Putting environmental policy into context

ST is now into the second decade of its Decalogue. That's over 10 years of reporting against its well-known environmental 10 commandments. As a preface to this year's performance review, we caught up with Georges Auguste, Corporate Vice President, Total Quality and Corporate Responsibility, to find out exactly why, and how, ST takes its environmental obligations so seriously.

Let's start with the very basics, Georges. Why have an environmental policy at all? And where does it fit in with company strategy?

Our strategy from the beginning was to be a viable company. For us, being viable means being sustainable. This is long-term thinking – we believe a corporation cannot succeed in a world that fails. As the definition has it, we want to fulfill the needs of the present without compromising our ability to fulfill the expectations of all our stakeholders in the long term. So the environmental strategy did not start with a business case argument, it was for moral reasons, an ethical commitment. As a bonus, it is very clear that by saving resources we are more profitable.

And no doubt the reporting helps monitor this?

Well, clearly it's a healthy exercise to understand where you are against where you wanted to be. But it also helps communicate to employees and the outside world our ethical commitment. What's more, it is a powerful motivation to improve, because we are publicly committed.

You revised your Decalogue this year. What are the main changes?

We are updating the purely environmental targets from the perspective of continuous improvement. But we want to focus more on the areas that are completely within our control, such as the impact we have in solvents, acids, and heavy metals. We have also introduced health and safety targets – nothing we haven't worked on before – just giving them the same kind of company-wide visibility.

Why not set absolute targets rather than 5% a year improvements in normalized terms?

I agree absolute targets would be quite meaningful but they don't take into account the fast growth of our industry, and the kind of capital investments required to achieve them would be unmanageable – we have to balance our stakeholders' expectations. Besides, 5% seems very reasonable and has proved so. If the whole world improved at 5% a year, absolute consumption of natural resources would really come down.

Even though ST's first priority is management of the impact of hazardous substances, the aim to become carbon neutral by 2010 has attracted much recognition. Can you explain this policy to us and tell us how you are doing?

Well, I think you'll see a detailed update later in this section, but what it means is that we want our overall CO2 emissions to be equivalent to zero. The parts of this equation are as follows:

• We reduce our basic energy consumption so we are reducing the CO2 the energy producers use to supply us. Here we are totally in line with our plan and have achieved a 7–10% reduction over the last few years, beyond the 5% target of the Decalogue.
• We reduce emissions due to our use of Perfluorinated Compounds (PFCs). Here our target is to reduce our absolute PFC emissions by 10% in 2008 from our 1995 baseline. We are a bit behind schedule but we know how we are going to address this, and since we have made an important commitment within the World Semiconductor Council, we are determined to succeed in reaching our goal.
• We replace some of our traditional energy supplies with our own renewable energies such as wind farms and photovoltaics. This is on a small scale, but as it is not our core business to be an energy producer we are changing our strategy toward the purchase of green energy as a proactive support to green energy producers. Our current use of renewable/alternative energy stands at 2%, so we have quite a way to go to reach our goal of 15% by 2010.
• Finally, we compensate for our remaining emissions through reforestation programs.

So, how are we doing?

Well, it will be impossible for us to reach our original 2010 goal of total carbon neutrality covering both our direct and indirect emissions of CO2, so for this date we have adjusted our target to be neutral on our direct emissions (due to PFCs). We will certainly be able to reach this goal. Total carbon neutrality, including the emissions of all the energy we consume, is perhaps another five years further off beyond the 2010 target, but we will get there.

ST is also famous for introducing the 'eco-efficiency' approach, highlighting the financial benefits that accompany efforts to reduce the consumption of resources. How's that going?

When we started this, it was by dividing the physical values, like kilowatt hours, by dollars of sales. Of course this is very much dependent on sales data and product prices, which can fluctuate dramatically. So we abandoned this and replaced it by units of production, which is a bit more reliable. In fact, we don't think we should go much further than we have already, as there would be little added value in deploying a more complicated system to measure smaller impacts. However we have already extended this concept to health and safety, and 2005 is the second year running in which we have been able to publish the estimated costs and savings relating to accident and injury rates.

Looking at the bigger picture, electronics isn't perceived to be a polluting or extractive sector. What difference can a company like ST make?

No, we are not a 'big polluter', but we certainly have an impact, and we must show that proactivity is possible, and that it is compatible with sound financial results – savings of over US$170m a year in our case. Our commitment to carbon neutrality is unique in our sector, and is made on top of the other initiatives we have launched to reduce our impact. It shows the way; corporations should internalize their environmental costs instead of pushing them out to society at large. The other difference we can make is in developing products for energy-saving.

Ah, yes, tell us more about that.

Well, this is something we've done quite naturally in the last 10 years or so, even though there was never a real strategy, and we have a very strong 'low-power conscious design' culture. But now our CEO has made it clear that he wants to start measuring the percentage of our total products that are energy-saving products. We will have more visibility on the products already in our portfolio quite soon, but since a product takes between 8–20 months in development, we won't see these results for products under development until 2007. There are two things to look at here: the way we design the product to consume less energy itself is one. The other is the design of our chip so it saves energy within its final application, like the standby mode on a TV or a computer.

Georges, you're something of an evangelist for environmental commitment. Does the senior management share your view?

Environment, as part of corporate responsibility, is at the heart of one of the key programs of the company. The environmental results are part of the quarterly results presented to the CEO. If they are not on track, vice presidents have to justify why, and what they will do to correct any inconsistencies. The environmental results are part of defining the salary for key executives. But our commitment and results come from something else, too. When we first started out, there were some executives who were puzzled about our environmental initiatives, but they soon realized they make sense from a business point of view, and that they are highly valued by our stakeholders, such as investors, customers, and local communities. Besides this business perspective, there is a very strong emotional investment in the environment at ST. This aspect of our culture is something that matters to us and we are all very proud of it.

Georges Auguste
Corporate Vice President, Total Quality and Corporate Responsibility