Sustainability statements

Approach to sustainability reporting

Philips has a long tradition of sustainability reporting, beginning in 1999 when we published our first environmental annual report. In 2003, we expanded our reporting with the launch of our first sustainability annual report, which provided details of our social and economic performance in addition to our environmental results.

As a next step, we decided to publish an integrated financial, social and environmental report, reflecting the progress we have made embedding sustainability in our way of doing business in 2008. This is also supported by the inclusion of sustainability in the Philips Commitments and the company strategy.

This is our fifth annual integrated financial, social and environmental report.

Tracking trends

We continuously follow external trends to determine the issues most relevant for our company and those where we can make a positive contribution to society at large. In addition to our own research, we make use of a variety of sources, including the United Nations Environmental Programme (UNEP), World Bank, World Business Council for Sustainable Development (WBCSD), World Economic Forum and World Health Organization. Our work also involves tracking topics of concern to governments, regulatory bodies, academia, and non-governmental organizations, and following the resulting media coverage.

Stakeholder engagement

Across all our activities we seek to engage stakeholders to gain their feedback on specific areas of our business. Working in partnerships is crucial in delivering on our vision to make the world healthier and more sustainable through innovation. We participate in meetings and task forces as a member of organizations including the WBCSD, Electronic Industry Citizenship Coalition (EICC), Carbon Disclosure Project Supply Chain, European Committee of Domestic Equipment Manufacturers (CECED), Federation of National Manufacturers Associations for Luminaires and Electrotechnical Components for Luminaires in the European Union (CELMA), European Coordination Committee of the Radiological, Electromedical and Healthcare IT Industry (COCIR), Digital Europe, European Lamp Companies Federation (ELC), European Roundtable of Industrialists (ERT), National Electrical Manufacturers Association (NEMA), Environmental Leadership Council of the Information Technology Industry Council (ELC ITIC), Consumer Electronics Association (CEA), Association of Home Appliance Manufacturers (AHAM) and Healthcare Plastics Recycling Council (HPRC).

In 2011, a multi-stakeholder project with the Sustainable Trade Initiative (IDH), a number of NGOs, and electronic companies was started. The program focuses on improving working circumstances in the electronics industry in China.

Furthermore, we engaged with a number of NGOs, including Enough, GoodElectronics, MakeITfair, the leading Dutch labor union (FNV), the Chinese Institute of Public and Environmental Affairs, SOMO, Amnesty International and Greenpeace.

Biodiversity

Philips’ commitment to the subject of biodiversity made several significant steps forward in 2012. This was led mainly by the Philips Leaders for Nature (LFN) team which is part of the IUCN Netherlands committee LFN program. The program brings companies, NGOs and government together to work on the topic of business and biodiversity. The Philips LFN team grew both in the number of team members, local and company-wide initiatives, as well as widening the scope of discussions on the internal company-wide social network platform. This year the LFN team not only took an active part for the 5th year in the LFN programs but was represented on the LFN organizing committee for the second year running.

In October, the Philips LFN team organized the Philips sustainability week. This was planned to coincide with the Dutch Sustainability awareness day. The Philips activities took place across multiple sites and were intended to raise awareness of sustainability and biodiversity among Philips employees in the Netherlands. The program included education around biodiversity, sustainable transport, recycling, green products, and reducing your footprint by adopting a more vegetarian diet. There were also recycling and biodiversity restoration activities at the Philips Innovation Campus in Bangalore, Cleveland, Klagenfurt, Reedsville, and the Eindhoven High-Tech Campus amongst others.

The Philips Drachten site green teams have started a program to investigate opportunities for biodiversity restoration locally. This is part of a campaign to raise awareness that healthy ecosystems are the very foundations of our existence. The teams carried out a biodiversity scan of their site and are implementing recommended actions to increase site biodiversity. This will enable the restoration of the local flora and fauna and creating a pleasant outdoor environment for Drachten employees.

In November, the LFN team together with the Philips Corporate Sustainability Office organized the first and very successful Business Ecosystems Training (BET). The training was web-based and nearly 200 Philips employees from all sectors and 21 countries participated. This was the first of a series of trainings intended to increase the knowledge and understanding of the links between ecosystems and business. The BET program was developed by the WBCSD, its member companies and partners, and the IUCN. The training included an introduction to biodiversity and ecosystems, the link to Philips (risks and opportunities) what Philips and other companies have done and can do to include natural capital into their everyday activities.

Philips policy continues to focus on:

  • Continuing to reduce the impact of our operations through our Green Operations program, focusing on CO2 emissions, water, waste and restricted and hazardous substances
  • Continuing our EcoDesign activities, resulting in Green Products
  • Study concepts such as ‘Cradle to Cradle’, ‘Biomimicry’ and ‘The Natural Step’ – all focused on learning or imitating nature’s remarkably efficient designs – for our Sustainable Innovation efforts
  • Continuing our global partnership with IUCN, the International Union for the Conservation of Nature. Together we are exploring how specific lighting technology can redress the disturbance of fauna around the world, enabling it to co-exist with human sea and coastal development, for instance.

Reporting standards

In this report, we have followed relevant best practice standards and international guidelines while reporting on our sustainability performance. Most important are the Global Reporting Initiative’s (GRI) G3.1 Sustainability Reporting Guidelines.

With regard to the GRI Application Levels system, we assessed ourselves at the A+ level. A detailed overview of our Management Approach and the G3.1 Core Indicators is provided at the end of this section.

We signed on to the United Nations Global Compact in March 2007, joining thousands of companies from all regions of the world as well as international labor and civil society organizations to advance 10 universal principles in the areas of human rights, labor, the environment and anti-corruption. Our General Business Principles, Sustainability and Environmental Policies, and our Supplier Sustainability Declaration are the cornerstones that enable us to live up to the standards set by the Global Compact. This is closely monitored and reported, as illustrated throughout this report, which is also our annual Communication on Progress (COP) submitted to the UN Global Compact Office.

Material issues and our focus

Based on ongoing trend analysis and stakeholder input, we identify the key material issues for our company from a sustainability perspective. We have mapped the issues in the table below, taking into account the:

  • level of concern to society at large and stakeholders, versus impact on Philips, and
  • level of control or influence we can have on an issue through our operations and products/solutions.

This is a dynamic process, as we continuously monitor the world around us. We develop our policies and programs based on our findings. The results have been reviewed and approved by the Sustainability Board.

Key material issues

 
 
Reference1)
Environmental
 
- Climate change
- Energy management
- Clean technologies
- Collection and recycling (waste)
- Limited natural resources and resource efficiency
- Decreasing biodiversity (including wood and paper sources)
- Water scarcity
- Nano materials
1) With the exception of section 5.2, Social performance, section 5.3, Environmental performance, and Sustainability statements, the sections and chapters referred to are not included in the scope of the assurance engagement
 
 
Reference1)
Societal
 
- Aging population
- Rising healthcare costs
- Chronic and lifestyle related diseases
- Healthy Living
- Expanding middle class in growth geographies
- Rising attention for human rights (deeper into the supply chain)
- Demographic shift and urbanization
- Conflict minerals
- Employee health and safety
- Economic downturn
- Transparency and stakeholder activism
- Food scarcity
1) With the exception of section 5.2, Social performance, section 5.3, Environmental performance, and Sustainability statements, the sections and chapters referred to are not included in the scope of the assurance engagement.
 
 
Reference1)
Governance
 
- Privacy
- Business ethics and General Business Principles
- Partnerships and co-creation
- Impact of social media
- Metrics beyond financials
- Increasing product regulation
1) With the exception of Social performance, Environmental performance, and Sustainability statements, the sections and chapters referred to are not included in the scope of the assurance engagement

Programs and targets

Our sustainability commitments are grouped under the label EcoVision, comprising the following elements:

 
 
target 2015
baseline year
 
 
 
Green Product Sales
50% of total sales
 
Lives Improved
2 billion
 
Green Innovation
 
 
- Investments
EUR 2 billion (cumulative)
2010
- Energy Efficiency
49 Lumen/Watt (up 50%)
2009
- Materials
 
 
- Collection & Recycling
74,000 tonnes (up 100%)
2009
- Recycled content
15,000 tonnes (up 100%)
2009
Green Operations
 
 
- CO2 reduction
40%
2007
- Health & Safety
0.26 Lost Workday
Injury Cases per 100 FTE
 
Supplier Sustainability1)
72% compliant
 
1) For more information see Supplier indicators

All of our programs are guided by the Philips General Business Principles, which provide the framework for all of our business decisions and actions.

Scope of sustainability reporting

Our sustainability performance reporting encompasses the consolidated Philips Group activities, following the consolidation criteria detailed in this section.

The consolidated selected financial information in this sustainability statements section has been derived from the Group Financial Statements, which are based on IFRS.

Comparability and completeness

We used expert opinions and estimates for some parts of the Key Performance Indicator calculations. There is therefore an inherent uncertainty in our calculations. The figures reported are Philips’ best possible estimate. As our insight increases, we may enhance the methodology in the future.

Lives improved by Healthcare have been restated for 2010 and 2011 as a result of improved data quality. Collection and Recycling data for 2011 has been restated to reflect the inclusion of Consumer Luminaires.

The Green Product definition has changed in 2012 to include absolute product norms as well as the revenues from remote servicing. The introduction of absolute norms has a downward impact on the Green Product sales, since these are more stringent than the previous definition. The inclusion of remote servicing in Healthcare has an immaterial upward impact on the trend.

The emissions of substances data is based on measurements and estimates at manufacturing site level. There is therefore an inherent uncertainty in our calculations. The figures reported are Philips’ best possible estimate. As our insight increases, we may enhance the methodology in the future.

Integration of newly acquired activities is scheduled according to a defined integration timetable (in principle, first full reporting year after the year of acquisition) and subject to the integration agenda. Data for activities that are divested during the reporting year are not included in full-year reporting. Environmental data are measured for manufacturing sites with more than 50 industrial employees.

Social data cover all employees, including temporary employees, but exclude contract workers. Due to the implementation of new HRM systems, we are able to provide exit diversity information on Philips employees for 2012. Historical comparisons may not be available, however.

Health and safety data is measured for units with over 50 FTEs (full-time equivalents) and is voluntary for smaller units. New acquisitions must report, in principle, the first year after acquisition and subject to the integration agenda. Data for activities that are divested during the reporting year are not included in full-year reporting.

Prior periods amounts have been revised to reflect certain immaterial adjustments (see Significant accounting policies).

Data definitions and scope

Lives improved, energy efficiency and materials

The key performance indicators on ‘lives improved’, ‘energy efficiency’ and ‘materials’ and the scope are defined in the respective methodology documents that can be found at www.philips.com/sustainability.

Green Products

Green Products offer a significant environmental improvement in one or more Green Focal Areas: Energy efficiency, Packaging, Hazardous substances, Weight, Recycling and disposal and Lifetime reliability. The life cycle approach is used to determine a product’s overall environmental improvement. It calculates the environmental impact of a product over its total life cycle (raw materials, manufacturing, product use and disposal).

Green Products need to prove leadership in at least one Green Focal Area compared to industry standards, which is defined by a sector specific peer group. This is done either by outperforming reference products (which can be a competitor or predecessor product in the particular product family ) by at least 10%, outperforming product-specific eco-requirements or by being awarded with a recognized eco-performance label. Because of different product portfolios, sectors have specified additional criteria for Green Products, including product-specific minimum requirements where relevant.

Green Innovation

Green Innovation comprise all R&D activities directly contributing to the development of Green Products or Green Technologies. A wide set of additional criteria and boundaries have been defined as the basis for internal and external validation.

Environmental data

All environmental data from manufacturing operations are reported on a half-year basis in our sustainability reporting and validation tool, according to defined company guidelines that include definitions, procedures and calculation methods.

Internal validation processes are followed and audits performed to ensure consistent data quality and to assess the robustness of data reporting systems.

These environmental data from manufacturing are tracked and reported to measure progress against our Green operations program targets.

Reporting on ISO 14001 certification is based on manufacturing units reporting in the sustainability reporting system.

Operational carbon footprint

The Philips operational carbon footprint is calculated on a half-yearly basis and includes:

  • Industrial sites – manufacturing and assembly sites
  • Non-industrial sites – offices, warehouses, IT centers and R&D facilities
  • Business travel – lease and rental cars and airplane travel
  • Logistics – air, sea and road transport

All emission factors used to transform input data (for example, amount of tonne-kilometers transported) into CO2 emissions are from the Greenhouse Gas Protocol (GHGP), except for business travel, where the service providers supplied CO2 data based on their own verified methodology. The GHGP distinguishes three scopes. It is mandatory to report on the first two to comply with the GHGP reporting standards.

  • Scope 1 – direct CO2 emissions – is reported on with direct emissions from our industrial and non-industrial sites in full. Emissions from industrial sites, which consist of direct emissions resulting from processes and fossil fuel combustion on site, are reported in the sustainability reporting system. Energy use and CO2 emissions from non-industrial sites are based on actual data where available. If this is not the case, they are estimated based on square meters, taking the geographical location and building type of the site into account.
  • Scope 2 – CO2 emissions resulting from the generation of purchased electricity for our premises – is reported on with electricity use from industrial and non-industrial sites in full. Indirect CO2emissions resulting from purchased electricity, steam and heat are reported in the sustainability reporting system. Those emissions of industrial sites not yet reporting are calculated on the same basis as described in Scope 1. Indirect emissions of non-industrial sites are calculated in the same manner as described in Scope 1.
  • Scope 3 – other CO2 emissions related to activities not owned or controlled by the Group is reported on for our business travel and distribution activities. Commuting by our employees, upstream distribution (before suppliers ship to us), outsourced activities and emissions resulting from product use by our customers are not included in our operational carbon footprint. The calculations for business travel by lease cars are based on actual fuel usage and for rental cars on distance traveled. Emissions from business travel by airplane are calculated by the supplier based on mileage flown and emission factors from DEFRA (UK Department of Environment, Food and Rural Affairs), distinguishing between short, medium and long flights. Further, emissions from air freight for distribution are calculated based on the amount of tonne-kilometers transported between airports (distinguishing between short, medium and long hauls), including an estimate (based on actual data of the lanes with the largest volumes) for trucking from sites and distribution centers to airports and vice versa. Express shipments are generally a mix of road and air transport, depending on the distance. Therefore the assumption is applied that shipments over less than 600 km are transported by road and the rest of the shipments by air (those emissions by air are calculated in the same way as air freight). For sea transport, only data on transported volume were available so an estimate had to be made about the average weight of a container. Transportation to and from ports is not registered. This fore and aft part of sea transport was estimated to be around 3% of the total distance (based on actual data of the lanes with the largest volumes), consisting of a mix of modalities, and was added to the total emissions accordingly. CO2 emissions from road transport were also calculated based on tonne-kilometers. If data were incomplete, the emissions were estimated based on sales volumes. Return travel of vehicles is not included in the data for sea and road distribution.

Health and safety

Health and safety data are reported and validated monthly. The focus is on reporting work-related injuries, which predominantly occur in manufacturing operations. The annual number of cases leading to at least one lost workday is reported per 100 FTEs (full-time equivalents). Fatalities are reported for staff, contractors and visitors and include commuting accidents.

General Business Principles

Alleged GBP violations are registered in our intranet-based reporting and validation tool.

Supplier audits

Supplier audits are primarily focused on identified risk suppliers, based on identified risk countries and on spend of more than EUR 1 million (new suppliers EUR 100,000 and no threshold for high risk suppliers).

  • Based on the Maplecroft Human Rights Risk Indexes, risk countries for Supply Management in 2012 were: Belarus, Brazil, China, Dominican Republic, India, Indonesia, Mexico, the Philippines, Russia, and Ukraine.
  • Suppliers of new ventures are included to the extent that the integration process of these ventures has been finalized. Normative integration period is two years after closure of the new venture.

Sustainability governance

Sustainability is strongly embedded in our core business processes, like innovation (EcoDesign), sourcing (Supplier Sustainability Involvement Program), manufacturing (Green Manufacturing 2015) and Logistics (Green Logistics).

The Sustainability Board is the highest governing sustainability body in Philips, chaired by Jim Andrew, member of the Executive Committee. Three other Executive Committee members sit in the Sustainability Board jointly with sector and functional executives. The Sustainability Board convenes four times per year, defines Philips’ sustainability strategy and programs, monitors progress and takes corrective action where needed.

External assurance

KPMG has provided reasonable assurance on whether the information in Sustainability statements including the information referred to in Social performance and Environmental performance is, in all material respects, fairly presented in accordance with the reporting criteria. We refer to Independent assurance report.

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This is an interactive electronic version of the Philips Annual Report 2012 and also contains certain information in summarized form. The contents of this version are qualified in their entirety by reference to the printed version of the full Philips Annual Report 2012. This printed version is available as a PDF file on this website. Information about: forward-looking statements, third-party market share data, fair value information, IFRS basis of presentation, use of non-GAAP information, statutory financial statements and management report, reclassifications and analysis of 2011 compared to 2010.
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The Electronic Industry Citizenship Coalition was established in 2004 to promote a common code of conduct for the electronics and information and communications technology (ICT) industry. EICC now includes more than 40 global companies and their suppliers.

Green Products offer a significant environmental improvement in one or more Green Focal Areas: Energy efficiency, Packaging, Hazardous substances, Weight, Recycling and disposal and Lifetime reliability. The life cycle approach is used to determine a product’s overall environmental improvement. It calculates the environmental impact of a product over its total life cycle (raw materials, manufacturing, product use and disposal).

Green Products need to prove leadership in at least one Green Focal Area compared to industry standards, which is defined by a sector specific peer group. This is done either by outperforming reference products (which can be a competitor or predecessor product in the particular product family ) by at least 10%, outperforming product specific eco-requirements or by being awarded with a recognized eco-performance label. Because of different product portfolios, sectors have specified additional criteria for Green Products, including product specific minimum requirements where relevant.

Carbon dioxide (chemical formula CO2) is a chemical compound composed of two oxygen atoms covalently bonded to a single carbon atom. It is a gas at standard temperature and pressure and exists in the Earth’s atmosphere in this state. CO2 is a trace gas comprising 0.039% of the atmosphere.

Growth geographies are the developing geographies comprising of Asia Pacific (excluding Japan, South Korea, Australia and New Zealand), Latin America, Central & Eastern Europe, the Middle East (excluding Israel) and Africa.

Green Innovation comprise all R&D activities directly contributing to the development of Green Products or Green Technologies.

A carbon footprint is the total set of greenhouse gas emissions caused by an organization, event, product or person; usually expressed in kilotonnes CO2-equivalent. The Philips operational carbon footprint is calculated on a half-year basis and includes industrial sites (manufacturing and assembly sites), non-industrial sites (offices, warehouses, IT centers and R&D facilities), business travel (lease and rental cars and airplane travel) and logistics (air, sea and road transport).