Supply Chain - ST Management Approach

Disclosure on Management Approach

Managing corporate responsibility in our supply chain

Our aim at ST is to work closely with our customers and suppliers to tackle sustainable development issues more effectively. We are increasingly aware of the importance of responsible supply chain management, both in terms of its key contribution to wider sustainable development and to the success of our company. Our new company code of conduct, the Principles for Sustainable Excellence cover this area of corporate responsibility, providing high-level principles to guide our actions. This includes our commitment to develop mutually beneficial partnerships with our suppliers and business partners in a way that supports our obligations to shareholders while allowing us to fulfill the long-term expectations of other stakeholders. We also commit to ensure that our partners respect and support our values, that they have adopted similar standards of business conduct, or that they commit to do so.

We have adopted the Electronics Industry Code of Conduct as our official Supplier Code of Conduct, which we are progressively implementing throughout our supplier population.

Management systems for supporting improved CR performance in our supply chain

Our management systems for monitoring and supporting suppliers in their corporate responsibility performance starts with the selection and approval process for new suppliers, which include:

• Requirement to provide an Agreement of Compliance with our 'Regulated Banned Substances List', an ST specification based on the most recent and stringent international rules and guidelines regarding hazardous substances
• The request for ISO14001 certification / EMAS validation or the commitment to be certified
• The request to be certified to the international standard for health and safety (OHSAS 18001)

The improvement process for all suppliers is based on:

• The overall EHS performance assessed twice a year according to suppliers' ability to obtain and maintain ISO 14001 certification or EMAS validation, OHSAS 18001 certifications, and the compliance to our EHS Decalogue. As of 2006, the evaluation of the performance of key corporate suppliers also includes additional key aspects of the EICC.
• Suppliers below the minimum level of performance are required to demonstrate a recovery plan. In case the containment actions do not reach the minimum score, ST will assist them through training, support and auditing
• Local ST sites have the responsibility for auditing the quality performance of critical suppliers. Our target is to audit 90% of all critical material suppliers over a rolling period for adherence to quality, environment and health & safety standards. Audits are mainly performed by local ST people, by delegation from corporate organization. The audits are based on ISO 9001 requirements, with an additional few ST-specific items on environment and health & safety and some wider EICC aspects. A questionnaire is sent to suppliers for self-assessment one month before the audit.
• A process is in place to implement the common EICC tools, including the first level risk assessment and the Self Assessment Questionnaire. The results of these evaluations will lead, in 2007, to full third-party EICC audits being performed on selected suppliers.

Reporting on performance

We report on our suppliers' progress in reaching ISO 14001 certification/EMAS validation and on key aspects of our implementation of the EICC in our annual Corporate Responsibility Report.