Establishinga sustainable
managementfoundation

Medium-term goal

Build a management foundation for increasing value
Priority themes

Corporate
governance

Safetymanagement

Environmental
management

Supply chain
management

Relevant SDGs

Decent work andeconomic growth

39

TOKYO ELECTRON SUSTAINABILITY REPORT 2017

Climate action

Peace, justice andstrong institutions

Corporate governance
Governance framework

URL www.tel.com/ir/policy/cg/index.htm

TEL has a medium-term vision of becoming “a truly global company generating high-added-value
and profits through innovative technologies and groundbreaking solutions with diverse integrated
technologies.” We believe it is important to build a governance framework that supports our mediumterm vision.
Our governance structure consists of a Board of Directors and an Audit & Supervisory Board. Effective
governance is achieved through the supervision of management by the Audit & Supervisory Board.
Based on this organization structure, we have also established systems that will facilitate growthoriented governance directed at sustainable growth, including the following.
 
The Board of Directors: to make major operational decisions and play a supervisory role in theexecution of those decisions
 
The Nomination Committee and Compensation Committee: to ensure fair, effective, andtransparent management 
Corporate Senior Staff (CSS): to formulate and advance company strategy
Directors work to achieve sustainable growth and increase corporate value over the medium to longterm based on their fiduciary responsibility to shareholders. The current Board of Directors meetingsachieve an appropriate sense of productive tension and constructive debate due to the combinedpresence of executive directors, essential for making operational decisions, and outside members, whoprovide objectivity.
The Audit & Supervisory Board is part of a structure that enables its board members to obtainsufficient information necessary for audits by collecting information through on-site surveys conductedby full-time Audit & Supervisory Board members, and by maintaining appropriate coordination with
the Internal Audit Department and independent auditors. In addition, the composition of Audit &Supervisory Board members provides a good balance of knowledge required for operational audits andaccounting audits, and we believe these board members are able to perform the company’s auditing
functions effectively.
Corporate governance framework, internal control system and risk management system
Shareholders' Meeting
Cooperate

Board ofDirectors

Audit &
Supervisory Board

Compensation Committee Chief Business Ethics Director Chief CSR Promotion Director
Nomination Committee
Chief Internal Control Director

Request for improvement/Report

Representative
Directors
Request for
improvement/ReportCompliance & Internal Control Executive Officer
CSR Promotion Executive Officer

Confirm the progress of improvements
and give instructions

Independent
Auditors

Cooperate

Audit and
improvement reports

CSS &Executive Officers

Internal Audit Dept.
(Global Audit Center)

Committees
Ethics Committee
Information Security Committee
Export Trade Control Committee
Request for improvement/Report

Audit

CSR Management Council
CSR Global Promotion Committee
Risk Management &Internal Control Function(General Affairs Dept.)
Request for
improvement/Report

Monitoring

Administrative Depts.

Check and balance

Business Depts.

TOKYO ELECTRON SUSTAINABILITY REPORT 201740

Establishing a sustainable management foundation

Evaluating the effectiveness of the Board of Directors

URL www.tel.com/news/2017/0512_004.htm

TEL discusses and evaluates the effectiveness of the Board of Directors every year in accordance with
the TEL Corporate Governance Guidelines. Following is a summary of the evaluation conducted on theeffectiveness of the Board of Directors for the period June 2016–April 2017.
1. Method of evaluation
A survey on the effectiveness of the Board of Directors, the Nomination Committee, and theCompensation Committee was given to all directors and Audit & Supervisory Board members. Opinions
on the effectiveness were exchanged and discussed among mainly outside directors and outside
Audit & Supervisory Board members before being shared with the entire Board of Directors where theeffectiveness was evaluated.
2. Results of analysis and evaluation
At Board of Director meetings, the CEO and executive directors present periodic reports. In addition,
discussion topics are set on any issues concerning the Board of Directors. These topics are keenly
debated by directors and Audit & Supervisory Board members based on their diverse insight andexperience. Draft proposals presented by executive management are fully discussed by the Boardof Directors after receiving feedback from outside directors and outside Audit & Supervisory Board
members. As a result, some proposals are passed as draft amendments and are subject to a free andopen-minded exchange of views and substantive discussion.
Based on recognition of this situation, we believe that our Board of Directors is functioning effectively
and fulfilling its role as stipulated in the TEL Corporate Governance Guidelines.
3. Challenges and policies going forward
We will increase the amount of quality time spent discussing our Group’s direction and strategies,
including any important management issues, as well as our medium- to long-term management andgrowth strategies. Based on this year’s evaluation of effectiveness, we will also strive to further improvethe effectiveness of the Board of Directors, including enhancing opportunities for outside directors andoutside Audit & Supervisory Board members to exchange their views. In addition, the Board of Directors
will continue to discuss and review its composition and operation based on diversity.

Business ethics and compliance
Compliance system
TEL has formulated the Code of Ethics of the Tokyo Electron Group as a set of uniform standards togovern all of its global business activities. As well as appointing a Chief Business Ethics Director, wehave established the Ethics Committee comprised of the Chief Business Ethics Director, the Ethics
Committee Chairman, and presidents of major Group companies in and outside Japan, and are making
every effort to promote business ethics awareness throughout the Group.
In addition, we have appointed a Compliance & Internal Control Executive Officer from among our
executive officers to raise awareness of compliance across the Group and further improve Groupwide compliance. Each Group company has also drawn up its own compliance regulations, setting out
basic compliance-related requirements in line with the Code of Ethics. The compliance regulations
are intended to ensure that all individuals who take part in the business activities of the Group clearly
understand the pertinent laws and regulations, international standards and internal company rules, andconsistently apply these rules in all of their activities.

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TOKYO ELECTRON SUSTAINABILITY REPORT 2017

Compliance education
Through the TEL Group’s e-learning system, we provide the web-based training programs covering
the basics of compliance, export-related compliance, protection of personal information, the Act
for Subcontracting and other topics. All executives and employees are required to complete these
programs. In addition, other web-based programs tailored to specific positions and job roles areavailable, including those on insider trading and the Social Security and Tax Number System.
We also have a quiz-based business ethics and compliance education course, launched in fiscal 2014,
for all Group executives and employees. Updated yearly, the quiz is intended to maintain complianceawareness throughout the Group and disseminate the latest information.
In addition to these web-based courses, we organized in-house seminars in fiscal 2017 for Corporate
Directors and executive officers on the subjects of compliance and internal control.

Internal reporting system
The TEL Group has an internal reporting system that employees can use to report any activity suspectedof being in breach of laws, regulations or business ethics. An ethics hotline and a compliance hotline
have been established to receive reports from all Group companies, and each overseas location also has
its own reporting system. In all instances, the system ensures that whistleblowers remain anonymousand are protected from any disadvantage or repercussions. There were no reports or cases of noncompliance with laws, regulations, or the Code of Ethics in fiscal 2017 that could have had a material
impact on the Group’s business or local communities.

Internal control system and risk management
Risk management system
To more effectively strengthen the internal control and risk management systems of the entire Group,
TEL has established a dedicated risk management and internal control function within the General
Affairs Department of the corporate headquarters. This function analyzes the risks faced by theGroup and identifies material risks. It then monitors the management of such risks while supportingand implementing risk management activities. The function also regularly reports the status of risk
management activities to the Audit & Supervisory Board Members and the Board of Directors. In fiscal
2017, the Group reassessed the material risks in its operating environment. For each risk determined tobe material, the status of risk management at the responsible divisions was reconfirmed. Going forward,
we will continue these initiatives to enhance the efficacy of our risk management framework.

Auditing by the internal audit department
The Global Audit Center of the corporate headquarters is the TEL Group’s internal audit department.
This Center is responsible for auditing business activities, compliance and systems at domestic andoverseas Group companies and business units (BUs) in accordance with each fiscal year’s auditingplan. The Center also annually evaluates the effectiveness of the Group’s internal control over financial
reporting based on the Financial Instruments and Exchange Act of Japan. At operating divisions where
issues have been identified through audits and assessments, the Center monitors progress and provides
necessary guidance for improvement.

TOKYO ELECTRON SUSTAINABILITY REPORT 201742

Establishing a sustainable management foundation

Information security management
To ensure appropriate management of information assets, TEL has an information management
framework centered on its Information Security Committee, which is composed of representatives fromdepartments within the Group.
Based on the policy of the Information Security Committee, rules of the protection and control ofconfidential information and personal information are regulated. Employees and executives understandthe regulations through an e-learning system.
Additionally, we have a reporting system for both actual and potential cases (incidents) of
information leakage. Reported cases are quickly settled and analyzed. In accordance with the analysis,
reoccurrence prevention measures are implemented throughout the Group.
In order to mitigate emerging cyber security threats, we examine and undertake rationalcountermeasures as necessary. We also have in place systems to detect targeted threats that utilize
social engineering as well as a supervisory framework to prevent damage.

Percentage of employees who received information security training

100%
Business Continuity Plans (BCPs)

The TEL Group began building business continuity plans in 2003. After the Great East Japan Earthquake,
we rebuilt these plans to be more effective and include provisions for restoring operations after crises,
focusing on major business sites. Specific initiatives include preparations for disasters such as stockpilingemergency supplies (including food and drinking water), reinforcing essential infrastructure, rebuilding
the safety confirmation system, creating manuals, and implementing drills and employee training.
Furthermore, to meet our responsibilities as an equipment manufacturer, we pursue ongoing efforts toimprove our BCPs, including taking steps to facilitate early recovery and alternate production.

FeatureResponse to the Kumamoto Earthquake

When the Kumamoto Earthquake struck in April 2016, the Group was able to respond with speed and precision based on the BCP it had prepared.
Our safety confirmation system was activated at the time of the foreshock at 9:26 p.m. on April 14, and Earthquake Emergency Response HQ wasestablished at our Akasaka Headquarters at 9:50 p.m. Furthermore, in coordination with Tokyo Electron Kyushu, which has business in the affected area,
we made efforts to provide support to the earthquake victims and facilitate early recovery of business activities. By May 10, we had held 17 meetings to
discuss measures for dealing with the disaster. In addition to working to restore our own affected buildings and facilities, we also provided support toour customers and suppliers in the affected areas. As a result of these activities, we were able to continue business without notable problems.
Currently, we are making further improvements to our BCPs by reviewing our response to the Kumamoto Earthquake and recognizing new problems,such as unanticipated damage to equipment.
Organization and roles ofEarthquake Emergency
Response HQ

Earthquake Emergency Response HQ
Personnel
General affairs

Check on damage to buildings, facilities and infrastructure

Communications

Provide information through press releases, deal with the media

Response to customers (sales)
HQ Director
Representative Director,
President & CEO

Response to customers (service)
Inventory, exports, logistics
Backup supplies, logistics

43

Check on the safety of employees, their families andemployees traveling on business

Check on damage to clients, adjust delivery dates
Check on customs, transport routes and status at internaland external warehouses
Purchase backup supplies/Collate and check outward andinward routes

Finance

Check on damage to banks and on remittance situation

Suppliers

Check on situation at Tokyo Electron Kyushu’s key suppliers

Information systems

Check on phone/network condition

TOKYO ELECTRON SUSTAINABILITY REPORT 2017

Local Earthquake
Emergency Response HQTokyo Electron Kyushu
Koshi Factory

Ozu
Branch OfficeSafety management
Safety management framework
To ensure the safety of its employees, customers, and all others involved in its business operations, TEL
places a strong focus on preventing work-related accidents.
At each factory and office, monthly safety and health committee meetings are held to discuss safety
monitoring and to manage any workplace safety or employee health issues. In addition, representatives
from appropriate departments monitor safety performance at least once per month at eachmanufacturing site as part of an overall systematic effort to solve problems.
We use a management system based on OHSMS1 to identify and analyze potential workplace
hazards. The knowledge obtained from this system is shared throughout the company. Before starting
work, all employees discuss the risks involved and the required actions to prevent mistakes. The groupleader oversees the work at all times to eliminate any unsafe conditions or behavior that could lead to
accidents. In addition, whenever employees become aware of a lack of preparation or an unexpected
event during a task, they are encouraged to stop work and take any necessary corrective action. Safety
managers also regularly give advice on how to manage hazards, further raising worker safety awareness.

1 Occupational Health and Safety
Management System (OHSMS):
A management system to reduce
the potential risk of work-related
accidents and improve the overalllevel of safety and occupational
health. Based on the policy set bysenior management, a series ofPlan, Do, Check, Act processes forsafety and occupational healthmanagement are drawn up andimplemented on the employees’
own initiative.

Safety education
TEL promotes the creation of safe workplaces by implementing two education programs globally. Our
program on basic safety targets all employees and is provided as introductory training for new hires aswell as refresher training every third year of employment. In total, more than 40,000 employees havecompleted this program. Our other program, advanced safety, targets employees working in clean
rooms and on production lines, and must be completed every year. To eliminate accidents, we also
provide risk assessment training and 13 additional web-based training courses2 at offices and factories
in Japan and overseas. Risk assessment training has been statistically shown to help eliminate accidents.
Finally, we also provide safety information to suppliers as part of our support for initiatives to prevent
accidents.

2 13 web-based training courses:
preventing equipment confusion;
preventing falls from openings; stop
work authority (SWA); preventing
being caught in a drive unit;
preventing work-related back pain;
pointing and calling; preventing
exposure to liquid chemicals; worksafety rules; detailed work safety
instructions; rules for accident
reporting; assessing risks; measuresagainst ergonomic incidents; andcriteria for SWA

Initiatives for safety
TEL is committed to improving buildings and facilities to increase workplace safety. In 2016, weupgraded emergency exits at four key factories in Japan. The aim of the upgrades was to make plants
even safer by making evacuations easier. This included designing aisles and passageways so that people
can always tell where exits are and building doors so that they can be easily opened even by persons
with limited manual dexterity.
We maintain a high priority on creating safe workplaces, including programs such as promoting safety
management and safety education. Accident-related indices have been maintained at or below target,with a total case incident rate3 of 0.28 in fiscal 2017.

3 Total case incident rate (TCIR): thenumber of workplace accidents per
200,000 work hours

TCIR

0.28

TOKYO ELECTRON SUSTAINABILITY REPORT 201744

Establishing a sustainable management foundation

Environmental management
Environmental management system
TEL has operated environmental management systems based on ISO 14001 since 1997, especially at
its manufacturing subsidiaries. In 2016, we acquired multi-site ISO 14001 certification for our factories
and offices in Japan that had previously acquired certification separately. Also, along with adheringto the 2015 revisions, we identified overall internal and external issues and stakeholder needs andexpectations in relation to the environment. We set the following as our risks and opportunities
to address: (1) environmental management by reducing the environmental impact of our businessactivities, (2) compliance with applicable laws, and (3) enhancing product competitiveness withthe environmental contribution of products. During fiscal 2017, we established approximately 100
environmental goals across the entire Group and carried out these improvement activities. We plan toexpand this setup to each of our sites in Asia.

Initiatives to prevent global warming and save energy
Each TEL factory and office has an established goal of reducing energy consumption by at least 1%
year-over-year. Initiatives to achieve this goal include energy-saving clean room operation, appropriate
temperature settings for office cooling and heating, and the introduction of highly energy-efficientequipment. Tokyo Electron Miyagi, for instance, achieved more energy-efficient operation by installinga turbo refrigerator, resulting in a reduction of energy consumption. It set an environmental goal of
reducing the power consumption of its turbo refrigerator by an average of 20% in the first half of fiscal
2017, by an average of 30% in the second half, and by an annual average of 25% (year-over-year). Tokyo
Electron Miyagi achieved its goal with an average 22.6% reduction in the first half, an average 34.8%
reduction in the second half, and a 26.3% reduction across the full year.
In addition, LED lighting has been installed at our factories and offices in Japan, and photovoltaic
power generation systems have been installed at some of these sites, generating 4,436 MWh ofrenewable energy in fiscal 2017. Tokyo Electron U.S. Holdings in the United States has also been actively
engaged in activities including the ongoing purchase of green power, 3,334 MWh in fiscal 2017.
As a result of these initiatives, power consumption was 253 GWh in fiscal 2017, down 0.4% year-overyear; and CO2 emissions from energy consumption* were 141 kilotons, down 4.3% year-over-year. Goals
were also achieved at seven of our 11 worldwide factories and offices that had reduction goals.

Initiatives to reduce water consumption
TEL has established a goal of keeping water consumption at the same level or below that of thebaseline year (fiscal 2012 for factories and offices in Japan and a fiscal year of their choosing for eachoverseas operation). In fiscal 2017, we achieved 10 of the 14 goals at our sites worldwide. Continued
efforts to achieve these goals include installing water-saving devices, watering lawns with rainwater,
and implementing intermittent operation of cafeteria faucets. Overall, we reduced water consumption
by 1.9% year-over-year to 1,055,000 m3 in fiscal 2017, and we discharged an estimated 874,000 m3 ofwastewater.

Water consumption

1 1% decrease(compared to baseline year)

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TOKYO ELECTRON SUSTAINABILITY REPORT 2017

* In calculating CO2 emissions, theemission factor for TEL’s electricity
consumption in Japan in fiscal
2017 was substituted by adjusted
emission factors for the electrical
power providers concerned. The
emission factor for TEL’s overseas
electricity consumption was
substituted by estimated factors
calculated by the Federation ofElectric Power Companies of Japan
based on values published by theInternational Energy Agency (IEA).

Initiatives to reduce waste
TEL is contributing to waste reduction and recycling whenever possible by sorting waste and switching
to waste-free production processes. When not possible, we appropriately dispose of non-recyclable
waste. We also put a great deal of effort into waste sorting activities and participate in the electronic
manifest system1 to ensure proper waste management.
One example of our initiatives is the Koshi Factory in Kumamoto, where activities were undertaken to
reduce the amount of inventory being disposed of as waste. To better utilize inventory, active efforts
were made to rework components with low demand and to control inventory changeover with designchanges. The factory successfully achieved reductions in terms of both waste and cost, reusing about
40% of inventory (based on cost) that would have been disposed of the previous year.
In fiscal 2017, we generated 112 tons of incinerated and landfill waste in Japan. As a result of ourwaste-reduction initiatives, the recycling rate2 at sites in Japan in fiscal 2017 was 99.0%, achieving ourgoal of maintaining a recycling rate of 97% or higher for the 11th consecutive year since fiscal 2007. The
recycling rate for our overseas factories and offices was 91.5%.

Management of chemical substances

URL tel-csr.disclosure.site/en/themes/181

As transport regulations become more stringent and the demand for a lower impact on theenvironment rises, TEL has been promoting modal shifts4 and other activities designed to reduce theenvironmental burden of its logistics.

Biodiversity

2 Recycling rate: (Recycled amount/
Amount of waste generated) x 100

URL tel-csr.disclosure.site/en/themes/182

TEL uses chemical substances in our product development and manufacturing phases. The use andrelease of chemical substances that are under the purview of the Japanese PRTR3 law are consistently
monitored and managed.

Logistics initiatives

1 Electronic manifest system: A
system for electronically tracking
the flow of industrial waste insteadof using paper-based manifests(i.e. paper forms for tracking
industrial waste). The system uses
a communications network of dataprocessing centers, businesses
that generate waste, and waste
collection/disposal companies.

3 Pollutant Release and Transfer
Register (PRTR): A framework for
tracking, tabulating, and disclosing
quantitative data on chemical
substances that may be hazardous
to human health and the ecosystem,
including the amounts used anddischarged into the environment
and the amounts transferred (aspart of waste) off the original
business’s premises
4 Modal shift: A change in the modeof transport; specifically, switchingfrom conventional freight transport
by truck or aircraft to a meansthat has a lower impact on theenvironment, such as rail or ocean

URL tel-csr.disclosure.site/en/themes/182

TEL’s activities impact biodiversity while also benefiting from it. In recognition of this, we promote
activities for the conservation of biodiversity.

Environmental communication

URL tel-csr.disclosure.site/en/themes/182

TEL maintains close communication with its stakeholders to promote its initiatives for the environment.

TOKYO ELECTRON SUSTAINABILITY REPORT 201746

Establishing a sustainable management foundation

Supply chain management
Procurement Policy
In order to build sustained, trust-based relationships with suppliers and to maintain mutual growth,
TEL has released a Procurement Policy and conducts procurement activities based on this. In fiscal 2017,
we revised our Procurement Policy and our Procurement Policy–Supplement to include our review of
the content of conflict minerals initiatives and reflect the EICC Code of Conduct. We informed suppliersof these revisions, including the request to comply with the EICC Code of Conduct. We joined EICC in
June 2015.

CSR procurement
TEL is committed to building and maintaining a robust and sustainable supply chain. In addition to
sharing our Procurement Policy, Procurement Policy–Supplement, EICC Code of Conduct, and Guideline
for Green Procurement, we also promote CSR activities with suppliers. Our promotion includes respect
for fundamental human rights, strict compliance with labor laws and regulations, and reduction ofenvironmental impact.
Since fiscal 2014, we have also conducted a CSR Survey with the aim of keeping track of suppliers’
engagement in CSR activities. During fiscal 2017, we conducted a supply chain CSR assessment basedon the EICC Code of Conduct with key suppliers (accounting for more than 80% of our procurement
spend). Improvements in overall rating level were observed at 17% of suppliers and improvementsin overall raw score were seen at 59%. We provided responses, results, and overall assessments asfeedback to suppliers and as support for their improvement activities.
The results of the survey showed that no suppliers were engaged in any of the practices given
particular emphasis in the EICC Code of Conduct, namely child labor, forced labor, bonded labor,
inhumane treatment, false reports, falsification of records, or bribery. Also, no suppliers had a sufficientnumber of employees* to be considered high risk in terms of compliance.

Supply chain CSR process

STEP 1

STEP 2

STEP 3

Procurement Policy andProcurement Policy–Supplement:
Appeal for CSR activities throughrequests to suppliers

CSR evaluation based on a
supply chain CSR assessment

Provision of feedback to
suppliers based on results ofassessment, and request for
improvements

Percentage of suppliers rating highly in supply chain CSR assessment
(%)

80
60
40
20

2014

47

TOKYO ELECTRON SUSTAINABILITY REPORT 2017

2015

2016

2017

(FY)

* 500 employees or moreConflict minerals
TEL regards taking action against conflict minerals1 an important part of corporate social responsibility.
Our resolute goal is to eliminate the use of any parts or components with raw materials that include
conflict minerals obtained through illegal exploitation, including sources with human rights violations orpoor working conditions.
In fiscal 2017, we conducted our third annual survey on countries of origin and smelters of potential
conflict minerals, using the Conflict Minerals Reporting Template (CMRT) developed by CFSI.2 As aresult, we identified 237 CFSP3 compliant smelters, providing us confidence that 3TG sourced fromthese smelters were conflict-free. None of the materials procured were found to contain 3TG conflictminerals. This survey will continue every year, with the cooperation of suppliers, to further improve thequality and accuracy of the survey.

1 Conflict minerals: 3TG (tantalum,tin, tungsten and gold)
2 Conflict-Free Sourcing Initiative(CFSI): Founded by membersof the EICC and GeSI (Global
e-Sustainability Initiative), the CFSI
inspects 3TG smelters to certify they
do not have conflict minerals
3 Conflict-Free Smelter Program(CFSP): The CFSP is promoted andled by the CFSI

Procurement BCP
As part of its business continuity plan (BCP), TEL collaborates with suppliers for disaster preparation.
We maintain a database of suppliers’ production sites so that if a crisis arises, we can promptly
identify impacted suppliers and quickly collaborate in recovery efforts. Following an earthquake orother disaster, we also survey suppliers registered in the affected location to assess impact to theiroperations. During fiscal 2017, about 17,000 supplier sites were registered, and post-disaster surveys
were conducted six times. Following the Kumamoto Earthquake, the survey of impacted suppliers
was carried out the same day. Consequently, our collaboration for recovery was quicker and smootherthan at the time of the Great East Japan Earthquake. Also during fiscal 2017, we requested suppliers toevaluate their fire-prevention systems, and we shared this information internally along with activities torecover from fire damage.
According to a BCP survey of key suppliers (accounting for more than 80% of our procurement spend)
improvements in overall rating level were observed at more than 32% of suppliers and improvementsin the overall raw score were seen at more than 56%. Responses, results, and overall assessments were
given as feedback to suppliers to promote further improvement.

TOKYO ELECTRON SUSTAINABILITY REPORT 201748