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    The issues we are addressingfrom clean water, to safefood, to sustainable and vibrant cities, to smarter work, toempowered communitiesare not a choice betweenbusiness strategy and citizenship strategy. They are both.

    2008 Corporate Responsibilit Report

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    Lette om Samuel J. Palmisao

    Chairman, President and Chie Executive Oicer

    In the rst decade o the 21st century, we have been conronted witha series o crises, each o which has caused us to rethink major aspectso how our world works.The 9/11 terrorist attacks and their atermathcaused us to reexamine our rameworks or global security. Catastrophichurricanes and tsunamis have raised questions about the preparednesso our coastlines and cities. Concerns about the saety o our ood, ourmedicine, even our toys, have led to questioning o our increasingly

    global supply chains. The growing recognition o global warming hasdriven an intense ocus on everything rom how we move people andthings, to how we build our houses and oces, to how we generatethe energy to power it all. Most recently, we have seen how seeminglysimple nancial instruments such as mortgages can be packaged,leveraged and traded in ways that threaten the worlds nancial system.

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    2 IBM Corporate Responsibility Report

    Appearances to the contrary, these are not, I believe, unrelated events. They

    constitute a series o wake-up calls on a single subject: the reality o global

    integration. We have become accustomed to reerring to these jolts as system ailures

    or breakdowns. Taken together, they tell us that our planet is becoming integrated

    into a system o systems.

    That is wonderul news i we are wise enough to take advantage o it.

    Technology isnt the issue. For the rst time in history, almost anything can

    become digitally aware and interconnected. Enormous computational power

    can be delivered in orms so small, abundant and inexpensive that it is being put

    into things no one would recognize as computers: phones, cars, appliances,

    roadways, power lines, clothesand even natural systems, such as livestock and

    rivers. All o these digital devices soon to number in the trillionsare being

    connected through the Internet. And all o that data the knowledge o the

    world, the fow o markets, the pulse o societiescan be turned into intelligence,

    because we now have the computing power and advanced analytics to makesense o it all.

    The challenge we ace is to gure out how to use this vast new capability to

    make the world work better, especially or those most in need.

    Today, around the world, we see the inusion o intelligence into companies,

    entire industries and natural ecosystems, which is why you may have been hearing

    about smart power grids, smart healthcare, smart supply chains, smart bays

    and the like.

    In these pages, you will read about IBMs multiaceted response to this shit

    in the global arena or work, society and community. It is a shit we oresaw several

    years ago, causing us to re-examine and transorm IBM in undamental ways,

    in order to be in a position to seize upon its potential. We remade our portolio obusinesses, globally integrated our operations (and mindset) and changed the way

    we manage our company, pushing decision making out and down. Most importantly,

    we took a resh look at our essential reason or being, and collectively renewed

    the core values oIBMers or a new era.

    This report is a description o our progress. But it is also an invitation to you to

    join us in seizing this unique moment in history.

    The time or action is now. From cabinet rooms, to board rooms, to kitchen

    tables around the world, people are ready and eager or new approaches. We are

    witnessing a global consensus in avor o major change. And such a mandate doesnt

    come around very otenperhaps once in a generation, or once in a century.

    I and my ellow IBMers do not intend to waste it. We believe that i the world seizesthis moment to address our most critical challenges, and does so in a truly

    systemic way, enormous and lasting progress can be achieved.

    Certainly, this is no time to retreat into our shells. Quite the contrary, its time

    to go on the oense. Although some companies are reacting to the present

    crisis by hunkering down and hoping to ride out the storm, rom both a business

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    3LETTER FROM SAMUEL J. PALMISANO

    and a societal standpoint, we are taking a dierent approach, across every aspect

    o our companys existence and our relationships with all communities and

    constituencies. In the broadest oIBMs roles, as a global citizen, we believe that

    the issues acing the world are too critical and ar too urgent and the opportunities

    to make meaningul progress on them too immediatenot to act now.

    Indeed, the most interesting result o our smarter planet initiative, to me, is

    how it is causing our business strategy and citizenship strategy to merge.

    The issues we are addressing rom clean water, to sae ood, to sustainable and

    vibrant cities, to green energy, to better schools, to smarter work, and an

    empowered workorceare not a choice between one and the other. They are

    both. And because the complex systems that make up our world today are inherently

    multi-stakeholderbecause they cross the old lines o public sector, private

    sector and voluntary sector, spanning all o civil society the solutions we

    devise will require the most advanced intelligence rom business, rom science,

    rom policy and rom communities around the world.Again, the barrier is no longer technology. What we make o this new reality

    will depend, rather, on how we pursue the timeless goals o all social and economic

    systems reliability, trust, airness, inclusion, sustainability, human rights,

    prosperity and individual empowerment. I believe we must do so in very new ways.

    Building a smarter planet isnt simply a recipe or economic growth; its also a

    recipe or radically expanded economic and societal opportunity. Its not just a

    way to make the planet more ecient, but also to make it more sustainable. Its not

    just a way to do well by doing good; its also a way to do good by helping all the

    worlds regions and people do well.

    I believe thats something or which its worth going on the oense.

    Samuel J. Palmisao

    Chairman, President and Chie Executive Oicer

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    The istdeade o the

    21st etuhas beea seiesowae-up alls.

    IBM Corporate Responsibility Report4

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    5OUR AGENDA

    These are system crisesrom security, toclimate, to ood and water, to energy, tonancial markets and more. Together, they tellus that our economy and society are nowglobally integrated. They also tell us that the

    systems by which the world works must betransormed. In their current orms, they areunsustainable.

    Over the past decade, we have seen, rommultiple angles, that we are all connected:economically, socially, technically, biologicallyand environmentally. When a crisis occurson one part o the planetwhether rommicrobes, malware or mortgages it can bringproblems to the entire planet within days or even hours.

    We can now see that being connected isntenough. The way the world literally works has

    to become smarter.

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    7OUR AGENDA

    Food

    Global food reservesare at their

    lowestlevelin 30 years.

    In 1900, only 13% ofthe worlds population lived

    in cities. By 2050, thatnumber will have risen to70%. We are adding theequivalent of

    sevenNew Yorksto the planet every year.

    Ubaizatio

    Healthae

    In many parts of theworld, healthcare costs are

    rising two times fasterthan economic growth and

    100million

    people are pushed belowthe poverty line by

    personal healthcareexpenditures each year.

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    8 IBM Corporate Responsibility Report

    We have an opportunityand a responsibilityto make the world work better.Happily, now we can. Intelligence is being inused into the way the world literally

    works into the systems, processes and inrastructure that allow services to

    be delivered, that acilitate the movement o everything rom money and oil towater and electrons, and that can help billions o people work and live.

    And although it may be surprising or a company like IBM to say this, the

    primary challenges acing the world are not o technology, but o policy, culture,

    collaboration and purpose.

    In the end, thats what we mean when we talk about building a smarter planet.

    When a business takes a systemic view o the worldwhen you see the economy,

    society and physical environment as a complex, global system it opens up

    new ways o working with all your constituencies communities, clients and

    individualsi was that matte:

    Assist vitims o

    atual disastes

    When disasters strike,

    speed and coordination o

    relie eorts can make the

    dierence between lieand death. Those involved

    need to understand

    quickly what is happening

    on the ground and how to

    make a maximum impact.

    Victims in Chinas Sichuan

    Province, Indonesia,

    Peru, the Philippines and

    Sri Lanka, have beneted

    rom Sahana, an open

    source, Web-baseddisaster relie in a box

    management system. The

    sotware, supported by

    IBM, provides essential

    tools or tracking missing

    persons, coordinating

    relie eorts and manag-

    ing pledges or support.

    Addess ood

    shotages

    Food shortages are elt

    locally, but their causes

    and solutionsare global

    and systemic. Escalatingenergy and grain costs,

    climate change and

    demand or biouel caused

    some ood prices to rise

    by almost 40 percent in

    2008. One way to help is

    to improve the ood itsel.

    IBMs World Community

    Grid is being used to

    compute genetic data to

    develop stronger strainso riceaiming or larger,

    more nutritious yields,

    pest and disease resistance,

    and better water and

    nutrient use.

    Mae eeg gids

    moe efiet

    With businesses and

    societies acing oten

    volatile energy supplies,

    a smart grid can saveelectricity and money and

    the planet, by linking

    smart meters in the home

    with instrumented power

    lines and plants. And

    it even paves the way to

    integrate renewable

    sources like wind and solar.

    IBM today is leading seven

    o the worlds top 10

    automated meter projects.

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    9

    Develop ew models

    o ommuit sevie

    In emerging markets, the

    most critical and challeng-

    ing aspect o long-term

    economic stimulus isdeveloping expertise the

    skills to compete globally.

    In 2009 ve hundred o

    IBMs uture leaders rom

    nearly 40 countries will

    complete assignments in

    our Corporate Service

    Corps. Now in its second

    year, IBMs corporate

    Peace Corps is sending

    teams o employees tonine emerging countries

    to work on projects

    that combine economic

    development and job

    creationpreparing them

    and their local partners

    alike to unction as true

    global leaders.

    Impove eduatioal

    oppotuities

    Education around the

    world aces systemic

    challenges in curriculum,

    teacher training andretention. IBMs multiac-

    eted response includes

    creating the Reinventing

    Education program

    which brings the right

    groups together to identiy

    barriers, develop solutions

    and implement them via

    the BlueSky open source

    portal. IBMs Reading

    Companion voice-recog-nition technology is used

    by more than 700 schools

    and nonprot organizations

    in 22 countries. And more

    than 10 million children

    have beneted rom our

    early childhood interactive

    learning centers.

    Pla the gowth

    o ou ities

    All the worlds systems

    rom transportation, to

    energy, to healthcare, to

    ood, to education andmorecome together in

    our cities. IBM is helping

    cities across the world

    get smarter smart trac

    systems in London,

    Brisbane and Singapore;

    smart crime ghting in

    New York; smart energy

    in Houston; smart water

    in So Paulo; smart

    buildings in Shanghai.The opportunities and the

    innovations keep growing.

    In cities across the world,

    were helping improve

    inormation sharing across

    agencies to provide

    more ecient municipal

    services.

    Peseve at-is

    watewas

    The United Nations

    predicts that nearly hal

    the worlds people will

    experience critical watershortages by 2080 in

    large part because water

    isnt managed as a global

    system. With todays

    technology, we can create

    a reliable, up-to-the-

    minute view o water use.

    IBM and The Nature

    Conservancy are building

    advanced, Web-based

    tools or river basin man-agement. Computer

    simulations in a geospatial

    3-D environment help

    users visualize the possible

    impact on ecosystem

    services and biodiversity o

    dierent policy scenarios

    or land water use.

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    10 IBM Corporate Responsibility Report

    IBM Basis

    IBM is a values-based enterprise o individualswho create and apply technology to make theworld work better. Today, about 400,000 IBMersaround the world invent and integrate hardware,sotware and services to enable orward-thinking enterprises, institutions and peopleeverywhere to succeed on a smarter planet.

    Since its inception, IBM has been a company that denes itsel by undamental

    valuesnot by products, technologies or leaders. Today, shared values are

    more essential than ever beore or enterprises, or individuals and or the

    globally integrating society o the 21st century. In 2003, IBMers worldwide

    came together to renew and dene our core values which now serve as the

    oundation oIBMs culture and brand, and the guide or each IBMers work,

    decisions and relationships.

    Majo Opeatios

    Ou Values

    Consists primarily

    o middleware that

    enables clients to

    integrate systems,

    processes and

    applications, and

    operating systems

    sotware that runs

    computers.

    Our Sales

    organization and

    our Research,

    Development and

    Intellectual Property

    organization

    also deliver value

    to clients.

    Primarily provides

    outsourced IT

    inrastructure

    services and

    business process

    services.

    Provides clients

    with solutions that

    require advanced

    computing power

    and storage

    capabilities, as

    well as leading

    semiconductor

    technology

    and products.

    Primarily provides

    proessional

    services and

    application

    outsourcing

    services.

    GlobalTeholog

    Sevies

    GlobalBusiessSevies

    Sstemsad

    TehologSotwae Othe

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    11IBM BASICS

    IBM entered this economic period rom a position o strength because o

    the changes weve made to our business. TodayIBM operates in more

    than 170 countries, has approximately 400,000 employees, and recorded

    $103.6 billion in revenue in 2008. IBM is very dierent rom what it was 10

    or even veyears ago.

    1.Among the most important drivers oIBMs transormation has been an

    increasing clarity and ocus in our business strategy and in our values-based

    culture to support that strategy.

    2.Our mix o technologies and businesses is signicantly dierent.

    We remixed our portolio toward services, sotware and solutions.

    We invested more than $50 billion in R&D and acquired more than 100

    companies rom 20002008.

    3.We have transormed our processes and the way we run the company.

    A major part o this shit has been to build a 21st century workorce.

    Hired more than 250,000 new employees in the past ve years

    Increased learning opportunities

    And improved our ability to eectively deploy the expert skills

    oIBMers.

    THE PrOFESSIOnAL MArkETPLAcE:

    An application used to quickly deploy talentto clients, organizes the work history and skills oIBMers into 8,290 specialized

    skill sets that include 23 industries and areas o expertise rom business

    intelligence and analytics to virtualization and green solutions. The application

    also contains languages spoken, visa, status and availability.

    4.And our nancial results demonstrate the impact o this transormation.

    2008 revenue was a record $103.6 billion, up ve percent, and we delivered

    a pre-tax margin o 16.1 percent, our points above our results in 2000.

    IBMs Tasomatio

    Segmet Pe-Tax Iome Mix

    Sotware 40%

    Services 40%

    Financing 9%

    Financing 10%

    Services 42%

    Sotware 25%

    Hardware 9%

    Hardware 24%

    2000

    2008

    06 55

    05 55

    04 46

    08 61

    07 58

    Leaig Hous pe Emploee

    Fiaial Peomae Histo

    Dollars in Billions

    04

    96

    05

    91

    06

    91

    07

    99

    08

    $104

    Revenue

    Pre-tax incomeFree cash ow

    $14.3

    $16.7

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    12 IBM Corporate Responsibility ReportEMPLOYEES

    Setio Oe: EmploeesGlobal emploees, global itizes

    Even in the current economic downturn,

    IBM continues to invest in our workorceproviding our employees with skills training,health and wellness programs, andopportunities to gain global experience.

    The speed at which our business is changing is unprecedented, and each

    year we move thousands o people into jobs that are very dierent rom what

    they were hired to do.

    IBM has a large knowledge-based business, so we must constantly evolve

    employee skills based on market demand. There are three undamental waysthat we adjust our skills as requirements change:

    First, we retrain and evolve skills rom within. In 2008 we spent over

    $600 million in training and development$1,700 per employee to enable

    the company to transition thousands o people into new skill areas.

    Second, we hire externally and where there is signicant opportunity we

    make acquisitions. Over the past decade, IBM has made 100 acquisitions.

    Finally, where we need towhen we have people in a skill area or

    geography where client demand does not support itwe rebalance skills and

    make reductions.

    As we continue to evolve as a global enterprise, certain challenges remain

    ongoing: How do we manage and acilitate employee transitions in anincreasingly complex world? And how do we remain engaged with IBMers

    spread across disparate locations and time zones to oster innovation and

    collaboration among our richly diverse workorce?

    IBM has announced a number o commitments on an enterprise level

    or 2009:

    Investing in salary increases or employeesalthough not or executives.

    Continuing to oer perormance-based bonus programs or all

    employeesnot just executives and managersat amounts comparable

    to the prior year.

    Continuing to hire in selected skill groups in all markets.

    IBM is addressing the challenges o managing our human resources in many

    ways, some o which are proled in this section. In 2008, we ocused on several

    initiatives in the areas o employee learning and development, employee

    engagement, diversity, and health and wellness.

    1

    O the Web

    For Web-exclusive content and more on

    our eorts around employees, visit us

    online at ibm.com/responsibility/employees

    50%o IBMs nearly 400,000 employees have

    less than ive years o service.

    40%o IBM employees work remotely, either

    rom home or at a client site.

    8.6millionvolunteer hours logged through

    the On Demand Community program

    since inception.

    ke Peomae Idiato

    Employee Satisaction

    Up to 40% o IBMers are randomly invited

    to participate in our annual Global Pulse

    Survey. The annual averages shown are

    the responses to, Considering everything,

    how satisied are you with your job?

    08 67%

    07 66%

    06 65%

    05 65%

    04 67%03 69%

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    13SECTION ONE

    Uited States

    South Aia

    Uited kigdomchia

    Idia

    In 2008, we instituted cross-geography mentoring on a pilot basis with China,

    India and South Arica with plans to expand the program in 2009 to include

    Brazil, Dubai, Indonesia, Malaysia, the Philippines and Vietnam. The programs

    objectives are to increase the fow o knowledge and develop talent company

    wideovercoming geographic barriers by ostering collaboration and promoting

    cultural intelligence.One o the programs pairs is Danny Chen, a Taiwan-born engineer who

    now works in Austin, Texas, and David Lin, a sotware programmer at the

    Taipei Lab in Taiwan. Chen mentors Lin on the intricacies o the patent process

    and how to develop patentable ideas, and Lin shares important inormation

    with Chen about doing business in China.

    The relationship has already paid o, personally and proessionally. Last year,

    the Taipei lab was awarded ve patentsup rom one in 2005. And a team at

    the lab now publishes a newsletter eaturing a wealth o useul tips or other

    inventors.

    Emploee Leaig adDevelopmet: Global Metoig

    04

    15.3

    05

    18.0

    06

    19.6

    07

    22.3

    08

    23.3

    In 2009, IBM is deploying a new,

    enterprise-wide learning ramework that

    will help IBMers develop capabilities

    that are important to our clients as well

    as their individual career development.

    ke Peomae Idiato

    Total Learning HoursHours in Millions

    Emploee Leaig ad Developmet:

    Busiess Aaltis ad Optimizatio

    Were seeing a rising trend in the number

    o jobs in what is known as BusinessAnalytics and Optimization (BAO), which

    includes high-demand areas like business

    orecasting and business intelligence.

    BAO draws on many disciplinesevery-

    thing rom meteorology and computer

    visualization to Web 2.0 application

    development and organizational psychology

    to biology and computer science.

    Together with our business partners,

    clients and universities, IBM is driving

    innovation around this new class o

    consulting jobs and plans to retrain or hire

    up to 4,000 new analytics consultants

    and proessionals. In second quarter 2009,

    we established a network o Analytics

    Solution Centers, with initial locations in

    Beijing, London, New York, Tokyo andWashington, DC. The centers will enable

    IBM to meet growing client demand or

    advanced analytics capabilities as part o

    new, smarter business systems.

    3

    1

    Mentor: Jon Tilt,

    Chie Test Architect, U.K.Mentee: Srinivas Pinjala,

    Java Technologies,

    India Sotware Lab

    Most recent discussion:

    Intellectual property issues

    3

    Mentor: Marilyn Johnson,

    V.P. Market Development,U.S.

    Mentee: Lenhle Daka,

    Territory Manager,

    South Arica

    Most recent discussion:

    Black economic

    empowerment laws in

    South Arica

    2

    Mentor: Mike Smith,

    Distinguished Engineer,U.S.

    Mentee:Rice Chen,

    Executive, BetaWorks,

    China

    Most recent discussion:

    Leadership skills

    1

    2

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    14 IBM Corporate Responsibility Report

    In the all o 2008, more than 100 IBMers in the U.S. and the U.K. took

    steps to put their years o experience at IBM to work in K12 education. Many

    are already working in the classroom, thanks to IBMs Transition to Teaching.

    The program addresses the need to support our employees as they transition

    rom IBM employment into ullling encore careers such as skilled science and

    math teachers.According to the U.S. Department o Labor, more than 260,000 new high

    school math and science teachers were needed or the academic year 20082009.

    The shortage is also acute in the U.K. and other countries.

    Acknowledging that a shit in vocation takes time and training, IBM helps

    underwrite the costs associated with earning a teaching certicate. Employees

    are eligible or a total o$15,000 or tuition reimbursement or stipends or

    up to a year o eld experience.

    IBM has also orged partnerships with many colleges and universities, state

    education departments and public school districts to help shape the program.

    More than 100 companies have expressed their interest in Transition to Teaching,

    with Intel Corporation launching an initiative modeled ater our program.Transition to Teaching has been so successul that IBM has broadened the

    Transition2 Program to serve the public sector in conjunction with Partnership

    or Public Service as well as higher education and nonprot organizations via a

    strategic alliance with The Bridgespan Group. Over the past year, the Center

    or Teaching Quality (CTQ), in partnership with IBM, has begun documenting

    the eects o this initiative and its potential to serve as a model or corporations

    willing to invest in uture workorce development.

    IBM has long understood that investing in prevention and well-being makes

    sense or our employees as well as our business. Healthy employees tend

    to experience better quality o lie and higher personal productivity, and those

    who discover health problems early tend to get well aster and spend less on

    medical care. Our strategy or improving employee health, while keeping costs

    in check, has our core elements:

    Supporting health system reorm

    Investing in prevention and primary care

    Developing programs or healthy liestyles among our employees

    and community

    Scaling programs and services through Web-based healthcare tools

    Emploee Leaig adDevelopmet: Tasitio toTeahig

    Health ad Welless:cadiovasula ad Diabetes

    Welless pogams i Idia

    Building, energizing and maintaining

    a high-quality workorce is the keyto success o any organizationin thepublic as well as the private sector.

    IBM is leading the way thorough itsclose collaboration with the Partnership

    or Public Service, which resulted inthe Fed Experience program. The goal isto identiy, recruit and hire interested

    IBM employees and retirees and matchthem to key ederal government jobs.

    To meet the countrys most pressingchallenges, government needs the righttalent with the right skills in the right

    jobs, a mandate that provides businesseswith the opportunityand responsibility

    to help revitalize government.Max Stie, President and CEO,

    Partnership or Public Service

    EMPLOYEES

    O the Web

    For more inormation on Partnership or

    Public Service and The Bridgespan Group,

    visit ourpublicservice.org and bridgestar.org

    respectively.

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    15

    One recent example o our preventative programs was a comprehensive

    employee screening eort we conducted in India during 2008, in response to

    what data rom the World Health Organization (WHO) and the Indian

    Medical Association (IMA) have shown to be alarming rates o cardiac disease

    and diabetes in the country.

    The program was organized at ve major locations covering an IBM

    population o almost 45,000, with approximately 18,000 employeesparticipating. Analysis o the participants health risks revealed the ollowing

    group prole:

    29 percent o participating employees below 30 years o age had high blood

    pressure recordings, which exceeds the average rate o hypertension in

    this age group.

    88 percent o employees over 40 years o age have a body mass index (BMI)

    o 25, with 27 percent o them having BMI> 30. A recentWHO study

    indicates a 30 to 35 percent obesity rate (BMI> 30) in the similar age group o

    the general population.

    48 percent o employees over 40 have high asting blood sugar (FBS) values.

    IBM plans to conduct a Health Risk Assessment targeting all IBM employees

    in India, and also to establish a diet and nutrition awareness program to

    help employees address some o the liestyle issues related to cardiovascular

    disease and diabetes.

    Given the speed and diversity o the global marketplacegeographically,

    culturally, ideologicallyour success as a global enterprise depends on

    our ability to work eectively across those dierences and using diversity to

    drive innovation.

    In July 2008, senior leaders across IBM laid out a new charter or a company

    diversity strategy to help saeguard the continued viability and growth oIBM on

    a global scale. As part o the new charter, we are revalidating our diversity

    competencies, integrating them into every development and evaluation process,

    and restructuring programs. Importantly, those revamped competencies

    include ensuring employees have a deeper level o cultural intelligence and the

    ability to collaborate and lead across the globe.

    For example, we noticed that typical IBM international assignments did not

    align with the new strategy. As a result, we are revising our approachdening

    goals to increase global opportunities or high-potential technical and leadership

    talent rom every demographic group. In addition we are providing specictransitional support or employees on assignment regardless o duration. We are

    also creating processes to maximize the application o their experience and

    knowledge ater the international assignments end.

    Divesit 3.0: A new chate

    SECTION ONE

    AessibilitAessibilit & Disabilit

    cetal: The new A&D Central, a Web

    application that will help employees with

    disabilities improve their productivity

    and ind the resources they need to work

    eectively, will be piloted as an IT solution

    this year. The tool will streamline

    accommodation requests or items like

    computer audio screen readers andlive captioning or teleconerences. It will

    also centralize the delivery processes to

    assist employees with disabilities, their

    managers and human resources partners.

    Divesit: Speaig out o GLBT issues

    On September 24, 2008, IBM provided

    expert testimony on the business rationale

    or adoption o Domestic Partnership

    Beneits at the U.S. ederal level. IBM

    was selected to provide the corporate

    perspective and advisement on

    implementation or the public sector.

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    16 IBM Corporate Responsibility ReportMARKET PROFILE

    Maet Pofle:The itesetio o busiess adesposibilit i chia

    To be competitive, any individual, communityor enterprise has to adapt continuouslylearning new skills in new areas. Today, IBMsbusiness is expanding most quickly in thehyper-growth economies spread across AsiaPacic, Latin America, Central and EasternEurope, the Middle East and Aricamarkets

    in varying stages o development.

    This reality demands that we continually look at new approaches to how we

    grow in the communities in which were already workingand develop leaders

    prepared to unction not just locally but also as global citizens and proessionals.

    A program like our Corporate Service Corps, described in this section o the

    report, has a triple benet. It benets communities by solving problems on the

    ground. It benets IBMers by providing them with an exemplary orm o

    leadership training and development. And it benets the company by developing

    a new generation o global leaders.

    $12.2millioninvestment made by IBM in 2008 in China

    talent and skill development, supporting

    both our local and global missions. IBM has

    invested more than $23.5 million in China

    talent and skill development over the last

    three years.

    1946is the year IBM entered the China market.

    The company reentered in 1970.

    employees in 26 oices.18,000

    More than

    $2.6 billionin revenue in 2008.

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    17

    In April 2009, a team o nine IBMers rom Europe, Asia and North America,

    with a broad range o skills, traveled to Chengdu, a city o 11 million in

    Chinas Sichuan Province, or a month-long assignment, as part o the Corporate

    Service Corps initiative. Now in its second year, IBMs corporate Peace

    Corps sends uture leaders, rom all over the globe, to developing countries to

    work in teams on projects where inormation technology is used to oster

    economic development.

    The Chengdu team, or example, worked with local businesses, oeringtraining in corporate governance, nancial management and corporate commu-

    nications, including how to promote cooperation with oreign investors.

    The team also implemented a plan or an integrated IT system and network or

    the Chengdu Chamber o Commerce to help it provide better services to all

    o its member businesses.

    copoate Sevie cops:A Woldwide Pogam witha Loal Emphasis

    Assessig the impat o the copoate

    Sevie cops:The Harvard Business

    School recently studied the eects

    o the IBM Corporate Service Corps andound it has clearly had positive impacts

    on individual participantspersonally

    and proessionallyas well as on the

    communities served.

    Harvard also surveyed 31 o the local

    project hosts to assess their satisaction

    with the program. The vast majority cited

    improvements in their internal business

    processes and their ability to orge new

    and stronger partnerships with other

    private sector, NGO and governmental

    agencies in-country as a result o their work

    with the IBM Corporate Service Corps.

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    18 IBM Corporate Responsibility ReportMARKET PROFILE

    The city o Chengdu in the Sichuan Province

    is a major center o Chinas sotware

    industry and the largest railway hub

    in southern China with our major railways

    converging there. However, the devastating

    8.0 earthquake in May 2008 let the

    economic inrastructure o Chengdu in

    serious need o rebuilding. To help in this

    eort, IBM commissioned a Corporate

    Service Corps team o nine IBMers to

    Chengdu in April o 2009, the irst o three

    teams working in the region.

    100employees were selected or Corporate

    Service Corps assignments in 2008,

    out o 5,500 applicants rom 54 countries.

    Five hundred will receive CorporateService Corps assignments in 2009.

    1,500IBMers will be deployed between 2008

    and 2010. In 2009, teams will work

    in Brazil, China, Egypt, Ghana, India,

    Malaysia, Nigeria, the Philippines,

    Romania, Tanzania, Turkey, Vietnam and

    South Arica. Beginning in the second

    hal o 2009, IBM will deploy the irst

    Corporate Service Corps executive team.

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    19

    The social service sector is stressed by asigniicant increase in the number andtypes o needs that must be addressedand by a reduction in the resourcesavailable to respond to them. However,organizations around the world arereporting an enormous growth in thenumber o people who are volunteeringtheir time and talents. There is a realopportunity to rethink how corporationscan utilize their most valuable assetemployeesto create change, like IBM

    has done with its Corporate ServiceCorps and On Demand Communityvolunteer program.

    Mihelle nu, CEO, Points o Light

    and HandsOn Network

    IBM is working with the Ministry o Education to leverage the open source

    Blue Sky instructional portal, which we developed earlier in our Reinventing

    Education initiative. This will provide access to the latest Web 2.0 unctionality

    and the highest quality educational content or teachers and students in the

    region. IBM is also supporting the China Research Lab in its eorts to develop

    new emergency and early earthquake warning systems and technologies.A Mandarin language version o the Small Business Toolkit, an online portal

    oering a variety o business resources, is being launched in 2009 to support

    young entrepreneurs in Sichuan Province.

    On May 12, 2008, Sichuan Province was the epicenter o an 8.0 magnitude

    earthquake that killed more than 70,000 and let ve million homeless.

    Within 24 hours various IBM teams, including IBM On Demand Community

    volunteers, were mobilized.

    Sahana, an open-source disaster management system, and six IBM high-end

    enterprise servers were donated, congured and installed byIBM expertsto support the Zhongmin Charity Inormation Center under the Ministry o

    Civil Aairs and the Blood Center o Beijing Red Cross Society. More than

    50 IBM development lab and technical support experts worked around the clock

    to customize and translate the Sahana sotware, based on the request o the

    Emergency Command Center in Chengdu City and the National Disaster

    Reduction Center in Beijing.

    Because a large number o schools were destroyed in the quake, IBM oered

    100 KidSmart Early Childhood Learning Centers to the Ministry o Education,

    and these were deployed in the relie villages which had been set up by the

    Government immediately ollowing the disaster.

    Impovig Eduatioalresoues i Sihua Povie

    Eathquae Disaste reliei Sihua Povie, chia

    Sahana, an open source, Web-based disaster relie in a box management system, was

    instrumental in helping the citizens o Chengdu and the Chinese government track missing

    persons, coordinate relie eorts and manage pledges or support.

    O the Web

    For more inormation on the SME toolkit,

    visit china.smetoolkit.org

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    IBM Corporate Responsibility Report20

    Setio Two: commuitiesA sstemi appoah to poblem solvig

    The challenges that communities ace

    educating the young, keeping citizens saeand healthy, attracting and acilitatingcommerce, and enabling the smooth low opeople and goodsare compounded by theserious global economic downturn.

    IBM remains committed to helping solve societal problems through a range

    o programs that bring expertise and skills development where they are

    needed most. We approach these complex issues rom childhood cancer,

    to literacy, to entrepreneurial supportby looking at them systemically

    and engaging our global community oIBMers and our best technology and

    knowledge to reach scale.

    This approach osters innovative problem solving, whether its through such

    well-received programs as the Corporate Service Corps (eatured on pages

    1719), mobilizing millions o users to donate unused computing power through

    World Community Grid, improving literacy skills, or developing new math

    and science curricula.

    Looking ahead, well continue to pursue progressive approaches to problem

    solving and making a positive contribution to improve education, increase

    economic development and alleviate humanitarian crises, as demonstrated by

    the key 2008 initiatives detailed in this section o the report.

    2

    COMMUNITIES

    44countries were represented by Corporate

    Service Corps volunteers during the irst ull

    year o the program.

    68countries beneit rom the work o

    On Demand Community volunteers.

    10millionchildren rom 60 countries are served by

    the KidSmart program.

    1.2milliondevices run World Community Grid.

    O the Web

    For Web-exclusive content and more

    on our eorts around communities,

    visit us online at ibm.com/responsibility/

    communities

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    21

    Service science will completely changethe way people think about economic

    activities and producing economic value.We need these changes becauseindustrial logic has reached its limitswhen it comes to dealing with thecurrent eco logical and economic crises.

    Bed Biezeisle, Fraunhoer Institute or

    Industrial Engineering, Stuttgart, Germany

    SECTION TWO

    The Smate Plaet Uivesit Jam:

    On April 2124, 2009, IBM hosted the irst-

    ever Smarter Planet University Jam. More

    than 150 IBMers and approximately 2,000

    aculty, students and administratorsrom

    more than 200 universities and research

    centers worldwidebrainstormed ideas on

    how technology and business can build a

    smarter planet. The 72-hour online

    dialogue centered on ive themes: Smart

    Cities, Smarter Healthcare, Smart Grid,

    Smart Water Management & Green Planet,

    and Smarter Planet Skills & Education.

    IBM is conducting a post-Jam analysis to

    extract and evaluate the wealth o ideas

    that came out o the three-day session.

    IBM also recognized 20 students around

    the globe or their insightul and innovative

    contributions to the Jam and will present

    IBM Faculty Awards to two top aculty

    contributors to support urther research

    collaborations on smarter planet topics.

    ke Peomae Idiato

    Global Contributions

    We continue to ocus on emphasizing

    technology and services contributions

    worldwide. Non-U.S. contributions continue

    to increase in accordance with strategy.

    Goal:Maintain or increase total level ocontributions globally, as well as the percen-

    tage o technology and services and the

    percentage contributed outside o the U.S.

    2008 cotibutios b Geogaph

    Dollars in Millions

    Latin America$12.5

    Cash$42.9

    Canada$3.4

    U.S.$94.6

    Technology$93.8

    Europe,Middle Eas& Arica$44.4

    TechnicalServices/Personnel$42.9

    Asia Paci$24.4

    2008 cotibutios b Issue

    Dollars in Millions

    HumanServices$15.3

    Health$4.0

    Higher/OtherEducation**$82.6

    K12 Education$45.4

    Environment$2.2

    Culture$10.5

    Other*$19.3

    2008 cotibutios b Tpe

    Dollars in Millions

    *Includes Community and Economic Development activity or Carson, SMB and Corporate Service Corps.

    **Includes Academic Initiatives sotware donations.

    In 2008, IBM signed agreements with the governments o Egypt, Malaysia,

    the Philippines and Vietnam to incorporate Service Science Management andEngineering (SSME) education into their national curricula.

    SSME is an academic discipline designed to help teach students the combined

    business, social and technology skills needed to enter todays workorce and

    be ready to contribute immediately to their countries economic and innovation

    agendas. For the past several years, IBM has been working with universities

    worldwide to develop and promote interest in SSME. As the world becomes more

    instrumented, interconnected and intelligent, it demands new problem

    solving and communication skillsand the ability to address complex systems

    and networks that can serve customers and communities more eectively.

    SSME helps students better prepare or jobs in engineering, management,

    consulting, science, entrepreneurship, design and high-skill knowledge workacross industry segments, rom healthcare to retail to sustainable municipal

    inrastructure systems.

    What started with seven universities launching SSME programs has turned

    into a global initiative with 250 universities in 50 countries now oering

    SSME courses and/or degrees. In March 2009, representatives rom many o

    these academic institutions met in Helsinki at a global Service Science

    Summit conerence. SSME is also promoted by the IBM-led nonprot

    Service Research and Innovation Institute.

    Equippig Studets: Sevie

    Siee, Maagemetad Egieeig Eduatio

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    IBM Corporate Responsibility ReportCOMMUNITIES22

    Recognizing that improved literacy is one o the strongest contributors to

    sustained economic growth, IBM has been committed to improving the literacy

    skills o children and adults around the world or more than a decade.

    One o our key literacy initiatives, the Reading Companion grant program,

    is working to implement our innovative Reading Companion voice-recognition

    sotware in as many countries and schools as possible. The technology iscurrently in use in more than 700 schools and nonprot organizations in

    22 countries.

    Since the program was rst introduced in Mexico City in 2006, it has grown

    to include three Mexican states as well as the Federal Districthelping about a

    thousand students gain essential English language skills and improving their

    interest in reading. In a recent evaluation o the program, Boston Consulting

    Group (BCG) ound that Reading Companion sites are not only seeing tangible

    results in students reading and pronunciation but in other areas as well. For

    example, the evaluation ound that students improve computer literacy and

    become more condent in their computer skills.

    Equippig Studets:readig compaio

    Reading Companion has opened newcultural horizons or our children.With such a wide choice o books toincrease their vocabulary and improvetheir comprehension skills, theyredeveloping a true love or reading.

    Patiia Daz covaubias,

    Executive Director, Christel House de

    Mxico, A.C.

    Our research indicates that the U.S.

    nonproft sector needed 43 percent moreleaders in 2008 than we predicted in2006. To fll this gap we need to connecttalented and experienced peopleincluding those rom the private sectorwith leadership and managementopportunities in nonproft organizationsand in education.

    Were beginning to see how businesscan help address both this need and theneeds o their own employees by assistingwith transitions into new felds. Workingwith Bridgespan, IBM has expanded itsTransition to Teaching program to helpemployees move into positions in the

    nonproft and public sector.Programs like these solve the seriousneed or highly skilled people in thenonproft and public sectors as the waveo baby boomers begins to exit theworkorce.

    Thomas J. Tiee,

    Chairman and Co-Founder,

    The Bridgespan Group

    readig compaio: This Web-based

    literacy program, featuring interactive

    voice recognition software, improves

    reading skills by giving the learner

    individualized feedback and reinforcement.

    Connect: Practicing readers

    are equipped with headset

    microphones that are connected

    to their computers.

    Read: They select an e-book

    from the virtual library

    and read the phrases and

    sentences aloud.

    Understand: The Reading

    Companion software listens

    and then provides immediate

    audio feedback.

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    23SECTION TWO

    Wold commuit Gid:This new cancer

    project could help build smarter health

    systems by delivering better drug treatments

    that could empower individuals to

    customize or target their therapies and

    treatment plans.

    Three million drug candidates:

    The study will determine which

    ones have the potential to

    prohibit the growth o certain

    proteins that are key to cancer

    progression.

    One virtual supercomputer:

    More than 430,000 members,

    with links to more than 1.2

    million computers.

    The Small Busiess o SME Toolit:

    This Web portal is designed to support

    small business growth worldwide, including

    young enterprises in emerging markets and

    women- and minority-owned businesses in

    the U.S.

    Wealth o resources: More than 500

    interactive tools, business orms and

    how-to articles

    Global content: Best-o-breed small

    business content acquired rom major

    providers worldwide

    An online community: Features Web 2.0

    collaborative tools and in-person and

    online training modules

    O the Web

    For more inormation on the SME toolkit,

    visit us.smetoolkit.org

    One o the barriers to the growth o small businesses worldwide is limited access

    to the same tools and resources that are so readily available to larger companies.

    To address this challenge, IBM and the World Banks International Finance

    Corporation collaborated to create the Small Business Toolkit.

    Now translated into 16 languages and deployed in 30 countries, this ree Web

    portal oers a wealth o tools to help new enterprises learn and implement

    eective business management practices and improve their access to capital

    and new markets. In 2008, during the economic downturn, ree resources like

    the Small Business Toolkit helped serve as a lieline or small businesses,

    particularly those in emerging markets.

    In 2004, IBM joined orces with leading science, education and philanthropic

    organizations worldwide to create the largest public humanitarian grid in

    existence. Since then, World Community Grid has been used or research to

    address such pressing global issues as clean energy, world hunger, cancer, dengue

    ever, and the H1N1 and HIV/AIDS viruses.

    In March 2009, IBM and researchers rom the Chiba Cancer Center Research

    Institute in Japan launched a new World Community Grid project to try to

    discover a treatment or neuroblastoma, the most common cause o death in

    children with solid tumorswith survival rates o less than 40 percent. The

    project will try to identiy which o the three million potential drug candidates

    prohibit growth o three proteins believed to be key in the progression o thecancer. All results will be made available to the general scientic community to

    advance cancer biology and drug discovery. Dr. Akira Nakagawara, rom the

    Chiba Cancer Center Research Institute, says, It would take us about 100 years

    using our own computing resources to make progress, but with access to one

    o the worlds largest virtual supercomputers, we estimate to complete this

    project in two years.

    Equippig Etepeeus:Small Busiess Toolit

    Egagig the Wold i PoblemSolvig: Wold commuitGid ad childhood cae

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    24 IBM Corporate Responsibility Report

    Setio Thee: EviometIovatig to avoid o edueeviometal impats

    A dedication to creating solutions that helpprotect the worlds environment is not just partoIBMs smarter planet agenda, it has beenone o the guiding principles o our companyor nearly our decades.

    IBMs longstanding commitment to environmental protection was rst

    ormalized as a corporate policy in 1971. From how we run our operations to

    the products and solutions we provide to our clients, we are committed to

    leadership across environmental areas ranging rom energy eciency and waterconservation to pollution prevention and product stewardship.

    Here we prole some o our most signicant work in the areas o energy

    conservation, climate protection, environmental requirements in the supply chain,

    environmentally preerable materials and the management o end-o-lie

    electronic equipment.

    3

    ENVIRONMENT

    4.9billionkWh o electricity was saved as a result oIBMs annual energy conservation projectsbetween 1990 and 2008.3.3millionmetric tons o CO2 emissions were avoided

    as a result, an amount equal to:

    48%o IBMs 1990 global CO2 emissions, whichtranslates into:$343million

    in energy expense savings.

    O the Web

    For Web-exclusive content and more

    on our eorts around environment,

    visit us online at ibm.com/responsibility/

    environment

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    25SECTION THREE

    IBMs climate protection programs as they relate to our operations ocus on:

    Energy Conservation

    Reducing Perfuorocompound (PFC) Emissions

    Procuring and Fostering Renewable Energy Supporting Alternate Employee Commute Options

    Increasing the Eciency o the Companys Logistics

    EnErGy cOnSErVATIOn: IBMs commitment to energy conservation dates back

    to 1974 and has continued, unabated, over the intervening years. In 2008, IBMs

    energy conservation projects across the company delivered savings equal

    to 6.1 percent o its total annual energy use, exceeding the corporate goal o

    3.5 percent. These projects avoided the consumption o 235 million kilowatt-

    hours (kWh) o electricity and 6.3 million gallons o uel, representing the

    avoidance o 215,000 metric tons oCO2 emissions. The conservation projects

    also saved $32.3 million in energy expense.Two examples o initiatives in 2008 that enabled signicant increases in

    IBMs own data center energy eciency include:

    IBMS MOBILE MEASUrEMEnT TEcHnOLOGy (MMT): Using this thermal mapping

    tool developed byIBM Research, surveys perormed at nine strategic

    IBM data centers with over 30,000 kWo electricity demand identied

    opportunities or a 2,100 kWdemand reduction (7 percent), o which

    approximately 110 kWhave been captured. Work is underway to capture

    much o the remaining opportunity.

    SErVEr cOnSOLIDATIOn: This aspect oIBMs data center program enables

    us to do more work with less energy. In 2008, 19 data centers consolidated

    various server operations, saving 10 million kWh o electricity use and

    $1 million in expense. IBM is also oering these services and capabilities to

    its clients globally, extending the energy and climate benets well beyond

    the companys operations.

    Eeg cosevatioad climate Potetio

    54.5C

    13.0C

    33.7C

    ke Peomae Idiato

    Energy Conservation2008 Savings as Percentage o

    Total Energy Use

    Goal:Achieve annual energy conservation

    savings equal to 3.5% o IBMs total

    energy use.

    Results: In 2008, IBMs energy conservation

    projects across the company delivered

    savings equal to 6.1% o its total energy

    use. (Associated energy cost savings:

    $32.3 million)

    Goal

    Perormance

    3.5%

    6.1%

    A cosevative Appoah: Only savingsrom energy conservation projects are

    credited in IBMs energy conservation goal.

    Energy savings as a result o divestitures

    or downsizings do not count toward the

    energy conservation goal. Moreover,

    IBMs reported results are conservative

    in that they include only the irst years

    savings rom the conservation projects.

    Ongoing conservation savings beyond the

    irst year are not included in the tally.

    Accordingly, IBMs total energy savings

    and CO2 emissions avoidance rom

    these conservation actions is actually

    greater than this simple summation o

    the annual results.

    Mobile Measuemet Teholog:A CT scan or data centers, Mobile Measurement Technology rom IBM

    Research measures 3-D temperature distributions within these acilities. A position monitoring system with a

    network o up to 100 sensors gathers thermal data with unprecedented speed and accuracy. Shown here is a

    temperature mapping o an actual data center, with the red areas highlighting hot spots that require attention.

    Such intelligence can be used or improving spatial use and increasing energy eiciency by as much as 10%.

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    26 IBM Corporate Responsibility Report

    PrOcUrInG AnD FOSTErInG rEnEWABLE EnErGy: In 2008, IBM purchased

    450 million kWh o renewable energy, which represented 8.6 percent o the

    companys 2008 global electricity usage.

    In addition to procuring renewable energy or its own use, IBM is working

    to urther the availability and aordability o renewable energy by investing

    in IT-related research and development.

    ADVAncInG SOLAr TEcHnOLOGy:IBM is exploring our main areas o

    photovoltaic research: using current technologies to develop cheaper and

    more ecient silicon solar cells; developing new thin lm photovoltaic

    devices; pioneering concentrator photovoltaic technology to harness the suns

    power more eciently and cost eectively; and researching uture generation

    photovoltaic architectures based upon structures such as semiconductor

    quantum dots and nanowires.

    DEVELOPInG SMArT GrIDS: IBM is developing and oering solutions to help

    utilities add a layer o digital intelligence to their grids and thus automate,

    monitor and control the two-way fow o energy across operationsrom

    power plant to plug. Smart grids can also incorporate new sustainable energysources such as wind and solar power and interact locally with distributed

    power sources or plug-in electric vehicles.

    rEPUrPOSInG ScrAP SILIcOn WAFErS: Solar energy technology is aected by

    the availability o silicon. IBM has developed a polish process that enables

    the repurposing o scrap silicon waersthe base material used or chips in

    everything rom computers to consumer electronics rom its semiconductor

    manuacturing operations or use in solar panels. The new process is helping

    to reduce the estimated three million silicon waers discarded each year across

    the computer industry, while also providing new supplies o raw materials to

    the solar energy industry.

    ENVIRONMENT

    Renewable EnergyProcuredPercentage o Total Electricity

    The procurement o renewable energy is part

    o IBMs CO2 Emissions Reduction Goal.

    01

    08 8.6%

    O the WebFor more inormation on IBMs environ-

    mental policy and programs, visitibm.com/

    ibm/environment/. For more inormation on

    IBMs programs to reduce CO2 emissions

    associated with employee commuting

    and business travel, as well as product

    packaging design, see our 2008 IBM and

    the Environment report. Visit ibm.com/

    ibm/environment/annual/

    covetig Silio Waes ito Sola Eeg

    Reclamation

    Through a polish reclamation

    process, IBM repurposes scrap

    silicon waers rom its chip

    manuacturing operations.

    Repurposed

    The repurposed waers

    are being reused in internal

    manuacturing calibration

    as monito r waers.

    Solar

    They are also being sold to

    the solar cell industry, to

    meet the growing demand

    or silicon material to

    produce photovoltaic cells

    or solar panels.

    0.2%

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    27

    rEDUcInG PFc EMISSIOnS:IBM releases some perfuorocompounds (PFCs) rom

    its semiconductor manuacturing operations. The companys goal is to reduce

    PFC emissions rom semiconductor manuacturing 25 percent by 2010 against a

    base year o 1995. As o year-end 2008, IBMs emissions were 30.4 percent

    below the 1995 baseline amount o 381,000 metric tons oCO2 equivalent.

    cO2 EMISSIOnS rEDUcTIOn GOAL: Between 1990 and 2005, IBMs energyconservation actions reduced or avoided CO2 emissions by an amount equal

    to 40 percent o its 1990 energy use. To urther extend this achievement, IBM

    set itsel an aggressive second generation goal: to reduce the CO2 emissions

    associated with its energy use 12 percent by 2012 against a 2005 base year through

    energy conservation and the procurement o renewable energy.

    In 2008, IBMs signicant conservation results delivered a 3.4 percent

    reduction in its energy-related CO2 emissions over 2007. The companys

    procurement o renewable energy equaled 8.6 percent oIBMs total

    2008 energy use. Together, these eorts resulted in a 1.6 percent reduction

    in IBMs energy-related CO2 emissions at year-end 2008 rom the 2005

    base year o this goal.

    PrODUcT EnErGy EFFIcIEncy:IBM continues to enhance the ability o its

    hardware products to deliver more computing power or each kWh o

    electricity used with each new generation or model o a product. The new

    server models released in 2008 or which comparable products existed

    delivered rom 1.3 to 93 percent more computing capability or each kWh

    o electricity used than the previous model/product. Inormation on the

    eciency o specic product sets may be ound in the 2008 IBM and

    the Environment report.

    EFFIcIEncy OF LOGISTIcS:IBM is reducing the CO2 emissions associated withtransporting its products through the ecient design o its packaging, working

    with suppliers on their packaging designs and optimizing logistics. In the

    area o logistics, IBM is a member o the U.S. EPAs SmartWay Transport

    Partnership and, in 2008, 86 percent oIBMs spending or shipping goods within

    the U.S. and rom the U.S. to Canada and Mexico was spent with SmartWay

    carriers. IBM also voluntarily applies specic SmartWay requirements to its

    distribution operations globally.

    IBM Global Logistics has also been analyzing its logistics transaction level

    data and utilizing an IBM developed tool, the Carbon Trade-O Modeler, to

    model the interaction among various levers: transportation mode, uel, packaging

    weight, load consolidation, alternate sourcing and service level agreement. Thisinitiative has enabled IBM Global Logistics to make decisions that optimize the

    benets identied rom the Modeler across these levers.

    SECTION THREE

    Goal:Between 1990 and 2005, IBM

    reduced or avoided CO2 emissions by

    an amount equivalent to 40% o its

    1990 emissions through its global energy

    conservation program. IBMs new goal is

    to urther extend this achievement by

    reducing CO2 emissions associated with

    IBMs energy use 12% between 2005 and

    2012 through energy conservation and the

    procurement o renewable energy.

    Results:At year-end 2008, IBM had

    reduced its energy-related CO2 emissions

    1.6% rom the 2005 base year o its goal.

    ke Peomae Idiato

    CO2 EmissionsReductionMetric Tons x 1,000

    Second Generation

    Reduction Goal by 2012

    12.0%

    05 2,543

    08 2,502

    Decrease rom

    2005 Base Year

    1.6%

    ke Peomae Idiato

    PFC EmissionsReductionIn Carbon Dioxide Equivalent

    Goal: Reduce PFC emissions rom semi-

    conductor manuacturing 25% by 2010

    against a base year o 1995.

    Results: As o year-end 2008, IBMs

    emissions were 30.4% below the 1995

    baseline amount o 381,000 metric tons

    o CO2 equivalent.

    08 241,900

    95 381,000

    Actual Reduction

    30.4%

    Reduction Goal

    by 2010

    25.0%

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    28 IBM Corporate Responsibility Report

    EnErGy AnD cLIMATE OBJEcTIVES In THE SUPPLy cHAIn: IBM has had environ-

    mental requirements or relevant subsets o its suppliers or decades. As part

    oIBMs leadership in the Electronic Industry Citizenship Coalition (EICC) and

    the Carbon Disclosure Project (CDP) Supply Chain Project, IBM is increasing

    its ocus on the energy and climate programs o its suppliers. Further described

    in the Supply Chain section o this report, the purpose o this ocus is to

    encourage our suppliers to understand and reduce the greenhouse gas emissionsrom their operations.

    EnErGy AnD cLIMATE rESEArcH:IBMs commitment to climate protection is

    integrated throughout the company and is also a ocus o our corporate

    philanthropy. For example, climate change is the topic o two o the research

    projects selected or the IBM-sponsored World Community Grid:

    AFrIcAncLIMATE@HOME:This project o the University o Cape Town

    is developing more accurate climate models o specic regions in Arica

    that will serve as a basis or understanding the impact o uture climate

    change so that measures to alleviate its adverse eects can be developedand implemented.

    SOLAr cELL rESEArcH: The Clean Energy Project research being conducted

    by scientists in the Aspuru-Guzik research group at Harvard University is

    seeking to discover materials or the next generation o solar cells and later,

    energy storage devices.

    cLIMATE AnD WATEr: Climate is also an aspect o the new computer-modeling

    ramework being developed byIBM and The Nature Conservancy in their

    Water or Tomorrow partnership. The partnership is creating a decision

    support system that can analyze wide-ranging data on climate, rainall, land use,

    vegetation and biodiversity across major watersheds.Through computer modeling and scenario orecasting, users will be able to

    simulate the behavior o river basins around the world based on the varying

    actors and their potential impacts on the watersheds. Rich, three-dimensional

    visualizations o the scenarios will help planners and policy makers understand

    the possible outcomes o various land use and watershed management options.

    This knowledge can acilitate more sustainable management o the worlds

    great rivers to benet both the environment and the people who rely on these

    reshwater resources.

    The project will initially be implemented in the Paraguay-Paran river

    system in Brazil with the goal o replicating the decision support system in the

    Yangtze River in China, the Mississippi River in the U.S. and eventually otherriver systems throughout the world. The tool developed in the rst phase o this

    research will be released in 2009.

    ENVIRONMENT

    Suppl chai:See Energy and Climate

    Programs in the Supply Chain on page 33

    or details on the EICC and CDP Supply

    Chain programs.

    The global economy is placing growingdemands on available reshwater

    supplies, oten altering these naturalsystems and hindering their ability to support communities, livelihoods,businesses and wildlie. The NatureConservancys reshwater conservationeorts involve local, on-the-ground

    projects as well as innovative andstrategic eorts to develop and testnew techniques or conserving andrestoring reshwater systems. But wecant accomplish this alone, so we workcollaboratively with governments,businesses, academic institutions andother organizations to develop

    sustainable water management solutions.In Brazil were currently testing a

    computer modeling ramework developedby IBM researchers and The NatureConservancy that will allow users to

    simulate the behavior o river basins,helping to inorm policy and managementdecisions around the globe.

    Ma Tee, President and CEO,The Nature Conservancy, a science-based

    international conservation organization

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    29

    Among its objectives, IBMs environmental policy calls or the company to use

    development and manuacturing processes and to provide products that are

    protective o the environment.

    EnVIrOnMEnTALLy PrEFErABLE SUBSTAncES AnD MATErIALS:IBM routinely and

    consistently monitors and manages the substances it uses in its manuacturing

    and development processes and in its products. IBMs precautionary approach includes the careul scientic review and

    assessment o certain substances prior to their use in IBMs processes and

    products. In specic instances, IBM has chosen to proactively prohibit, restrict

    or substitute substances used in IBM processes and products when the weight o

    scientic evidence determines an adverse eect upon human health or the

    environment, even when law permits their use.

    In addition, IBM conducts scientic investigations o existing approved

    substances when new processes or major modications to existing processes are

    being developed. The objective o these scientic investigations is to identiy

    potential substitutes that may be environmentally preerable. IBM believes that

    the same scientic rigor is required when investigating the human healthand environmental eects o potential substitutes as was given to the substance

    currently in use.

    MATErIAL SUBSTITUTIOnPFOS/PFOA: One current initiative is our work to

    eliminate PFOS (perfuorooctanesulonic acid) and PFOA(perfuorooctanoic

    acid). PFOS is perhaps most commonly known or its use in stain repellents.

    In the semiconductor industry, these materials have been widely used or waer

    patterning and etching processes.

    Poess ad PodutStewadship

    Maintaining

    healthy forests

    helps regulate

    water availability

    by controlling

    erosion and

    sedimentation.

    People have

    profoundly altered

    river systems by

    diverting water and

    developing lands

    for agricultural and

    urban use

    threatening the

    capacity of our

    rivers to support

    the people, plants

    and wildlife.

    Approximately

    70% of our

    freshwater

    supplies are used

    to irrigate crops.

    The worlds rivers

    and streams have

    been altered by

    unsustainable

    land-use practices.

    Loss of habitat,

    invasive plants and

    animals, over-

    harvesting, climate

    change and

    decreasing water

    quality add to the

    stress on these

    systems.

    More than 20%

    of the worlds

    10,000 known

    freshwater species

    have become

    extinct or

    endangered.

    Less than 1% of

    water found on

    earth is available

    for human

    consumption as

    freshwater. One in

    five people on the

    planet do not have

    adequate access

    to safe, clean

    drinking water.

    Changes to river

    systems are

    having a negative

    impact on people.

    Communities are

    economically

    impacted by poor

    water quality,

    water scarcity,

    increased flooding

    and low levels of

    native fishes and

    birds for food.

    The natue coseva ad IBMs Wate o Tomoow pateship: As our communities grow,

    we make decisions that affect the freshwater ecosystems. How can we effectively balance the multiple

    tradeoffs we face when making decisions that affect the worlds freshwater supply?

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    30 IBM Corporate Responsibility Report

    IBM made a commitment to transition away rom PFOS and PFOAbased

    on growing evidence o their persistent bioaccumulative and toxic properties.

    The commitment began with a prohibition on the development o new

    photoresist materials with these chemicals in 2003, ollowed by a prohibition on

    new uses oPFOS and PFOAin the companys manuacturing in 2007 and a

    goal to eliminate all existing uses o these chemicals by the end o 2009.

    The identication o chemical substitutes that are preerable rom anenvironmental and saety perspective, and yet provide the same necessary level

    o unction as PFOS and PFOA, involves dicult technical challenges.

    In order to eliminate PFOS and PFOArom IBM processes, we have worked

    with our chemical suppliers to develop new ormulations in accordance with

    our specications.

    At the end o 2008, IBM successully completed an extensive, multi-year

    eort at both its New York and Vermont waer development and production

    acilities to eliminate all PFOS and PFOAin the wet etch processes. IBMs

    Vermont acility received the Vermont Governors Award or Environmental

    Excellence in Pollution Prevention or this accomplishment. As we drive toward

    completing the elimination oPFOS and PFOArom our other processes,IBM is actively engaged in the development o next generation, fuorine-ree,

    photolithography chemicals.

    nAnOTEcHnOLOGy: Nanotechnology is the application o scientic and

    engineering principles to make and utilize very small things (dimensions o

    roughly 1 to 100 nanometers). An important aspect o nanotechnology is

    creating materials in the nanoscale, where unique properties enable novel and

    useul application.

    Nanotechnology is already part o a wide variety o productsrom cosmetics

    and sunscreens to paints, clothing and gol equipment. It can make products

    lighter, stronger, cleaner, less expensive and more precise, and has been criticalto the success o the IT industry.

    A pioneer in the eld, IBM has achieved numerous breakthroughs that are

    undamental to the development o nanotechnology. One signicant example is

    the scanning tunneling microscope. As is oten the case with the introduction

    o new technologies, there are some environmental, health and saety questions

    related to nanoparticles because o the relatively limited inormation available

    about them.

    IBM has taken proactive steps to respond to this uncertainty. IBM was one o

    the rst companies to create sae work practices and health and saety training

    or its employees working with nanoparticles.

    IBM is also partnering with governmental agencies and other organizations

    such as the National Institute o Occupational Saety and Health (NIOSH) to

    engage in and support the development o the necessary environmental, health

    and saety inormation that will lead to greater human health and environmental

    protection, and responsible and sustainable nanotechnology development.

    ENVIRONMENT

    ke Peomae Idiato

    Recycled Plastics2008 Percentage by Weight

    Goal: Ensure recycled plastics represent

    5% or more o the total plastics procured

    by IBM and its suppliers annually under

    IBMs corporate contracts or use in IBM

    products.

    Results: In 2008, recycled plastic

    represented 10.3% o IBMs total plastic

    purchases (recycled and virgin plastics).Since the inception o the program in 1995,

    12.7 million pounds o recycled resins

    have been procured under IBMs corporate

    contracts or use in IBM products.

    Goal

    Perormance5%10.3%

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    31

    PrODUcT EnD-OF-LIFE MAnAGEMEnT: As part o its product end-o-lie manage-

    ment (PELM) activities, IBM began oering product take-back programs in

    Europe in 1989 and has extended and enhanced them over the years. Today, IBMs

    Global Asset Recovery Services organization oers Asset Recovery Solutions

    to commercial customers in 57 countries.

    In 2008, IBMs PELM operations worldwide processed 42,302 metric tons o

    end-o-lie products and product waste. These PELM operations reused orrecycled 96.9 percent o the total amount processed and sent only 0.6 percent to

    landlls or to incineration acilities or treatment, versus IBMs corporate goal o

    minimizing its combined landll and incineration rate to no more than 3 percent.

    IBM continues to conduct environmental evaluations o its product recycling

    and disposal suppliers, as it has done since 1991. In 2002, to address general

    concerns about electronic waste being exported to some non-OECD countries

    where it was then being improperly handled, IBM expanded its supplier

    evaluation requirements to include assessments o subcontractors the suppliers

    may use to handle recycling and/or disposal operations in non-OECD countries.

    In addition, IBM has criteria to avoid the sale o technologically obsolete

    or nonunctional equipment to brokers or resale. Moreover, brokers whoprocure used products or parts rom IBM or resale are required to sign

    an agreement not to resell into non-OECD countries i the broker knows or

    has reason to believe that the equipment and/or parts will not be used or their

    originally intended purpose without the need or disassembly or disposal.

    SECTION THREE

    ke Peomae Idiato

    Landill and IncinerationMinimization2008 Percentage by Weight

    Goal:Reuse or recycle end-o-lie products

    such that the amount o product waste

    sent by IBM to landills or to incineration or

    treatment does not exceed a combined

    3% o the total amount processed.

    Results:In 2008, IBMs product end-o-lie

    management operations worldwide

    processed 42,302 metric tons o end-o-

    lie products and product waste, and sent

    only 0.6% o the total to landills or to

    incineration acilities or treatment, versus

    IBMs goal to minimize its combined

    product landill use and incineration or

    treatment rate to no more than 3%.

    Recycled54.4%

    Resold or Reuse31.4%

    Reused7.1%

    Waste-to-Energy

    4.0%

    In Process2.5%

    Incineration0.4%

    Landilled0.2%

    Eal results:Since 1995, when IBM irst

    began reporting the volumes o product

    waste it collected and recovered in the

    companys annual corporate environmental

    report, IBM has documented the collection

    and recovery o more than 1.6 billion

    pounds (729.2 million kilograms) o product

    and product waste worldwide through

    year-end 2008.

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    32 IBM Corporate Responsibility Report

    Setio Fou: Suppl chai resposibilitA ommitmet to ollaboatio

    IBM runs one o the worlds largest and most

    complex supply chainswith more than30,000 supplier locations spread over morethan 60 countries.

    We know that our sizeable purchasing power is a unique resource we must

    manage responsibly. We also know that our strong supplier relationships

    provide us with the opportunity to work with our providers to dene standards

    ethical, social and environmental in the global IT supply chain. We believe

    that the work we do together can improve operational excellence, working

    conditions, and environmental standardsresulting in higher quality goods and

    services or our customers.

    4

    SUPPLY CHAIN RESPONSIBILITY

    36% / 37%Health and Saety 27%

    23% / 32%Working Hours 45%

    14% / 31%Wages and Benefts 55%

    28% / 0%Communications 72%

    1% / 0%Freedom o Association 99%

    0% / 0%Ethical Dealings 100%

    27% / 4%Respect and Dignity 69%

    14% / 8%Record Keeping 78%

    10% / 1%Nondiscrimination 89%

    10% / 1%Child Labor & Regulations 89%

    6% / 3%Environmental 91%

    Forced Labor & Regulations 93% 4% / 3%

    Compliant to IBM code

    Noncompliant (Major)

    Noncompliant (Minor)

    The graph relects cumulative indings o assessments, including suppliers o both manuactured products, sotware and

    services in Argentina*, Brazil, China, Czech Republic, Hunga ry, India, Malaysia*, Mexico, the Philippines, Poland, Romania,

    Slovakia, Taiwan, Thailand and Vietnam*.

    *New in 2008

    ke Peomae Idiato

    Supplier InitialAudit Results

    20042008

    Since 2004 we have conducted more than

    550 audits with suppliers in 15 growth

    markets. Audits were conducted by third-

    party irms with local personnel.

    Supplier Spending$38.5 Billio Total i 2008

    O the Web

    For more inormation on our supply chain

    initiatives, visit us online at ibm.com/

    responsibility/supplychain

    Logistics3% $1.0

    Latin America6% $2.4

    Production30% $11.4

    Asia Paciic30% $11.4

    North America39% $14.9

    Services andGeneral68% $26.1 Europe,

    Middle East, Arica25% $9.8

    2008 b IBM Loatio

    Dollars in Billions

    2008 b catego

    Dollars in Billions

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    33

    During 2008, IBM continued to implement its Supply Chain Social Responsibility

    (SCSR) initiative across its global network o suppliers. By the end o 2008, we

    had completed a cumulative total o 553 initial audits; including expansion into

    three additional growth market countries (36 initial audits): Argentina, Malaysia

    and Vietnam. In 2008, we conducted 136 initial and re-audits, exceeding our

    target o 100. As described, our SCSR deployment is with rms IBM holds adirect commercial relationship with, called rst-tier suppliers. In order to

    urther the coverage o our initiative, in 2009 we are working to engage

    rst-tier suppliers to enable them to expand SCSR activity into the second-tier

    o the IBM supply chain.

    IBMs SCSR initiative includes working with suppliers to develop

    improvement plans that are based on the ndings o our audits. IBM works

    collaboratively with its suppliers on these improvement plans to oer

    commentary based on our extensive knowledge o best practices witnessed in

    the perormance o over 500 assessments. Oten there is a period o exchange

    until we reach agreement on an appropriate improvement plan. The timerame

    or improvements can range rom a matter o days (or easily rectiednoncompliance such as installing exit signs or distributing oIBMs code o

    conduct to workers) to several months or longer (or more complex

    non-compliances such as the establishment o proper management systems).

    In 2008, we reviewed 169 o these supplier improvement plans with suppliers

    that were audited in 2007 and 2008.

    To test the eectiveness o these improvement plans, IBM perorms re-audits

    on a planned requency ater plan establishment. The results o our re-audits

    generally show improvements by the supplier. On the other hand, we have also

    seen that some suppliers in growth markets have not always been able to sustain

    improvements in certain areas such as working hours and health and saety.

    Oten the root cause or unsustained improvements by those suppliers ingrowth markets can be attributed to the suppliers lack o strong management

    systems. This is a conclusion that has become clearer to rms participating in

    the industry group, the Electronic Industry Citizenship Coalition (EICC). The

    EICC, o which IBM is a key member, is working on means to help suppliers

    who continue to need improvement with health and saety and working hour

    compliance. The EICC is also working to deploy Web-based education or its

    members and suppliers and is encouraging suppliers to take advantage o

    third-party educational resources in their local countries.

    In the ourth quarter o 2008, IBM took a signicant step by moving the

    SCSR initiative orward into exploratory work in some new regions that IBM is

    considering or uture sourcing. One such example is Sub-Saharan Arica

    (SSA). By including SCSR in the SSAanalysis, we introduced potential suppliers

    to IBMs supplier code o conduct.

    A commitmet tocotiuous Impovemet

    Eeg ad climate Pogams i the

    Suppl chai: In 2008, we undertook two

    speciic initiatives relative to climate change:

    1. As a member o the Electronics Industry

    Citizenship Coalition, IBM is participating

    in the development o a Web-based

    application that companies in the

    electronics sector can use, along with

    their suppliers, to estimate their

    operational greenhouse gas (GHG)

    emissions as a orerunner to creating

    reduction programs.

    2. As a participant in the Carbon Disclosure

    Projects Supply Chain Project, IBM

    invited 114 o its major suppliers

    to respond to the Carbon DisclosureProjects Questionnaire. These 114

    suppliers represent 80% o IBMs

    expenditures with production-related

    suppliers and 30% o spend with services

    and general procurement suppliers.

    O the 114 suppliers to whom we sent the

    request, 72 suppliers responded to the

    CDP Questionnaire. This 63% response

    rate is relatively high compared to that

    received by other participating companies

    in the CDP Supply Chain Project. IBM

    participated in this endeavor because we

    want to work with our critical suppliers to

    gain an understanding o their operational

    impacts and assess where these suppliers

    are with regard to having a GHG emissions

    inventory and reduction plans. Survey

    responses showed that about one-third o

    production suppliers had reduction plans,

    and about one-hal o non-production

    suppliers had plans. This is an encouraging

    sign, but these numbers highlight the

    inancy o this initiative in the supply chain.

    In 2009, IBM is again participating in this

    CDP program and urther collaborating

    with our core suppliersboth those who

    did and did not respondin order to

    encourage their work to understand

    and reduce their GHG emissions rom

    their operations.

    SECTION FOUR

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    34 IBM Corporate Responsibility Report

    As part o this eort, we conducted audits in SSAcountries with certain

    potential uture suppliers. The results o the audits are being shared with these

    suppliers in order to provide them with clarity about areas in which they need

    to improve. This marks the rst region in which we have enacted this activity in

    the pre-sourcing stage. It gives Procurement visibility to the challenges relating

    to social responsibility input that will be incorporated into the sourcing

    decision process as IBM looks to develop a supply chain in this growth region.

    In 2008, IBM continued its strong involvement in the EICC. It currently holds

    the Chair o the Board position and it has participated in work groups such as

    Communications/Stakeholder engagement, Extractives, and the Validated Audit

    Process. In early 2009, the EICC released its rst annual report, which describes

    the coalition, its history, current projects and recent accomplishments.

    An example o the EICC deliverables IBM uses is the EICC Sel-Assessment

    Questionnaire (SAQ). Not only is IBM a supplier to our customers but we

    also supply other companies in the electronics supply chain. During 2008, IBM

    completed the corporate portion o the EICCSAQ. In late 2008, we createda plan to have IBM manuacturing locations implement the SAQ in support o

    our endorsement o the EICC code o conduct.

    IBM is not only extending SCSR to its suppliers but also including itsel in

    this initiative; this will help us become a better customer in the supply chain

    and will help put us in a better position to consult our suppliers on how they

    too can improve in the mutual objective to drive sustained improvements.

    In 2009, IBM is transitioning rom its own code to using the EICC code o

    conduct and its associated audit questions and Validated Audit Process. We will

    use the EICC audit process or uture assessments o manuacturing/production

    suppliers. The EICC Validated Audit Process is very rigorous and well suited

    or larger manuacturing suppliers. In addition, by converting to this ormat,we will urther support the EICCs objective o eliminating redundant audits in

    the supply chain and increasing the sharing o audit results across multiple

    customers (within the established procedures o the EICC).

    collaboati