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    years of environmental reporting IBM and the E N V I R O N M E N T 2009 Annual Report

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    IBM and the E N V I R O N M E N T TABLE OF CONTENTS A Message from the Vice President, Energy and Climate Programs 25 Corporate Environmental Affairs and A Five-Part Strategy 25 Product Safety, Wayne S. Balta 1 Conserving Energy 26 CO2 Emissions Reduction 30 A Commitment to Environmental PFC Emissions Reduction 31 Protection 3 Procuring and Fostering Renewable Energy 32 Global Governance and Management 4 Voluntary Climate Partnerships 33 Global Environmental Management System 4 Transportation & Logistics Initiatives 33 Stakeholder Engagement 5 Voluntary Partnerships and Initiatives 6 Supply Chain Programs 35 Environmental Investment and Return 8 Environmental Evaluation of Suppliers 35 Energy and Climate Requirements 36 Process Stewardship 10 Environmentally Preferable Substances Audits and Compliance 38 and Materials 10 Accidental Spills and Releases 39 Nanotechnology 13 Fines and Penalties 39 Pollution Prevention 13 Remediation 40 Hazardous Waste 13 Nonhazardous Waste 14 Awards and Recognition 41 Chemical Use and Management 15 Internal Recognition 41 External Recognition 43 Water Conservation 17 IBM Environmental Affairs Policy 45 Product Stewardship 18 A Systems Approach 18 2009 Environmental Performance Product Design 19 Summary 46 Product Energy Efficiency 21 Product Recycling and Reuse 22 Product Packaging 23 Product Safety 25

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    A Message from the Vice President, Corporate Environmental Affairs and Product Safety Wayne S. Balta Accordingly, you will continue to see matters “Green”is not a new topic like pollution prevention, waste management, for IBM. Environmental protection has material selection and water stewardship covered been an IBM imperative for decades. in our environmental report in addition to And as far as disclosure is concerned, this energy efficiency and climate change. report marks the twentieth consecutive As we continue IBM’s 20 years of leadership in annual environmental report (since 1990) environmental reporting, we recognize that we that our company has published. We are couldn’t write a report without content. And particularly proud to have sustained this for that, we rely upon IBM’s long-standing practice for 20 years, during periods global environmental management system, which when the environment was not always as compels our colleagues to identify what matters, popular a subject as it is today; during to measure it and to manage it. We focus on profound changes in the global economy, integrating environmental leadership throughout our industry and our business model; the fabric of our business and we aim for respon- sibility and opportunity that is systemic across and during periods of differing financial the entirety of IBM. results. At IBM, our record shows we believe in sustaining sustainability. We Speaking of opportunity, we are also dedicated to execute accordingly. And, we continue creating solutions that help protect the world’s to be in this for the long term. environment, consistent with the dialogue IBM has created regarding a Smarter PlanetTM. At the At present, concern regarding climate change has core of creating a smarter and more sustainable appropriately captured the attention of many. world is innovation that matters. This is not That is understandable and very important. At the innovation just for the sake of developing a cool gadget, but innovation that will have more far- same time, it’s appropriate to remind ourselves on reaching effects on society and the planet. occasion that climate change does not represent the entirety of environmental interests and needs. Many of IBM’s present-day solutions leverage There is—and has always been—much more to it. the company’s own leadership and expertise, 1

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    integrating and extending benefits to our clients. (CARBAN) began with IBMers from our Some examples: Research Division working with IBMers in our Global Logistics function. The CARBAN tool • Data Centers: All of the innovations for energy analyzes various supply chain policies, transport efficiency being implemented in IBM’s data modes and network configurations to optimize centers are available to our clients. We're part- logistics solutions based on trade-offs between nering with clients around the globe on best carbon emissions, cost and service level. practices, thermal management, virtualization, consolidation, software and even construction During the past 20 years of our annual environ- to improve data center energy efficiency across mental reporting, we have consistently shared our the global economy. environmental programs and performance with you, and we will continue to do so. I invite you to • Water: IBM’s own monitoring, tracking and read this latest information about IBM’s ongoing reporting processes helped inform and provide commitment to environmental leadership. a basis for the company’s Green SigmaTM approach, which applies Lean Six Sigma princi- ples to systemically measure, monitor and control water and energy use throughout an organization’s operations. Wayne S. Balta • Logistics: An IBM business analytics solution Vice President, Corporate Environmental named the Carbon Trade-Off Modeler Affairs and Product Safety 2

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    About This Report A COMMITMENT TO ENVIRONMENTAL For 20 consecutive years (since 1990), PROTECTION IBM has publicly disclosed its environ- mental performance in the company’s IBM has a long history of environmental annual IBM and the Environment leadership. The company’s corporate report. IBM’s environmental stewardship policy on environmental protection, first has also been included in IBM’s Corporate established in 1971, is supported by a Responsibility Report since 2002, the comprehensive global environmental first year of that report. The IBM and management system that governs IBM’s the Environment report provides a more operations worldwide. comprehensive update on the company’s environmental programs and performance IBM’s long-standing recognition of the impor- tance of protecting the environment arises from than is possible in the more space- two key aspects of its business. The first is the constrained Corporate Responsibility intersection of the company’s operations and products with the environment. The second is the Report. For additional information, enabling aspects of IBM’s innovation, technology visit the IBM and the Environment and expertise. website at ibm.com/environment. IBM’s IBM’s operations can have an effect on the Global Reporting Initiative (GRI) Report environment in a number of ways. For example, is also available on this website. chemicals needed for research, development and manufacturing must be properly managed from selection and purchase through storage, use and disposal. Data center operations are energy- intensive, and some manufacturing processes are energy- and/or water-intensive. IBM continually looks for ways to reduce consumption of these and other resources. In the product area, IBM designs its products to be energy efficient and utilizes environmentally preferable materials that are capable of being reused, recycled or disposed of safely at the end of their useful lives. Moreover, as IBM has 3

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    outsourced more of its manufacturing, its supply The policy is supported by corporate directives chain increased in relevance with respect to that govern IBM’s operations worldwide. These environmental protection. Evaluation of suppliers’ directives cover areas such as pollution prevention, overall environmental responsibility and the chemical and waste management, energy conser- environmental attributes of the parts and vation and climate protection, environmental products suppliers provide to IBM has become evaluation of suppliers, product stewardship, and increasingly important. incident prevention and reporting. The enabling aspect of IBM’s innovation and IBM’s commitment to environmental protection technology makes it a significant force in is implemented through its global environmental developing solutions that can help both IBM management system (EMS). and its clients to be more efficient and protective of the environment. In addition, the massive Employee & Management Responsibility computational power, software advancements Every employee is expected to follow the corpo- and visualization capabilities of IBM’s technology rate environmental affairs policy and its directives can bring increased understanding and swifter and report any environmental, health or safety solutions to some of the world’s most demanding concern to IBM management. Managers are scientific and environmental problems. This expected to take prompt action when faced with report describes IBM’s programs and performance a potential violation of the policy or directives. in both areas. In addition, all employees are required by the company’s Business Conduct Guidelines to GLOBAL GOVERNANCE comply with environmental laws and with IBM’s own environmental, health and safety programs. AND MANAGEMENT IBM executives are responsible for the environ- GLOBAL ENVIRONMENTAL mental performance of their organizations. Site MANAGEMENT SYSTEM location executives are responsible for the environ- IBM’s corporate environmental affairs policy mental performance of their site. calls for environmental affairs leadership in IBM’s environmental programs and performance all of the company’s business activities. The are reviewed annually by the Directors and policy objectives range from workplace safety, Corporate Governance Committee of IBM’s pollution prevention and energy conservation Board. This committee was formed in 1993 and to product design for the environment, continual its charter established its responsibility for review- improvement and the application of IBM’s ing and considering IBM’s position and practices expertise to help address some of the world’s on significant issues of corporate public responsi- most pressing environmental problems. The bility, including protection of the environment. policy may be found on page 45 of this report or at www.ibm.com/environment/policy. 4

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    Environmental Goals STAKEHOLDER ENGAGEMENT Environmental goals are an important part of IBM has a variety of outreach programs through IBM’s EMS. The company’s key environmental which it engages with various groups and individ- performance indicators cover the following areas: uals on the subject of the environment. climate protection, energy and water conservation, pollution prevention, waste management and Though they may vary by location, the company’s product stewardship. These goals and IBM’s community environmental outreach programs performance against them are discussed in their range from open houses and emergency prepared- respective sections of this report. ness drills with local organizations to the support of and participation in local environmental proj- ISO 14001 Environmental Management ects and environmental education efforts. System Standard IBM became the world’s IBM also has ongoing dialogues with many stake- first major company holders, including socially responsible investors to earn a single global and other shareholders, environmental nongovern- registration to ISO mental organizations (eNGOs), governments, 14001 in 1997, over a employees and others on a range of environmental decade ago—and the issues. These dialogues are valuable, as they allow company achieved this the company to share ideas and obtain feedback credential within just about its programs, activities and performance. one year of the finalization of the Standard. Another example is engagement for “collaborative The registration covered IBM’s manufacturing, innovation.” IBM believes integrating different product design and hardware development opera- minds and different perspectives can accelerate tions across its business units worldwide. IBM has new solutions to long-standing problems. since expanded its global ISO 14001 registration to include its chemical-using research locations, several country organizations covering their nonmanufacturing locations and its Global Asset Recovery Services business function. As its business model has evolved to include more services offerings, IBM continues to update its EMS to appropriately address environmental opportunities and challenges in the services area. Since 2001, one way the company has done that is with IBM’s Jams, which enable global online More information about IBM’s EMS and conversations on strategic business and societal programs supporting its environmental objectives issues across industries, disciplines, stakeholders may be found at www.ibm.com/environment. and national borders. 5

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    In 2010, IBM brought together 1,600 A more complete listing of IBM’s voluntary business executives, government officials, non- partnerships and initiatives can be found at governmental organization (NGO) leaders, www.ibm.com/environment/initiatives/. journalists, analysts and environmental experts from more than 60 countries for the company’s IBM partners with the Wildlife Habitat Council Eco-efficiency Jam—a two-day online, interactive (WHC) to manage many of its properties in discussion of the opportunities for continued ways that enhance habitats. Seven IBM sites advancement of eco-efficiency. The IBM Institute (Armonk, New York [Corporate Headquarters]; for Business Value report from the Jam—“The Boulder, Colorado; Research Triangle Park, emergence of the eco-efficient economy” may North Carolina; Rochester, Minnesota; San Jose, be found at www.ibm.com/services/us/gbs/bus/ California [IBM’s Almaden Research Center html/ibv-eco-efficency-jam.html. and Silicon Valley Laboratory]; and Toronto, Canada [IBM’s Software Lab]) have had their VOLUNTARY PARTNERSHIPS land management and wildlife habitat programs AND INITIATIVES certified by the WHC. IBM is strongly committed to participation in IBM also encourages its employees to support voluntary programs and has joined a number of environmental efforts. For example, through voluntary initiatives and partnerships with govern- its Matching Grants program, the company mental and nongovernmental organizations. matches contributions made by U.S. employees to groups ranging from The Nature Conservancy Among the many, some governmental examples and the World Wildlife Fund to smaller groups include the U.S. Environmental Protection dedicated to preserving lands and habitats in Agency’s (EPA) ENERGY STAR® and Climate local communities. Leaders programs, and the OECD Committee on Industry, Innovation and Entrepreneurship. In addition, IBM employees can support environ- mental organizations in their local communities Partnerships with eNGOs include, among others: through IBM’s On Demand Community (ODC) charter member of the World Resources Institute’s program. ODC is a first-of-its-kind global initia- (WRI) Green Power Market Development Group tive to encourage and sustain corporate philan- (U.S. and Europe); charter member of the World thropy through volunteerism. It provides IBM Wildlife Fund’s Climate Savers program; charter employees and retirees with a rich set of IBM member of the Chicago Climate Exchange®; technology tools they can use to help schools and and membership in the Pew Center on Global the nonprofit community organizations in which Climate Change and The °Climate Group. IBM they volunteer, including environmental organiza- also works with and supports organizations such as tions. The program combines the expertise, inter- The Conservation Fund, the Environmental Law ests and skills of IBMers with the power of the Institute, the World Environment Center and the company’s innovative technologies and solutions WRI. In addition, IBM is a founding member of to help nonprofit organizations be more effective The Green GridSM and a member of the World in addressing community needs. Business Council for Sustainable Development. 6

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    THE ECO-PATENT COMMONS The Eco-Patent Commons is a unique opportunity for global business to make a difference— sharing innovation to foster sustainable development. The Commons, an online collection of environmentally beneficial patents pledged by companies for free use by anyone, was designed to facilitate the use of existing innovation to protect the environment and encourage collaboration for new innovation. The Eco-Patent Commons was initiated by IBM and the World Business Council for Sustainable Development and launched in January 2008 with Nokia, Pitney Bowes and Sony. Bosch, DuPont and Xerox joined the Commons in September 2008. Taisei and Ricoh joined in March 2009, and Dow and Fuji Xerox joined in October 2009. Examples of the environmental benefits of patents that may be pledged to the Eco-Patent Commons include: • Energy conservation or improved energy or fuel efficiency • Pollution prevention (source reduction, waste reduction) • Use of environmentally preferable materials or substances • Water or materials use reduction • Increased recycling opportunity To date, the 11 member companies have pledged more than 100 patents to the Eco-Patent Commons, 28 of which were pledged by IBM. Many of the member companies have been contacted directly about their patents. For more information, to join the Commons or to view pledged patents, visit the Eco-Patent Commons website at www.wbcsd.org/web/epc/. 7

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    COALITION FOR ENERGY AND ENVIRONMENTAL LEADERSHIP IN LEASED SPACE IBM, along with DuPont, Fluor Corporation, Pitney Bowes Inc. and the Switzer Group, has formed a coalition to drive an increase in the availability of competitively priced leased space that also provides energy efficiency and other environmental attributes. By joining together, the Coalition hopes to make more environmentally sustainable leased spaces increasingly the standard rather than the exception in the marketplace. To aid in accomplishing its objective, the Coalition developed a baseline Environmental and Energy Efficiency Attributes Checklist. It addresses requirements in four areas: sustainable site management, water efficiency, energy efficiency, and materials and resources. Members of the Coalition commit to: • Make the Checklist a standard part of their requests for proposal (RFPs) for new leases and lease renewals for office space in the U.S. • Include the providers’ response as a factor in making lease decisions • Develop appropriate metrics to measure progress Actions under this initiative are intended to complement, not replace, individual companies’ activities for improving building environmental and energy efficiency such as those pursuant to the U.S. Green Building Council’s LEED® green building certification program. Membership in the Coalition is open to all organizations willing to make and carry out the same commitment. ENVIRONMENTAL INVESTMENT AND RETURN Over the past 5 years, IBM has spent $150.5 million in capital and $502.4 million in operating expense to build, maintain and upgrade the infrastructure for environmental protection at its plants and labs, and to manage its worldwide environmental programs. ENVIRONMENTAL CAPITAL AND EXPENSE WORLDWIDE ($ in Millions) 2005 2006 2007 2008 2009 Capital $ 55.0 $ 19.5 $ 30.0 $ 31.7 $ 14.3 Expense 105.6 96.6 100.4 103.8 96.0 TOTAL $ 160.6 $ 116.1 $ 130.4 $ 135.5 $110.3 8

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    IBM compares its environmental expenses to the estimated savings resulting from its policy of environ- mental leadership. Savings come from energy, material and water conservation; recycling; packaging improvement initiatives; reductions in chemical use and waste; and process improvements from pollution prevention. Ongoing savings from the previous years’ initiatives are not carried over in this comparison, yielding very conservative estimates. IBM also realizes savings through the avoidance of costs that likely would occur in the absence of its EMS. These savings are not measurable in the same way that expenses are, but avoiding these environ- mental costs does result in savings for IBM, and a reasonable attempt has been made to estimate them. Consistent with the evolution of IBM’s business model to one less focused on manufacturing and more on services, in 2008 the company changed its methodology for estimating compliance cost avoidance and established a more conservative process that includes compliance cost efficiency and potential fine, penalty and litigation avoidance. The tables that follow provide the analysis of IBM’s environmental expenses and estimated savings and cost avoidance for 2009. IBM’s experience has shown that annual savings from its focus on pollution prevention and design for the environment consistently exceeded environmental expenses, thus demonstrating the value of proac- tive environmental programs and performance. In 2009, the estimated environmental savings and cost avoidance exceeded environmental expenses worldwide by a ratio of 1.6 to 1. 2009 ENVIRONMENTAL EXPENSES WORLDWIDE ($ in Millions) Personnel $ 31.2 Consultant fees 4.2 Laboratory fees 1.9 Permit fees 0.4 Waste treatment and disposal 11.0 Water and wastewater management operations 3.8 Air emission control operations 1.6 Groundwater protection operations 0.8 Other environmental systems operations 1.6 Waste and materials recycling 2.4 Superfund and former IBM site remediation 32.4 Miscellaneous/other 4.7 TOTAL $ 96.0 9

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    2009 ESTIMATED ENVIRONMENTAL SAVINGS AND COST AVOIDANCE WORLDWIDE ($ in Millions) Location pollution prevention operations $ 34.7 Corporate operations* 3.0 Packaging improvements 19.3 Environmentally preferable materials usage 0.2 Energy conservation and cost avoidance 26.9 Superfund and site remediation efficiencies 4.7 Spill remediation cost avoidance** 2.2 Compliance cost efficiency*** 19.2 Potential fine, penalty and litigation avoidance**** 42.2 TOTAL $ 152.4 * Savings or costs avoided by having internal professional staff and tools versus using external consultants and tools. ** These savings are estimates based upon certain assumptions. The figure for spill remediation cost avoidance is estimated from IBM's actual experience with remediation costs. *** Compliance cost efficiency considers the cost avoided through proactive compliance. **** The estimation for the avoidance of potential fines, penalties and litigation does not include the environmental expenses attributed to product development, procurement and customer fulfillment for complying with product environmental laws and regulations. It also does not include the cost avoidance of potential business interruption or fines related to noncompliance with product environmental laws and regulations (e.g., E.U. REACH or RoHS requirements). PROCESS STEWARDSHIP or substitute substances used in IBM processes and products when the weight of scientific ENVIRONMENTALLY PREFERABLE evidence determines an adverse effect upon SUBSTANCES AND MATERIALS human health or the environment, even when law permits their use. Among its objectives, IBM’s environmental policy calls for the company to use development and In addition, IBM conducts scientific assessments manufacturing processes and provide products of existing approved substances when new that are protective of the environment. As an inte- processes or major modifications to existing gral part of its EMS supporting this objective, processes are being developed. The objective of IBM routinely and consistently monitors and these scientific assessments is to identify potential manages the substances it uses in its manufactur- substitutes that may be environmentally prefer- ing and development processes and in its products. able. IBM believes that the same scientific rigor is required when investigating the human health The company’s precautionary approach includes and environmental effects of potential substitutes the careful scientific review and assessment of as was given to the investigation of the substance certain substances prior to their use in IBM’s currently in use. processes and products. In specific instances, IBM has chosen to proactively prohibit, restrict 10

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    The following provides a sampling of IBM’s early • Cadmium: IBM prohibited the use of leadership in prohibiting or restricting many cadmium in inks, dyes, pigments and paints in substances of concern from its processes and prod- 1993; in plastics and plating in 1994; and in ucts before regulatory requirements were imposed: CRT monitors along with nickel cadmium batteries in the mid-1990s. • Chlorofluorocarbons (CFCs): In 1989, IBM became the first major Information • Polyvinyl chloride (PVC) and tetrabromo- Technology (IT) manufacturer to announce bisphenol A (TBBPA): IBM ceased the specifi- a phase-out of CFCs, a Class I ozone-depleting cation of PVC in its IT system enclosures in substance, from its manufacturing and 2000 and prohibited the use of TBBPA as an development processes. additive flame retardant in IT system enclosures for newly released products in 2007. • Class I and II ozone-depleting substances: IBM completed the phase-out of Class I • Specific perfluorinated compounds ozone-depleting substances in 1993. (Perfluorooctane sulfonate [PFOS] and Subsequently, IBM eliminated Class II ozone- perfluorooctanoic acid [PFOA]): IBM depleting substances from its manufacturing prohibited the compounds’ use in the processes in 1995. development of new materials in 2005, in new manufacturing applications in 2007, • Trichloroethene (TCE), ethylene-based glycol and eliminated the use of PFOS and PFOA ethers and dichloromethane: Examples of other in manufacturing, development and research chemicals that IBM voluntarily prohibited from processes as of January 31, 2010. its manufacturing processes include TCE in the late 1980s, ethylene-based glycol ethers in the A table summarizing IBM’s voluntary material mid-1990s and dichloromethane in 2003. prohibitions and restrictions from 1978 through 2010 may be found at www.ibm.com/ • Polybrominated biphenyls (PBBs) and poly- environment/products/materials.shtml. brominated diphenyl ethers (PBDEs): IBM prohibited PBBs and PBDEs from its product IBM’s restrictions on specific substances and designs in the early 1990s and then extended other environmental requirements for its products the prohibition to purchased commodities are identified in the company’s Engineering through its procurement specifications in 1993. Specification: Baseline Environmental Requirements for Supplier Deliverables to IBM, which can be found at www.ibm.com/ environment/products/especs.shtml. 11

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    TWO INDUSTRY FIRSTS IBM ELIMINATES PFOS AND PFOA IBM eliminated all known uses of perfluorooctane sulfonate (PFOS) and perfluorooctanoic acid (PFOA) from its chip manufacturing processes, becoming the first in the industry to announce elimination of these two compounds. In 2003, IBM began a staged phase-out of PFOS and PFOA, a plan that required the work of hundreds of IBM scientists and engineers, IBM partners and suppliers. IBM prohibited the compounds’ use in the development of new materials in 2005 and in new manufacturing applications in 2007. IBM successfully eliminated PFOS and PFOA in its wet etch processes at the end of 2008 and eliminated them from its photolithography processes as of January 31, 2010. Developing alternatives for these chemicals was an ambitious technological challenge. The transi- tion to the new formulations had to be implemented and qualified across a large array of processes without impacting customer product delivery commitments. In addition, several companies in at least five countries have had access to this solution through their technology development alliances with IBM. FLUORINE-FREE PHOTO-ACID GENERATOR INNOVATION In another industry first, IBM Research recently announced its invention of a new type of fluorine-free photo-acid generator for use in the production of semiconductors using 193nm lithography. The photo-acid generator is one of several components of a system of chemicals used in the photolithography process to transfer circuit patterns onto semiconductor wafers. IBM’s solution, on which it holds several patents, is an example of “green chemistry” in action—applying molecular design to invent new, more environmentally benign compounds. IBM researchers have demonstrated that the new chemicals meet the performance requirements, and the company is in discussions with a number of chemical suppliers regarding their possible production. 12

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    NANOTECHNOLOGY POLLUTION PREVENTION Nanotechnology is the application of scientific HAZARDOUS WASTE and engineering principles to make and utilize very small things (dimensions of roughly 1 One way to prevent pollution is to reduce the to 100 nanometers). An important aspect of generation of hazardous waste at its source. This nanotechnology is creating materials in the has been a basic philosophy behind IBM’s pollu- nanoscale, where unique properties enable novel tion prevention program since 1971. and useful application. Where possible, IBM redesigns processes to elimi- Nanotechnology is already part of a wide variety nate or reduce chemical use and substitute more of products—from cosmetics and sunscreens to environmentally preferable chemicals. Chemicals paints, clothing and golf equipment. It can make needed for research, development and manufac- products lighter, stronger, cleaner, less expensive turing must be properly managed, from selection and more precise, and has been critical to the and purchase through storage, use and disposal. success of the IT industry. For waste that is generated, IBM focuses on A pioneer in the field, IBM has achieved numer- preventing pollution through a comprehensive, ous breakthroughs that are fundamental to the proactive waste management program. IBM’s total development of nanotechnology. One significant worldwide hazardous waste generation decreased by example is the scanning tunneling microscope. 69 metric tons or 0.8 percent from 2008 to 2009. As is often the case with the introduction of new technologies, there are some environmental, HAZARDOUS WASTE health and safety questions related to nanoparti- MANAGEMENT WORLDWIDE (2009 Quantities: 8,187 Metric Tons) cles because of the relatively limited information available about them. Recycled: 45.0% IBM has taken proactive steps to respond to this Landfill: 31.4% uncertainty. IBM was one of the first companies Aqueous and Other Treatment: 18.2% to create safe work practices and health and safety Incineration: 5.4% training for its employees working with nanopar- ticles. IBM has also provided nanowire materials for assessment by the National Institute of Occupational Safety and Health and is collaborat- In 2009, IBM recycled 45 percent of its hazardous ing with the Center for Environmental Implications waste and 31.4 percent was sent to landfills. Of of Nanotechnology (Duke University/Carnegie the total amount that went to landfills, 93 percent Mellon University) to study the potential environ- was sludge from industrial wastewater treatment mental impact of other materials relevant to the plants. Local government regulations required IT and microelectronics industries. disposition of this sludge in secure hazardous waste landfills. 13

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    Since 2005, IBM’s total hazardous HAZARDOUS WASTE GENERATION waste has decreased by 33.9 percent. GOAL: Achieve year-to-year reduction in HAZARDOUS WASTE hazardous waste generation from IBM’s QUANTITIES WORLDWIDE manufacturing processes indexed to output. 20 (2009 Quantities: Metric Tons x 1,000) RESULT: In 2009, IBM’s hazardous waste generation indexed to output increased 8.4%. 15 12.5 12.1 10.6 The 8.4 percent increase in hazardous waste 10 8.3 8.2 generation indexed to output was largely attribut- able to process changes during the transition to 5 lower line width microprocessor technologies at one of the company’s semiconductor manufactur- 0 05 06 07 08 09 ing facilities. IBM has already made changes to reduce its hazardous waste generation related to Closed Loop + On-site Recycling (annual throughput) Off-site Recycling these processes and is continuing to evaluate its Treatment: Incineration Landfill opportunities to further optimize its operations. In 1992, IBM developed a methodology to NONHAZARDOUS WASTE correlate the hazardous waste generated from IBM also has focused for decades on recycling its its manufacturing operations to its production nonhazardous waste. and expanded it to its sites worldwide in 1993. In 1995, IBM established a goal based on this Nonhazardous waste includes waste such as methodology: to continually reduce the waste paper, metals, plastics, deionized resins and generated from IBM’s manufacturing operations nonhazardous chemicals. The goal also includes relative to production. end-of-life (EOL) IT product waste generated by IBM’s business (e.g., equipment scrapped This goal covers approximately 90 percent of from IBM locations) as well as IBM-owned IBM’s manufacturing and hardware development- equipment returned by external customers at related hazardous waste, which currently comes the end of lease. from 3 manufacturing sites. Hazardous waste from other operations, such as assembly and facil- ity operations, is not included in this metric. 14

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    IBM generated 79,139 metric tons of nonhaz- NONHAZARDOUS WASTE RECYCLING ardous waste in 2009, representing a decrease of 16.5 percent when compared to 2008 volumes. GOAL: Send an average of 75% of the nonhaz- This reduction is mainly due to a reduction of ardous waste generated at locations managed by EOL IT product waste processed and a reduction IBM to be recycled. in construction activities/projects, which is RESULT: In 2009, IBM sent 76% of its nonhaz- reflected directly in the amounts of nonhazardous ardous waste to be recycled. construction debris and soil generated by IBM. NONHAZARDOUS WASTE GENERATED AND RECYCLED WORLDWIDE (Metric Tons x 1,000) YEAR 05 06 07 08* 09 Total recycled 83 102 84 62 60 Total generated 108 134 107 82 79 Percent recycled** 77% 76% 78% 76% 76% * Data for 2008 has been revised. ** Percent recycled versus goal of 67% (2005–2006) and 75% (2007–2009) CHEMICAL USE AND MANAGEMENT IBM’s objectives continues to be identifying opportunities to minimize its TRI releases to Under the U.S. Superfund Amendments and the environment. Reauthorization Act (SARA) of 1986 and the U.S. Pollution Prevention Act (PPA) of 1990, compa- Since 2005, IBM has reduced nies are required to file an annual inventory of its total TRI reportable quantities routine releases to the environment and off-site transfers of waste for treatment and disposal in worldwide by 35 percent. addition to recycling, treatment and energy recov- ery activities (collectively, “reportable quantities”) In 2009, IBM sites worldwide used 18 of the for more than 600 chemicals listed on the U.S. TRI-listed chemicals in amounts greater than Toxic Release Inventory (TRI) list. the reporting threshold of 10,000 pounds (4.54 metric tons) of use per year. IBM’s operations rely on the use of some chemi- cals on the TRI list. IBM’s 2009 total reportable releases to the environment and waste transferred off-site International Performance Measure for treatment and disposal from its worldwide IBM has used TRI reportable quantities as a operations amounted to 485 metric tons, a metric to track the environmental performance reduction of 75 metric tons from 2008. of its operations globally since 1993. One of 15

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    The company’s total TRI reportable quantities amounted to 383 metric tons or 88 percent of also decreased in 2009, compared to 2008. the total reductions in IBM’s 2009 TRI reportable The decrease was primarily due to the reduction quantities. IBM’s reverse logistics operations in in off-site transfer for recycling of copper, copper Endicott, which contributed these releases, were compounds, lead and lead compounds from sold in 2009. IBM’s operations in Endicott, New York, which 2009 WORLDWIDE REPORTABLE QUANTITIES* ASSOCIATED WITH CHEMICALS ON THE U.S. TOXIC RELEASE INVENTORY LIST CHEMICAL METRIC TONS Sulfuric acid (aerosol only) 968 Nitrate compounds 599 Xylene 578 n-methyl-2-pyrrolidone 134 Hydrogen fluoride 124 Ethylbenzene 123 Nitric acid 115 Copper and compounds category 418 All others 146 TOTAL 3,205 *As defined by U.S. SARA Section 313 and PPA. Includes recycling, treatment, energy recovery, releases and off-site transfers for treatment and disposal. WORLDWIDE REPORTABLE QUANTITIES* WORLDWIDE REPORTABLE QUANTITIES* ASSOCIATED WITH CHEMICALS ON THE ASSOCIATED WITH CHEMICALS ON THE U.S. TOXIC RELEASE INVENTORY LIST U.S. TOXIC RELEASE INVENTORY LIST (Reportable Quantities in Metric Tons x 1,000) (Reportable Quantities: 3,205 Metric Tons) 7 On-Site Treatment: 47.7% 6.0 Off-Site Recycling: 28.3% 6 Released to Water: 14.5% Off-Site Energy Recovery: 6.0% 5 4.9 On-Site Recycling: 2.8% 4.3 Released to Air: 0.5% 4 Off-Site Disposal: 0.2% 3.6 Off-Site Treatment: 0.0% 3.2 Discharge to Public 3 Treatment Works: 0.0% Released to Land: 0.0% 2 *As defined by U.S. SARA Section 313 and PPA. Includes recycling, treatment, energy recovery, releases 1 and off-site transfers for treatment and disposal. 0 05 06 07 08 09 *As defined by U.S. SARA Section 313 and PPA. Includes recycling, treatment, energy recovery, releases and off-site transfers for treatment and disposal. 16

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    TOTAL RELEASES TO ENVIRONMENT In 2000, IBM established an annual water savings AND WASTES TRANSFERRED goal of 2 percent of total annual water usage in its OFF-SITE FOR TREATMENT microelectronics manufacturing operations, based AND DISPOSAL WORLDWIDE* on the water usage of the previous year and meas- (Metric Tons x 1,000) ured as an average over a rolling 5-year period. 2.0 WATER CONSERVATION IN MICROELECTRONICS MANUFACTURING 1.5 OPERATIONS 1.37 1.36 GOAL: To achieve an annual water savings equal to 2% of total annual water usage in its micro- 1.0 electronics manufacturing operations, based on 0.59 the water usage of the previous year and meas- 0.56 ured as an average over a rolling 5-year period. 0.5 0.48 RESULT: As of year-end 2009, IBM’s microelec- tronics manufacturing operations had achieved an average annual water savings of 3.1% over the 0.0 past 5 years versus the 2% goal. 05 06 07 08 09 * Includes releases and off-site transfers for treatment and disposal, as defined by U.S. SARA Section 313 and PPA. New water conservation and recycling initiatives in IBM’s microelectronics manufacturing opera- tions during 2009 achieved a 3.2 percent savings. WATER CONSERVATION These savings were achieved through ongoing efficiency enhancements that reduced water usage IBM’s evaluation of water use at its plants and in certain operations. Over the past 5 years, new labs indicates that IBM’s microelectronics opera- water conservation and recycling initiatives at tions represent its most water-intensive operations IBM’s microelectronics manufacturing operations at these facilities. have achieved an average 3.1 percent savings versus the 2 percent goal. In 2009, the microelectronics manufacturing operations that are primarily located in North America represented 82 percent (9,461 thousand cubic meters [TCMs]) of the total annual water used (11,590 TCMs) at IBM’s plants and labs worldwide. 17

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    In 2009, the total annual water conservation PRODUCT STEWARDSHIP savings for the microelectronics manufacturing operations from reduction, recycle and reuse IBM’s Product Stewardship program was activities was 761 TCMs of water. The total established in 1991 as a proactive and strategic accumulated conservation savings over the past approach to the company’s environmental 5 years was 8,174 TCMs of water resource. management of products. The program’s mission is to develop, manufacture and market products ANNUAL WATER SAVINGS IN that are increasingly energy efficient; can be MICROELECTRONICS MANUFACTURING upgraded and reused to extend product life; OPERATIONS incorporate recycled content and environmentally (Savings as percentage of previous year’s preferable materials and finishes; and can be total water use) recycled and disposed of safely. 4.5 A SYSTEMS APPROACH 4.1 4.0 3.7 IBM’s product stewardship objectives and 3.2 3.1 requirements are implemented through internal 3.0 standards, product specifications and other 2.5 requirements in IBM’s Integrated Product 2.4 2.3 Development process. Product environmental 2.0 attributes such as energy efficiency, materials content, chemical emissions testing, design for 1.5 recycling, end-of-life management plans and pack- 1.0 aging data must be documented and reviewed in IBM’s Product Environmental Profile tool at vari- 0.5 ous checkpoints during the development process. 0 Compliance management tools like the Product 05 06 07 08 09 5 yr. avg. Content Declaration for IBM Suppliers support the assessments required for a complete Product Environmental Profile prior to product release. IBM’s design and compliance controls, including a baseline environmental requirements specifica- tion, Product Content Declaration, and compli- ance assessment protocols are managed through 18

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    an interdisciplinary team with representatives • Lead used in C-press compliant pin from all IBM organizations that design, connector systems procure, deliver and service IBM’s product offerings. The team’s activities are coordinated • Lead in solders consisting of more than by IBM’s Center of Excellence for Product two elements for the connection between Environmental Compliance. the pins and the package of microprocessors with a lead content of more than 80 percent PRODUCT DESIGN and less than 85 percent by weight IBM’s product development and supply chain IBM led the development and release of industry organizations are working steadily toward standard J-STD-075, Classification of Non-IC eliminating the lead (Pb) solder in server applica- Electronic Components for Assembly Processes, tions that continue to be exempted from lead to evaluate and classify components for the capa- restrictions of the European Union Restriction bility to withstand Pb-free assembly processes. on Hazardous Substances (RoHS) Directive IBM technical experts also participated in numer- 2002/95/EC. The reason this has been exempted ous consortia with suppliers to drive the develop- is because elimination is much more technically ment and evaluations of new materials for complex than applications in consumer products. polyvinyl chloride (PVC) and brominated flame Lead-free card assembly was introduced in retardant replacement in data center class cables 2009 for numerous IBM System x® servers, the while meeting all agency standards and National iDataPlexTM dx360 server and the BladeCenter® Electrical Code® requirements. HS22. The HS22 also uses a halogen-free lami- nate material for its planar board. Lead-free assemblies for custom memory dual in-line memory modules were implemented in IBM System i®, System p® and System z® portfolios. Additional RoHS exemptions that were fully eliminated from IBM products in 2009 included the following: • Lead as an impurity in RIG (rare earth iron garnet) Faraday rotators used for fiber optic communications systems 19

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    IBM HAS A NUMBER OF GOALS FOR ITS PRODUCT STEWARDSHIP PROGRAM 2009 GOALS AND PERFORMANCE Powder Coatings IBM achieved this voluntary goal and, as of January 1, 2009, the use of powder coatings for decorative metal finishes became a requirement in IBM's Environmental Engineering Specification 46G3772: Baseline Environmental Requirements for Supplier Deliverables to IBM. Recycled Plastics The recycled content of plastics used in IBM’s products can range in their recycled content fractions from 25 to 100% by weight of the commercial resin. In 2009, 22.4% of the total weight of plastic resins procured by IBM and its suppliers through IBM’s corporate contracts for use in IBM's products had recycled content ranging from 25 to 100%. Comparing only the weight of the recycled fraction to the total weight of plastics (virgin and recycled) purchased, 13.2% of IBM's total weight of plastic purchases in 2009 was recycled plastic versus the corporate goal of 5% recyclate. Use of Landfills IBM’s product end-of-life management operations worldwide processed approximately 41,400 metric tons of end-of-life products and product waste, and sent only 0.5% of the total to landfills or to incineration facilities for treatment, versus IBM’s corporate goal of minimizing its combined landfill and incineration rate to no more than 3% of the total amount processed. Servers* IBM System p : Of the two models released with a previous generation model, reductions of 38% and 43% in the typical power consumption per relative performance were achieved. IBM System x : Of the four models released with a previous generation model (2007), improvements of 23%, 93%, 95% and 96% were achieved as measured by the Japan Energy Law watts/MTOPS** metric. IBM System z: No new models were released in 2009. Point-of-Sale Two new IBM SurePOS TM point-of-sale systems were introduced. The SurePOS 500-4846 achieved a Systems* 69% reduction in maximum power consumption in watts per composite theoretical performance (CTP) Product Energy Efficiency and a reduction in standby power from 80 watts to 2 watts. For the SurePOS 300-4810, there was an increase in maximum power consumption in watts per CTP, but a reduction in standby power consumption from 42 watts to 2 watts. Since point-of-sale systems can spend significant time in standby mode, this major improvement in standby power delivers significant energy savings. The SurePOS 300 employs a deep sleep technology that allows clients to place checkout systems in a low-power mode that can save almost as much energy as when the system is completely powered off. It has the potential to reduce store power use by up to 66%. Storage Subsystems* IBM released a new storage model, the IBM System Storage ® DS8700. The DS8700 halved the wattage required per gigabyte of capacity when compared to the DS8300 at product launch and doubled the system throughput due to the increased capabilities of the POWER6 ® processor when compared to the POWER5 TM processor. A tape drive product was introduced in 2009, but there was no previous generation model. * IBM’s product energy goal is to continually improve the computing power delivered for each kilowatt-hour (kWh) of electricity used with each new generation or model of a product. ** MTOPS-Million theoretical operations per second is a calculation of machine operations based on a specified formula. Note: IBM is no longer selling IBM logo’d monitors and IBM System i products have been subsumed into the IBM System p product line. 20

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    PRODUCT ENERGY EFFICIENCY Product energy efficiency has long been one of IBM’s environment and climate protection objec- tives. It was formalized as one of the company’s corporate objectives when IBM’s Product Stewardship program was established in 1991. IBM Power 755 In addition to its ongoing program and objectives enterprise server systems to the ENERGY regarding energy efficient products, IBM has initi- STAR requirements. ated and invested in innovations and integrated solutions involving its hardware, software and • IBM continues to drive improvements in services business to address the energy efficiency the performance/power capabilities and reduce of IT equipment and the data center. idle power demands of server systems. The IBM System x iDataPlex dx360 M3 was the As described in the table on page 20, the new first server system to achieve an overall server models released in 2009 for which compa- score of greater than 3,000 on the Standard rable products existed delivered from 23 to 96 Performance Evaluation Corporation’s (SPEC®) percent more computing power for each kilowatt- SPECpower_ssj2008 benchmark. As measured hour (kWh) of electricity used than the previous by this benchmark, the dx360 M3 also reduces model/product. IBM continues to utilize innova- the power used by the system when no work- tions in semiconductor, hard drive/storage system load is present (idle) to 21.2 percent of the and networking technologies to improve server power required at maximum workload, and storage system performance for each unit of significantly reducing the power and cooling power consumed by the equipment. required to support the system when no Product Energy Efficient Technology workload is present. ENERGY EFFICIENT SERVERS: • IBM System x and BladeCenter systems offer • IBM has qualified four enterprise server systems low-power memory, low-power processor (IBM Power 750 Express, IBM Power 755, options, 2.5 inch and solid state drives, smaller, IBM System x3650 M2 and the IBM System more efficient power supplies and innovative x3550 M2) to the ENERGY STAR Computer Calibrated Vectored CoolingTM technologies. Server Requirements. The Power 750 Express These capabilities provide more performance and Power 755 models were the first 4-proces- and workload per unit of energy consumed sor systems in the global industry to be quali- and reduce idle power use compared to fied to the ENERGY STAR requirements. maximum power use by up to 78 percent These servers meet the U.S. EPA’s requirements to significantly reduce power use when no for power supply efficiency, idle power limits or workload is performed. power management capability, and data report- ing. IBM is currently working to qualify other 21

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    PROCESSOR SYSTEMS: PRODUCT RECYCLING AND REUSE IBM’s POWER7 Systems feature unique TM Intelligent Energy technology, which allows As part of its product end-of-life management customers to power on and off various parts of (PELM) activities, IBM began offering product the system or to dynamically increase or decrease take-back programs in Europe in 1989 and has processor clock speeds based on thermal condi- extended and enhanced them over the years. tions and system utilization, on a single server or IBM’s Global Asset Recovery Services organiza- across a pool of multiple servers. As a result, the tion offers Asset Recovery Solutions to commer- system dynamically balances between energy usage cial customers in countries where IBM does and performance and systems utilization based on business, including: policy, delivering more workload for each unit • Management of data security and disk of energy consumed as compared to previous overwrite services generation IBM systems. POWER7 Systems can also support over 1,000 virtual servers or “parti- • Worldwide remarketing network for tions” on a single system to reduce costs and product resale energy use by consolidating systems and driving higher systems utilization. • State-of-the-art refurbishing and recycling capability for IT equipment STORAGE SYSTEMS: • Optional logistic services such as packing IBM is leveraging technology developments in and transportation improved system controllers and storage device advances, such as solid state and 2.5 inch drives, Additionally, in many countries and individual to improve the performance/power capabilities of U.S. states, IBM offers solutions to household storage systems. In addition, IBM is the leader in consumers for the end-of-life management of storage virtualization, allowing customers to take computer equipment, either through voluntary advantage of virtualization technology to leverage IBM initiatives or programs in which the their investment in current storage devices, storing company participates. more data in less space and using less energy. In 2009, IBM’s PELM operations worldwide RETAIL STORE SYSTEMS: processed approximately 41,400 metric tons of IBM is implementing deep sleep technology in its end-of-life products and product waste. This point-of-sale retail systems to reduce energy use. represents 61.5 percent of the estimated 67,000 This enables systems to significantly reduce power metric tons of new IBM IT equipment manufac- use during idle and off-hour periods and improve tured and sold in 2009. the energy efficiency of the system. 22

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    PRODUCT PACKAGING PRODUCT END-OF-LIFE IBM has had a program focused on the environ- MANAGEMENT (PELM) mental attributes of its product packaging since GOAL: Reuse or recycle end-of-life products such the late 1980s. Under the program, IBM packaging that the amount of product waste sent by IBM’s engineers design solutions that minimize toxic PELM operations to landfills or to incineration for substances and packaging waste by specifying non- treatment does not exceed a combined 3% of the toxic materials and inks, keeping packaging to a total amount processed. minimum while continuing to provide protection RESULT: In 2009, IBM’s PELM operations sent to the product being shipped to clients, collaborat- only 0.5% to landfills or to incineration facilities ing with suppliers to use recycled content and recy- for treatment. clable materials and promoting reuse. IBM’s environmental requirements for packaging IBM’s PELM operations also reused or recycled are included in its Environmental Packaging 95.8 percent of the total amount processed. Guidelines, first published in 1990 and updated as needed over the years. Key elements of IBM’s Since 1995, when IBM first began includ- Packaging Guidelines have also been embedded ing in its annual corporate environmental in various engineering specifications and procure- report the volumes of product waste it ment documents, which extend their reach beyond IBM to include its supply chain and other collects and recycles, IBM has documented business partners. These documents may be found the collection and recovery of more than at www.ibm.com/procurement/proweb.nsf/ ContentDocsByTitle/United+States~Information 1.7 billion pounds (770,553 metric tons) +for+suppliers. of product and product waste worldwide In 2009, the packaging engineering team saved through year-end 2009. 1,346 metric tons of packaging material from the implementation of 60 projects worldwide. These PRODUCT END-OF-LIFE projects delivered an annual cost savings of $9.3 MANAGEMENT OPERATIONS (2009: Percentage by Weight) million. The following highlights a few of the projects implemented in 2009: Recycled: 54.3% • New molded cushion design: IBM designed a Resold for Reuse: 32.1% molded cushion using expanded polypropylene Reused: 6.1% In Process: 3.8% (EPP) material for the high volume 2U rack Waste-to-Energy: 3.3% mountable server, machine type 3650. Use Incineration: 0.3% of the EPP material reduced the total package Landfill: 0.2% mass per unit by 0.890 kilograms compared Data does not equal 100% due to rounding. 23

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    to the expanded polyethylene material previ- – Increased units shipped per truck for ously used. This resulted in an annual estimated particular machine type 4820 orders, packaging material savings of 178 metric from 720 units to 960 units tons, an annual material cost savings of $3.2 million and annual transportation cost savings • 100 percent recycled thermoformed nestable of $404,000. cushions: IBM developed 100 percent recycled thermoformed nestable cushions for various products across its server brands and retail store systems. When these products are shipped inbound, up to 10 times the typical quantity can be carried on a 40-foot truck. In addition, the 100 percent recycled polyethylene materials of which they are made are reusable. Utilizing these Molded cushion (on right) is a lower density cushions, in 2009, IBM reused an estimated 91 and smaller in size, delivering a material source metric tons of polyethylene plastic and saved reduction of 35 percent. approximately $1.9 million in material and transportation costs. • Packaging reuse and waste reduction program with major retail client: During the last quarter Collaboration with Suppliers of 2009, IBM implemented a closed-loop In 2009, the IBM packaging team implemented returnable packaging process with a major retail 22 packaging design projects with its suppliers. The client, which allowed IBM and the client to resulting packaging solutions reduced the packag- reuse packages several times, reducing the ing materials from incoming parts by 175 metric amount of new packaging materials used. In tons and saved $1.4 million in both material and addition, several packages were redesigned to transportation costs. reduce the size and increase the number of products on a pallet for shipment by truck. The One 2009 example: In collaboration with a results for December 2009 were as follows: supplier, IBM redesigned a server motherboard package that originally held only 5 cards per carton – Saved 10 metric tons of paper and to a 21 card per carton package, which delivered a wood materials total annual material savings of 90.87 metric tons – Eliminated the use of 330 pallets and a cost savings of $965,200, primarily from – Avoided an estimated six trucks of transport and storage. return shipments per quarter and associated fuel use and vehicular emissions When suppliers apply the design improvements – Increased units shipped per truck for achieved through collaboration with IBM to pack- particular machine type 4800 orders, from aging designs for other customers, the environmen- 300 units to 360 units tal benefits and cost savings can be far-reaching. 24

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    Voluntary Environmental Goal for ENERGY AND CLIMATE Packaging Materials PROGRAMS IBM’s voluntary environmental goal for packaging materials states that paper-/wood-based packaging IBM recognizes climate change as a serious directly acquired by the company will be procured concern that warrants meaningful action on a from suppliers who source from sustainably global basis to stabilize the atmospheric concen- managed forests where such sources exist. tration of greenhouse gases (GHGs). IBM believes all sectors of society, the economy and In 2002, when IBM first established this goal, governments worldwide must participate in sufficient quantities of sustainable sourced packag- solutions to climate change. More about the ing materials were not yet available for much of company’s policy and position on climate change the company’s needs. With a continued focus on may be found at www.ibm.com/environment/ this objective over the years, however, in 2009, climate/position.shtml. approximately 99 percent of the paper-/wood- based packaging acquired under IBM contracts IBM has been a leader in addressing climate came from sustainably managed sources. change through its energy conservation and climate protection programs for decades. The PRODUCT SAFETY company’s leadership has been defined by its: IBM’s product safety requirements are included in • Long-standing global commitment various steps of the product design, development, manufacture and test process, and include the • Comprehensive and multifaceted programs— supply chain for both IBM hardware and solu- covering the company’s operations, products tions. Required reviews by IBM Product Safety and services Review Boards help product and project managers • Leading-edge innovations and client solutions comply with applicable standards and national regulations, and help IBM to obtain third-party • Significant results, both early and ongoing, certifications where required. benefiting IBM, its clients and the world Programs for continual improvement include A FIVE-PART STRATEGY internal and third-party assessment of IBM’s products’ safety and conformity assessment IBM has a five-part strategy to reduce GHG programs. These assessment results are emissions: continually fed back into the evaluation and 1. Designing, building, updating and operating planning cycle. This process is augmented by facilities and manufacturing operations to incident management tools that provide effective optimize their use of energy and materials and capture and management of any product minimize GHG emissions safety-related incident. 2. Purchasing electricity generated from low CO2-emitting and renewable energy-generating sources where feasible 25

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    3. Minimizing the use and emissions of perfluoro- Energy Conservation Goal compounds (PFCs—a family of GHGs) in semiconductor manufacturing ENERGY CONSERVATION 4. Reducing employee commuting and GOAL: Achieve annual energy conservation business travel savings equal to 3.5% of IBM’s total energy use. RESULT: In 2009, IBM’s energy conservation 5. Increasing the efficiency of IBM’s projects across the company delivered savings logistics operations equal to 5.4% of its total energy use. In addition, in the area of hardware and software products and services, IBM’s strategy includes In 2009, IBM’s energy conservation projects designing energy efficient products and providing across the company delivered savings equal to 5.4 the company’s clients with energy efficient solu- percent of its total energy use versus the corporate tions that also help protect the climate. goal of 3.5 percent. These projects avoided the consumption of over 246,000 megawatt-hours The company does not have plans to use emis- (MWh) of electricity and over 410,000 million sions offsets to become “carbon neutral” for all or BTUs of fuel oil and natural gas, representing the part of its operations. IBM’s efforts to reduce its avoidance of over 142,000 metric tons of CO2 GHG emissions are focused on delivering results emissions. The conservation projects also saved in the areas where the company can make the $26.8 million in energy expense. These strong greatest positive impact on climate protection— results are due to the increased, across-the-board by devoting its available resources to actions, focus on energy efficiency and the implementa- products and solutions that actually increase tion of standard, global energy conservation energy efficiency and reduce GHG emissions for strategies for facility operating systems. both the company and its clients, rather than offset them. IBM’s energy conservation goal recognizes only identified projects that actually reduce or avoid CONSERVING ENERGY the consumption of energy in its operations. Reductions in energy consumption from downsiz- IBM’s commitment to energy conservation ings, the sale of operations and cost avoidance dates back to 1974 and has continued, unabated, actions, such as fuel switching and off-peak load over the intervening years. Energy conservation shifting, are not included in the energy conserva- is a major component of IBM’s comprehensive, tion goal. Moreover, the above results are conser- multifaceted climate protection program because vative in that they include only the first year’s the release of CO2 by utility companies powering savings from the conservation projects. Ongoing the company’s facilities, or from the use of fuel conservation savings beyond the first year are not for heating or cooling, represents the greatest included in the tally. Accordingly, the total energy potential climate impact associated with savings and CO2 emissions avoidance from these IBM’s operations. conservation actions is actually greater than this simple summation of the annual results. 26

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    Between 1990 and 2009, IBM saved 5.1 billion kWh of electricity consumption, avoided nearly 3.4 million metric tons of CO2 emissions (equal to 50 percent of the company’s 1990 global CO2 emissions) and saved over $370 million through its annual energy conservation actions. ELECTRICITY AND FUEL USE AND RELATED CO2 EMISSIONS (Scope One and Two) ELECTRICITY AND FUEL USE CO2 (EST) YEAR (Thousand MMBTU) (Metric Tons x 1,000) 2005 22,630 2,489 * 2006 22,491 2,420 2007 23,638 2,541 2008 22,443 2,502 2009 21,507 2,436 *Actual operational CO2 emissions without adjustments for acquisition and divestiture-driven baseline changes. The above figures include estimates for portions of IBM’s office space that are leased. CO2 emissions are calculated for all energy use, including electricity, fuel oil and natural gas. IBM uses the greenhouse gas reporting protocol developed by the World Resources Institute and the World Business Council for Sustainable Development to gather and report its CO2 emissions. CO2 emissions data includes the CO2 avoidance associated with IBM’s purchases of renewable energy. IBM’s global energy management program lever- continuous review of energy use and conservation ages the expertise of over 40 IBM energy manage- results has driven the strong results noted above. ment professionals deployed around the world. IBM uses a full range of energy efficiency initia- The team has created best practices checklists that tives in achieving its results. In 2009, nearly set minimum expectations for building systems 1,900 energy conservation projects were and operations including controls and equipment completed at 270 IBM locations around the for lighting, HVAC, central utility plants (CUPs), world. Some examples: compressed air, data center and IT systems, cafete- rias and office systems. All sites using more than • 199 locations implemented projects to match 2,000 MWh/year of energy must complete the building lighting and occupancy schedules or checklists, perform a gap analysis and develop an install more efficient lighting systems, reducing energy conservation implementation plan a mini- 25,300 MWh of electricity use and saving mum of every 3 years. The program is buttressed $2.3 million. by several enterprise-level databases that collect and store energy use data, conservation project • 149 locations modified HVAC systems or results and completed checklists enabling monthly operating schedules to reduce 42,100 MWh metrics reporting to the management team. The of electricity use and 139,000 MMBTU of fuel use, and saving $5.9 million. 27

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    • 20 locations had continuous commissioning In 2009, over 160 projects at 60 existing projects that delivered reductions of 20,500 data center locations reduced energy use by MWh of electricity use and 133,000 MMBTU 64,000 MWh and cost by over $4.5 million. of fuel use, and saved $2.6 million. Two examples of technologies contributing to these reductions: The IBM team is also implementing innovative, leading-edge technologies that enable real-time • The impact of data center best practice management of energy use. assessments, which generated 34,000 MWh of savings in IBM’s existing data centers, is • IBM is expanding its use of data monitoring being augmented with IBM’s Measurement and analytics to improve building energy and Monitoring Technology (MMT) 1.5, performance, including “plug-in” analytics to which places permanent thermal sensors in collect sensor and operating data to analyze data centers to enable real-time monitoring of individual events and system trends to optimize data center thermal conditions, optimization building energy use. At two locations that of cool air delivery and increases of room already had strong energy management temperatures to the 2008 ASHRAE data programs, implementing this approach enabled center temperature and humidity standards. operational improvements that further reduced Continuous monitoring and the use of analytics energy use by over 2 percent within a matter of can further improve data center energy manage- months. IBM plans to further expand this prac- ment beyond that achieved with the implemen- tice at additional locations. tation of best practices alone. • IBM installed a central utility plant optimiza- • IBM is also utilizing virtualization technologies tion package at one of its locations, achieving to consolidate multiple workloads from servers energy savings of 16 percent against the total with low utilization onto single servers. These site annual energy use in 2009. Plans are being projects increase the utilization of the virtual- made to deploy this system to additional IBM ized servers, deliver more workload for less locations during 2010 and beyond. energy and reduce the number of servers and the data center floor space required to perform Data Centers a given workload. In 2009, virtualization and With more than 450 data centers it owns or consolidation projects reduced data center operates around the world, IBM devotes signifi- energy use by over 30,000 MWh. Not only do cant resources to developing products and services these projects reduce energy use, but they free that can maximize the efficiency of data centers for itself and clients. The company leverages its wide range of technologies and solutions to make its extensive data center operations ever more energy efficient. 28

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    up data center space for business growth or new throughout the data center and dynamically business opportunities. One project freed up adjust cooling in response to changes in demand. approximately 10,000 square feet (6.6 percent) of data center space for other uses. • Cloud computing capability: Support for cloud computing workloads allows clients to use only the resources necessary to support their IT operations at any given moment—eliminating the need for up to 70 percent of the hardware resource that might have been previously needed to perform the same task. • Built for expansion: Due to an innovative modular design method, IBM will be able to rapidly scale capacity to meet demand by IBM’s Research Triangle Park (RTP), North quickly adding future space, power and cooling Carolina, Leadership Data Center (LDC): The to the data center with no disruption to exist- new data center at IBM’s RTP campus reduces ing operations while avoiding hardware installa- technology infrastructure costs and complexity tion, energy use and operational costs for the for the clients it serves, improving quality and period when the space would be “idled.” speeding the deployment of services while using Syracuse University Data Center: IBM, together only half the energy required of a similar-size with Syracuse University (SU) and New York facility. In constructing the new data center, the State, constructed a new “green” data center—a use of recycled materials and the energy character- showcase of world-class innovations in advanced istics of the space enabled the LDC to become energy-efficient information technology and LEED® Gold certified, the first IBM data center building systems. Constructed in just over 6 to achieve a LEED Gold rating. IBM renovated months, the $12.4 million, 12,000-square-foot an existing building on its RTP campus by facility (6,000 square feet of infrastructure space reusing 95 percent of the original building’s shell, and 6,000 square feet of raised floor data center recycling 90 percent of the materials from the space) uses an innovative on-site power generation original building and ensuring that 20 percent system for electricity, heating and cooling, and of newly purchased material came from recycled incorporates IBM’s latest energy efficient servers, products. Key energy efficiency aspects of the computer-cooling technology and system manage- data center follow: ment software. • Energy efficiency and smarter data center The SU data center features an on-site electrical management: The data center uses half the tri-generation system that uses natural gas-fueled energy cost to operate compared to data centers microturbines to generate all the electricity for of similar size by taking advantage of free cool- the center and cooling for the computer servers, ing—using outside air to cool the data center. enabling it to operate completely off-grid. The Intelligent systems use sensors to continuously read temperature and relative humidity 29

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    data center was also designed to take direct • The introduction of power storage systems current (DC) power directly from the microtur- bines to power the servers, avoiding the energy • Data center energy management software to losses incurred in the typical grid system to trans- improve energy utilization in the data center form the energy from DC to alternating current The CoC program provides a visible, voluntary (AC) and back to DC power, further improving public program that emphasizes the importance the efficiency of the data center. of this effort. IBM has registered the data center The data center converts the waste heat from the operations it performs for the Department for microturbine exhausts to liquid cooling for the Environment, Food and Rural Affairs (Defra) to data center using double-effect absorption chillers. the CoC and is evaluating the applicability of the The chilled water is delivered directly to “cooling CoC guidelines to other data center operations doors” on the servers to directly remove the heat and hardware and services offerings. from each rack more efficiently than conventional CO2 EMISSIONS REDUCTION room-cooling methods. Sensors monitor server temperatures and usage to tailor the amount of Between 1990 and 2005, IBM’s energy conserva- cooling delivered to each server—further improv- tion actions reduced or avoided CO2 emissions by ing efficiency. an amount equal to 40 percent of its 1990 energy use. To further extend this achievement, IBM set Furthering data center best practices: IBM is itself an aggressive “2nd generation” goal: to supportive of the European Union Code of reduce the CO2 emissions associated with its Conduct on Data Centres Energy Efficiency energy use 12 percent by 2012 against a 2005 (CoC) and provided input and recommendations base year through energy conservation and the on the CoC during the public development procurement of renewable energy. process. The CoC provides a solid framework of best practices to inform and encourage data As of year-end 2009, the company’s energy center operators and owners to reduce energy conservation results and procurement of renew- consumption in a cost-effective manner while able energy resulted in a 5.7 percent reduction in enabling operators to maintain the mission- IBM’s energy-related CO2 emissions from the critical function of data centers. 2005 base year of this goal. While this is solid progress, there remains a significant amount of The CoC framework and best practices are work to be done to meet the company’s goal. consistent with the recommendations of IBM’s data center energy efficiency services, emphasizing In 2009, IBM’s significant conservation results the following: delivered a 2.6 percent reduction in its energy- related CO2 emissions over 2008. The company’s • Best management practices for established IT procurement of renewable energy equaled 11.3 and facility infrastructure percent of IBM’s total 2009 energy use. • The opportunity to transform a data center through the consolidation and virtualization of IT equipment, application and data 30

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    PFC EMISSIONS REDUCTION CO2 EMISSIONS REDUCTION IBM releases some perfluorocompounds (PFCs) GOAL: Between 1990 and 2005, IBM’s energy from its semiconductor manufacturing operations. conservation actions reduced or avoided CO2 Although the releases are in relatively small emissions by an amount equal to 40% of its 1990 amounts (in carbon dioxide equivalents, when emissions. To further extend this achievement, compared to indirect CO2 emissions), IBM was IBM set itself an aggressive “2nd generation” the first semiconductor manufacturer to set a goal: to reduce the CO 2 emissions associated numeric reduction target for PFCs in 1998. with IBM’s energy use 12% between 2005 and 2012 through energy conservation and the PFC EMISSIONS REDUCTION procurement of renewable energy. RESULT: As of year-end 2009, the company’s GOAL: To reduce PFC emissions from semicon- energy conservation results and procurement of ductor manufacturing 25% by 2010 against a renewable energy resulted in a 5.7% reduction in base year of 1995. IBM’s energy-related CO 2 emissions from the RESULT: As of year-end 2009, IBM’s emissions 2005 base year of this goal. were 48.8% below the 1995 baseline amount of 381,000 metric tons of CO 2 equivalent. CO2 EMISSIONS REDUCTION PFC emissions were down year-to-year in 2009 (Metric Tons x 1,000) primarily due to reduced manufacturing volumes for much of the year and the product mix at the Second Generation Reduction Goal by 2012 semiconductor manufacturing facilities. 12.0% A portion of the reduction also was achieved by 05* 2,583 replacing some C2F6 based process cleans with 09 2,436 C4F8 process cleans; C4F8 has a lower global warming potential than C2F6. Decrease from 2005 Base Year 5.7% PFC EMISSIONS REDUCTION *2005 emissions baseline adjusted for acquisitions and (In Carbon Dioxide Equivalent) divestitures of operations. Reduction Goal by 2010 25.0% 95 381,000 09 195,200 Actual Reduction 48.8% 31

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    PROCURING AND FOSTERING • New solar cell manufacturing approach: In RENEWABLE ENERGY February 2010, IBM announced it had built a solar cell in which the key layer that absorbs In 2009, IBM purchased 560 million kWh most of the light for conversion into electricity of renewable energy, an increase of 18 percent is made entirely of readily available elements over 2008 purchases of 460 million kWh. and is manufactured using a combination of These purchases represented 11.3 percent of solution and nanoparticle-based approaches, the company’s global electricity usage and a rather than the popular, but expensive, CO2 emissions avoidance of 191,000 metric tons. vacuum-based technique. This solar cell set a IBM continued to contract for renewable energy new world record for efficiency and holds the purchases in Austria, Belgium, Denmark, Finland, potential for producing low cost energy that Netherlands, Norway, Sweden, Switzerland, the can be used widely and commercially. United Kingdom and the United States in 2009. Additional contracted purchases of electricity • Ultra-high concentrator photovoltaic generated from renewable sources were procured technology: In April 2010, IBM announced in Italy in 2009, and purchases in the Nordics, that it is collaborating with the King Abdulaziz Germany and Switzerland were increased. City for Science and Technology (KACST), Saudi Arabia’s national research and develop- IBM’s energy conservation efforts and its procure- ment organization, on a research project aimed ment of renewable energy in 2009 combined to at creating a water desalination plant powered avoid the emissions of more than 334,000 metric by solar electricity, which could significantly tons of CO2. reduce water and energy costs. A new, energy RENEWABLE ENERGY PROCURED efficient desalination plant with an expected (Percentage of Total Electricity) production capacity of 30,000 cubic meters per day will be powered with the ultra-high 0.2% concentrator photovoltaic (UHCPV) technol- ogy that is being jointly developed by IBM 01 and KACST. This technology is capable of oper- 09 11.3% ating a CPV system at a concentration greater than 1,500 suns. Inside the plant, the desalina- tion process will hinge on another IBM-KACST In addition to procuring renewable energy for jointly developed technology, a nanomembrane its own use, IBM is working to further the avail- that filters out salts as well as potentially harm- ability and affordability of renewable energy by ful toxins in water while using less energy than investing in IT-related research and development. other forms of water purification. One focus area is advancing solar technology: 32

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    VOLUNTARY CLIMATE PARTNERSHIPS monitoring programs, and virtualization and consolidation programs. Activities in support IBM is a charter member of the Chicago Climate of this commitment are detailed in the Data Exchange (CCX), a voluntary emissions trading Centers section beginning on page 28. system with binding commitments for GHG emissions reduction by its member companies. TRANSPORTATION & LOGISTICS IBM’s participation in CCX covers Scopes 1 and INITIATIVES 2 GHG emissions from the company’s operations in Canada, Mexico and the U.S. Employee Commuting and Leased/ Rental Vehicles By the end of 2009, IBM had reduced its GHG IBM has been active in promoting programs that emissions 20.7 percent against the 1998-2001 reduce the commute to work for its employees. CCX baseline, compared to the commitment of Key contributors to this effort are IBM’s two a 5 percent reduction in 2009. flexible work programs: IBM continued its participation in the U.S. EPA’s • Work-at-home: Enables many employees to Climate Leaders and the World Wildlife Fund’s have their offices in their homes Climate Savers program in 2009, working toward the committed reduction goals for these programs: • Mobile employees: Enables many other employees to work from home a designated • Climate Leaders: IBM pledges to reduce total number of days each week global GHG emissions by 7 percent from 2005 to 2012. IBM achieved its initial goal by reduc- More than 118,000 employees (over 29 percent) ing total global energy-related GHG emissions globally participate in one of these two programs, by an average of 6 percent per year and PFC which not only helps employees balance their emissions by 58 percent from 2000 to 2005. work and personal responsibilities, but also bene- fits the environment. In the U.S. alone, IBM’s • Climate Savers: Between 1990 and 2005, IBM work-at-home program conserved approximately reduced or avoided CO2 emissions by an 2.9 million gallons of fuel and avoided more than amount equivalent to 40 percent of its 1990 25,400 metric tons of CO2 emissions in 2009. emissions through its global energy conserva- tion program. To extend this achievement, IBM IBM joined the reconstituted U.S. Best intends to reduce CO2 emissions associated Workplaces for Commuters program in 2009, with IBM’s operational energy (electricity and registering 19 locations and its work-at-home fuel) use by 12 percent between 2005 and 2012 population in the U.S., which represented 62 through energy conservation and the purchase percent of the company’s U.S. employees. Many of renewable energy. locations actively work with their local or regional transit commissions to integrate IBM’s programs Under Climate Savers, IBM has also committed with regional programs to increase commuting to improving the energy efficiency and energy options for the company’s employees. utilization of its internal and clients’ data centers through activities and offerings for Globally, many IBM locations provide support data center best practices, measurement and for the use of public transit systems, including 33

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    shuttles from locations to mass transit stations, fuel efficiency and reduce GHG emissions associ- and alternate transportation or “loaner” cars ated with logistics operations. for business trips during the workday. Where IBM provides leased vehicles for employees, the In 2009, 100 percent of IBM’s spend for shipping company continues its effort to move to more goods within the U.S. and from the U.S. to fuel-efficient vehicles. Canada and Mexico went through a SmartWay logistics provider. IBM also continued to ship 100 Business Travel percent of its IBM System z and supercomputer IBM’s main sources of business travel are airline product families to customers in North America and rental car use, with some miles also attributed (within the U.S. and from the U.S. to Canada to train travel. IBM has developed an inventory and Mexico) exclusively using a SmartWay carrier. of travel miles and continues to ensure an under- This commitment makes IBM part of a select few standing of travel patterns and opportunities for SmartWay shippers allowed to use the SmartWay optimization in meeting business needs and mini- logo on product packaging for these product mizing environmental impact. families and shipments. IBM also voluntarily applies specific SmartWay requirements to its While IBM’s businesses require employees to distribution operations globally. travel to fulfill client and other business needs, IBM has also developed, deployed and continued One way in which IBM endeavors to optimize its to enhance a full suite of IT tools to reduce logistics operation is with the IBM-developed business travel where feasible. IT tools enable Carbon Trade-Off Modeler. This tool models the real-time collaboration without travel and are interaction among various levers: transportation widely deployed throughout IBM. Web confer- mode, fuel, packaging weight, load consolidation, encing tools are used widely across the corpora- alternate sourcing and service level agreement. tion, with over 140,000 meetings (2,700 per The tool draws data directly from IBM’s transac- week), 953,000 participants (7 participants per tional systems as a basis for calculating CO2 meeting), and 74 million connection minutes emissions, differentiating it from other currently in 2009. Videoconferencing is available, with available industry tools. The Carbon Trade-Off over 400 specially equipped IBM rooms, Modeler is Web-based (WebSphere® application) including Direct Presence systems, which are and uses IBM’s Cognos® reporting capabilities. available globally. The Modeler enables IBM to make decisions that optimize the benefits identified across these levers Efficiency of Logistics and associated CO2 emissions at the same time. IBM is reducing the CO2 emissions associated with transporting its products through the IBM’s packaging programs also help reduce efficient design of its packaging, working with transport-associated CO2 emissions by reducing suppliers on their packaging designs and optimiz- the volume and weight of the company’s product ing logistics. In the area of logistics, IBM has shipments through innovative packaging design. been an active member of the U.S. EPA’s Accomplishments in this area were discussed SmartWaySM Transport Partnership since 2006. earlier in the report (see pages 23-24). SmartWay is a voluntary initiative to improve 34

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    SUPPLY CHAIN PROGRAMS IBM’S COMMITMENT TO WORKING WITH ENVIRONMENTAL EVALUATION ENVIRONMENTALLY RESPONSIBLE OF SUPPLIERS SUPPLIERS SPANS FOUR DECADES: For decades, IBM has been committed to 1972 – Established a corporate directive requiring working with environmentally responsible the environmental evaluation of suppliers of suppliers. IBM’s environmental management hazardous waste services system includes environmental requirements 1980 – Expanded its environmental evaluations of for its supply chain. IBM conducts substantive suppliers by establishing a second corporate direc- evaluations of the environmental responsibility tive that required the environmental evaluation of of a relevant subset of its suppliers. The require- certain production-related suppliers ments for these evaluations were established by an IBM corporate directive in 1972 requiring 1991 – Further expanded its environmental evalua- environmental assessments of hazardous waste tions of suppliers, adding a requirement that its services suppliers, and were expanded over time, product recycling and product disposal suppliers as shown in the left-hand column. The directive be evaluated was designed to prevent the transfer of responsi- bility for environmentally sensitive operations 1998 – Explicitly encouraged its suppliers to align to any company lacking the commitment or their own environmental management systems capability to manage such operations properly. with ISO 14001 and to pursue registration under this international standard IBM also has criteria to avoid the sale of technologically obsolete or nonfunctional equip- 2002 – Expanded its supplier evaluation require- ment to brokers for resale. Moreover, brokers ments to include assessments of subcontractors who procure used products or parts from IBM that suppliers may use to handle recycling and/or for resale are required to sign an agreement not disposal operations in non-OECD countries to to resell into non-OECD countries if the broker address concerns at the time about electronic knows or has reason to believe that the equipment waste being exported to some non-OECD coun- and/or parts will not be used for their originally tries where it was then being improperly handled intended purpose, without the need for disassem- 2004 – Published its Supplier Conduct Principles bly or disposal. to articulate the company’s overall supply chain The evaluations mentioned above are in addition social and environmental requirements to the audits conducted in association with IBM’s 2008 – Joined the Carbon Disclosure Project’s Supplier Conduct Principles, which outline the Supply Chain program to focus on energy and company’s expectations and requirements of climate programs of its suppliers and to encourage suppliers doing business with IBM in regard to their action in this area forced or involuntary labor, child labor, wages and benefits, working hours, nondiscrimination, 2010 – Established new supply chain management system requirements for all of its suppliers 35

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    respect and dignity, freedom of association, health The company currently holds the EICC Chair of and safety, protection of the environment, laws the Board position, and it has participated in work (including regulations and other legal require- groups such as Communications/Stakeholder ments), ethical dealings, communications and Engagement, Extractives and the Validated Audit monitoring/record keeping. Process. As part of its environmental management leadership, IBM also encourages its suppliers to The Principles are integrated into IBM’s contracts pursue ISO 14001 registration. In April 2010, and relationships with suppliers, and the company IBM announced that suppliers will now be actively monitors suppliers’ performance against required to establish a management system to them as a means to promote sound business prac- address their corporate and environmental respon- tices across IBM’s extended supply chain. sibilities. For more details on this new require- ment, see the next section on “Energy and With the assistance of a third-party auditor, IBM Climate Requirements.” has undertaken hundreds of on-location supplier audits against its Supplier Conduct Principles. ENERGY AND CLIMATE REQUIREMENTS The suppliers audited are selected on a risk-based priority, focusing on suppliers in markets where New Management System Requirements noncompliance may be more likely to occur. for Suppliers IBM, through its own practices, has long recog- Since 2004, more than 600 supplier audits against nized that a strong management system is critical IBM’s Supplier Conduct Principles have been for developing and sustaining programs that conducted by third-party firms with local person- address responsibilities such as workplace safety, nel in more than 15 growth market countries. increasing energy efficiency and reducing waste. IBM’s supplier audit program encompasses both IBM has one of the largest and most complex manufacturing (production) and distribution supply chains in the world, spanning more than (logistics) suppliers—which are historically where 28,000 suppliers in close to 90 countries. To build social audits are focused—as well as services and the capability of its supply chain to manage its general procurement suppliers. intersections with the environment and society, IBM announced in April 2010 that those suppli- In 2004, IBM was among the companies that ers will now be required to establish a manage- developed the Electronic Industry Citizenship ment system to address their corporate and Coalition’s (EICC) Code of Conduct, an initiative environmental responsibilities. that provides a single common code of standards and best practices for the electronics industry and Specifically, first-tier suppliers are required to do their suppliers. By consolidating and standardizing the following: compliance, audit and reporting efforts, suppliers • Define, deploy, and sustain a management can focus on achieving the high standards of system that addresses corporate responsibility, performance set forth by the Code. IBM accepts including supplier conduct and environ- the EICC Code of Conduct as equivalent and an mental protection alternative to its Supplier Conduct Principles. 36

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    • Measure performance and establish voluntary, for suppliers to disclose these emissions to quantifiable environmental goals EICC members. • Publicly disclose results associated with • Through the CDP’s Supply Chain program, these voluntary environmental goals and IBM and other member companies are focused other environmental aspects of their manage- on how suppliers are addressing climate change ment systems and working to reduce GHG emissions. As a participant in the program, IBM invited 121 These requirements are not being implemented of its suppliers to respond to the CDP’s Supplier with a “one-size-fits-all” approach. The company Questionnaire in 2009. These 121 suppliers expects each supplier to deploy a management represent 80 percent of IBM’s expenditures with system, measure performance, set goals and production-related suppliers and a sampling of disclose results in a way that reflects their particu- key suppliers in service categories, such as third- lar intersections with corporate responsibility and party data centers, logistic suppliers and rental the environment. IBM is also requiring its first- car companies, which have high levels of energy tier suppliers to communicate these new require- use and associated GHG emissions. ments to their own suppliers who perform work that is material to the products, parts or services Of the 121 IBM suppliers that received supplied to IBM. For more details on the new questionnaires, 88 responded. This 73 percent supply chain management system requirements, response rate exceeded the 64 percent average see www.ibm.com/ibm/environment/supply/. response rate for the member companies in this program. The following are highlights of the Energy and Climate Protection findings from the responding suppliers: in the Supply Chain IBM is also focusing on the energy and climate – 75 percent report Scope 1 GHG emissions. programs of its suppliers to understand where – 76 percent report Scope 2 GHG emissions. they are with regard to having energy conservation and GHG reduction programs and to encourage – 61 percent have a board committee or their action and leadership in climate protection. other executive body responsible for climate The following are two specific initiatives the change. company has undertaken in this area: – 52 percent have a GHG emissions and/or • As a member of the EICC, IBM is part of energy reduction target in place. the Environmental Working Group that is developing a sector-wide strategy for encour- IBM continues to participate in this endeavor aging electronics industry suppliers to inven- because the company wants to work with its tory, disclose and reduce their GHG emissions critical suppliers to gain an understanding of and other environmental impacts. The their operational impacts and assess where the EICC Environmental Working Group has suppliers are with regard to having a GHG developed education modules to assist suppliers emissions inventory and reduction plans. in developing their energy use and GHG Survey responses showed that about one-third emissions inventories and a simple system of production suppliers had reduction plans, 37

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    and about one-half of non-production suppli- business with any given supplier remains dynamic, ers had plans. as it is driven by business need. In 2010, IBM is again participating in this Moreover, one company’s asserted Scope 3 emis- initiative and further collaborating with its sions are another company’s Scope 1 and Scope core suppliers—both those who did and did 2 emissions. Since the ultimate goal for climate not respond to the latest CDP Supplier protection is for global societies to achieve demon- Questionnaire—in order to encourage their strable reductions in actual GHG emissions, IBM work to understand and reduce their GHG believes real results in GHG emissions reduction emissions from their operations. are directly achieved when each enterprise takes responsibility to address its own emissions and IBM’s Position on the Determination improve its energy efficiency. This is reinforced by of Scope 3 Emissions IBM’s recent announcement that all of its first-tier Gross approximations of Scope 3 GHG emissions suppliers will be expected to develop a management can help entities recognize where the greatest system, inventory their key environmental impacts amounts of GHGs may occur during the lifecycle including GHG emissions and develop reduction of a general product or service on a macro level. plans for those key impacts. This can be helpful when assessing what phases of a general product’s evolution, use and disposal are ripe for improved energy efficiency and innova- AUDITS AND COMPLIANCE tion. However, IBM does not assert on a micro IBM measures its environmental performance level what the Scope 3 GHG emissions are from against both external and internal requirements. the operations of its suppliers and external distri- Every manufacturing, hardware development and bution partners in their work that is specific to research site completes a comprehensive self- IBM. The necessary estimating assumptions and assessment every year, some more frequently. Each corresponding variability simply do not allow for year, certain sites are audited for environmental, adequate credibility, let alone calculations that health and safety compliance by IBM’s Corporate could be perceived as deterministic. Internal Audit staff. Audit results are communi- Like many manufacturers, IBM has thousands of cated to top management. Follow-up, accounta- suppliers around the world. They are in all types bility and actions are clearly delineated. of businesses and very few, if any, work solely for In addition, as part of IBM’s single, global IBM. Furthermore, the sources of energy used by registration to ISO 14001, approximately 20 these suppliers vary, and IBM does not believe it sites or registered entities are audited annually could determine a credible estimate or apportion- by an independent ISO 14001 registrar. The ment of the energy used by these suppliers that company’s manufacturing, hardware development would be associated with the products or services and chemical-using research sites are audited, provided to IBM versus that associated with prod- by either the Corporate Internal Audit team or ucts or services provided to other companies/ the external ISO 14001 registrar, at least once customers. In addition, IBM’s specific scope of every two years. 38

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    ACCIDENTAL SPILLS AND RELEASES 23, there were 7 to air, 10 to land, 3 to water, and 3 to both land and water. IBM sites around the world report environmental incidents and accidental releases to IBM manage- The seven releases to the air included six refriger- ment through the company’s Environmental ants and one opacity incident due to the burning Incident Reporting System (EIRS). Every event of fuel oil. meeting IBM’s environmental incident reporting criteria, which equal or surpass legal reporting The 13 releases to land included 4 of untreated requirements, must be reported through EIRS. industrial waste water, 2 of fire protection water, 4 of fuel oil and 1 each of potable water, dilute Each IBM location must have a documented inci- water and cooling water. dent prevention program (including provisions for preventing environmental incidents or their The six releases to water included two releases of recurrence) and reporting procedure. dilute water solution, two releases of chilled water, and one release each of potable water and fire In 2009, a total of 32 accidental releases related sprinkler water. to IBM operations were reported through EIRS. Of these, 9 were released to secondary contain- The root cause was investigated for all releases, ment (3 fuel oil, 2 hydraulic fluid and 1 each of and corrective actions were taken as appropriate. cooling tower water, base concentrate, motor oil None of the releases were of a duration or concen- and an unknown oil sheen) leaving 23 actual tration to cause long-term environmental impact. accidental releases to the environment. Of those FINES AND PENALTIES One significant measure of a company’s environmental performance is its record of fines and penalties. In 2009, IBM received 111 successful agency visits worldwide with no fines being assessed. IBM did pay two fines in 2009 for two Notices of Violation (NOV) that were issued during inspections that occurred at two facilities in 2007. Both 2007 NOVs related to the interpretation of requirements for secondary containment of fuel oil tanks and whether IBM’s existing containment systems for fuel oil at these facili- ties required modification. A $15,000 fine was assessed for each NOV. Actions have been undertaken to address the NOVs at both locations. Over the past 5 years, IBM has paid 3 fines for a total amount of $31,000. FINES AND PENALTIES WORLDWIDE ($ in Thousands) 05 06 07 08 09 Number 0 0 1 0 2 Fines $0.0 $0.0 $1.0 $0.0 $30.0 39

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    REMEDIATION As of year-end 2009, IBM had received notifica- tion (through federal, state or private party) of its When groundwater contamination was first potential liability at 110 sites, since the beginning discovered at one of IBM’s sites in 1977, the of the U.S. Superfund program back in 1980. Of company initiated groundwater monitoring at all these, 57 are on the U.S. National Priority List. of its manufacturing and development locations At the majority of the 110 sites, it has been deter- worldwide. Today, IBM has 2,783 monitoring mined that IBM either never had liability or has and 110 extraction wells. resolved liability. As a result, IBM believes it may have potential liability at only 14 sites. In 2009, 15,480 pounds of solvents from past contamination were extracted while remediating, When investigation and/or remediation at an controlling and containing groundwater at 6 IBM location or an off-site facility is probable, currently operating sites and 9 former sites in 2 and its costs can be reasonably estimated, IBM countries. At 4 of these sites, an additional 4,239 establishes accruals for loss contingency. Estimated pounds of solvents were removed by soil vapor costs connected with closure activities (such as extraction or other methods. IBM also has finan- removing and restoring chemical storage facilities) cial responsibility for remediation at two other are accrued when the decision to close down a former sites. facility is made. As of December 31, 2009, the total accrual amount was $258 million. As a result of the U.S. Superfund law, IBM is involved in cleanup operations at some non-IBM sites in the U.S. The Superfund law creates a retroactive responsibility for certain past actions even though they may have been technically and legally acceptable at the time. 40

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    AWARDS AND RECOGNITION INTERNAL RECOGNITION Corporate Environmental Innovation Program IBM introduced an updated Corporate Environmental Innovation Program in 2009 to highlight the best solutions developed by its PHOTO BY FREED PHOTOGRAPHY employees to address energy and environmental challenges for the company and its clients. It builds upon a prior recognition program that IBM had run in previous years. The goal is to stimulate and encourage leadership by the company’s employees in the areas of energy Award recipients attending the 2009 Corporate and the environment. Five internally developed Environmental Innovation Program reception solutions that significantly improve energy with Wayne Balta, vice president, Corporate efficiency or reduce environmental impact were Environmental Affairs and Product Safety. Top row (Left to right): Harry Kolar, John Pearce, selected for recognition under the program: Wayne Balta, Karl Dittus and Jenseng Chen. Bottom row (Left to right): Tom Brey, Hendrik • SmartBay Galway: Marine and Coastal Hamann, Robert McCarthy, Gunnar Johansson Environmental Monitoring, Protection and and Whitcomb Scott. Management—This system provides real-time environmental monitoring of water quality, • Measurement and Management Technology: wave conditions and weather for Galway A solution that provides real-time measurement Bay, Ireland. It monitors for marine and and analysis of temperatures and humidity coastal research, commercial fishing, fish and within data centers to optimize cooling and shellfish farming, flood condition monitoring, reduce energy consumption, improving energy wave energy research and development, efficiency by 10 percent or more. MMT advanced sensor development and beach technology is now being used in more than health conditions. 60 data centers. • Stockholm Congestion Pricing Solution: • iDataPlex Server: The most power efficient This intelligent transportation solution directly high-volume server in the world, using up to charges drivers who use city center roads 40 percent less electric power overall compared during peak business hours, reducing traffic to comparable servers. The IBM patented in Stockholm, Sweden, by 18 percent and design reduces air flow restrictions and allows helping to increase the proportion of “green,” two servers to share one fan cooling system and tax-exempt vehicles to 9 percent. The reduction high efficiency power supply, reducing cooling in traffic has lowered vehicular emissions by system energy use by 66 percent. 8-14 percent and GHG emissions by 40 percent in the inner city. 41

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    • IBM Systems Director Active Energy ManagerTM (AEM): A software solution that helps identify efficient and inefficient use of energy in data centers and simplifies equipment level power management. AEM allows control of processor level energy states and capping of server power use, provides power and thermal PHOTO BY DAN NELKEN trending of servers, and integrates IT and infrastructure energy management in data centers. This solution can reduce system administration and energy costs in a typical data center by nearly 30 percent. (Left to right) IBM Chairman Sam Palmisano presents the 2009 IBM Chairman’s Environmental The Corporate Environmental Innovation Award trophy to John Kelly III, Senior Vice President and Director of Research. Program will recognize up to five solutions each year. Nominated solutions are judged by a diverse team of environmental, technical and business With eight research centers in six countries experts from within IBM. around the world, IBM Research develops industry-leading inventions and drives technolo- Chairman’s Environmental Award Program gies that enable and deliver significant energy IBM established the Chairman’s Environmental efficiency improvements for IBM and its clients. Award Program in 1991 to encourage leadership Here are some highlights of the IBM Research and recognize achievement and progress in innovations and initiatives this award recognized: environmental affairs on the part of IBM’s organizations. • Mobile Measurement Technology (MMT): Developed and deployed this thermal mapping Similar to the past three years, the 2009 Award tool with rapid survey capabilities that enable Program focused on energy conservation and real-time identification of opportunities to energy efficiency across IBM’s operations, prod- reduce energy use of buildings including ucts and services, and the competition continued data centers. to be among major business units. • Maximo® for Energy Optimization (MEO): The recipient was selected based on degree of Collaborated with other IBM organizations in leadership, results, and innovation and integration the development of MEO software to provide with regard to their programs and initiatives in information to make better decisions about the areas of energy conservation and energy effi- energy management. Data available from ciency. IBM Research received the 2009 IBM MEO includes mapping capabilities for energy Chairman’s Environmental Award. and environmental metrics to identify opportu- nities for conservation. 42

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    • EnergyScaleTM Technology: Drove the develop- a commercial solar cell. Such approaches ment of this technology, which advances energy have allowed the extraction of up to 75 efficiency of microprocessors and provides watts of electrical power from a single functions that help users understand and 1x1 cm triple junction solar cell. control IBM server power and cooling usage. – Significant solar cell technology work in • “Hydro-air cooling”: Developed this system the areas of nanostructured photovoltaics in which air is repeatedly re-used by the intro- and silicon-based photovoltaics. duction of large air-to-water heat exchangers between adjacent racks. The new hydro-air IBM Research also actively participates in both cooling system reduces the space requirement the GridWise® Alliance and the GridWise for Blue Gene®/P by 25 percent. Architecture Council. EXTERNAL RECOGNITION • Carbon Trade-Off Modeler (CARBAN): Developed this business analytics tool that IBM’s environmental leadership and significant considers CO2 emissions as a lever in trans- environmental accomplishments were externally portation logistics optimization. recognized during 2009 in many ways. Some • Solar cell technology achievements: examples include: – Development of thin film solar cells • IBM ranked #1 for the second year in a row from liquid precursors, without requiring in IDG’s Computerworld’s annual Top Green-IT expensive and slow vacuum deposition Vendors ranking. processes, yielding solar cell efficiencies • IBM was among the Top 5 in Newsweek of ~13.5 percent with a material called magazine’s inaugural 2009 Green Rankings. CIGS (Copper Indium Gallium Selenide) The 500 largest U.S. companies were ranked and reduced production costs, without based on their actual environmental perform- compromising efficiencies; demonstration ance, policies and reputation. of world record 9.7 percent efficiencies with solar cells of an earth-abundant • IBM once again topped the Supercomputing material called CZTSS (Copper Zinc “Green 500 List” published by The Tin Sulfur Selenide). Green500.org with 18 of the Top 20 most energy efficient supercomputers in the world – Concentrator photovoltaics—Using built on IBM high-performance computing IBM’s proprietary solutions in chip technology. IBM also holds 69 of the Top cooling and other areas to develop 100 positions on this list. ultra-high concentration photovoltaic technologies that have successfully • For the second consecutive year, IBM was concentrated sunlight to up to 2,300 selected as one of the top 20 companies in the times the normal power density onto 2009 SB20 List: The World’s Top Sustainable 43

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    Stocks. The SB20 is published annually by Load Reduction by Free Cooling in Cold SustainableBusiness.com in Progressive Investor, Weather.” This marked 16 consecutive years one of the few newsletters that guide investors that IBM has been recognized with at least and analysts toward “green” investments. 1 of these awards—which is every year the IBM was recognized as a “Corporate Pioneer” competition has been held. for greening its own and its customers’ data centers. • IBM’s interior leased office space known as the Bay Area Lab in Foster City, California, • Calvert included IBM in its new Global was LEED® Gold certified. This was IBM’s Sustainability Strategy portfolio based on IBM’s first LEED Gold certified project and was record of environmental leadership. It’s a multi- achieved in the LEED® for Commercial cap global strategy focusing on investment in InteriorsTM rating system. sustainable companies that have strong growth prospects and that offer value to investors. • IBM received the top rating in Bank Sarasin’s sustainability analysis and continues to be included in the Sarasin Sustainability Funds. • IBM’s global environmental management • IBM’s Real Estate and Site Operations (RESO) system was the topic of research conducted organization received one of the two 2009 and published by the Massachusetts Institute Industrial Energy Technology Conference of Technology’s (MIT) Sloan School of Energy Awards for exemplary energy manage- Management. ment and conservation. The award recognized IBM for RESO’s holistic approach to global • IBM’s Burlington, Vermont, site received a energy management over the past two years and 2009 Most Valuable Pollution Prevention the results it achieved. IBM is the first IT (MVP2) award from the National Pollution company to win this award. Prevention Roundtable for improvements to its wastewater treatment operations that • IBM Canada and its Bromont, Quebec, site contributed to a significant reduction in in Quebec won the Sustainable Development discharges from its facility. This is IBM Award from the regional Chamber of Burlington’s second MVP2 Award. Commerce. The new Sustainable Development award category was introduced in 2009 and • IBM Burlington, Vermont, received two IBM was recognized for its global achievements Vermont Governor’s Awards for Environmental in the three components of sustainable develop- Excellence & Pollution Prevention (for 2008- ment: 1) its environmental leadership, 2) its 2009 projects) under the Environmental global health and safety programs, and 3) its Excellence in Resource Conservation category overall economic sustainability and positive for its “Solid Waste and Packaging Reductions influence in the region. at the IBM Burlington Facility” and “Cooling 44

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    IBM ENVIRONMENTAL air, water, and other pollution; minimize health AFFAIRS POLICY and safety risks; and dispose of waste safely and responsibly. IBM is committed to environmental affairs leader- ship in all of its business activities. IBM has had • Ensure the responsible use of energy through- long-standing corporate policies of providing a out our business, including conserving energy, safe and healthful workplace, protecting the envi- improving energy efficiency, and giving prefer- ronment, and conserving energy and natural ence to renewable over nonrenewable energy resources, which were formalized in 1967, 1971 sources when feasible. and 1974, respectively. They have served the envi- • Participate in efforts to improve environmental ronment and our business well over the years and protection and understanding around the world provide the foundation for the following corpo- and share appropriate pollution prevention rate policy objectives: technology, knowledge and methods. • Provide a safe and healthful workplace • Utilize IBM products, services and expertise and ensure that personnel are properly around the world to assist in the development trained and have appropriate safety and of solutions to environmental problems. emergency equipment. • Meet or exceed all applicable government • Be an environmentally responsible neighbor requirements and voluntary requirements to in the communities where we operate, and which IBM subscribes. Set and adhere to strin- act promptly and responsibly to correct gent requirements of our own no matter where incidents or conditions that endanger health, in the world the company does business. safety or the environment. Report them to authorities promptly and inform affected • Strive to continually improve IBM’s environ- parties as appropriate. mental management system and performance, and periodically issue progress reports to the • Conserve natural resources by reusing and general public. recycling materials, purchasing recycled materials, and using recyclable packaging • Conduct rigorous audits and self-assessments and other materials. of IBM’s compliance with this policy, measure progress of IBM’s environmental affairs • Develop, manufacture and market products performance, and report periodically to the that are safe for their intended use, efficient in Board of Directors. their use of energy, protective of the environ- ment, and that can be reused, recycled or Every employee and every contractor on IBM disposed of safely. premises is expected to follow this policy and to report any environmental, health or safety • Use development and manufacturing processes concern to IBM management. Managers are that do not adversely affect the environment, expected to take prompt action. including developing and improving operations and technologies to minimize waste; prevent 45

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    2009 ENVIRONMENTAL C. Funding an equivalent CO2 emissions PERFORMANCE SUMMARY reduction by the procurement of Renewable Energy Certificates (RECs) IBM’S 2009 VOLUNTARY KEY or comparable instruments PERFORMANCE INDICATORS AND RESULTS Result: In 2009, IBM’s significant conservation Conservation results delivered a 2.6% reduction in its • Energy Conservation energy-related CO2 emissions over 2008. The Goal: Achieve annual energy conservation company’s procurement of renewable energy savings equal to 3.5% of IBM’s total equaled 11.3% of IBM’s total 2009 energy energy use. use. Together, these efforts resulted in a 5.7% reduction in IBM’s energy-related CO2 Result: In 2009, IBM’s energy conservation emissions at year-end 2009 from the 2005 projects across the company delivered savings base year of this goal. equal to 5.4% of its total energy use. Between 1990 and 2009, IBM saved 5.1 billion • Water Conservation kWh of electricity consumption, avoided nearly Goal: Achieve average annual water conserva- 3.4 million metric tons of CO2 emissions (equal tion savings equal to 2% of IBM’s annual water to 50% of the company’s 1990 global CO2 emis- use at microelectronics manufacturing opera- sions) and saved over $370 million through its tions, based on the water usage of the previous annual energy conservation actions. year and measured over a rolling 5-year period. These results include only those energy conserva- Result: As of year-end 2009, IBM’s microelec- tion projects that actually reduced or avoided tronics manufacturing operations had achieved energy use. Reductions from downsizings or the an average annual water savings of 3.1% over sale of operations are not included. the past 5 years versus the 2% goal. • PFC Emissions Reduction Climate Protection Goal: Reduce perfluorocompound (PFC) • CO2 Emissions Reduction emissions from semiconductor manufacturing Goal: Between 1990 and 2005, IBM reduced 25% by 2010 against a base year of 1995. or avoided CO2 emissions by an amount equiv- alent to 40% of its 1990 emissions through Result: As of year-end 2009, IBM’s emissions its global energy conservation program. To were 48.8% below the 1995 baseline amount further extend this achievement, IBM set of 381,000 metric tons of CO2 equivalent. itself an aggressive “2nd generation” goal: In 1998, IBM became the first semiconductor to reduce the CO2 emissions associated with manufacturer to publicly announce a specific its energy use 12% by 2012 against a 2005 PFC emissions reduction target. base year through: A. Energy conservation B. Use of renewable energy 46

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    Product Stewardship Since 1995, when IBM first began reporting • Recycled Plastics this metric in the company’s annual corporate Goal: Ensure recycled plastics represent 5% or environmental report, IBM has documented more of the total plastics procured by IBM and the collection and recovery of more than 1.7 its suppliers annually under IBM’s corporate billion pounds of products and product waste contracts for use in IBM products. worldwide through year-end 2009. Result: The recycled content of plastics used • Product Energy Efficiency in IBM’s products can range in their recycled Goal: IBM’s product energy efficiency goal is content fractions from 25 to 100% by weight to continually improve the computing power of the commercial resin. In 2009, 22.4% of delivered for each kilowatt-hour (kWh) of the total weight of plastic resins procured by electricity used with each new generation or IBM and its suppliers through IBM’s corporate model of a product. contracts for use in IBM’s products were commercial resins that had recycled content Result: In 2009, new server products/models ranging from 25 to 100%. Comparing only the were released for which there were previous weight of the recycled fraction of these commer- generation products/models for comparison cial resins to the total weight of plastics (virgin that delivered 23 - 96% more computing and recycled) purchased through IBM’s corpo- capability for each kWh of electricity used rate contracts, 13.2% of IBM’s total weight of than the previous model/product. plastic purchases in 2009 was recycled plastic versus the corporate goal of 5% recyclate for Pollution Prevention the total annual plastics procurement. • Hazardous Waste Reduction Goal: Achieve year-to-year reduction in • Product Recovery & Recycling hazardous waste generation from IBM’s Goal: Reuse or recycle end-of-life products manufacturing processes indexed to output. such that the amount of product waste sent by IBM to landfills or to incineration for treat- Result: In 2009, IBM’s hazardous waste genera- ment does not exceed a combined 3% of the tion indexed to output increased 8.4%. This total amount processed. increase was largely attributable to process changes during the company’s transition to Result: In 2009, IBM’s product end-of-life lower line width microprocessor technologies at management operations worldwide processed one of its semiconductor manufacturing facilities. approximately 41,400 metric tons of end-of-life products and product waste, and sent only 0.5% • Nonhazardous Waste Recycling of the total to landfills or to incineration facilities Goal: Send an average of 75% of the nonhaz- for treatment, versus IBM’s goal to minimize its ardous waste generated at locations managed combined product landfill use and incineration by IBM to be recycled. for treatment rate to no more than 3%. Result: In 2009, IBM sent 76% of its nonhaz- ardous waste to be recycled. 47

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    www.ibm.com/environment © 2010 International Business Machines Corporation IBM Corporate Environmental Affairs 294 Route 100 Somers, New York 10589 For more information about IBM’s environmental initiatives, please visit our website: www.ibm.com/environment IBM, the IBM logo, BladeCenter, Blue Gene/P, Calibrated Vectored Cooling, Cognos, EnergyScale, Green Sigma, IBM® Systems Director Active Energy Manager, iDataPlex, Maximo, POWER, POWER5, POWER6, POWER7 Systems, POWER Systems, Smarter Planet, SurePOS, System Storage, System i, System p, System x, System z and WebSphere are registered trademarks or trademarks of International Business Machines Corporation or its wholly owned subsidiaries. Other company, product and service names may be trademarks or service marks of others.

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