalsolutiontostimulateinnovation.Whilecompensationactionsmayhaveanimportantroletoplayinmitigatingemissionsintheshorterterm,thesuccessfulachievementofa1.5ºCfuturewilldependontheabsolutereductionofemissionsbestdeliveredthroughatechnologydriventransition,includinglow,zeroandultimately,inthelongerterm,netnegativeemissiontechnologies.Publicfinancingshouldbeinvestedinthedevelopmentanddeploymentofthesetechnologies.3.InclusivegrowthandopportunityPoliciesandinvestmentsmustensurethatindustrialtransformationandthetransitiontonetzeroissustainable,createsgreenandinclusivegrowthandjobopportunities,andultimatelymeetsboththeimmediateandlong-termneedsofsociety–supportinggrowthandnotinadvertentlycreatingnegativeimpactsonpeopleorthenaturalenvironmentelsewhere–particularlyintheaftermathoftheCOVID-19pandemic.4.ConsiderthelifecycleimpactPoliciesshoulddrivedemandforefficientandcircularpracticestoengageandincentiviseactionacrosstheentireend-to-endvaluechain.Thismustensurethattheenergytransitionprotectsbiodiversityandnature,humanhealthandsocialmobility,andeconomicgrowth,anddoesnothaveaninadvertentlynegativeimpactondevelopingeconomies.Thesuccessfulexecutionofourdecarbonisationplanisdependentontheexternallandscapewithinwhichweoperate;toachievethemonumentalshiftrequiredtoreachnetzerowillrequirecollaborationandactionacrossallpartsofthevaluechainandwidereconomicsysteminwhichweoperate.CREATINGANENABLINGENVIRONMENT2928ROLLS-ROYCELEADINGTHETRANSITIONTONETZEROCARBONrolls-royce.com5.MobilisefinanceInnovationinnetzerotechnologiesmustacceleraterapidlyandpublicR&Dspendingcanplayakeyroleinunlockingsolutions,attractingandleveragingprivateinvestmentandinboostingdeploymentlevelstoreducecosts.Appropriatecarbonpricingcanplayanimportantroleinlevellingtheeconomicsofdecarbonisedsystems.NationalpolicyleversNationalgovernmentsandpolicymakershaveacriticalroletoplayincreatingthenecessarypolicyenvironmenttoincentiviseandenactaglobaltransitiontonetzerocarbon.Governmentssettheambitiontowhichbusinessescandeliveranditisthecontractbetweengovernmentsandbusinessthatwilldrivethepaceandimpactofdecarbonisationlevers.AsweapproachCOP26weseeafundamentalrolefornationalgovernmentsinsettingambitious,technology-led,commitmentstoaddressclimatechangewhichwillactasanecessaryprecedenttocompanyaction.Webelievethereareanumberofwayswecancollaboratewithgovernmentstodeliverandpotentiallyaccelerateourdecarbonisationstrategy,withgovernmentsactingas:–customers;–research,technology&developmentfundersandsupporters;–policymakersandregulators;–conveners;and–promotersofnetzerotechnologyexports.Asourtechnologyleversandbreakthroughtechnologysolutionsmatureandscalewewillworkwithnationalgovernmentsandsupranationalbodiestohelpcreatethepolicyandregulatoryenvironmentfortheiradoption.LeveragingourconveningpowertounlockdecarbonisationsolutionsRolls-RoyceisproudtobeasignatorytotheUNRacetoZerocampaignandtobecommittedtotheglobaltargetofnetzerocarbonby2050.Wehaverespondedtothisglobalcallforactionandthetechnologiesinwhichweareinvestingarecriticaltothedeliveryofthisglobalambition,butitwillrequirerealcollaborationacrossborders,sectorsandtechnologiesandwecannotdoitalone.Ourindustrypartnershaveacrucialroletoplayinacceleratingthejourneytoanetzerocarbonfuture,andweareworkingcloselywithourpeerstonotonlyseeknewtechnologicalcollaborations,butalsotoencouragetheadoptionofanadvocatepositiononnetzeroandthesectorbreakthroughsweneed.Inaddition,wearereviewingtheclimatepolicypositionsofthetradeassociationsandindustrygroupswearemembersoftounderstandalignmentwithourclimatecommitments.Wherethereisadivergencebetweenourclimatepositionandthoseofourpartners,particularlytradeassociations,wewillworkwiththemtoseektoreconcilethosedivergenceswherewecanandwhereappropriate,particularlyadvocatingforclimatecommitmentsinlinewiththeParisClimateAgreementgoals.Wewillcontinuetoplayaroleinconveningpartnersacrosscomplexsystemstoconvergeontechnologicalsolutions,suchastherecentmaritimesummitwehosted.EngagingourpartnersandseekingnewcollaborationstoaccelerateourjourneyRolls-Roycetechnologiessitattheheartofcomplexcriticalsystems.Reachingnetzerocarboninthosesystemswillrequirecollaborationacrossalldimensions.Wewillneedtoworkacrossborders,industriesandtechnologiestosucceed,withpartnerswhoareequallydriventowardscreatingcriticalsystembreakthroughs,inareassuchaslowcarbonalternativefuels.Alongourvaluechainwehaveopportunitiestoreduceemissionsthroughtargetedengagementbothupstreamanddownstream,aswellasopportunitiestolearnfrombestpracticeandcollaboratetoaddresscommonchallenges.Wewillworkwithexistingpartners,includingcustomers,tohelpthemrealisetheirownnetzeroambitions,andencouragefurthercommitmentsandactionwhereappropriate.Theactionswearetakingtoengageandadvocatefortheenablingenvironmentweneed:–Engagingourgovernmentpartnersinourcoregeographiesinsupportofthepolicyprinciplessetoutabove;–Advocatingforpartnersinourvaluechain,bothupstreamanddownstream,tojoinusintheRacetoZeroandincommittingtoreachnetzeroby2050atthelatest;–WorkingwithindustrygroupsandtradeassociationstoaccelerateclimatecommitmentsinlinewiththeParisClimateAgreementgoals;–Reviewingtheclimatepolicypositionsofthetradeassociationsandindustrygroupswearemembersoftounderstandalignmentwithourclimatecommitments;–Workingwithexistingpartners,includingcustomers,tohelpthemrealisetheirownnetzeroambitions,andencouragefurthercommitmentsandactionwhereappropriate.30ROLLS-ROYCELEADINGTHETRANSITIONTONETZEROCARBON31rolls-royce.comInadditiontoemissionreductionchallenges,wewillcontinuetofaceotherrisksanduncertaintieswhichmayimpactourabilitytoexecuteourdecarbonisationplan,includingbutnotlimitedto:–thevariedandongoingeffectsoftheCOVID-19pandemic;–disruptiontobusinesscontinuity(includingnaturalhazards,politicalevents,financialinsolvencyofacriticalsupplier,scarcityofmaterials,lossofdataorfire);–thecompetitiveenvironment;–compliancewithexistingandnewlegislationandregulatorypolicy;–cyberthreats;–marketand/orfinancialshock;–thegeopoliticalenvironment(includingchangesinkeypoliticalrelationships,explicittradeprotectionism,differingtaxorregulatoryregimes,potentialforconflictorbroaderpoliticalissues,andheightenedpoliticaltensions);and–theattractionandretentionofhighlyskilledemployees.Giventhemultiplicityofpotentialchallenges,progresstoachievingourdecarbonisationplanmayattimesbeunavoidablyhindered.Thisreportmaycontainprojectionsandforward-lookingstatements.Thewords"believe","expect","anticipate","intend"and"plan"andsimilarexpressionsidentifyforward-lookingstatements.Allstatementsotherthanstatementsofhistoricalfactsincludedinthisreport,including,withoutlimitation,thoseregardingRollsRoyce’s(theCompany)financialposition,potentialbusinessstrategy,potentialplansandpotentialobjectives,areforward-lookingstatements.Suchforward-lookingstatementsinvolveknownandunknownrisks,uncertaintiesandotherfactorswhichmaycausetheCompany'sactualresults,performanceorachievementstobemateriallydifferentfromanyfutureresults,performanceorachievementsexpressedorimpliedbysuchforward-lookingstatements.Suchforward-lookingstatementsarebasedonnumerousassumptionsregardingtheCompany'spresentandfuturebusinessstrategiesandtheenvironmentinwhichtheCompanywilloperateinthefuture.Further,certainforward-lookingstatementsarebaseduponassumptionsoffutureeventswhichmaynotprovetobeaccurate.Theforward-lookingstatementsinthisreportspeakonlyasatthedateofthisreportandtheCompanyassumesnoobligationtoupdateorprovideanyadditionalinformationinrelationtosuchforward-lookingstatements.ThemeritsorsuitabilityofinvestinginanysecuritiespreviouslyissuedorissuedinfuturebytheCompanyforanyinvestor'sparticularsituationshouldbeindependentlydeterminedbysuchinvestor.Anysuchdeterminationshouldinvolve,interalia,anassessmentofthelegal,tax,accounting,regulatory,financial,creditandotherrelatedaspectsofthetransactioninquestion.EmissionsfromsoldproductsInabilitytocontrolcustomers’choiceoffuel,whichinsomecasesiscontrolledbyregulation,andtheiruseoffinalproducts.Lackofavailabilityofsustainablefuelsincludingasaresultoflackofpolicyinthisarea.Potentiallackofcustomerengagement.Highcostsofmanufactureofsyntheticallyderivedlowcarbonfuel.Continuedrequirementtousecertifiedfuelsforcertaintestingactivities,whicharenotcurrentlysustainablefuels.Testingandvalidationofproductperformanceusingsustainablefuels.SupplychainPotentiallackofsupplierengagement.Theneedforinnovationsinmaterialsupplyandpotentialshortageofrawmaterials.Facilities/Businesstravel/commutingTheneedfornewtechniquesandsolutionsinenergyefficiencytobedevelopedandscaled.ChallengestoconsiderThesuccessfulexecutionofourdecarbonisationplanisdependentontheexternallandscapewithinwhichweoperate;achievingthemonumentalshiftrequiredtoreachnetzerowillrequirecollaborationandactionacrossallpartsofthevaluechainandwidereconomicsystem.Ourdecarbonisationplanwillcontinuetoevolveovertimeinresponsetoexternalfactorsbeyondourimmediatecontrol,includingthepaceandprioritisationoftechnologicalsolutions,globalconsistencyandcollaborationinpolicy,regulationandlaw,andtheabilityandwillingnessofsuppliersandcustomerstoengageandimplement.Wehavesetouttheactionswearetakingacrosstheshortandmediumtermtomeetournetzerocommitments,howevertherearechallengestoconsiderinordertoreduceemissionsacrossourfootprint,particularlywheretheseemissionsfalloutsideourimmediatecontrolandinfluence,includingbutnotlimitedto:3332ROLLS-ROYCELEADINGTHETRANSITIONTONETZEROCARBONrolls-royce.comOURDECARBONISATIONPLANONAPAGETrentXWB-97,TrentXWB-84,Trent7000,Trent1000TEN,Trent700;basedon2019installedenginefleet.Pearl700,Pearl15,BR725andBR710basedon2019installedenginefleet.CompliantwithDINEN15940Wehavepledgedtoachievenetzerocarboninouroperationsby2030,beanetzerocarbonbusinessby2050,andplayacrucialroleinenablingthesectorsinwhichweoperatereachnetzeroby2050.Ournewproductswillbecompatiblewithnetzerooperationby2030andallourproductswillbecompatiblewithnetzeroby2050.Settingtargetstogetourproductscompatiblewithsustainablefuelsby2023wewill:–Haveprovenallourin-productioncommercialaeroenginetypescompatiblewith100%SAFs,two-thirdsofTrentenginefleetandthree-fifthsofbusinessjetfleet;–Havereplaced10%ofthefuelweuseinallCivilAerospacetestinganddevelopmentactivitieswithSAF;–Showcompatibilitywithsustainablefuelsforourin-productionDefenceengines,subjecttocustomeragreement;–Havecertifiedin-productionSeries2000andSeries4000enginesfromPowerSystemswithsustainablefuels,ourmostpopularreciprocatingengines,theyrepresentthemajorityofourreciprocatingengines;–Haveintegrated2MWofhydrogenfuelcellsintooperationalmicrogriddemonstratorsby2023.Definingascience-basedinterimtargettoreducethelifetimeemissionsofnewsoldproductsfromourPowerSystemsbusinessby35%by2030,relativeto2019.Wearefinalisingourdetailedroadmapandtargetsfor2030andthiswillhappenlaterthisyear.MakingRolls-RoyceanetzerocompanyMobilisingourvaluechainDecarbonisingcomplexcriticalsystems2030Achievingzerogreenhousegasemissionsfromouroperations&facilities68%Recoveringandrecycling68%ofmaterialwithinouroperationsPioneeringnewtechnologiestoacceleratetheglobaltransitionincludingelectrification,hydrogen,SMRs,fuelcells,batterystorage&microgrids2023Makingallin-productioncivilaero-engines100%SAFcompatibleIdentifyinghighcarbonimpactareasofoursupplychainforpriorityinterventionFurtheradvancingtheefficiencyofourengineportfoliothroughnextgenerationtechnologies2023HavethemajorityofPowerSystemsenginesreadyforsustainablefuelsConveningourhighperformingsupplierstosharebestpractice2030EnsuringnewproductsarefullycompatiblewithnetzeroContinuingourwasteactionprogrammeImplementinglowercarbonsolutionswithlogistics&transportproviders75%ofR&Dinvestedby2025inlowercarbonandnetzerotechnologiesDevelopinganetzeromanufacturingstrategytoreducecarbonimpactsDevelopinganetzeromanufacturingstrategyLinkingexecutiveremunerationtothetechnologyleversthatwillacceleratethenetzerotransitionFurtherinvestinginon-siterenewableenergygenerationandthepurchaseofrenewableelectricityAdvocatingforthesectorbreakthroughgoalsidentifedbytheUNRacetoZerocampaignforthecritical,complexsystemswearepartof35rolls-royce.com3534ROLLS-ROYCELEADINGTHETRANSITIONTONETZEROCARBONrolls-royce.comGlossary1.5ºCtrajectoryApathwayofgreenhousegasemissionsthatprovidesasignificantchanceoflimitingglobalwarmingtobelow1.5ºCorreturningto1.5ºCbyaround2100followinganovershoot.AdditivelayermanufacturingAmodernfabricationprocessthatbuildsupsuccessivelayersofthree-dimensionalpartsintwo-dimensionallayersenablingthemanufactureofcomplex,interlinkedcomponentsusingavarietyofmaterials.Itiscommonlyreferredtoas3Dprinting.CarbonoffsettingReducinggreenhousegasemissionsorintensitycausedbyoneemissionssourcetocompensateforemissionsmadeelsewhere.CO₂eCarbondioxideemissionsequivalent.ThisisaproxyformeasuringandsummingthecumulativeeffectofGHGs.COP26AglobalUnitedNationsClimateChangeConferencethatwillbeheldinGlasgow,UKinNovember2021.Directaircapture(DAC)Theprocessofcapturingcarbondioxidedirectlyfromtheairandgeneratingaconcentratedstreamofcarbondioxideforsequestrationorotheruses.Greenhousegasemissions(GHGs)Gasesthatabsorbheattocreateawarmingeffect,includingcarbondioxide(CO₂),methane,nitrousoxide(N₂0)andwatervapour.IntergovernmentalPanelonClimateChange(IPCC)TheUnitedNationsbodyforassessingthesciencerelatedtoclimatechange,includingassessingscientific,technicalandsocioeconomicinformationrelevanttounderstandingthescientificbasisofriskofhuman-inducedclimatechange,itspotentialimpactsandoptionsforadaptationandmitigation.InterimtargetsShorterterm(between5to10years)decarbonisationtargets,whichapplybeforealonger-termnetzerotarget.NearnetforgingAmanufacturingprocessthatproducescomponentsthatareclosetothefinishedsizeandshape,requiringaminimalamountoffinishingprocessessuchasmachining.NetzerocarbonNetzerocarbonforacompanyreferstothesystemslevelreductionofvaluechaingreenhousegasemissions,inlinewitha1.5ºCtrajectory,andbalancingtheimpactofanyremaininggreenhousegasemissionswithanappropriateamountofcarbonremovals.ParisClimateAgreementAmultilateralagreementtoholdtheincreaseinglobalaveragetemperaturetowellbelow2ºCabovepre-industriallevelsandpursueeffortstolimitthetemperatureincreaseto1.5ºC,recognisingthiswouldsignificantlyreducetherisksandimpactsofclimatechange.Theagreementalsoaimstostrengthentheresilienceandadaptationcapabilityofcountriesinthefaceofclimatechange.Itwasadoptedby196PartiestotheUnitedNationsFrameworkConventiononClimateChange(UNFCCC)atCOP21in2015inParis.Science-BasedTargetsinitiative(SBTi)ANGO-ledpartnershipthatworkswithbusinessestodefineandpromotebestpracticeinemissionsreductionsandnet-zerotargetsinlinewithclimatescience.Scope1,2and3emissionsCategoriesofacompany’sgreenhousegasemissionsfootprintasdefinedbytheGHGReportingProtocol.SmallModularReactors(SMRs)Nuclearreactorswithasmalleroutputthanconventionallargescalepowerplants,designedwithmodulartechnologyusingmodulefactoryfabrication,pursuingeconomiesofseriesproductionandshortconstructiontimes.SustainableAviationFuels(SAFs)Sustainablefuelsforapplicationspecificallyinaviation.SustainablefuelsCollectivetermfornon-fossilbasedfuelsforapplicationacrossmultiplesectors,includingtransportandpowergeneration.Typically,thesefuelscomefromsourceswithaneutralornegativecarbonfootprintandcanbeproducedusingbiologicalsourcesorthroughcapturingcarbonandcombiningitwithsustainablymanufacturedhydrogen.UNRacetoZerocampaignAUN-backedglobalcampaignrallyingnon-stateactors–includingcompanies,cities,regions,financialandeducationalinstitutions–totakerigorousandimmediateactiontoachievenetzeroemissionsby2050.ValuechainThesetofactivitiesandstakeholdersinvolvedthroughoutthelifecycleoftheproductsand/orservicesthatabusinessdelivers.Wellbelow2ºCtrajectoryApathwayofgreenhousegasemissionsthatprovidesasignificantchanceoflimitingglobalwarmingtowellbelow2ºCabovepre-industriallevels.GLOSSARY&REFERENCES3736ROLLS-ROYCELEADINGTHETRANSITIONTONETZEROCARBONrolls-royce.comReferences1.https://racetozero.unfccc.int2.https://www.mckinsey.com/business-functions/sustainability/our-insights/climate-risk-and-response-physical-hazards-and-socioeconomic-impacts3.https://www.ipcc.ch/sr15/4.https://www.iea.org/articles/global-energy-review-co2-emissions-in-20205.https://www.gov.uk/government/news/climate-ambition-summit-raises-ambition-on-road-to-cop266.https://racetozero.unfccc.int/breakthroughs/7.https://www.iea.org/data-and-statistics/charts/global-energy-related-co2-emissions-by-sector8.https://racetozero.unfccc.int/wp-content/uploads/2021/02/Race-to-Zero-Breakthroughs-Transforming-Our-Systems-Together.pdf9.www.theclimategroup.org/framework-principles38ROLLS-ROYCELEADINGTHETRANSITIONTONETZEROCARBONrolls-royce.com39©Rolls-Royceplc2021Rolls-RoyceHoldingsplcRegisteredoffice:KingsPlace,90YorkWay,London,N19FXT+44(0)2072229020Companynumber7524813rolls-royce.com

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