Acknowledgement. Executive Summary. 1. Introduction. 1.1 About ASUSTeK. 1.2 EP&L Project Background. 2. Scope & Boundary

Transcription

1 March, 2018

2 table of Contents Content Acknowledgement 3 Executive Summary 4 1. Introduction About ASUSTeK EP&L Project Background 5 2. Scope & Boundary The Definition of Supply Chain Coverage The Geographic Location of the Supply Chain Impact Category 8 3. Impacts Valuation Results Discussion 8 4. Data and Assessment Process Activity Data Collection Monetary Value Assessment Key Assumptions and Limitations Next Step 14 Appendix 1 Key Terms Definition 15 02

3 Acknowledgement Acknowledgement 03 Thanks for PricewaterhouseCoopers (PwC) Taiwan sharing its expertise with ASUSTeK Computer Inc. during the process of analyzing Environmental Profit and Loss (EP&L) as well as the valuable suggestions given to suppliers' activity data inventory, the calculation of impact model, the selection of evaluation method, and the review of data quality, etc. in this EP&L Report. In addition, we would also like to express our deepest appreciation to every colleague who has engaged in this project.

4 Executive Summary In recent years, the global trend of sustainable development shows a growing number of investors who are not only concerned about stable profitability of the business but are also willing to understand the external impact on the society and environment caused by the enterprise during their business activities. Furthermore, they expect to have the monetary valuation to allow them to evaluate the value created by the enterprise comprehensively and objectively. Executive summary 04 In view of the trend, as well as having understood that the impact caused by the electronic products on the environment is mainly from the stages of mining for raw materials and manufacturing during product's life cycle, ASUSTeK Computer Inc. (ASUSTeK) has initiated the project of Environmental Profit and Loss (EP&L, hereinafter referred to as "the Project" or "the Report") starting from 2017 in order to measure the total cost and valuation on the environment directly or indirectly by ASUSTeK's operations. Laptop computer was chosen as the target for monetary valuation on the environmental impact caused by supply chain. Through monetary valuation, the results allowed different environmental impacts on the environment to be comparable, as well as providing critical references for decision makers in the organization in terms of product developments and supply chain management strategies in the future. We conducted the EP&L analysis based on the methodology of Valuing Corporate Environmental Impacts: PwC Methodology Document 1 published by PwC in 2015, and referred to the evaluating process of natural capital impacts in Nature Capital Protocol (NCP) posted by Natural Capital Coalition (NCC) 2 in The result showed that the annual valuing impact of laptop computers from supply chain in 2016 was around USD 347 million. On the other hand, the benefits as listed below were obtained during the implementation of the Project: Establish capacity for the monetary valuation of environmental impact Understand the environmental externality of our supply chain from a macroscopic view Identify significant impact hot-spots to provide reference for subsequent supply chain management 1 PwC, Valuing corporate environmental impacts, Natural Capital Coalition(NCC), Nature Capital Protocol(NCP), 2016 In the future, ASUSTeK aims to incorporate the method into present procurement procedure and establish the performance indicator of sustainable procurement in supply chain to realize our vision of sustainable development of Total Impact Measurement and Management (TIMM).

5 Environmental Impact Category Greenhouse gas emission Tier 0 ASUSTeK Operation Tier 1 OEM Assembly Tier 2 Manufacturing of Major Components Tier 3 Mining and Manufacturing of Raw Material Total Executive summary 05 consumption pollution Solid waste Total 1. Introduction 1.1 About ASUSTeK ASUSTeK was founded in 1989 and it is the largest manufacturer of motherboards worldwide and listed on the top three brands of consumer laptop computers globally. ASUSTeK's major business is the design, R&D, and sales of 3C (an abbreviation often used in Taiwan for computer, communication, and consumer electronics") information products including computer system products, motherboards and kinds of cards, and handheld devices of tablet and smart phone. ASUSTeK cooperates with more than 700 suppliers worldwide to provide product manufacturing and customer service. The main suppliers, including components suppliers, product assembly plants and software suppliers, are located in Asia. While ASUSTeK focuses on product design and marketing, the manufacturing has been relying on the components suppliers and product assembly plants. Apart from providing the products with superior quality to the consumers, we also devote ourselves to the design of green products and environmental friendly manufacturing process. In addition, we try to realize the corporate commitment through striving to be among the world-class green high-tech leaders and to provide valuable contributions to humanity by collaborating with our partners in the supply chain. 1.2 EP&L Project Background ASUSTeK has long been concerned with the trend of sustainability and supply chain management. In order to keep ASUSTeK's leading place in the green supply chain of technology industry and enhance the sustainable value, we hope that the Project will bring the followings,

6 Establish a language for effective communication between internal and external interested parties We understand that the impact of corporate operations on society and the environment has been taken seriously by interested parties. Therefore, we continued the project of Social Return on Investment (SROI) and further chose the iconic product of ASUSTeK - laptop computer - to report the critical environmental impact of supply chain by monetary valuation. Apart from serving as the beginning of evaluating the external environmental cost, monetary valuation also allowed the interested parties (customers or consumers) to realize ASUSTeK's "total impact." Introduction 06 Due to different units of measurement, current performance on environmental management of supply chain normally does not allow for an "intuitive comparison". Nonetheless, ASUSTeK applies new assessment method in hopes of communicating the performance of supply chain management externally (including customers) by the comparison with single unit of measurement for supply chain EP&L at different times and in different locations. Creating an innovative management model Extend (or break through) the existing signification of life cycle management (or difficulty). Monetary valuate is different from pollution effect for it makes impact hot spot more focused, and provide the decision making tool on resource input for top management through "financial" and "made simple" language. The pioneer leading the industry ASUSTeK is looking forward to be the first corporate in the technology industry to establish EP&L, and furthermore being the benchmark to lead the industry engaging in EP&L assessment in hopes of appealing the industry to take the topic of natural environment valuation seriously. 2. Scope and Boundary Laptops were chosen as the scope of the Project. Laptops account for most of ASUSTeK's global shipments and revenue in 2016, and the component structure was the most complicated among various product lines, resulting in the most significant environmental impact by the supply chain of laptops. 2.1 The Definition of Supply Chain Coverage The Project refered to the Product Category Rules (PCR) 3 of laptop computers to define the major elements, and there were 16 categories of major components and 4 tiers of suppliers.

7 The weight of major components from these 16 categories accounted for 99% of the product weight. Detailed component categories and their supply chain activities were listed below: Introduction Table 2.1: A brief description of production activities of suppliers in each tier 07 Tier 0 ASUSTeK Operation Tier 1 OEM Assembly Tier 2 Manufacturing of Major Components Tier 3 Mining and Manufacturing of Raw Material Office Warehouse Official traffic Laboratory Laptop computers assembly CPU manufacturing Memory manufacturing Display manufacturing IC manufacturing CPU material Memory material Display material IC material Resistor manufacturing Resistor material Capacitor manufacturing Capacitor material Motherboard manufacturing Motherboard material Connector manufacturing Connector material Component manufacturing Component material Hard disk manufacturing Hard disk material CD player manufacturing CD player material Wire manufacturing Wire material Battery manufacturing Battery material Power supply manufacturing Power supply material Packaging manufacturing Packaging material Keyboard manufacturing Keyboard material 3 The Project was based on the laptop computers Product Category Rule, version The Geographic Location of the Supply Chain The geographic locations of 4-tier suppliers are listed in the table below. Tier 0-Tier 2 suppliers were mainly located in Taiwan or China while Tier 3 suppliers were located worldwide. Table 2.2: The Geographic Locations of Supply Chain Tier 0 ASUSTeK Operation Tier 1 OEM Assembly Tier 2 Manufacturing of Major Components Tier 3 Mining and Manufacturing of Raw Material Taiwan China China Worldwide

8 In view of the characteristics of manufacturing process of laptop computers, and based on the results from previous life cycle assessment projects, we identified that the environmental impact of the manufacturing process of laptop supply chain was primarily from the components manufacturing and energy and resources usage for product assembly, which included electricity usage, water used for manufacturing process, wastewater, and waste discharge. Therefore, the Project chose 4 environmental indicators, namely greenhouse gas emission, water consumption, solid waste, and water pollution, for EP&L assessment. 3. Impacts Valuation 3.1 Results According to our analysis, the impact of ASUSTeK laptop computers supply chain for the year 2016 was approximately US $347 million. The monetary valuation results of various environmental impacts at different stages are shown in the table below. Table 3.1: The Monetary Valuation Result of Environmental Impact Unit: US $ million Environmental Impact Category Tier 0 ASUSTeK Operation Tier 1 OEM Assembly Tier 2 Manufacturing of Major Components Tier 3 Mining and Manufacturing of Raw Material Total % 0.54% 9.38% 90.06% 100% Greenhouse gas emission consumption pollution Solid waste Total % of each Tier % 26.38% 0.33% 72.62% 0.67% 100% 單位:百萬美元 3.2 Discussion Analysis by Environmental Impacts According to the analysis of the project, water pollution had the largest impact among all environmental aspects, followed by greenhouse gas emission, and water consumption the least. The details were as follows: Scope & Boundary 2.3 Considerations of Environmental Impact Category 08

9 Figure 3.2.1: Proportion of Environmental Impacts Scope & Boundary 09 Greenhouse gas 26.38% pollution 72.62% 台灣 Solid waste 0.67% consumption 0.33% We further analyzed the sources of 4 environmental categories and figured that they were all from Tier 3 Raw material mining and manufacturing. Figure 3.2.2: Proportion of Impacts in Different Environmental Aspects for All Tiers 0.04% 1.95% 0.03% 0.01% 69.66% Greenhouse gas 28.34% 97.46% pollution 2.50% 5.54% Tier 0 Tier 1 Tier 2 Tier 3 Tier 0 Tier 1 Tier 2 Tier % 0.72% 0.03% 0.01% 83.93% consumption 14.06% 94.42% Solid waste 5.54% Tier 0 Tier 1 Tier 2 Tier 3 Tier 0 Tier 1 Tier 2 Tier 3

10 Analysis by Operations and Supply Chain In the analysis of operations and tiers of suppliers in the supply chain, the sources and percentage of 4 environmental impacts were explained below: Tier 0 ASUSTeK Operation: Greenhouse gas emission was the largest environmental impact and accounted for about 59% of the total ; the second was water consumption, which accounted for about 21%. The primary source of greenhouse gas emission came from indirect carbon emission from electricity consumption (greenhouse gas emission from the process of power generation by the burning of coal or natural gas), and the major impact of water consumption came from the consumption of office tap water. Tier 1 OEM Assembly: Greenhouse gas emission was the largest environmental impact, and accounted for over 90%, or about 95%; followed by water pollution, which accounted for 4%. The primary source of greenhouse gas came from indirect carbon emission from electricity consumption (greenhouse gas emission from the process of power generation by the burning of coal, natural gas or heavy oil). Tier 2 Manufacturing of Major Components: Greenhouse gas emission was the largest environmental impact, and accounted for about 80%; followed by water pollution, which accounted for about 19%. The primary source of greenhouse gas came from the direct carbon emission from IC manufacturing and the indirect carbon emission from electricity consumption (greenhouse gas emission from the process of power generation by the burning of coal, natural gas or heavy oil), and the primary source of water pollution came from IC manufacturing. Tier 3 Mining and Manufacturing of Raw Material: pollution was the largest environmental impact, and accounted for about 78%; followed by greenhouse gas emission, which accounted for about 20%. The primary source of water pollution came from the mining and manufacturing of IC and keyboard materials, and the primary source of greenhouse gas emission came from the mining and manufacturing of display materials (liquid crystals), mechanical components (aluminum parts), and keyboard materials. Impacts Valuation 10

11 pollution 19.34% Solid waste 0.27% pollution 19.38% Solid waste 0.40% Impacts Valuation Tier 0 consumption 0.49% Tier 2 11 consumption 21.33% Greenhouse gas 59.06% Greenhouse gas 79.73% consumption 0.44% pollution 4.20% Solid waste 0.03% Solid waste 0.70% Greenhouse gas 20.41% Tier 1 pollution 78.59% Tier 3 consumption 0.31% Greenhouse gas 95.33% 4. Data and Assessment Process 4.1 Activity Data Collection The data of environmental activity of the supply chain was divided into primary data and secondary data. Primary data referred to the actual fieldwork data, and secondary data referred to the data from the industrial environment database. The data of Tier 0 Asus operations and Tier 1 OEM Assembly came from primary data. In ASUSTeK operations, it included the actual fieldwork data of power consumption, water consumption, wastewater and solid waste discharged from office areas, laboratories and warehouses, and in OEM assembly it included the actual fieldwork data of power consumption, water consumption, wastewater and solid waste discharge by manufacturing process of production lines and personnel. Secondary data was used in Tier 2 and Tier 3, and the source was the Ecoinvent database of the lifecycle assessment software SimaPro. The corresponding data sources of suppliers of all tiers throughout the supply chain were summarized in the following table:

12 Figure 4.1: Sources of Activity Data for Each Tier Supply Chain Tier 0 ASUSTeK Operation Tier 1 OEM Assembly Tier 2 Manufacturing of Major Components Tier 3 Mining and Manufacturing of Raw Material Impacts Valuation 12 Data Source Primary data Primary data Secondary data Secondary data 4.2 Monetary Valuation Assessment The project evaluation method is based on the Valuing Corporate Environmental Impacts: PwC Methodology Document published by PwC in and referred to the evaluating process of natural capital impacts in Nature Capital Protocol (NCP) posted by the Natural Capital Coalition (NCC) 2 in The major difference between Environmental Profit & Loss (EP&L) and a traditional environment report is that EP&L, in addition to quantify the environmental resources (such as water) or emissions (such as greenhouse gas emission) consumed by a company's operating points and supply chains, it further measured the influences of environmental impacts on human and social well-being, identified the monetary values of these social influences, expressing all impacts in the same monetary unit. For example, in the past, only the number of tons of greenhouse gas produced by a company's operating activities was investigated. After applying the EP&L methodology, we can further calculate the social impact of climate change due to the emission of greenhouse gases, and consider the loss of the overall economic value such as the loss of the agricultural industry, the destruction of construction assets and the impact on the environment caused by extreme weather events (such as drought or flooding) due to climate change. In other words, in the past, the value of a company s environmental impact, or the externality, was not considered. Calculating EP&L allows us to better understand the externalities (i.e. water consumption, water pollution, greenhouse gas emission and solid waste), and thus use the same monetary value (US dollars in this project) to measure these impacts and communicate with stakeholders. The overall monetary valuation assessment process is shown in Figure 4.2. Impacts of corporate activities on the environment and society are evaluated with the impact pathway method, and the selection of the appropriate methods (impact methods) for the impact on the environment is achieved through the use of the well-known life cycle assessment software SimaPro 4. The benefit transfer function is mostly used for impact valuation, and is taken from the representative literature.

13 Figure 4.2 Monetary Valuation Assessment Process Impacts Valuation 1.Input 2.Output 3.Outcome 4.Impact 5.Value of Impact 13 Energy resources required for business activities How much environmental pollution emissions Changes to the environment Impact on society The Value lost due to the impact Example: 8000 tons of water, 100 million kwh electricity, etc Example: 300 million tons of greenhouse gas, 2000 kilograms of phosphorus pollutants, etc. Examples: global warming, water quality Improvement, etc. Examples: human health loss, ecosystem loss, etc. For example: Reduced property, reduced entertainment value, etc. Source: PwC EP&L and evaluated by this project 4 The version of SimaPro used in the Project was Key Assumptions and Limitations Since there are many difficulties in data collection during the process of quantifying the environmental impact and calculating the monetary value, there are key limitations and reliance on reasonable assumptions in the assessment. They are described as follows: 1. Secondary Data Is Used for Activity Data Inventory of supply chain activity data is time-consuming and costly. In order to efficiently obtain activity data of different tiers in the supply chain, secondary data was used for the inventory of Tier 2 Major component manufacturing and Tier 3 Raw material mining and manufacturing, and the source was the well-known LCA Ecoinvent database version Exclusion of Some Possible Social Impacts Due to Geographic Limitations ASUSTeK had considered as far as possible the social impact caused by various environmental categories, but there were still a few social impacts that could not be further quantified due to geographic limitations or lack of documentation. For example, the economic opportunity cost of water consumption, the cost associated with the depletion of ground water resources, and the subsidy of water charges in the local country as in the PwC EP&L Methodology [1]. For the reduction of landscape value due to the disamenity of solid waste incineration/landfill sites nearby and the leachate release from open dump sites, the assessments of these environmental impacts were not included in the calculation of the project due to the inability to obtain information on the locations of the suppliers.

14 3. Adjustment of the Monetary Valuation In Consideration of the Purchase Power of Different Countries/Regions The benefit transfer function is mostly used for monetary valuation in this project, that is, we collect relevant research reports from experts and scholars or international organizations such as OECD and EU, or looking for the monetary values of research reports used and praised by the benchmark companies. In order to transfer the monetary values to the location of the supply chain, we use the monetary values of the original literature with the purchasing power parity (PPP) adjusted gross national income (GNI) as the parameter. Except Taiwan, the values of PPP and of GNI for each country were published by the World Bank 5. Since both value for Taiwan were not included in the database of World Bank database, we refer to the statistics of the Directorate- General of Budget, Accounting and Statistics, and the data of the International Monetary Fund (IMF) to convert the values of Taiwan. In addition, except that the locations of Tier 0 ASUSTeK operations and Tier 1 OEM assembly were in Taiwan and China respectively, more than 90% of the suppliers of Tier 2 manufacturing of major components were located in China, while the suppliers of Tier 3 mining and manufacturing of raw material were numerous and could not be traced accurately. In order to simplify the assessment, in this project we assume that all Tier 2 suppliers were all located in China, and the monetary valuation for conversion to China was used. For Tier 3, the world average was used because the geographic location of each supplier was unknown. Data and Assessment Process Consideration of Inflation Adjustment of the Monetary Valuation In addition to PPP and GNI adjustments for geographical differences in literature sources, if the monetary value in the literature was arrived at before 2016, we adjusted it to the 2016 monetary value with the inflation rate, and the inflation rate is evaluated in U.S. dollars 6. 5 Visit World Bank to check out the GNI value of each country: tor/ny.gnp.pcap.pp.cd 6 Visit the following website for more information on inflation for USD: ationcalculator.com/ 5. Next Step From this project, we learn that in the production of ASUSTeK laptop computers, Tier 3 Mining and Manufacturing of Raw Material had the most significant environmental impact in the context of the organization's operations and supply chain, and water pollution was the largest source among the environmental impact categories. The result of this Project enabled us to identify the environmental hot-spots of the ASUSTeK supply chain, proving that the priority considerations in the supply chain environment management were Tier 3 and the water pollution issue. Monetary valuation also provided ASUSTeK with the maintenance costs for environmental impacts, and served as an important reference for the reduction strategy.

15 In the next stage, the scope of the environmental profit and loss project will expand and include the calculation of monetary valuation of other products, including handheld devices, motherboards, desktop computers and monitors. At the same time, we will continue calculating the annual environmental profit and loss intensity of each product to confirm that the resources invested and the implementation of green product strategies in the supply chain environment management can achieve actual benefits, and gradually establish a complete supply chain environmental gain and loss assessment. Data and Assessment Process 15 On the other hand, the result of the Project highlighted the importance of externalities in addition to the traditional factors such as cost, quality, technology, delivery and service when choosing a supplier, so as to obtain the true life cycle cost (LCC), which is the new concept of the ISO International Sustainable Procurement Standard. In the future, ASUSTeK plans to incorporate this method into its current procurement process, establish the sustainable procurement performance indicators of ASUSTeK for the supply chain, and realize the vision of Total Impact Measurement and Management (TIMM) for the sustainable development of Asus. Appendix 1 Key Terms Definition Environmental Profit & Loss, EP&L The environmental profit and loss assessment methodology measures the environmental impact on the company's operations and supply chain. Besides, it evaluates the monetary valuation of the environmental impact. "Loss" means that an activity has a negative impact on the environment, and "profit" has a positive impact on the environment. Environmental Impacts The activities of a corporate change the environment, and the change of environment will affect human society and well-being. Externality Events or activities have an impact on society/individuals, but the original executors do not bear the corresponding obligations and costs. For example, automobiles emit air pollution but car manufacturers or car drivers do not bear (health) loss costs caused by air pollution for other people in the society. This loss cost is a negative externality. Life Cycle Assessment (LCA) The integration and evaluation of inputs, outputs and potential environmental impacts throughout the beginning to end of product life cycle.

16 Life Cycle Costing (LCC) It means the assessment method for the total cost of the life cycle of product or service. Monetary Valuation In this EP&L assessment report, the monetary valuation assesses the economic value of the loss/profit caused by environmental impact on human society and well-being. Data and Assessment Process 16 Total Impact Measurement and Management (TIMM) The tool PwC uses to help companies to understand and manage their own structure of major impact for making business decision and performance management.

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