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. We expanded our reporting in 2003 with the launch of our first sustainability annual report, which provided details of our social and economic performance in addition to our environmental results.

In 2012, we published our fourth annual integrated financial, social and environmental report, reflecting the progress we have made embedding sustainability in our way of doing business. This is also supported by the inclusion of sustainability in the Philips Management Agenda and the company strategy.

Reporting standards

We have followed relevant best practice standards and international guidelines while compiling the sustainability performance covered in this report. 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 our annual Communication on Progress (COP) submitted to the UN Global Compact Office.

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 commitment to bring “sense and simplicity” to people’s health and well-being. 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.

The Philips Center for Health and Well-being

Philips seeks to address key societal issues and solutions relating to themes such as healthy and active aging, livable cities and healthy lifestyles through The Philips Center for Health and Well-being. The Center was launched in December 2009 and brings together teams of multidisciplinary experts from all over the world in think tanks. Participants include NGOs such as the World Bank, Global Health Council, European Patient’s Forum, ISOCARP (international association of urban planners), and global experts on each of the respective subjects. The aging well think tank works from the US and is debating how aging populations can remain independent and engaged through their life transitions. The livable cities think tank works from Singapore and Shanghai, and is taking a holistic view of a livable city and is defining “livability” which includes a city being resilient, sustainable, authentic and inclusive. Additionally, the Philips Index for Health & Well-being is a global research project being conducted by the Center. It aims to identify what citizens find important when it comes to their health and well-being. The research examines the mega-trends that shape each nation’s healthcare, lifestyle and who we are as a society, with a focus on what aspects of health and well-being are most important. It was conducted in 31 countries during 2010 and 2011, with over 31,000 consumers surveyed. In addition, during 2011 the Center also conducted a survey on parents and parenting in 7 countries across the world, asking parents about their health & well-being, their experiences of childbirth and breastfeeding and their concerns for their children’s future. For more information on the work of the Center, go to www.philips-thecenter.org.

Working on global issues

In 2011, Philips participated in the United Nations Climate Change Conference in Durban, South Africa. We partnered with other leading industry players, governmental organizations, NGOs (like The Climate Group) and the United Nations Environmental Program to create a global sectoral agreement on phasing out inefficient lighting.

In 2011, to mark Philips’ 120th anniversary, we organized the Philips Innovation Experience. As our innovations address key societal developments − e.g. reforming healthcare, improving the livability of our cities and promoting healthy lifestyles − we firmly believe that true innovation is not achieved in isolation, but thrives on constructive dialogue with all stakeholders involved. To fuel this dialogue, about 100 thought leaders and decision makers, more than 100 media representatives, employees and students convened for the interactive event on Innovation for Health and Well-being in the Evoluon in Eindhoven, The Netherlands.

Biodiversity

Philips has continued to progress on the subject of biodiversity in 2011 and participated for the 4th year running in the IUCN NL Leaders for Nature programs. In December 2011 Philips and 10 other Dutch and multinational companies signed a statement of intent to address biodiversity and ecosystem restoration in the Netherlands and abroad during which the Dutch Taskforce Biodiversity and Natural Resources presented their final report to the Dutch government.

The participating companies intend to work together during the coming 20 years to protect and restore biodiversity and ecosystems. To begin with partner companies will work on a pilot project to improve biodiversity on joint company premises, linking green areas and thereby increasing biodiversity. The partner companies will also share best practices on closing the materials loop, supply chain sustainability, and processes. This is especially important in view of increasing risks concerning the prices and availability of new and recycled materials, and non-renewable energy.

The partner companies realize that limits of growth are being determined by the status of our ecosystems and only by working together can we learn how to grow sustainably. Philips policy continues to focus on:

  • Continuing to reduce the impact of our operations through our Green Manufacturing 2015 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.

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

 
 
Reference
Environmental
 
- Climate change
- Energy management
- Clean technologies
- Collection and recycling
- Limited natural resources and resource efficiency
- Biodiversity
- Increasing product regulation

 
 
Reference
Societal
 
- Aging population
- Rising healthcare costs
- Chronic and lifestyle related diseases
- Healthy Living
- Expanding middle class in growth geographies
- Rising attention for human rights
- Demographic shift and urbanization
- Conflict minerals
- Employee health and safety
- Economic downturn

 
 
Reference
Governance
 
- Privacy
- Growing demand for transparency in the supply chain
- Business ethics and General Business Principles
- Partnerships

Sustainability programs and targets

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

With our longstanding commitment to reducing the environmental impact of our products and processes, we have been establishing action programs with measurable targets starting in 1994 with the program “The Environmental Opportunity”, followed by the range of successive EcoVision programs.

EcoVision4, which was launched in 2007, focuses on the environmental performance of our products and reducing the energy consumption of our operations in order to realize the following by 2012:

  • generate 30% of total revenues from Green Products
  • double investment in Green Innovation to a cumulative EUR 1 billion
  • improve our operational energy efficiency by 25% and reduce CO2 emissions by 25%, all compared with the base year 2007

In February 2010, we launched EcoVision5, comprising three sustainability leadership key performance indicators on ‘care’, ‘energy efficiency’ and ‘materials’ including targets for 2015.

  • Bringing care to people
    • Target: 500 million lives touched
  • Improving the energy efficiency of Philips products
    • Target: 50% improvement (for the average total product portfolio) compared to 2009
  • Closing the materials loop
    • Target: double global collection and recycling amounts and recycled materials in products compared to 2009

As we achieved our Green Product Sales and the Green Innovation target of our EcoVision4 program ahead of schedule, we renewed our 2015 target for Green Product Sales to 50% and Green Innovation to a cumulative EUR 2 billion, to be invested as of 2011.             

From 2012 onwards, EcoVision4 and EcoVision5 are merged into a single program labeled as EcoVision.

To continue our efforts to improve our environmental performance in manufacturing, we developed in 2010 our Green Manufacturing 2015 program.

In addition, we have been running programs in other sustainability areas. Our employee programs include engagement, diversity and inclusion, and health and safety. Through our Supplier Sustainability Involvement Program we have been embedding sustainability into our supply management processes since 2003. Further, we have a targeted approach to our social investment programs in the communities in which we operate that reflects our business.

We report on the results of these programs versus targets.

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

For comparability reasons, the Green Product sales, Green Innovation and collection and recycling data was restated to reflect the Television business classified as discontinued operations. Other sustainability data was not adjusted as the impact of Television is not material.

We used expert opinions and estimates for some parts of the Leadership KPI models. 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.

Environmental data are measured for manufacturing sites with more than 50 industrial employees. Integration of newly acquired manufacturing sites 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.

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 additional information on Philips employees for 2009, 2010 and 2011. Historical comparisons may not be available, however.

Health and safety data is measured for units with over 50 FTEs 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.

Data definitions and scope

Leadership key performance indicators

The three leadership key performance indicators on ‘care’, ‘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 have a score in at least one Green Focal Area that is significantly better (at least 10%), compared to the reference product, which can be a competitor or predecessor product in the particular product family. Because of different product portfolios, sectors have specified additional criteria for Green Products.

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 intranet-based EcoVision reporting and validation tool, according to defined company guidelines that include definitions, procedures and calculation methods.

Internal validation processes are followed to ensure consistent data quality. The sector validation officers provide support to the data collectors at site level and regularly conduct audits to assess the robustness of data reporting systems.

These EcoVision data from manufacturing are tracked and reported to measure progress against our Green Manufacturing 2015 program targets.

Reporting on ISO 14001 certification is based on manufacturing units reporting in EcoVision.

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 ton-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 EcoVision reporting system. Emissions from industrial sites that are not yet reporting in EcoVision following recent acquisitions are collected separately, or where actual data is not available, calculated based on average CO2 emissions per square meter of comparable sites in the same sector. 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 CO2 emissions resulting from purchased electricity, steam and heat are reported in the EcoVision reporting system. Those emissions of industrial sites not yet reporting in EcoVision 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 ton-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 ton-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 monthly and validated on a half-yearly basis. 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).

General Business Principles

Alleged GBP violations are registered in our intranet-based reporting and validation tool. The reporting period is from December 15 (previous year) - December 15 (current year).

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 2011 were: Belarus, Brazil, China, India, Indonesia, Mexico, the Philippines, Russia, the Ukraine and Vietnam.
  • 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.

External assurance

KPMG has provided limited assurance on whether the information in Sustainability statements is, in all material respects, fairly stated in accordance with the reporting criteria. KPMG has provided reasonable assurance on whether the information on 2011 in chapter 14, Sustainability statements, in the sections 14.1 to 14.6 with the exclusion of section 14.3 and the section ‘Health and Safety’ in section 14.4 of this Annual Report is, in all material respects, 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 2011 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 2011. 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 2010 compared to 2009.
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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.

A Green Product is a product that offers a significant environmental improvement compared to a reference product in at least one Green Focal Area: Energy efficiency, Packaging, Hazardous substances, Weight, Recycling and disposal and Lifetime reliability.

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 kilotons 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).