ST Microelectronics: aiming for carbon neutrality

Over the last few years, semiconductor manufacturer ST Microelectronics has come to the fore as an environmental leader by setting demanding targets, such as cutting water use by 5% a year, reusing or recycling 95% of its waste and slashing chemical use. But is its stated aim of becoming carbon-neutral by 2010 a goal too far? Can a firm which uses as much energy as a small city become carbon-neutral in a decade, or will ST's ambitions finally hit a brick wall?

ST Microelectronics is the world's third-largest independent semiconductor manufacturer. It has a turnover close to $8 billion per year and employs 43,000 people in 19 manufacturing facilities and 45 research and design centres across the globe.

So why does a chip manufacturer want to become carbon-neutral? According to Georges Auguste, vice president of quality and environment, the company's environmental vision comes from the very top - from ST's chief executive officer and president, Pasquale Pistorio.

The environmental stance "is very much related to the position our CEO took in the early 1990s," explained Mr Auguste. "He felt that we had to do something." Over the past eight years, he has worked to translate this "feeling" into action by setting ambitious targets, and developing the supporting systems required to meet them.

The first step
The turning point came in 1993. This, according to Mr Auguste, was when ST moved from being a reactive company, with a vision confined to regulatory compliance, to one which sought to anticipate and set the environmental agenda.

For the next two years, ST collected data and identified its main impacts. It looked at competitors and other environmental leaders to establish what was best practice and how it might step beyond it.

Among its first actions was to adopt the most stringent environmental legislation at all sites regardless of their location. Another was to set up an environmental management system and to get all its manufacturing sites registered under the EU eco-management and audit scheme (EMAS). This made collecting data in a standardised way more straightforward.

In developing its policies, the company soon realised that its environmental stance made good business sense. Any initial resistance to the company's aggressive environmental policies melted away when it became apparent that far from being a burden, it would actually benefit the bottom line. "It was important to have some good success stories at the start," said Mr Auguste.

ST claims that being identified as green has increased its scores in vendor rankings and led to higher sales.

"The first push was something that was not really rational," Mr Auguste acknowledged. "But we realised that our customers, sooner or later, would ask us [to improve environmental performance] because they would be asked by their customers."

ST is convinced that companies which take action voluntarily to control environmental impacts will be more competitive than those which are forced to comply with legislation. Not only will they be able to plan how to deal with their impacts, but they will also be able to choose the best options for their circumstances.

ST claims that embracing environmental technologies has allowed it to increase the efficiency of its production processes and saved millions of dollars. Another unexpected advantage is that its stance has pleased its staff and helped with employee satisfaction and retention. ST's annual staff survey showed that over 92% of employees support the company's goals and are in favour of its policies.

Developing a strong business case for the company's environmental policies has made it easier to set demanding targets and to invest in environmental initiatives while retaining the support of staff, customers and, importantly, investors. And ST spends a lot on environmental protection.

Investment and returns
Last year, ST invested $61 million in its environmental programme. This equates to just under 2% of the company's total investment during the year, but rises to 4% for new infrastructure projects. Environmental measures are designed into new projects and tend to increase their capital costs.

ST is committed to maintaining environmental investment at about 2% of total investment - despite the hard times which the electronics sector is now experiencing - because it is convinced that it saves money in the medium to long term. "The payback of these capital investments is short," insisted Mr Auguste. "For energy it is 2-5 years, and for water it is 2-3 years."

In fact, ST's environmental programme saved the company some $61 million on its energy, water and chemicals bills alone in 1999, and the company expects more savings in the coming years.

Much of this saving comes from previous years' investments. While most companies find it relatively easy to identify savings when they start out, many find it more difficult to keep coming up with cheap efficiency measures once the obvious ones have been taken.

"In the first few years there were plenty of low-hanging fruit," agreed Mr Auguste. "Moving along, we have drawn on consultants to help us and we realise that there are still fruit out there."

But he acknowledges that it is getting harder to identify opportunities. Most of ST's early measures had payback periods of less than two years. The company is now working on paybacks of up to four years. Mr Auguste estimates that these will enable it to meet its targets up until 2005. Beyond that, he admits, it might be more difficult (see box ).

He also cautioned that environmental investments are not always "win, win". "We do have some costs that have no immediate payback. For example, air emissions of solvents: you can just throw them out into the air and not pay, except in terms of image." Around 10-15% of ST's environmental investment falls into this bracket and represents a net cost to the company.

Targets and achievements
ST's targets beyond 2005 are demanding. In 1995, the company published its "decalogue" - ten sets of targets covering resource use, emissions, waste, product design and management.

They include targets to cut water and energy use by 5% per year; reuse or recycle at least 95% of the company's packaging and manufacturing waste by 2010; cut the quantity of the six main chemicals used by 5% per year; and reduce emissions of perfluorinated compounds by a factor of ten by 2008.

So far, ST is pretty much on track. According to its latest environmental report, the company cut its energy use, per dollar of production value, by 29% between 1994 and 2000 - slightly lower than its target, but not far off. On water, the company managed to cut consumption by a massive 45% in the same period, way in excess of its target. Similarly, between 1994 and 2000, the company has cut waste sent to landfill by a factor of three. It now reuses or recycles over 75% of its waste.

In addition, ST is encouraging suppliers to introduce externally verified environmental management systems. It has set a target for 80% of its key suppliers to have systems certified to the international standard ISO14001 or EMAS by the end of this year.

More than 80% of key suppliers have responded to this call and are either certified or are in the process of getting certified, while 34% have all of their sites certified. ST made the process easier by providing advice and workshops to help suppliers set up systems.

Impressive though these targets and achievements may be, the company has set itself an even more demanding goal - to cut carbon dioxide emissions by a factor of ten by 2010, and to go "carbon-neutral" by the same date.

Going carbon-neutral
Cutting CO2 emissions by 90% in ten years is no small challenge for a company as big and complex as ST. Making semiconductors is highly energy-intensive - last year ST used around 1,560GWh and emitted over 750,000 tonnes of CO2. What is more, the company is still growing, and without any action its emissions would be expected to grow to nearly 2.5 million tonnes in 2010 (see figure).

ST has adopted a hierarchical approach to meeting its target. Its first step is to cut energy use through conservation measures - its 5% per year target will allow it to cut emissions by over 50%.

The next measure is a massive switch to combined heat and power. ST aims to generate 65% of its energy from CHP by 2010. Its first CHP plant came on stream this year in Italy and another six are in the pipeline. All of ST's new manufacturing sites will be supplied by CHP.

Renewables also have a role. ST's original target was for renewables - mainly solar and wind - to supply 5% of its energy by 2010, but Mr Auguste thinks that the company will meet this target by 2005. He expects renewable sources to deliver at least 10% of the company's energy by 2010.

Most, if not all, of these sources will be new capacity built with ST money. Some host countries have offered grants to offset capital costs but ST will pay between 20% and 100% of the costs for the new capacity. So far, it has installed photovoltaic cells on the roof of its factory in Arizona, and this year will build a wind turbine to meet 40% of the energy requirements of its offices in St Genis, France. Both of these are pilot schemes which will generate relatively small amounts of energy.

A more ambitious scheme to build a wind farm in Morocco supplying 20% of the energy needs of its two manufacturing sites there is in its final stages.

The final element in ST's approach is to sequester CO2 in forests. Mr Auguste acknowledges that the option is controversial. "We are not going to plant our way out of global warming," he said. "We are going step-by-step."

ST has planted a couple of small forests in its "home" countries of Italy and France, and is designing a reforestation project covering between 2,000 and 8,000 hectares in Texas. Another is planned for Australia.

Mr Auguste insists that the company is alive to the problems and uncertainty surrounding biological sequestration methods (see box ). ST is monitoring scientific developments and is prepared to adjust its strategy in the light of new evidence. In 1995, when it made its carbon-neutral commitment, sequestration was seen as the main mechanism to achieve this, and renewables were expected to play a relatively small part.

This has now changed, says Mr Auguste. "In the beginning, we were pushing lots on reforestation, and not so much on wind. Now it's the other way round." The company is also looking at novel technologies like fuel cells which have added advantages as uninterruptable power supplies. But he accepts that without sequestration the company will be unable to meet its carbon-neutral target.

Systems and indicators
ST's strategy is delivered through its "total quality environmental management" (TQEM) system. Each site's environmental management system feeds into this overarching regime. "Measurement drives behaviour," says the company's environmental report. The systems monitor and measure performance towards each of the ten "decalogue" targets.

ST has manufacturing sites in the US, Europe, Asia and Africa, and yet apparently has no difficulties in collecting and interpreting data. It focuses on a handful of key parameters each defined in the decalogue so that keeping track of performance is not a problem.

Mr Auguste does not believe companies which claim that their operations are too complex to collect data. "There is always the electricity bill," he said. "When you talk about dollars they don't have problems collecting data."

The message is that if a company is serious about something - and there is high-level commitment - it will find a way to do it. ST sites are subject to external EMAS inspections bi-annually and the company conducts its own audits regularly. In addition, an ST engineer spends half his time visiting sites and checking measurements.

ST is a constantly changing business, launching new products and opening new production sites each year. Most targets are therefore normalised by "added value" - sales revenue minus purchasing costs. It is experimenting with a system of environmental accounts which will be rolled out company-wide in the next couple of years.

Green investors
ST has been helped on its environmental journey by the investment community. While ST's president gave the initial push, hard business logic has maintained the momentum. "60% of the pressure [driving environmental policy] comes from investors and banks," revealed Mr Auguste. "They came to us asking what we were doing. We didn't try to convince them."

ST is classed as an industry leader by the Dow Jones Sustainability Group Index (ENDS Report 296, pp 21-24 ) and has an AAA score from environmental raters Innovest (ENDS Report 313, pp 19-22 ). This has helped to protect ST shares from the worst of the technology shares crash. Green and ethical funds are seen as a key opportunity by the company to attract investment.

ST has demonstrated that a strong environmental policy makes good business sense. It has translated aspirations into action by using the conventional business tools of policies, strategies and systems. It has been rewarded with improved efficiency and the support of its staff and the investment community. Setting demanding targets then working out how to meet them has paid off.

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