Ladies and Gentlemen,
Welcome to the presentation of Philips’ Sustainability Report for the year 2003.
Many of you will know me, but, just in case you don’t, I am a member of Philips’ Group Management Committee and, as the head of the Sustainability Board, I have been responsible for our sustainability effort over the last few years. On April 1st, and this is not a joke, I will retire from my functions at Philips. Barbara Kux, who joined Philips last year as Chief Procurement Officer, will take over as chair of the Sustainability Board.
Today, I will take you through the basics of our sustainability strategy, our achievements in 2003 and our plans for 2004. Then I’ll give the floor to Barbara, who will focus on our program to involve our suppliers in our sustainability effort.
This is the second year we have produced a full-blown Sustainability Report with extensive information on our social, environmental and economic performance. But that does not mean we only became interested in sustainable development two years ago. To the contrary. Long before the expression ‘sustainability’ became commonplace, Philips took its social and environmental responsibilities very seriously. Sustainability is interwoven into our history of more than a century, it is in our blood. We have always believed that we can do well by doing good and that sustainability makes business sense. It reduces risks and costs, enhances reputation and loyalty, and creates new business opportunities.
This affinity with social, environmental and economic responsibility is one of the reasons we are ahead of most other companies in our sustainability drive. And we are being recognized for that. This year, the Dow Jones Sustainability Index (DJSI) ranked Philips number one worldwide for corporate sustainability in the Cyclical Goods and Services sector. We also came out first in the DJSI STOXX index of 600 leading European companies. We are happy with this recognition from our stakeholders and we want to do everything in our power to maintain this ranking in 2004.
However, though affinity might be a necessary condition for an effective sustainability program it, is definitely not asufficient condition. Sustainability is hard work. It requires inspiration but also a lot of perspiration and consistency. You have to embed it in your organization and processes. You need to plan, to execute, to measure and to check to get a corporate sustainability strategy off the ground successfully. And above all, you need to balance. That’s what we have tried to do over the last years and that’s what we are still doing. You can summarize our attitude in a short statement that you’ve heard before: what gets measured, gets done.
What have we achieved in the year 2003 and what are our plans for 2004? Let me take you briefly through a few issues: environmental performance; diversity and inclusion; communication with stakeholders; social investments; and – last but not least – our challenge to explore New Business opportunities with sustainability as the key driver.
Environmental Performance
Our world-class environmental performance is perhaps one of the most important factors explaining our high score in sustainability ratings. Philips has dramatically improved its environmental record, year in year out, for over three decades. And we are still going strong. We began establishing coordinated action programs ten years ago. Since 1998, we have been monitoring and reporting our progress in great detail. As I have just said: planning, executing, measuring and checking are the key to this success. We are currently executing our EcoVision 2002 – 2005 action program and we are on track to achieve its challenging goals. In 2003, and compared with 2002, we reduced our use of packaging materials by 11 per cent, we reduced our energy consumption by 10 per cent, we decreased our CO2 emissions by 13 per cent and we improved our water efficiency by 15 per cent.
At Philips, we have developed procedures for Environmental Conscious Product Design – what we ‘EcoDesign’. In our EcoDesign process, we concentrate on five Green Focal Areas: weight, hazardous substances, energy consumption, disposal and packaging. Our top EcoDesign products receive Green Flagship status if they clearly outperform either competitors’ products or earlier Philips’ versions in at least two of the five green focal areas. We already have more than 100 Green Flagship products and our current program calls for at least one new Green Flagship product per Product Division per year.
Let me give you three examples of recent Green Flagship products. One: our latest LCD technology that reduces weight, energy consumption and packaging for our flat TV screens. Two: our BGY 284 ultra-small GSM power amplifier module for mobile phones. Compared with its predecessor, this module weighs 67 per cent less, uses 25 per cent less energy and does not contain the hazardous substance lead. And three: our Master PL Electronic 11 Watt lamp, that uses 62 per cent less hazardous substances and 53 per cent less packaging compared with the average of its two closest competitors. Today in the demo room, you have seen or will see some examples of these products.
Diversity and Inclusion
In our first Sustainability Report, we announced our intention to increase the percentage of women in top management positions from 4 to 10 per cent and also increase the number of Asian nationals in higher management positions. But diversity and inclusion goes beyond management functions and beyond gender and ethnicity. It’s about respecting each individual in the company, allowing people with different backgrounds to feel truly included. We do believe, however, that the drive to increase the percentage of executives from these two groups will foster an environment of inclusion throughout the company.
Again, we will not get there by just uttering nice statements. In 2003, we took our first steps, but we are realistic and know we still have a long way to go to change the culture in a company. Our Board of Management has approved an action plan regarding diversity and inclusion. We are rolling out this program in 2004. Amongst other things, it includes setting up a Global Diversity Steering Committee; defining and deploying key goals; auditing our main HR processes; and enabling the creation of target group networks. I know this may sound more boring than grand declarations, but it is essential if we really want to achieve results.
Communication with stakeholders
At Philips, we believe in actively engaging all stakeholders. To find out what our stakeholders think of us, between September and November 2003, we conducted a reputation study in eight countries around the world, our eight most important markets. We interviewed employees, suppliers, academia, politicians, NGOs and labor unions, among others.
The reputation study has revealed that, compared with its competitors, Philips has a good reputation among employees, suppliers, governments and educational institutions, whereas opinions in the business and financial community are less favorable. I am also delighted to inform you that, among journalists, we have quite a reasonable reputation.
We are currently evaluating the outcome in more detail and this evaluation will be the basis for future programs to improve our communication with various stakeholders. We do not want to shrink away from the difficult tasks of balancing opposed interests and, for example, NGOs will definitely be included in our efforts to establish a dialog with our stakeholders.
Social Investments In 2003, Philips spent about 10 million euros on social investments. We are putting emphasis on local projects with a focus on healthcare and education. We try to choose projects where our technology can be applied to improve living conditions of the beneficiaries, where Philips’ employees are personally involved and where the beneficiaries are people at the bottom of the wealth pyramid. Providing Philips money is one thing; enabling and stimulating Philips people to contribute time and energy is an important additional element. A few examples of Philips’ social investments:
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In the second half of the nineties, Philips Malaysia founded two kindergartens in rural areas of the country where pre-school is non-existent. These schools are still running successfully with Philips’ financial support. So far, 400 children have gotten their schooling off to a good start.
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During the SARS crisis early in 2003, Philips helped to fight the disease in China, Singapore and Hong Kong. In China, as a company we contributed equipment, while our Chinese employees donated money to a SARS charity.
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Philips has refurbished an apartment in Madrid, near the La Paz and Ramón y Cajal hospitals. This apartment serves as a temporary home for families of children being treated for cancer. Philips’ employees volunteer their time in the apartment and hospitals, visiting the families and the children.
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Philips Turkey sponsored two mobile education units serving children ages 7 to 14. In 2003, these classrooms-on-wheels provided 7,500 children with a minimum of twelve hours of basic education in computer usage.
Our New Business Challenge
As I said earlier, sustainability makes good business sense for Philips. In the long term, it improves financial results. But, for Philips, that is not the whole story. Because of our focus on healthcare, lifestyle and enabling technologies, we can give a whole new dimension to sustainability. We are now exploring new business opportunities with sustainability as the key driver. Some of these new products and services will be introduced for the developed world. Other initiatives will focus on new markets and will aim to improve the quality of life of some of the four billion people at the bottom of the wealth pyramid. These initiatives will have a beneficial impact on the lives of some of these people while at the same time contributing to our growth.
Of course, we already offer many of these products and services. For example, our Product Division Lighting uses its UV light solutions to offer purer, clearer water in an environmentally sound way. In 2003, installations based on this technology were opened in Moscow and Beijing.
But now, we want to actively look for these sustainable products and technologies in a more structured way. All of our employees have been invited to come up with creative ideas in this area. We expect each of our Product Divisions to come up with at least one new business project in 2004 that is both sustainable and profitable. To provide some guidance to this exploration process, a task force was set up and it established the criteria for project proposals.
Pilot projects, such as remote access healthcare (‘DISHA’ in India) and communication access in regions with a lack of infrastructure (‘Voices in Your Hand’ in Brazil) have started. They will allow us to test our concepts.
The New Business project is still at its early stages, but we are quite excited about it. Growing profitably by satisfying the unmet needs of the poorest people - and there are about four billion of them - is, after all, a worthy challenge.
Before I hand you over to Barbara, allow me to emphasize one last, important element of our Sustainability Strategy: independent verification. The content of this Sustainability Report, the underlying evidence of our statements, has been audited by KPMG. Without this verification, our claims in the area of sustainability would lose a lot of their credibility.
The Dutch Association of Investors in Sustainable Companies (VBDO) called our first Sustainability Report the best one in The Netherlands because of the serious effort of external verification. Not only through the auditing process.
I now give the floor to Ms. Barbara Kux, our Chief Procurement Officer, who will outline our supplier management initiatives.
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