Material issues

Process for identifying material issues
TEL identifies material issues that are crucial for further improving its corporate value. To identify the issues, we take into
account social issues, stakeholder expectations, the business environment and the company position. For each material issue,
we set medium-term and annual goals, and implement various projects aimed at achieving those goals.

Social environment

Business environment

We describe various social issues
to be resolved.

We describe the businessenvironment surrounding TEL.

Identifying material
issuesExtraction ofmaterial issues
Examination of validity

Advancement ofdream-inspiring
society

Stakeholder engagement
Through communication, we keep track of the issues focused on by stakeholders.

Identification ofmaterial issues
Performance ofbusiness activities

Medium-term management plan
We have established a medium-term management plan with a target year of fiscal 2020.

PDCA

Improvement ofcorporate
value

Analysis of risks and opportunities

Social environment
Growth of the global economy does not rest solely on developed countries. Recently, the global economy has also been
supported by growth in emerging economies such as India and China. This rapid economic growth has led to a number of newissues for humankind, including more concentration of people in urban areas, depletion of food and energy resources, global
warming, and declining birthrates and aging populations in developed countries. In dealing with an ever-changing environmentand social issues, companies must collaborate and contribute to the resolution of these issues through their business activities.
We are committed to helping resolve social issues highlighted in the Sustainable Development Goals (SDGs) agreed upon by
the international community, the Ten Principles of the UN Global Compact, the EICC Code of Conduct, the Global Reporting
Initiative (GRI), and advice of the World Economic Forum and third-party organizations.

Sustainable Development Goals (SDGs)
Adopted by the United Nations in 2015, the SDGs areuniversal goals to protect our planet for a better future.
They are a set of 17 goals and 169 targets to be achievedby 2030 with a philosophy of ensuring that no one is left
behind.

Tokyo Electron Limited supports the SDGs.

9

TOKYO ELECTRON SUSTAINABILITY REPORT 2017

Stakeholder engagement
Building firm stakeholder trust is essential to raising corporate value. To help stakeholders more deeply understand theprogress of its business initiatives and the future direction of its business, TEL discloses highly transparent information in a fair
and timely manner through regular briefings and its corporate website. We also work to accurately understand the opinions
and demands of stakeholders and to reflect these in our business activities through dialog, surveys and designated contact
points. We will continue to actively promote stakeholder engagement, using it to appropriately inform decision making in thecourse of everyday business activities, and thus further raise corporate value.

Stakeholders

Key communication methods

Key opinions and requests


Shareholders/investors arnings announcement
E
ESG surveys
Interviews







CustomersSuppliersEmployees



Local communitiesT echnology conferenceCustomer satisfaction survey
Interviews
Production update briefing/Partners
day
S TQA* audit
Interviews
 mployee meetings
EGlobal engagement survey
Interviews

 ommunity contribution activities
CTours of factories and offices

























Governments/
associationsI ndustry group activities
Collaboration with various initiatives edium- to long-term business outlook and measuresM
for improving performanceCorporate governance leading to medium- to longterm growthInitiatives for reducing environmental impact
Accurate understanding of customer needs roposal of high-value-added solutions
PCoordination of information within the GroupS tandardization of operations within the company
Greater promotion of collaborative systems
Increased opportunities for communication

Development of systems leading to motivation and job
satisfaction
Support for medium- to long-term career planning

Key relevant material issues











Enhancing product competitivenessS trengthening earnings powerEstablishing a sustainable
management platform einforcing responsiveness toRcustomers
Strengthening earnings powerS trengthening earnings powerEstablishing a sustainable
management platformInvigorating people and workplaces ommunity revitalization
CCreation of employment opportunities
Proper environmental operations
 reation of innovation leading to the resolution ofCsocial issues
Initiatives for respect for human rights
Responsible procurement











Invigorating people and workplaces stablishing a sustainableEmanagement platform nhancing product competitivenessEInvigorating people and workplaces
Establishing a sustainable
management platform* STQA: Supplier Total Quality Assessment

Example of communication: Employee meetings
Employee meetings are held regularly at each TEL factory and office as a way for senior management to communicate
directly with employees. Over a four month period during fiscal 2017, the Representative Director, President & CEO and othermembers of senior management visited overseas subsidiaries as well as factories and offices in Japan to explain our businessenvironment and management policies. During these visits, they also participated in panel discussions and other employee
exchanges.
Feedback from participating employees showed that about 80% were satisfied with this engagement with senior
management. Comments included, “It was worth hearing directly from top management about the direction the company isaiming for,” and “I want management to boost employee motivation even more.”

TOKYO ELECTRON SUSTAINABILITY REPORT 201710

Business environment
The environment surrounding semiconductors produced by using TEL equipment is at a turning point moving toward a newera. With advances being made in IoT, with a huge variety of devices connected to networks, the rate of IP traffic* is projected
to grow 24% annually. While the volume of information handled is growing with the increased popularity of cloud services, atthe same time, the uses of semiconductors are becoming more and more widespread. New uses include automated driving,which requires a high degree of reliability, DNA analysis in medical and biotechnology fields, and computer applications basedon artificial intelligence and new technologies such as AR and VR.
Meanwhile, as LCD TVs and smartphone screens become increasingly larger, it is expected that there will be greater demandfor FPDs with higher resolution and lower power consumption. Organic electroluminescent displays have also been gaining
attention from the perspective of increasing screen size and the degree of processing flexibility. With the evolution of IoT andthe growing use of displays as interface devices—rather than merely as display devices—massive real-time systems centeredon semiconductors and FPDs are set to be built across the whole of society.
Amid such a business environment, the functions fulfilled by semiconductor and FPD production equipment are growing
ever more broad. Also essential are existing general-purpose technologies capable of meeting increasingly diverse technologicalneeds that will only expand with the IoT. As required technologies become more advanced, the need for our comprehensive
capabilities as a production equipment manufacturer will increase. Having multiple product lines will enable us to offer a rangeof solutions by combining more than one product, and could expand business. In terms of environmental aspects and asset
management, there is an increasing need to reconstruct and upgrade sold equipment, to improve equipment productivity
through remote diagnosis, and to promote a business model that covers the entire lifecycle of equipment. Also, in line withmoving toward smart fabs in the future, there is an increasing need to make equipment smarter through the use of artificial
intelligence.
* IP traffic: The amount of data sent and received on a network

2021
IP traffic
CAGR

24%

Cisco Visual Networking Index: Forecast and Methodology, 2016–2021

Medium-term management plan
TEL has established the medium-term management plan for the period to the end of March 2020.
Medium-term vision

A truly global company generating high added value and profits in the semiconductor and flat panel display industries
through innovative technologies and groundbreaking proactive solutions that integrate diverse technologies.
There are three things we regard as important under our medium-term
management plan: providing high-value-added products with a focus on thenext generation, based on our advanced technology development capability;
strengthening our responsiveness to customers and being an irreplaceable
strategic partner for customers; and ensuring world-class profitability by pursuingstreamlined operations. With these three items as key pillars of our medium-term
management plan, we are promoting efforts on a company-wide basis.

11

TOKYO ELECTRON SUSTAINABILITY REPORT 2017

Enhancingproduct
competitiveness

Reinforcing
responsivenessto customers

Strengthening
earnings
powerRisks and opportunities
Social issues, stakeholder expectations, and the surrounding business environment are key inputs to our medium and longterm plans. The following risks and opportunities have been determined to have a considerable impact on medium- to longterm business operations.
Environmental issues including climate change
Climate change is an issue requiring action on a global scale. Demands to reduce greenhouse gases are increasing due toincreased global warming as well as floods and water shortages caused by abnormal weather, all increasing the burden on
business. Any tightening of environmental laws and regulations also leads to changes in products, responses at factories andoffices, and increases in associated costs. At the same time, promoting efforts against climate change leads to the provision ofoutstanding environmentally friendly products and reductions in operation costs.
Evolution of technology
In this industry, technological innovation is fast. Responding to change and creating innovative technologies is crucial. If suchtechnologies cannot be created in a timely manner, there is a risk of losing product dominance, an adverse impact on profits.
Conversely, responding appropriately to technical diversification and evolution enables the provision of high-value-added
products.
Changes in population trends
To continue growing in the medium to long term, recruiting and retaining personnel is particularly important, especially amid
issues such as dwindling birthrates and aging populations in developed countries and educational gaps caused by poverty
and economic disparity. Being unable to recruit necessary personnel could result in a diminished ability to undertake highly
specialized development or to provide service support. On the other hand, for an appealing company where employees candemonstrate their full potential, having various measures and systems in place can help it to secure excellent talent and further
bolster its competitiveness as a company.
Sustainable business management
Governance is an important part of business continuity. Negligence in compliance in particular could affect business continuity
because of legal penalties or damage to the corporate image. Sound and highly transparent business management builds solid
relationships of trust with stakeholders and leads to opportunities for further growth.
Supply chain management
As the importance of social responsibility in supply chain management increases, companies are seeking responsible
procurement activities across their entire supply chain. Failing to observe laws, regulations, industry codes, and other standards
could hinder the stable supply of parts and materials and adversely affect the company’s production system. In contrast,
proactive supply chain management facilitates a sound and sustainable supply chain and brings with it a win-win relationshipwith suppliers based on trust.
Along with minimizing risk in our business operations, we are committed to enhancing corporate value through a variety of
initiatives that lead to further growth.

Social trends

Risks for TELEnvironmental
issues including
climate change

Evolution oftechnology

Changes in
population trends

Sustainablebusinessmanagement

Supply chain
management

 esponding to globalRwarmingCompliance withenvironmental laws
and regulations
 eeping up withK
the speed anddiversification oftechnologyS ecuring humanresources

Negative consequences















 ffectiveness ofEgovernance esponsibleRprocurement reaches of laws andB
regulations
Increases in business costs

 eduction in productRdominance

 ecline in development andDsupport capability
Ethics and complianceviolations
 eakening of monitoring andWchecking functions

Weakening of supply system

Opportunities













 eduction of operational costs
RImproved environmental
performance of products enerating innovative products
Gand services

 nhancing corporateEcompetitivenessS ound and highly transparent
management

 reation of new value throughCcollaboration

Our initiatives

















 nvironmental contribution of products
E(P20)
Environmental management (P45, 46)

 hallenging technological innovation toCcreate value (P17–19)

I nvigorating people and workplaces(P33–37)

Corporate governance (P40, 41)
 thics and compliance (P41, 42)E

Initiatives with suppliers (P31)S upply chain management (P47, 48)

TOKYO ELECTRON SUSTAINABILITY REPORT 201712

Identifying material issues
Together with external experts, TEL considered the relevance of the identified material issues from the perspectives of social
issues, stakeholder views, the business environment surrounding the company, its corporate philosophy, management policies
and medium-term management plan, as well as risks and opportunities. As a result, we determined that the materials issues
identified in fiscal 2017 remain relevant for fiscal 2018. We have clarified medium-term goals for each material issue, and haveset separate themes and short-term priority targets for each goal.

Examination of validity(key opinions and advice obtained from Review Council)

Identifying material issues
Perspective of social issues and stakeholders

The five material issues are the three issues linked to themedium-term management plan in addition to “invigorating people
and workplaces” and “establishing a sustainable management
platform.” These continue to be tied to our management strategy
from fiscal 2017.
The fiscal 2017 materiality issues demonstrate further progress, suchas the setting of new medium-term goals.

Identification ofmaterial issues

We aim to set goals that demonstrate our assertive stance, such as
innovative proposals that create new customer value.
Amid a shrinking labor population, we need to promote initiatives forrecruiting and retaining excellent talent who can contribute toimproving intellectual productivity.
Given the prominent global trend of integrating non-financial initiatives
into management, we will strengthen our activities and disclosure.











Enhancing productcompetitiveness
Reinforcing responsivenessto customers
Strengthening
earnings power
Invigorating people
and workplaces
Establishing a sustainable
management foundation
Perspective of business
continuity and growthMaterial issues and CSR goals

Fiscal 2017
Material issues

ThemesInnovation

Enhancing productcompetitiveness

Environmental
contribution of products
Customer satisfaction

Reinforcing
responsiveness tocustomers

Quality

Maximizing dreams
and drive









Maintain development costs at the fiscal 2016 level
Continue initiatives to reduce per-wafer consumption ofenergy and pure water by 10% by fiscal 2019 (as comparedwith fiscal 2014)
Get 3 points or more on a 4-point scale for every item in thecustomer satisfaction survey
Implement PDCA1 training and disseminate the TEL 6-Step
model

Results










Information security

Strengthening
earnings power

Main annual goals

Streamline operations

Create an invigorating
workplaceSocial contribution









Compliance and ethics







Establishingsustainable
operations

Business continuity
management

SafetyEnvironmental
management

Supply chain
managementAchieved goal for three models (CLEAN TRACK TM LITHIUS ProTM Z, PrecioTM XL andCertas LEAGATM) ahead of scheduleAchieved for 67.6% of items (5% improvement year-over-year)
PDCA training: Implemented to employees at all TEL Group business sites. Attended
by 89% of employees (as of April 2017)
TEL 6-Step: Implemented courses for key members at main locations in TEL Group

Ensure all target employees take a training course in
information security

Achieved attendance rate of 100%

Maintain the number of TPM programs at the fiscal 2016 level

Maintained programs at the fiscal 2016 level

Provide a workplace that supports continuous growth while
ensuring performance-responsive, scrupulously fair treatmentof employees
Maintain the number of social contribution programs at the
fiscal 2016 level









Corporate governance

Maintained development costs at the fiscal 2016 level (fiscal 2017: ¥83.8 billion)

Improve the operation of the Board of Directors throughannual effectiveness evaluations
Ensure all employees complete training courses in businessethics and compliance
Provide business continuity plan (BCP) training at principal
manufacturing sites and headquarters, revise the BCP manualand implement safety confirmation system training (all to be
performed annually)
Ensure that the number of workplace injuries per 200,000
work hours (TCIR) is less than 0.5
Reduce energy consumption by 1% from the fiscal 2016 level(on a per-unit basis 2)
Maintain water consumption at the fiscal 2012 level(on a per-unit basis)
Reinforce supply chain management through supply chain CSR
assessment

















Implemented the TEL Global Engagement Survey
Introduced healthcare platform Pep Up

Maintained programs at the fiscal 2016 level (fiscal 2016: 242, fiscal 2017: 254)
Reviewed resolutions by the Board of Directors, promoted delegation to executive
management, and increased discussion time
Briefed outside officers on draft proposals and background information, helping tostimulate discussion
98% attendance (as of the end of March 2017, in Japan only; overseas companies willcomplete this training by the end of June 2017)
Carried out BCP training and safety confirmation training and revised the BCP
manual at main locations

Achieved less than 0.5 (fiscal 2017: 0.28)
Energy consumption: Reduced by 0.1% from the fiscal 2016 level
Per-unit target: Achieved at 7 out of 11 business sites
Water consumption: 11% reduction compared to base year level
Per-unit target: Achieved 10 out of 14 targets
Assessed key suppliers accounting for more than 80% of our procurement spend
Improvements in rating scores and rating grades were observed at 59% and 17% of
suppliers respectively

1 PDCA: A method for continuously improving business processes by repeatedly carrying out the four stages of Plan, Do, Check, and Act
2 Per-unit basis: A figure obtained by subtracting environmental impact from closely-associated measurements such as production volume, personnel, and total building floor area

13

TOKYO ELECTRON SUSTAINABILITY REPORT 2017

Material issues










 nhancing productEcompetitivenessIn the industries in which TEL operates, technological innovation advances very quickly. We must keep pacewith this innovation while continuously offering high-value-added products that accommodate nextgeneration technologies. By globally engaging in cutting-edge technological development, we can releasecompetitive products in a timely manner.

Reinforcing
responsiveness tocustomers

As new markets emerge–most notably those created by the Internet of Things (IoT)–customer demands
are diversifying, and expectations for equipment performance are rising. Accurately understanding
customer needs and delivering solutions that meet these needs is crucial. We strive to reinforce our
responsiveness to customers so that they will see us as an irreplaceable strategic partner.

Strengthening
earnings power

Profit is the engine that advances business activities. TEL works to continuously generate profit byproviding high-value-added products and services and improving business processes. The ongoing
generation of profit drives virtuous cycles, including reinvestment in business and the return of value
to shareholders, employees and society at large, helping to make both our company and society moresustainable.

Invigorating people
and workplaces

People are an especially important management resource. Employees who feel purpose in their work andtake pride in their company help to increase productivity and power corporate development. By promoting
diverse work styles and helping employees build their careers, we are increasing employee engagement andinvigorating our people and workplaces.

Establishinga sustainable
managementfoundation

The establishment of a solid management foundation that underpins corporate activities is key tosustainable growth. To create new value through our business and help address social issues, we steadily
operate a highly effective governance structure. By doing so, we implement sound, highly transparent
management.

Fiscal 2018Material issues

Enhancing productcompetitiveness

Reinforcing
responsiveness tocustomers

Strengthening
earnings power

ThemesTechnological innovation
aimed at creating value

Main annual goals

Environmental contributionof products
Accurate grasp of customer
needs
Solutions that create value
for customers

High quality products
Increase added value ofprocesses













Ensure that 5% or more (three-year moving average) of all equipment models are
new products for next-generation technologies
Maintain the previous year’s global patent application rate
Reduce per-wafer consumption of energy and pure water by 10% by fiscal 2019 (ascompared with fiscal 2014)

Medium-term goals

Relevant SDGs

Create highly competitive
next-generation products

Get 3 points (“Satisfied”) or more on 100% of customer satisfaction survey items

Increase TEL’s value to customers
Increase field solutions business sales from the fiscal 2017 level

Become an irreplaceable
strategic partner

Reduce quality improvement costs from the fiscal 2017 level
Revise business processes to reduce man-hours used for sales operations fromthe fiscal 2017 level

Improve operational efficiency

Human rights and diversity

Invigorating people
and workplaces

Work-life balance

Human resource
development

Retain 100% of new employees for the first three years
Reach 70% paid vacation usage
Increase the use of the Group’s “Pep Up” healthcare platform from the fiscal 2017
level

Maximize dreams and drive

HealthCorporate governanceEstablishinga sustainable
managementfoundation

Safety management

Improve on issues identified in evaluations of the effectiveness of the Board of
Directors
Revise the internal reporting system (set up new external hotlines, revise range of
persons covered, etc.)

Ensure that the number of workplace injuries per 200,000 work hours (the total
case incident rate) is less than 0.5
Build a management foundation
for increasing value

Environmental
management

Supply chain management







Reduce energy consumption by 1% from the fiscal 2017 level (on a per-unit basis)
Maintain water consumption at the fiscal 2012 level (on a per-unit basis)

Implement supply chain CSR assessments for 80% or more of suppliers(procurement volume basis)

TOKYO ELECTRON SUSTAINABILITY REPORT 201714