Corporate governanceManagementfoundation

Corporate governance framework
Tokyo Electron (TEL) upholds the vision of being “a truly global company generating high added value and profits in thesemiconductor and flat panel display industries through innovative technologies and groundbreaking proactive solutions
that integrate diverse technologies.” In an environment where over 80% of our sales come from overseas, we regard
building governance structure as essential in order to become a real global company that achieves success in global
competition and achieves sustainable growth. To that end, TEL has built a framework to maximize use of worldwide
resources, and has worked to incorporate a wide range of opinions to strengthen our management platform andtechnology base, establishing a governance structure capable of ensuring that TEL attains global-level earnings power.
TEL uses the Audit & Supervisory Board System, which consists of a Board of Directors and an Audit & Supervisory
Board, and has achieved effective governance based on the supervision of management by the Audit & Supervisory
Board. Furthermore, in addition to the Board of Directors, whose role is to make major operational decisions and playa supervisory role in the execution of those, and support appropriate risk-taking by executive management, we haveestablished systems that will facilitate growth-oriented governance directed at sustainable growth for TEL, including
the following: (1) The Nomination Committee and Compensation Committee to ensure fair, effective, and transparent
management; (2) The Corporate Senior Staff (CSS) to formulate and advance company strategy; and (3) The Business
Execution Meeting, to play a role in deliberations of the executive management.

Medium-term goals

Build a management foundation for increasing value

Diagram of the corporate governance framework, internal control system, and risk management framework
Shareholders' Meeting
Appointment or Dismissal of
Audit & Supervisory Board members

Appointment or Dismissalof Corporate Directors

In its pursuit of more highly effective governance, Tokyo Electron (TEL) is working to further improve its corporate governanceframework, strengthen its risk management, and ensure thorough compliance. Our aim is to enhance the supervisory and oversightroles of management and improve corporate value in the short term, but also in the medium to long term. In terms of practical
initiatives for respecting human rights, based on our Human Rights Policy, which summarizes our group-wide guiding principles
on human rights, as well as implementing extensive education and awareness-raising efforts, we are expanding human rights
due diligence (impact assessment and remediation) and grievance processes. As for supply chains, we are promoting activities incompliance with global standards to achieve sustainable operations together with customers and suppliers. Regarding problemsof climate change and abnormal weather, which have increased in severity in recent years, endeavoring to preserve the global
environment, we have been working hard to achieve the medium- and long-term environmental goals for our products, factories,
and offices in order to reduce environmental impact along our entire value chain. As we aim to further enhance corporate value, weare endeavoring to build a strong and sound management foundation that supports our whole group's business activities.
Main activities

SDGs initiatives■ Steadily developing highly effective governance and establishing asolid management base in order to contribute to the developmentof sustainable society in order to improve corporate value

Governance,
Risk management,
Compliance

Respect forhuman rights

Supply chain Environmental
management management■Corporate governance■ Promoting compliance as an important business strategy, anddeveloping operations in consideration of the environment andhuman rights, in order to contribute to the creation of a fair andequal society

Supervision and evaluation of strategic decision-making, Process
for evaluating the effectiveness of the Board of Directors andmanagement issues, Investor relations activities, etc.
Risk management system and initiatives, Auditing by the internal audit
department, etc.
Compliance system, Compliance initiatives

Decent work andeconomic growth

Climate action

Peace, justice andstrong institutions

Partnerships for thegoals■Respect for human rights

Approach to human rights, Human rights initiatives■Supply chain management

Initiatives in the supply chain, etc.

■Environmental management

Initiatives to prevent global warming and save energy, Initiatives toreduce water consumption, Initiatives to reduce waste, Management ofchemical substances, etc.

39

TOKYO ELECTRON SUSTAINABILITY REPORT 2020

Nomination Report
Committee
Compensation
Committee

Board of Directors

Audit

Audit & Supervisory Cooperate
Board

Independent
Auditors

Audit

ReportProposal & ReportSupervision/Appointment or Dismissal

President & CEO(Representative Director)

Business execution

Appointment or Dismissal

Audit

Cooperate

Global Audit Center

Cooperate

Audit

Business Execution Meeting

Corporate Senior Staff(CSS)

Internal Control Executive Officer
Risk Management Executive Officer
Compliance Executive Officer

Ethics Committee
Risk Management Committee
Information Security Committee
Export Trade Control Committee

Business Execution Organization (All Division/All TEL Group companies)

Sustainability of a Board of Directors appropriate for resolution of management issues■Risk management■ComplianceManagement &Supervision

Based on an effective governance structure that supports increasing corporate value over the medium- to long-term,
the Board of Directors is capable of properly supervising and evaluating (monitoring) the strategic decision making of
the management responsible for business execution. The CEO and Representative Directors will play the primary role incontinually anticipating candidates for succession, primarily from among executive officers, and working to develop suchcandidates in order to develop human resources who will assume management of operations in the next generation to
support the sustainable growth of TEL. The CEO and Representative Directors continually evaluate the skills, character,dignity, and insight of successor candidates from multiple perspectives in the course of performing day-to-day duties,
and continually support education of the candidates through assignment, training, and other opportunities.
Meanwhile, to supervise the soundness of management by the Board of Directors, the Audit & Supervisory Board has
developed a structure that enables its board members to obtain sufficient information necessary for audits throughon-site surveys conducted by the full-time Audit & Supervisory Board members as well as appropriate coordination with
the internal audit department and independent auditors. In addition, as advisory bodies, the Nomination Committee
and the Compensation Committee make proposals to the Board of Directors regarding the election of candidates for the
management team and compensation, thereby ensuring fair, effective, and transparent management.
We operate the Board of Directors under the system described above to maintain the sustainability of the Board of
Directors appropriate for resolving management issues.
TOKYO ELECTRON SUSTAINABILITY REPORT 202040

Management foundation

Skills and diversity of the president and the management

Planning and outcomes of the director compensation system

In electing executive directors, the Nomination Committee places importance on, among others, superior execution
abilities underpinned by experience, insight, and a track record in management, high sensitivity to all possible risks, andbeing able to properly analyze and judge matters and frankly state the opinion that they believe to be correct during
debates. At the same time, in order to ensure constructive debate in Board of Directors meetings born out of a broad
range of backgrounds and knowledge, the Committee proposes personnel with an in-depth knowledge of various
divisions as corporate director candidates to the Board of Directors, taking into consideration the balance between Sales
and Service, Manufacturing, R&D, and Corporate Administration.
The role of Executive Directors does not end with referring and explaining proposals as the representative of eachdivision. They also contribute to active debate, proper decision-making, and supervision of execution through objective,
constructive opinions coming from different perspectives of each Corporate Director.

As its basic policies on executive compensation, the TEL group emphasizes (1) Levels and plans for compensation
to secure highly competent management personnel with global competitiveness; (2) High linkage with businessperformance in the short term and medium- and long-term increase of corporate value aimed at sustainable growth;and (3) Securement of transparency and fairness in the decision process of compensation and appropriateness ofcompensation. Compensation for internal corporate directors consists of fixed basic compensation, annual performancelinked compensation, and medium-term performance-linked compensation.
For outside directors, TEL introduced non-performance-linked stock-based compensation, starting for fiscal year 2020,
while abolishing the annual performance-linked compensation (cash bonuses). As a result, compensation for outside
directors now consists of fixed basic compensation and non-performance-linked compensation. Compensation for Audit& Supervisory Board members consists solely of fixed basic compensation in consideration of their role being primarily
the audit and supervision of management.
In order to secure transparency and fairness in management and appropriateness of compensation, the Compensation
Committee, which is chaired by an independent outside director, utilizes advice from an external expert, performs ananalysis of wage levels and other compensation compared to industry peers in Japan and overseas. The Committee thenproposes to the Board of Directors a compensation system that is globally competitive and most appropriate for the TELgroup, and individual compensation amounts for the Representative Directors.

Skills and diversity of outside directors
Independent outside directors and outside Audit & Supervisory Board members state their unreserved opinions from an
independent perspective so that the debates do not follow the same line of discussion proposed by internal corporate
directors. By doing so, they play the role of guiding Board of Directors debates in the proper direction to win global
competition. In electing independent outside directors and outside Audit & Supervisory Board members, we place
importance on maintaining a good balance among human resources who have qualities such as knowledge of global
business; broad insight into related industries; an extensive network of personal contacts; social viewpoints; objectivity fromthe perspective of the capital market and others; knowledge of finance and accounting; and broad legal knowledge.

Supervision and evaluation of strategic decision-making
Setting the strategic direction of the TEL group is recognized as the main role of the Board of Directors. It engages inconstructive debate of management strategy, management plans, and other matters that have been debated by the
Corporate (CSS). It serves as the venue for supervising progress on the Medium-term Management Plan and other matters.
The Board of Directors also seeks reports and explanations on the status of deliberations at the Business Execution Meeting
to monitor whether decision making by executive management functions properly in relation to matters for which approvalauthority has been delegated to executive management.
At Board of Directors meetings, independent outside directors and Audit & Supervisory Board members actively provide
advice and ask questions to the explanations and statements made by executive directors well versed in business. The
combined perspectives of both parties have enabled the Board of Directors meetings to achieve an appropriate sense of
productive tension and constructive discussions that are essential for business execution decisions and supervision.
To obtain appropriate advice and questions from independent outside directors and Audit & Supervisory Board members,
the administrative office provides them with explanations on proposals in advance of the Board of Directors meeting as
needed. For matters of particular importance, we establish a venue for dialog between independent outside directors andAudit & Supervisory Board members and TEL executive management, striving to provide sufficient information to, andengage dialog with, independent outside directors and Audit & Supervisory Board members.

Policies for allocation of earnings
TEL’s basic approach is for appropriate allocation of company earnings to all stakeholders.
Our basic policy of allocation to shareholders is to link dividend payments to business performance on an ongoingbasis and maintain a payout ratio of around 50% based on net income attributable to owners of the parent company.
Furthermore, in light of stable distribution of dividends, we also set the minimum full-year dividend at 150 yen per share.
TEL effectively uses internal capital reserves to raise corporate value through earnings growth by concentrating
investment in high-growth areas and provide returns directly to shareholders by linking dividend payments to businessperformance and earnings. Furthermore, TEL flexibly considers implementing share buybacks as part of shareholder
returns.

％

Dividend payout ratio

50.0%* Annual DPS of not less than 150 yen* Review dividend policy if the company does not generate net income for two consecutive fiscal years.

41

TOKYO ELECTRON SUSTAINABILITY REPORT 2020

Fixed basic compensation
Fixed basic compensation has been established in reference to the compensation standards of industry peers in Japanand overseas, with the scale of job responsibilities based on the job grade framework provided by the external specialist
organization.
Annual performance-linked compensation
Annual performance-linked compensation consists of cash bonuses and stock compensation-based stock options. It
is profit-sharing compensation that is linked to the business performance in the relevant fiscal year. Actual net income
attributable to owners of parent and actual consolidated ROE performance are incorporated in the formula.
Medium-term performance-linked compensation
Medium-term performance-linked compensation is performance share (stock-based) compensation designed toencourage corporate directors to share a shareholder perspective by holding TEL shares and raise their awareness towardenhancing corporate value. The number of TEL shares awarded to each corporate director varies according to the payout
rate based on their respective responsibilities and performance goal achievement levels for the three-year coverage
period. Consolidated operating margin and consolidated ROE have been adopted as the indicators for measuring theperformance goal achievement levels that are linked to the Medium-term Management Plan.
Non-performance-linked (share-based) compensation
Non-performance-linked compensation is share-based compensation applicable to outside directors. It has been
introduced for the purpose of making the compensation system for outside directors more consistent with their
expected role of giving advice to the management from the perspective of increasing corporate value over the medium
to long term and in addition to their duties of supervising management. Under this share-based compensation system,
TEL shares are granted after the expiration of the period covering three fiscal years.

Process for evaluating the effectiveness of the Board of Directors and management issues
TEL discusses and evaluates the effectiveness of the Board of Directors every year in accordance with the TEL Corporate
Governance Guidelines. In fiscal year 2020, we again conducted a questionnaire of all corporate directors and Audit& Supervisory Board members regarding major items for evaluating the effectiveness of the Board of Directors, theNomination Committee, and the Compensation Committee. In addition to the results of this questionnaire, opinions
exchanged and deliberations held mainly by outside directors and outside Audit & Supervisory Board members
were shared with the whole Board of Directors. In this way, we deliberated on and comprehensively evaluated theeffectiveness of the Board of Directors. Regarding this questionnaire, in an effort to obtain highly objective supervisory
insight and evaluation, we seek perspective and input from external consultants, and analyze the results. Issues identified
through such analysis and evaluations are discussed in depth by the Board of Directors, and efforts are taken to make
improvements as appropriate.
In fiscal year 2020, gender diversity increased in the composition of the Board of Directors, and the appropriate ratio ofoutside directors was also discussed by the Board of Directors. Moreover, we held off-site meetings, aside from Board of
Directors meetings, where matters that are important in the medium to long term were predominantly discussed, such

TOKYO ELECTRON SUSTAINABILITY REPORT 202042

Management foundation

Risk management initiatives

as management strategy, risk management, group governance, and CSR. With regard to the Compensation Committee,
an outside director was appointed as chairman to improve its independence. Discussions at the Compensation
Committee regarding the topic of what executive compensation should be going forward, as well as discussions at theNomination Committee about succession plans, were both shared with the Board of Directors.
We believe that, under the systems described above, our Board of Directors ensure, with a high level of effectivenessin general, that they appropriately fulfill the major roles of the Board of Directors prescribed in the TEL Corporate
Governance Guidelines, such as “indicating the management strategy and vision” and “making major operational
decisions based on strategic direction.” We also recognize that other bodies, establishing the Nomination Committee andthe Compensation Committee, function effectively.
Based on the results of the evaluation of effectiveness conducted this time, TEL’s Board of Directors strives to securesufficient opportunities and time to discuss our medium-to-long-term management strategies fully. It will also work on
further strengthening TEL’s risk management system and group governance. With regard to the Nomination Committee,
we will consider the relationship of the Committee and the Board of Directors, while conducting a review toward an
appropriate member composition in order to increase the objectivity of the Committee. Moreover, we will strengthen
dialog with our stakeholders, with ESG and SDGs in mind.

Each year, TEL identifies key risks for the group and steadily works to reduce those risks. In fiscal year 2020, we reinforced
measures in the following areas1.
■Environment
With climate change and abnormal weather becoming an urgent issue on a global scale, it is becoming increasingly
important for companies to comply with environmental laws and regulations, and industry codes of conduct, and to
reduce environmental impacts throughout the value chain. In addition to initiatives to reduce the environmental impacts
of its products, factories, and offices, to help achieve its medium- to long-term environmental goals, TEL is working to
reduce operating costs and create business opportunities related to the environment, including the provision of production
technologies for developing more energy-efficient devices. We are also promoting environmental management acrossthe entire company. We have also declared our support of the TCFD2 recommendations and analyzing and disclosing theimpacts and opportunities of climate change on our businesses in line with the international framework.

At TEL, we understand that appropriate information disclosure and dialog with capital markets
improve management transparency and contribute to improved corporate value, so oursenior management is actively involved in IR activities. The Chairman of the Board of Directors
and president act as spokespeople when necessary at Japanese and overseas IR conferences
and individual interviews to ensure two-way communication with capital markets. The IR
Department, which was established under the direct control of the president, also regularly
reports capital market feedback to senior management to help inform management decisions.

Risk management
Approach to risk management
Reflecting changes in society and the business environment, the risks facing businesses are growing increasingly complex
and diverse. Tokyo Electron (TEL) considers understanding and appropriately addressing the risks that it may face in its
businesses, as well as their impacts, to be essential to its sustainable growth.

Risk management system and initiatives

The Global Audit Center serves as the internal audit department for the entire group and implements audits based on theaudit plan. Based on the results of these audits, it provides instructions for making improvements as needed, confirms the
progress of these improvements, and provides any necessary support. The group’s internal control over financial reportingin fiscal year 2020 was also evaluated as effective by the independent auditors.

43

TOKYO ELECTRON SUSTAINABILITY REPORT 2020

reinforced measures forcompliance risk.
2
TCFD: Refer to p. 8 for
TCFD.

■Research and development
To maintain a competitive advantage and continue growing in markets where technological innovation is rapid, it isimportant for businesses to continuously create innovation and to provide high value-added products and services.
While actively investing in research and development of leading-edge technologies to enhance its own research anddevelopment capabilities, TEL is also focusing on collaboration with Japanese and international consortiums. In addition,
we are sharing technology roadmap with our customers and collaborating with them in the early stages of development
to ensure our research and development activities properly reflect future needs. Going forward, we will continue to drive
technological development for the next generation through a group-wide development structure for collaboration
between the Development & Production Divisions and Business Divisions.

Annual Report

Auditing by the internal audit department

Refer to p. 45 for
information on■Human rights
In our global society, human rights issues such as inequalities, discrimination, and forced labor are becoming increasingly
serious. At the same time, it is becoming more important for companies to conduct sustainable operations by eliminating
human rights-related business risks and respecting the rights of the people behind their business activities. Whileclarifying its approach to human rights, identifying human rights risks, and implementing corrective actions in accordancewith the United Nations Guiding Principles on Business and Human Rights, TEL is making further improvements to its
reporting systems and other grievance mechanisms. We are working to ensure such human rights as freedom, equality,
non-discrimination, freely chosen employment, health and safety, and working hours. We are incorporating respectfor human rights in every aspect of our business activities. In this way, we are striving to further improve employee
engagement and create new value.

Investor relations (IR) activities

In order to promote more effective risk management, TEL carries out enterprise risk management* through a bodyestablished within the General Affairs Department at its headquarters. This body works with the respective departments
responsible for each operation to identify a wide range of risks arising in corporate activities (such as compliance risk,
human resource and labor risk, and business continuity risk). It then classifies risks with high impact and probability as
key risks within the TEL group. The body also formulates and executes measures to minimize these key risks, monitors
the effect of said measures, works to understand the status of risk control, and implements the PDCA cycle for risk
management. In fiscal year 2020, in addition to these activities, the body conducted interviews with the responsible
departments at the corporate headquarters, and Japanese and overseas subsidiaries to understand the status ofrisk management. From fiscal year 2021 onward, it also plans to enhance the various functions and systems of risk
management and internal audits to further promote highly effective risk management activities. The status of these
activities is regularly reported to the Board of Directors and the Audit & Supervisory Board.

1*
Enterprise risk
management:Group-wide systems andprocesses related to risk
management activities■Supply chain management
For manufacturers of semiconductor and flat panel display production equipment, implementation of sustainable supply
chain management is an essential part of such activities as development, production, and providing services. To prepare
for disruptions to the procurement of important parts or production due to earthquakes or other natural disasters, TEL
works, on an ongoing basis, to establish alternative production structures within its network and to develop a multisource system for important parts. Furthermore, in addition to formulating business continuity plans (BCPs) and holding
regular drills, we are building seismically isolated production buildings, adopting appropriate inventory controls, andtaking other steps to establish stable product supply systems.
■Information security
With information security becoming increasingly important as more and more of society is data-driven, it is equallyimportant that companies work to improve their information literacy and build robust information infrastructure.
TEL is focusing on information security risk from the two perspectives of cybersecurity and confidential information
management. To improve cybersecurity, we use a combination of industry-leading security systems, providing security
training for employees, and work to protect our information from the sabotage of our servers or computers as well
as data theft, data manipulation and other forms of cyberattacks. The information security environment, including
cyberattack methods, is continually changing. TEL is always working to stay ahead of these changes and formulating andimplementing the necessary countermeasures on a global basis. To improve confidential information management, our
Human Resources Department and Intellectual Property Department work in close collaboration to strengthen measures
to prevent leaks of confidential information, particularly targeting employees who retire or resign to ensure proper
management of confidential information, including the return and destruction of data.

TOKYO ELECTRON SUSTAINABILITY REPORT 202044

Management foundation
ComplianceApproach to compliance
Stakeholder trust is essential to business activities. In order to maintain this trust, it is essential to continuously ensurecompliance and enhance corporate ethics. The Code of Ethics of the Tokyo Electron group establishes the “appropriate
actions to be taken” in conducting business operations in an honest and fair manner in accordance with the laws andregulations of the countries and regions in which the Tokyo Electron (TEL) group operates as well as with internal
regulations and rules, and stipulates that all executives and employees must understand and apply the Code of Ethics.

Compliance system
In order to strengthen our compliance system and to ensure efficacy, people responsible for compliance (Regional
Compliance Controllers) have been appointed at key overseas sites, creating a system for direct reporting to the newly
established Chief Compliance Officer and Compliance Department. The primary role of the Compliance Department is toformulate and review practical compliance programs for the TEL group, establish and implement corporate ethics, planand implement education and training, and establish and operate internal reporting systems.

Compliance training
We conduct online and face-to-face training adapted to different levels for all employees1. In fiscal year 2021, we will
deploy a more comprehensive and systematic training program and advance multilingual support to reinforce efforts tofoster compliance awareness and behavior-oriented awareness-building activities in the TEL group.

1
Training and seminar
topics include basics
of corporate ethics
and compliance, anti-Internal reporting system
As a means for employees to provide information and seek redress outside the chain of command about behavior that is,or may be, in violation of laws, regulations, or corporate ethics, we have established internal reporting mechanisms that
ensure confidentiality, anonymity, and the prohibition of retribution. Apart from an internal point of contact that can also beaccessed by suppliers, our reporting mechanisms include an external point of contact at a law firm that can be contacted
directly. In March 2020, we enhanced the internal reporting system, andInternal reporting
renamed TEL group Ethics & Compliance Hotline—a global common point
system utilizationof contact that uses a third-party system—thereby ensuring a greater levelof confidentiality and anonymity. This hotline can be accessed via phone ora dedicated website 24 hours a day, 365 days a year, and accommodates all
languages used by employees.

corruption, export
compliance, insider
trading prevention, theAct for Subcontracting,and the preventionof harassment. Sometraining is limited tocertain employees.

64

Representative Director, President & CEO
General Manager of Legal, Compliance
Division

Third-party system

Chief Compliance Officer

Report/consult

Compliance Department(Headquarters)

EuropeKorea

TaiwanChina

Compliance initiatives
Corporate ethics
In addition to establishing the Code of Ethics as common and minimum standards of conduct
by which all executives and employees should abide, we have also established a Business Ethics
Committee for the purpose of promoting and raising awareness of compliance and corporate
ethics more effectively within the TEL group. We have also set up the Disciplinary Committee asa subordinate organization of the Business Ethics Committee for the purpose of ensuring thatreasonable and appropriate punishments are imposed, and proper procedures followed when taking
disciplinary action.
To ensure awareness of the Code of Ethics, we arrange to translate it into five languages for local
use, including Japanese, and distribute it in the form of a booklet to all executives and employees.
Code of Ethics
In May 2020, the Code of Ethics was revised. In addition to reflecting standards required as a
global company, we added a number of new provisions on such important issues as personal
data protection, information security, and money laundering. The revisions, including changes to the booklet design
and adoption of a bullet point format, were made in pursuit of clarity and usability. We strive to further strengthen
compliance and corporate ethics by annually obtaining confirmation from all executives and employees that they
understand and comply with the Code of Ethics.
Global policies on anti-bribery and competition laws
In fiscal year 2021, we will establish common global policies on anti-bribery and competition laws. Under our anti-bribery
policy, we reviewed our standards concerning gifts, entertainment, and donations, and we thoroughly enforce a process
requiring preapproval if undertaking conduct outside these standards. As for our policy on competition laws, we havecompiled different types of violations in an easy-to-understand format, based on applicable laws and regulations in the
countries and regions in which we operate.

45

TOKYO ELECTRON SUSTAINABILITY REPORT 2020

NoticeProgress/results reportCompliancedepartment/
Legal, Compliancedivision of eachoverseas subsidiary

Report/consult

ReportBoard ofDirectors
Audit & Supervisory
Board Member

Request forinvestigation/corrective andpreventative action

Follow-up/redress

Singapore/
Malaysia

Regional Compliance Controllers

ReportInternal
point ofcontact

Progress/results report

Information
providers
U.S.

Representative Director, President & CEO
Chief Compliance Officer

Report/consult

Progress/results report

Relevant
divisions,etc.

Report/consult

Progress/results report/follow-up

External point of contact(Outside Law Firm)

In the event of a report or request for advice, the TEL group undertakes an investigation in accordance with internal
regulations. If, as a result, a compliance violation is found, a disciplinary action is imposed in accordance with the Rules of
Employment2. Preventive measures and corrective measures, such as improvements to the workplace environment, arealso implemented as necessary.
In fiscal year 2020, a total of 64 cases were received via internal reporting mechanisms (excluding overseas
subsidiaries), primarily concerning harassment, attendance management, and work environment. Among these, there
were no reports or cases of non-compliance with laws, regulations, or the Code of Ethics that could have had a material
impact on the TEL group’s business or local communities.

2
A leniency system
has been introduced
whereby any disciplinary
action may be reduced
or exempted in the eventthe employee involvedin a compliance violation
has made a report orsought advice on his/her
own volition.

Respect for human rights
Approach to human rights

URL

www.tel.com/csr/employee/diversity/

Conscious of its corporate social responsibility, Tokyo Electron (TEL) recognizes that it is important to conduct itself witha strong sense of integrity. Based on this recognition, TEL has firmly upheld human rights since its founding, as reflectedin the spirit of its Corporate Philosophy and Management Policies. For TEL, respecting human rights means a significant
undertaking, not only to fulfill its responsibility for eliminating adverse impacts on people caused through businessactivities, but to respect those people who support the company’s business activities, and contribute to the realization ofa sustainable, dream-inspiring society. TEL incorporates the concept of respect into every aspect of its business activities,
and strives to nurture a dynamic corporate culture where each person can realize his or her full potential.

TOKYO ELECTRON SUSTAINABILITY REPORT 202046

Management foundation
Supply chain management
Supply chain principles and system

Human rights initiatives
In fiscal year 2018, TEL formulated its Human Rights Policy, summarizing its approach to human rights. TEL has specified thehuman rights it believes are particularly important in business activities as Freedom; Equality & Non-Discrimination; Freely
Chosen Employment; Product Safety & Workplace Health and Safety; Freedom of Association; and Appropriate Working Hours& Breaks/Holidays/Vacations. In preparing the Human Rights Policy, we referred to the United Nations’ Guiding Principles on
Business and Human Rights and the International Bill of Human Rights and the ILO Declaration on Fundamental Principles andRights at Work referred to therein, the Ten Principles of the United Nations Global Compact, and the RBA Code of Conduct1.

1
RBA Code of Conduct:
The RBA establishes a setof standards for supply
chains in the electronics
industry for a safe labor
environment, to ensurethat workers are treatedwith respect and dignity,
and that companies
take responsibility forenvironmental impact
in the manufacturing
process.

Procurement principles and system
The high-value manufacturing that Tokyo Electron (TEL) strives for is based on the functions of all materials andcomponents that make up the products and the pursuit of high quality. TEL values communications with suppliers andseeks to grow manufacturing on a global scale with its suppliers based on ongoing trusting relationships.
We engage in procurement activities in line with our own procurement policy, which we formulated based on thelaws, regulations, and social norms of each country, as well as the RBA Code of Conduct. We then disseminated it within
the TEL group to suppliers. Under the leadership of the TEL Representative Director, President & CEO, as the top of
the procurement system, issues identified during procurement activities are shared with the manufacturing company
presidents’ council and the purchasing department manager council for consideration of specific improvements.

Initiatives in the supply chain
Commitment

Assessment

Remediation

ReportCommitment to respecting
human rights

Assessment of human rights risks
in business and supply chains

Actions to reduce risks based on
assessment results

Regular disclosure of information• Human Rights Policy publication• Awareness and implementation• Web-based education• Education• CSR assessment• Human rights risk assessment• Human rights impact assessment• Feedback sheet publication• Program development and review
according to issues• Sustainability Report publication• Disclosures on website

TEL is focusing on ensuring awareness and implementation of the Human Rights Policy internally and by suppliers.
In fiscal year 2019, we published the policy on our website and made it available for everyone inside and outside thecompany, and implemented an online human rights education program targeting all TEL executives and employees.
In fiscal year 2020, we also conducted due diligence on human rights, conducted human rights risk surveys, andidentified and assessed impacts. As part of the surveys, we utilized a self-assessment questionnaire (SAQ) for internal use
based on the RBA Code of Conduct, and a CSR survey2 for suppliers of materials, staffing, and logistics, to understand thecurrent situation throughout the value chain. We are using the results of these surveys to identify and assess impacts, andto clarify and implement corrective action.

2
CSR survey: Refer
to Supply Chain
Management on p. 48.

CSR operations
To keep track of its suppliers’ engagement in CSR activities, TEL has conducted a CSR Survey since fiscal year 2014.
The survey is in accordance with the RBA Code of Conduct. We analyze the responses from suppliers and use them as
feedback to assist with further improvement activities. In accordance with auditing standards stipulated by the RBA,
the survey targets materials suppliers1 from which we procure parts and raw materials. In the fiscal year 2020 survey,
improvements in overall rating level were observed at 36% of suppliers and improvements in the overall raw score
were seen at 56%. Also, no suppliers were engaged in any of the practices given particular emphasis in the RBA Code of
Conduct, namely, child labor, forced labor, bonded labor, inhumane treatment, false reports, falsification of records, or
bribery. Neither were any suppliers of a sufficient size2 to be considered high risk in terms of compliance.
From fiscal year 2019, we also began surveying staffing suppliers who provide temporary employees, contractors, andother workers, and logistics suppliers3 with a focus on major logistics/customs clearance operators.

Plan

Do

Check

Act

Formulation of Procurement Policy
and Procurement Policy Supplement: Requests to Our
Suppliers

Notification of Requests to
Our Suppliers and appeal for
CSR activities

Implementation of supply chain
CSR assessment and analysis of
response

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

From the internal assessment results, we identified potential human rights risks inthe areas of labor, and health and safety. In the area of labor, we will continue efforts
to ensure working hours are in compliance with laws and regulations while further
streamlining operations. In the area of health and safety, we will work to reduce
human rights risks by improving relevant equipment. From the supplier assessment
results, we identified potential human rights risks in labor, health and safety.
Therefore, we have requested they reconfirm working hour requirements according
to laws and regulations, industry codes of conduct, and take other actions, including
preparing for emergencies.

Health andsafety

0

20

40

60

80

100 (%)TEL recognizes the importance of having highly effective grievance mechanisms and it is working to establish and operate
those mechanisms. In fiscal year 2020, we further strengthened our internal and external reporting systems in Japan andoverseas for employees and suppliers, and started operation.
By continuing to conduct due diligence on human rights going forward, we will assess and correct any human rights
issues we identify in our business activities, and further improve the grievance mechanisms we provide.

47

TOKYO ELECTRON SUSTAINABILITY REPORT 2020year 2014 for suppliers
accounting for morethan 80% of TEL’s
procurement spend.
2
500 employees or more
3
Staffing suppliers:
100% of employment
agencies and contractingof customs-related
operators

43TG: Tantalum, tin,tungsten, and gold

Considered to have no risks

Labor

Surveys have been
conducted since fiscal

companies (internal
contractors)
Logistics suppliers: 100%

Supply chain
chainCSR
CSRprocessprocess

Supplier CSR survey results * 500 employees or more
Considered to have potential/actual risks

1

Responsible procurement of minerals (conflict minerals)
TEL regards taking action against conflict minerals (3TG4) obtained through illegal exploitation, including sources withhuman rights violations or poor working conditions, an important part of corporate social responsibility. The company’s
resolute goal is to eliminate the use of raw materials made from these conflict minerals, as well as any parts orcomponents containing them.
In fiscal year 2020, TEL conducted its sixth annual survey on potential conflict minerals, using the reporting template(CMRT5) developed by the RMI6. As a result, TEL identified 261 RMAP7 conformant smelters, providing the company
confidence that 3TG sourced from these smelters were conflict-free. None of the materials procured were found tocontain conflict-affected 3TG.
Procurement BCP
Percentage of supplier sites by country (FY2020)
As part of its Business continuity plans (BCP), TEL collaborates with the
Taiwan 1.0%
suppliers for disaster preparation. The company maintains a database of
Other 4.7%
suppliers’ production sites so that if a crisis arises, it can promptly identify
U.S. 2.2%
impacted suppliers and quickly collaborate in recovery efforts. During fiscal
China 3.2%
year 2020, about 18,000 supplier sites were registered, and post-disasterJapan 88.9%
impact surveys were conducted eight times.
In addition, for key suppliers accounting for more than 80% of the
TEL’s procurement spend, it conducts a BCP survey8, analyzes their
responses, and gives the results to suppliers as feedback to promote further improvement. In the fiscal year 2020 survey,
improvements in overall rating level were observed at 16% of suppliers, and improvements in the overall raw score wereseen at 40%.

5
CMRT: Conflict Minerals
Reporting Template
6
RMI (Remote Method
Invocation): An
organization that
inspects 3TG smelters tocertify they do not haveconflict minerals
7
RMAP (Responsible
Minerals Assurance
Process): A program
promoted and led by
the RMI for auditing
smelters/refiners that do
not use conflict minerals
8
BCP survey: A surveythat has continuously
been conducted to key
suppliers accounting for
more than 80% of the
TEL’s procurement spend
since FY2013

TOKYO ELECTRON SUSTAINABILITY REPORT 2020

48

Management foundation
Environmental management
Environmental management system

CO2 emissions across the value chain

Tokyo Electron (TEL) has established two new bodies, the Council of Environmental General Managers and the TEL
Corporate Environmental Council, to promote activities in the medium to long term, responding to the rising importanceof environmental issues, such as climate change, and meeting the environmental/ESG needs of its customers and otherstakeholders. The councils are composed of TEL representatives in charge of the environment as well as members from
related division. They are responsible for reviewing our overall environmental direction and our progress in achieving our
medium- and long-term environmental goals. Furthermore, to continuously improve our environmental activities, wehave operated an environmental management system based on ISO 14001 since 1997, primarily at our manufacturingsubsidiaries. In March 2017, we acquired multi-site ISO 14001 certification for our factories and offices in Japan that
had previously acquired certification separately. Coinciding with this multi-site certification, we have developed
a standardized group format for environmental impact assessments, the identification of useful environmental
aspects, environmental management programs, and internal audit checklists. During fiscal year 2020, we establishedapproximately 100 environmental goals for different levels across the entire group and carried out these improvement
activities. Progress of activities and compliance with laws and regulations are confirmed through internal audits andthird-party audits. Any issues identified through these activities are reviewed by the EHS Council, reported to the
Manufacturing Company Presidents’ Council, and reflected in environmental activities across our entire group.
Under such an environment management system, fiscal year 2020 was again free from environmental incidents,
accidents, violations, and associated legal proceedings.

By recognizing environmental impact throughout the value chain, TEL develops business activities that are consciousof reducing this impact. Based on its environmental slogan “Technology for Eco Life,” it aims to resolve environmental
problems through leading technology and reliable services.

171
kilotons
Scope 1 & 2

kilotons
Scope 3 downstream

Not from the TEL GroupOwn emissions

Not from the TEL Group

Fuel- and energy-related
activities

13 kilotons

12 kilotons

Capital goods

Business travel

164 kilotons

9 kilotons

Purchased goods andservices

Waste generated inoperations

256 kilotons

Company nameFactory/Office nameTokyo Electron

EHS Promotion Center (Fuchu Technology Center)

Tokyo Electron Technology Solutions

Fujii Office/Hosaka Office/Tohoku Office

Tokyo Electron Kyushu

Koshi Office/Ozu Office

Tokyo Electron Miyagi

Taiwa Office

TEL Manufacturing and Engineering of America
Tokyo Electron Korea

1 kilotons

Upstream transportationand distribution

Certification date*
The Billerica Office was
relocated in May 2020.

May 1998—

March 2013

Chaska Office

March 2013

Billerica Office*May 2018

Balan Factory

July 2014

5,410

Direct emissions
from fuel & gas use
Scope 1

27 kilotons
Indirect emissions
from electricity use &heat purchase
Scope 2144 kilotons

Upstreamowned or controlled

Scope 2:
Indirect GHG emissions
from use of electricity,
steam and heatpurchased by TEL

End-of-life treatment ofsold products

2 kilotons

Scope 3:Emissions from
corporate value chains(excluding scope 1 andUse of sold product5,229 kilotons
Downstream
transportationand distribution

179 kilotons

9 kilotons

ISO 14001 certified factories and offices

Tokyo Electron (Kunshan)

EmployeecommutingDirect GHG emissions
from use of fuel and gas
by TELkilotons
Scope 3 upstream

464

Scope 1:

2 emissions), such as
product transportation,
employee businesstravel, and major
outsourced production
processes* Scope 3 is divided into
upstream activities,
which include emissions
associated withpurchased or procured
products and services,

Downstream

and downstream
activities, which include
emissions associatedwith sold products andservices.

The total of Scope 1 and Scope 2 of the TEL group is 171 kilotons, while Scope 3 accounts for a total of 5,874 kilotons,
which is approximately 97% of the total. TEL believes that it is particularly important to develop products with low
CO2 emissions during operation, as CO2 emissions from the use of products sold amount to 5,229 kilotons, which isapproximately 87% of the overall total.

Initiatives to prevent global warming and save energy
Environmental risks and opportunities
The various issues related to the environment impact on our daily lives and the business activities of companies. Physicalrisks, such as rising average global temperatures, strong winds, disasters, and water shortages caused by climatechange and abnormal weather, heighten the risks in business, such as damage to assets, increased operating costs, andimpacts on the supply chain. In terms of legal risks, we recognize that stronger environmental laws and regulations,more stringent regulations on greenhouse gas emissions, the introduction of carbon taxes, and so on will lead to higher
costs for associated measures. At the same time, promoting environmental initiatives leads to more opportunities
to sell outstanding, environmentally friendly products, reduce operating costs, and further improve corporate value.
As a participant in the semiconductor and flat panel display (FPD) industry, by leveraging our advanced technologicalprowess to create added value, we can contribute to the creation of semiconductor and FPD products with low power
consumption and the building of an energy-saving society that makes the most of information technology.
Based on the requirements of ISO 14001, we identified and analyzed internal and external issues in relation to theenvironment, namely, our relationship with the climate, air quality, and water quality. We also clarified the environmental
needs and expectations of customers, suppliers, governments, and employees, and identified the compliance obligationsof our group. From this information, TEL has set the following as its risks and opportunities to address: (1) environmental
management by reducing the environmental impact of its business activities, (2) compliance with applicable laws, and (3)enhancing product competitiveness with the environmental contribution of products.

Each TEL plant 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 cleanroom operation, appropriate temperature settings for officecooling and heating, the introduction of highly energy-efficient equipment, and the adoption of renewable energies.
As a result of these initiatives, in fiscal year 2020, we increased energy consumption per unit sales at our factories andoffices by 20% year-over-year. However, an increase in its volume of production and an increase in energy consumption
associated with product development and evaluation resulted in power consumption of 318 GWh in fiscal year 2020,
up 4% year-over-year; and energy-derived CO2 emissions* ofPercentage of factories and offices achieving energy intensity target
144 kilotons, down 2% year-over-year. Based on the correlation(%)
between business operations and energy use, we changed to a
55
55
60
more appropriate metric in fiscal year 2019, and have since applied45
50
it as standard at factories and offices across Japan. Specifically, we
40
adopted a metric calculated using a complex weighting of data from 30
20each area on the number of evaluation units used in development,10
the number of units produced, total floor area, and staff-hours. As
0a result, goals were achieved at 6 out of 11 factories and offices in
(FY)
2020
2018
2019
Japan and overseas.

*
In fiscal year 2020,
the adjusted emission
factors of the respective
electrical power
providers are used forthe emission factor forelectricity consumption
in Japan, and theemission factor in
Emissions Factors (2019edition) published by
the International Energy
Agency (IEA) is used
for the emission factor
for overseas electricity
consumption.

■Example initiative 1
Tokyo Electron Technology Solutions (Tohoku Office) is using energy more efficiently, having put heat-insulating
materials around steam pipes in boiler rooms to prevent heat from discharging. As a result, we expect to reduce our useof heavy oil by 31,000 liters a year, which will also reduce emissions of 84 t-CO2.
■Example initiative 2Tokyo Electron Miyagi is reusing waste oil from the staff cafeteria to produce biofuel. In fiscal year 2020, it began using
this biofuel in generators and forklifts at the same site.

49

TOKYO ELECTRON SUSTAINABILITY REPORT 2020

TOKYO ELECTRON SUSTAINABILITY REPORT 202050

Management foundation

Renewable energy initiatives

Management of chemical substances

TEL promotes the use of renewable energies. At the Tokyo Electron Miyagi (Taiwa Office) and Tokyo Electron Technology
Solutions (Fujii Office, Hosaka Office), renewable energy generated from solar panels is used to power the factories, andmonitors displaying their energy profile have been set up at the entrances to the factories. At its Tokyo Electron Kyushu(Koshi Office), generated energy is sold, helping to prevent global warming. In fiscal year 2020, TEL generated a total of
3,804 MWh of renewable energy in Japan.
In addition, Tokyo Electron U.S. Holdings has continued to purchase green power, 3,334 MWh, in fiscal year 2020.

TEL constantly monitors and manages its use and release of any chemical substances used in product development andmanufacturing subject to the Japanese PRTR1 law. Whenever TEL introduces a new chemical substance or changes theway an existing substance is used, we check for environmental, health, and safety risks beforehand. In response to the
Act on Rational Use and Proper Management of Fluorocarbons, we conduct simple checks, regular inspections, and so on
based on law in an effort to monitor the amounts of fluorocarbons filled and recovered. In fiscal year 2020, none of ourfactories or offices had fluorocarbon leakages requiring notification.

Initiatives to reduce water consumption

Biodiversity

With the growing importance of water resource preservation in global environmental initiatives, the TEL group has
established a goal of keeping water consumption at the same level or below that of the baseline year (fiscal year 2012
for factories and offices in Japan and a fiscal year of their choosing for each overseas operation). TEL’s ongoing efforts
to achieve these goals include reusing pure water from its manufacturing operations, installing water-saving devices,
watering lawns with rainwater, and implementing the intermittent operation of cafeteria faucets.
During fiscal year 2020, as a consequence of new buildings coming online and an increase in water consumption
associated with product development and evaluation, water consumption amounted to 1,305,000 m3, up 5% year-overyear. Moreover, we achieved 9 of the 13 goals in our factories and offices worldwide. It also discharged an estimated1,078,000 m3 of wastewater.

In carrying out its business activities, the TEL group has a not insignificant impact on biodiversity, and yet without thebenefits yielded from biodiversity, we could not sustain its activities. In recognition of this, the group will develop aframework for promoting initiatives to conserve biodiversity. In fiscal year 2020, we set a goal of conducting at least two
ecosystem tours or conservation activities at our factories and offices in Japan. A total of 18 events were held, attracting a
total of 368 participants.

■Example initiative
At Tokyo Electron Miyagi, we have promoted a reduction in blow-off water1 by installing a system in the cooling tower
to prevent scale2 from building up. In addition to achieving a reduction in water consumption, it is expected that
introducing this system will also eliminate the need for liquid chemicals that were previously used for preventing scalebuild-up, and will result in less power being consumed because of an improvement in heat exchange efficiency. Other
added benefits of the system are that it lengthens the life of pipes by preventing corrosion, and it reduces cleaning
time by controlling algae.

Green procurement

1
Blow-off water:
Water that is drained
from equipment andpipes to prevent an
overconcentration of
impurities in the water2
Scale: An inorganic salt

Initiatives to reduce waste
To curb the amount of waste generated and to recycle it wherever possible, the TELgroup promotes initiatives to reduce waste. In addition to participating in the electronic
manifest system3 to ensure proper waste management, we are engaged in maintaining
an appropriate amount of parts inventory and in reusing cushioning material. We arealso achieving lower waste processing costs by promoting waste sorting activities, andRecycling rateby modifying space used for storing waste to increase storage capacity and reduce thefrequency of collection. In fiscal year 2020, we surveyed waste disposal operators in Japan
using a unified on-site checklist, and we shared the results. In fiscal year 2020, we generated
142 tons of incinerated and landfill waste in Japan. As a result of our waste-reduction
initiatives, the recycling rate4 at sites in Japan in fiscal year 2020 was 98.9%, achieving our single-year goal of maintaining
a recycling rate of 97% or higher for the 14th consecutive year since fiscal year 2007. We have also maintained a high levelof recycling at its overseas factories and offices of 90.3%.

98.9%

compound (calcium,magnesium, etc.)
contained in water,which hardens on thesurface of equipment
and pipes
3
Electronic manifest
system: A system forelectronically tracking
the flow of industrial
waste instead of using
paper-based manifests(i.e. paper forms for
tracking industrial
waste). The system
uses a communications
network of dataprocessing centers,
businesses thatgenerate waste, andwaste collection/
disposal companies

URL

URL

www.tel.com/csr/environment/office/1
PRTR (Pollutant Release
and Transfer Register): A
framework for tracking,tabulating, and disclosing
quantitative data on
chemical substancesthat may be hazardous
to human health andthe ecosystem, including
the amounts used anddischarged into theenvironment and theamounts transferred (aspart of waste) off theoriginal business’s premises

www.tel.com/csr/environment/green-procurement/

TEL began implementing its Green Procurement Guidelines in January 2001, and has since promoted green procurement,
prioritizing the purchase of environmentally friendly parts, products, and materials. Through these guidelines, we strive togain the understanding and cooperation of our suppliers with respect to building environmental management systems,
monitoring, reducing, and disclosing information on the environmental impacts of business activities; and developing
environmentally friendly products.

Logistics initiatives

URL

www.tel.com/csr/environment/product/

TEL has been promoting activities designed to reduce the environmental impact of its logistics. We have been
implementing a modal shift2 from air to ocean transportation for the overseas shipping of our semiconductor and FPD
production equipment, and at the same time, we have been working hard to reduce production lead times. We have also
been endeavoring to reduce CO2 emissions and costs by adopting the shelved trolleys used in shipping FPD production
equipment to semiconductor production equipment, thereby improving the load factor of trucks. We are also pushing for
fewer resources to be used in packaging when shipping products.

Environmental communication

URL

2
Modal shift: Efforts totransform the means oftransportation

www.tel.com/csr/environment/office/In promoting initiatives for the environment, TEL maintains close communication with all its stakeholders. Our
environmental policy requires that we promote cooperative partnerships with our stakeholders, and respond
appropriately as a company to their expectations and wishes.
In fiscal year 2020, we revamped our online environmental education programs to better promote environmental
communication within us. Our online programs consist of an environmental program for new employees and mid-career
recruits, plus a refresher program for existing employees. In fiscal year 2020, more than 11,000 employees attended these
programs in Japan. In fiscal year 2021 and beyond, we plan to expand these education programs overseas.

4
Recycling rate:(Recycled amount/
Amount of waste
generated) × 100

51

TOKYO ELECTRON SUSTAINABILITY REPORT 2020

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