Dedicated to sustainability Sustainability Report 2004 Our way of doing Social responsibility Environmental responsibility We seek innovation for our We regard environmental customers and consumers, create improvement as an opportunity an environment that helps our for innovation, and we work to employees reach their full potential minimize the impacts of products, and are active in the communities processes and services. With a where we live and work. And we tradition of sound environmental explore business opportunities policy for more than 30 years, we with sustainability as a driver to are guided by the basic principle benefit people in advanced, that prevention is better than cure. emerging and developing markets. business We firmly believe that socially and Economic responsibility We are working to transform environmentally responsible behavior contributes Philips into a truly market-driven to sustained profitable growth and value creation. healthcare, lifestyle and technology company. Our priority is to create That’s why we are embedding sustainability thinking sustainable value for our and acting throughout the organization. stakeholders. Going forward, our focus on innovation is providing us with a basis for stronger growth Sustainability is built into our heritage, our across all our product divisions. values and our commitment to improve the quality of people’s lives.We have long been integrating economic prosperity, environmental quality and social equity – balancing these sometimes-competing demands. Philips Sustainability Report 2004 1 About this report assurance engagement, which was conducted in Sustainability is defined as “meeting the needs of the accordance with the International Standard on Assurance present generation without compromising the ability of Engagements ISAE 3000, covers all of the information in future generations to meet their own needs.” Sustainable the report, both quantitative and qualitative. KPMG’s development – which is considered the path to Assurance Report, which describes the work undertaken sustainability – is the simultaneous pursuit of economic and their conclusions, can be found on page 85. We will prosperity, environmental quality and social equity. continue to improve the quality of our sustainability Companies that pursue this path are known as sustainable reporting. We anticipate that we will have the report entrepreneurs. Focusing on sustainability often requires independently reviewed in the future as well. dealing with the sometimes-competing demands of integrating social, environmental and economic Readers are invited to support our improvement responsibility, and balancing short- and long-term process with their feedback. Please contact the interests. Corporate Sustainability Office via our website www.philips.com/sustainability or by e-mail at Royal Philips Electronics started external reporting on its [email protected] environmental performance on a yearly basis covering the year 1998. Since 2002, the company provides information annually on its sustainability activities in a comprehensive report comprised of social, environmental and economic sections.This report provides information on the company’s sustainability activities for the 2004 fiscal year, running Scope of this report from January 1, 2004 to December 31, 2004. This report describes the performance of the Philips Group with regard to sustainability. It covers the total Philips views this report as a valuable tool for maintaining of the consolidated Philips activities, following the a dialogue with a variety of interested parties, including consolidation criteria as described on page 97 of the shareholders, customers, business partners, governmental Philips Annual Report 2004. Unconsolidated companies, and non-governmental organizations and, of course, including 50/50 joint ventures, are not reported. Philips employees around the world, who work daily to Environmental results are limited to production improve the company’s performance. activities for those manufacturing sites with more than 50 industrial employees. In compiling this report for 2004, Philips has followed relevant best practice standards and international The Philips Group consists of the following product guidelines, including the Global Reporting Initiative’s (GRI) sectors for the reporting year 2004: 2002 Sustainability Reporting Guidelines. Philips also has taken valuable comments from inside and outside the • Medical Systems company into account. Specific attention has been paid in • Domestic Appliances and Personal Care crafting this report to show how sustainable development • Consumer Electronics is an integral part of the company’s strategic direction • Lighting and how we embed it throughout our organization. In • Semiconductors addition, we have made considerable strides in reporting • Other Activities on our social performance and in providing information about our stakeholder dialogue activities. This report includes selected information on the financial performance of the Philips Group. For full understanding This Sustainability Report 2004 is externally verified by of the financial performance, please refer to the Philips KPMG, in line with previous reports. Their non-financial Annual Report 2004. 2 Philips Sustainability Report 2004 Contents 4 Message from the President 8 About Philips 16 Sustainability at Philips 20 Listening to our stakeholders 24 Our strategic direction 36 Social responsibility 38 Our customers 42 Our employees 52 Social investments 56 Environmental responsibility 72 Economic responsibility 80 Our suppliers 84 Auditor policy 84 Assurance assignment 85 Assurance report 86 Explanatory notes 88 General Business Principles 90 Sustainability policy 91 Environmental action program 92 Occupational health and safety policy 93 Social investment policy 94 A selection of social investment projects 2004 95 Maturity Grid, EcoDesign 96 Green Flagships benchmark details 98 EcoVision data tables 100 Supplier Declaration on Sustainability 102 List of Banned Substances 105 List of substances 106 GRI indicators 111 Glossary 112 How to reach us Forward-looking statements This report contains certain forward-looking statements with respect to the financial condition, results of operations and business of Philips and certain of the plans and objectives of Philips with respect to these items. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future.There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. Statements regarding market share, including as to Philips’ competitive position, contained in this document are based on outside sources such as specialized research institutes, industry and dealer panels, etc. in combination with management estimates. Rankings are based on sales unless otherwise stated. Interviews Philips does not necessarily agree with the opinion of the writers of bylined articles or those interviewed for sidebar articles in this report. Philips Sustainability Report 2004 3 Message from the President “We see sustainability as part of our way of doing business. While we know we have a long way to go, we are pleased with the progress we are making.” 4 Philips Sustainability Report 2004 Dear Stakeholder, 2004 was a year of major progress for Philips, not only in terms of our In last year’s report I committed to developing action plans based on financial results, but also with respect to the progress we are making in the results of our reputation survey. After analyzing the data, we embedding sustainability throughout the company. formed a Reputation Committee, which I chair. My colleagues and I have decided to focus on the main driver for reputation – performance It is rewarding to see our efforts recognized by external organizations. management. We have made good progress there in 2004. We are proud to have been selected – for the second consecutive year – as the top company in our market sector in the Dow Jones For all key countries surveyed, we have established specific action plans, Sustainability Index. This achievement is particularly significant for us which include stepping up our dialogue with stakeholders through because we know that many companies have been making substantial consistent communication about mission, vision and strategy, and our efforts in this area. Ranking number one is evidence of a solid team progress with its implementation, while having an open mind for the effort by a great number of employees throughout our product feedback we receive. divisions, regions and corporate functions. Furthermore, the results of the reputation research are being used as We have been hard at work to drive sustainability thinking and acting at input for change throughout the company. For example, the survey data all levels of the organization. At the same time we continue to build has been valuable in supporting our decisions around our new brand knowledge and explore sustainability as a driver for business positioning and brand promise,‘Sense and simplicity.’ development. To do this, we are using an embedded model approach to fully integrate sustainability in all of our day-to-day business activities. Sense and simplicity This simple phrase reflects our understanding that people want Fulfilling our commitments technology that gets the job done without drawing attention