Overiew of the Analysis Process

What Is Materiality?

For the purposes of this report, we consider material information to be that which is of greatest interest to, and which has the potential to affect the perception of, those stakeholders who wish to make informed decisions and judgments about the Company’s commitment to environmental, social and economic progress. Thus, materiality as used in this Sustainability Report does not share the meaning of the concept for the purposes of financial reporting.

How Was the Analysis Conducted?

To identify and prioritize material issues, we updated the analysis done for our 2010/11 Sustainability Report using a three-step process.

Identification of Material Business Issues

We developed a list of almost 550 issues, grouped into 15 topics. The issues were identified by reviewing Ford business documents as well as inputs from employees, dealers and our major external stakeholders: customers, communities, suppliers, investors and nongovernmental organizations (NGOs). For the Ford analysis, the documents included Ford policies, business strategy and performance tracking tools, and the Annual Report on Form 10-K. To represent stakeholder views, we looked at Ford-specific inputs such as summaries of stakeholder engagement sessions as well as documents that represent stakeholder views more broadly, such as the Ceres Roadmap to Sustainability, reports on consumer trends and attitudes, and reports from socially responsible and mainstream investors.

Assessment of Value Chain Impacts

This year, we added a formal value chain analysis step to our materiality process. We did this to pilot some of the changes to the material issue identification and reporting process proposed in the Global Reporting Initiative’s (GRI) draft “G4” guidelines. Though we had previously identified key impacts and impacted stakeholders across Ford’s value chain stages, for this report we updated that analysis and integrated it into our material issue identification and prioritization process. First, we mapped our material issues across Ford’s value chain to ensure we are considering each issue at all the value chain stages where it has a substantial impact. Then, we assessed which stakeholders are more and less impacted by each issue at each value chain stage. We then gave the stakeholder group or groups that are most impacted by a certain issue across Ford’s value chain a higher weight in estimating the overall importance of that issue to non-Ford stakeholders. However, for the final results of our prioritization of issues, described below, we did not apply this new methodology, as the results of both approaches to calculating the overall impact score for non-Ford stakeholders on an issue-by-issue basis were similar.

Prioritization of the Issues

We noted the frequency with which issues were raised in the source documents and rated each issue as low, moderate or high for current or potential impact on the Company in a three- to 10-year timeframe, as well as degree of concern to stakeholders (by stakeholder group). Though we consider possible impacts and importance out to 10 years, three to five years is the timeframe in which Ford can make meaningful changes in our own actions based on our internal planning and production cycles. For each issue, the ratings were averaged separately for Ford and stakeholders (with extra weight assigned to investors and multi-stakeholder inputs, as they are key audiences of our reporting).

The issues and their ratings were then plotted on a “materiality matrix.” The y-axis shows concern to stakeholders increasing from bottom to top. The x-axis shows increasing impact to Ford from left to right. “Current or potential impact on Ford” was assessed based on the potential an issue has to impact Ford’s financial position; corporate reputation including standing in local communities, social license to operate and consumer perceptions of our Company and products; employee productivity and retention; and other key impacts.

We consider the issues in the “upper right” sector to be the most material. We do not further prioritize issues within a given box of the matrix as relatively more or less important than other issues in that same box, but we encourage users to click through the interactive matrix to access the detailed descriptions and other context on the individual issues. None of the issues is unimportant; the position of each in the matrix simply represents our understanding of its relative importance to the Company and its stakeholders.

Review of the Analysis

The draft matrix was reviewed internally. It was then revised again after review by a Ceres stakeholder committee that included representatives of environmental and other NGOs, socially responsible investment organizations and a supplier company. Please see the Assurance section for information on how we responded to the Committee’s recommendations.

Use of the Analysis

We use this analysis to identify issues to cover in our reporting and as an input to our sustainability strategy development. This analysis, and the methods for conducting materiality analyses generally, are works in progress. Though we undertake an in-depth materiality analysis every two years, we continue to consider material issues and stakeholder inputs informally between formal analyses. We are continually improving our reporting based on the formal and informal assessment of changing issues and stakeholder perspectives. Due to the timing of analysis, reviews and report development, the results of one materiality analysis may not be fully realized in our reporting until the following year’s report.

We work hard to ensure that our materiality analysis and the resulting matrix is comprehensive and precise without being so complicated that it is difficult to understand or apply. However, sustainability issues are not discrete. Rather, they overlap and interconnect in a complex system that is difficult to capture in a list of issues. Analyzing issues by stakeholder group adds depth to our understanding of who is concerned about which issues and why, but in the process of placing them on a two-dimensional matrix, some of that nuance is lost. Finally, an element of subjectivity is inevitable.

We have participated with other companies and organizations in documenting current methods for materiality analysis with the expectation that this will help advance the practice.