353535

Progress Report

36

at a

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nce

Diana Lyon

Program Director

Corporate Environmental Affairs

IBM Corporation

Route 100, Building 2

Somers, NY 10589

(914) 766-2744

dlyon@us.ibm.com

About this report

Welcome to IBM’s twelfth annual report covering global

environmental affairs, workplace safety and employee

well-being.

We view this report as a valuable tool for maintaining a dialogue

with a variety of interested parties, including our employees,

customers, investors, neighbors and regulators. However, we

realize that we cannot address all the interests of these groups in

a single document. We produced this report in accordance with

the Public Environmental Reporting Initiative (PERI) Guidelines,

which we helped to develop. For additional information,

questions or comments on the report, please contact:

Executive responsible for this report:

Wayne S. Balta, Vice President

Corporate Environmental Affairs & Product Safety

IBM Corporation

Route 100, Building 2

Somers, NY 10589

(914) 766-2720

balta@us.ibm.com

This report is also available on

the Internet at

http://www.ibm.com/ibm/environment/

Chairman’s Message 1

IBM & Its Technology for a Sustainable World 2

Employee Well-Being 6

Corporate Policy — Employee Well-Being and Product Safety 12

Environmental Management System 13

Monitoring Supplier Performance 14

Investing in Environmental Protection 16

Audits & Compliance 17

Product Stewardship 18

Energy 23

Pollution Prevention & Waste Management 24

Releases 26

Remediation 28

Water Conservation 29

Recognition 30

Corporate Policy — Environmental Affairs 32

Energy conservation efforts saved

$15.2 million, 271 million kilowatt hours

of electricity and 1.4 million gallons of

fuel, and avoided 157,500 tons of CO2

emissions in 2000.

IBM’s U.S. injury and illness incidence

rate at its manufacturing, development

and research sites decreased 11.5

percent from 1999 to 2000, remaining

significantly lower than the industry

average. IBM’s lost-time injury rates

outside the U.S. continued to be lower

than their respective peer industry rates.

Worldwide chemical releases and

transfers off-site for treatment and

disposal decreased 16 percent in

2000, despite a continued increase

in production.

Hazardous waste generation worldwide

decreased by 15,703 metric tons, or

41.6 percent in 2000. Of the hazardous

waste generated in 2000, 60.7 percent

was recycled.

Plants, labs and administrative facilities

worldwide recycled 77 percent of

nonhazardous waste in 2000.

IBM reduced the percentage of product-

related scrap sent to landfill by its Asset

Recovery Centers by 12.5 percent versus

1999. Only about 3.22 percent of the

material processed was sent by IBM to

landfills in 2000.

IBM was selected for the U.S. EPA’s

National Environmental Achievement

Track, a new program designed

to recognize companies exhibiting

environmental leadership and to

encourage continual improvement.

IBM is one of only two companies

to participate with 100 percent of

its U.S. manufacturing sites.

1

Louis V. Gerstner, Jr.Chairman and Chief Executive OfficerJuly 2001

The pages of this report document IBM’s determination to carry forward into a new centuryits longstanding commitment to protect the environment and ensure the safety and healthof its employees. In 2000, we made strong progress against this vital corporate priority,which is as time-tested as any important aspect of the IBM brand.

❦ Through e-business solutions, we are delivering high-quality health, safety, wellness and environmental programs across our global operations.

❦ Our Well-Being Management System, now implemented at 28 locations in 13 countries, is providing an enhanced global direction for our commitment to ensure the safety and well-being of employees in the workplace and is contributing to the awards IBM continues to receive as a leader in workplacesafety and health around the world.

❦ IBM was the first recipient of the U.S. Environmental Protection Agency’s ENERGY STAR Excellence in Corporate Commitment Award. The award recognized IBM’s worldwide programs to drive energy efficiency in its operations and products.

❦ The effectiveness of IBM’s global environmental management system has beenrecognized through such diverse awards as the Singapore Green Leaf Award forenvironmental protection received by IBM Singapore, a Mexico National EnergySavings Award received by IBM Guadalajara, and an award for eco-compatibleproduct design received by IBM Italy.

❦ IBM’s technological advances continue to drive increased function, performanceand value while consuming fewer resources. We introduced the world’s quietestfamily of mobile hard disk drives, including the industry’s highest capacity notebook drive, which, for the same energy requirements, stores five times thedata of today’s average notebook hard drives. We also continue to pioneer theworld’s fastest silicon-based transistors running on exceptionally low power.IBM’s silicon germanium technology allows us to build transistors that reachspeeds of 210 gigahertz while drawing just a milliamp of electrical current.

Our initiatives extend beyond our own operations. As you’ll see in the first section of thisreport, our products and services are enabling new ways of conducting business, drivingeconomic growth and providing for environmental protection in ways that can help theworld develop and meet the needs of people in a more sustainable manner.

As a global corporate citizen and leader in information technology, we believe we have aresponsibility to apply our resources, our technologies, and most importantly, our minds to help protect our planet and make our world a cleaner, safer, better place.

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Balancing the needs of the world’s people, economies and envi-ronment remains as urgent a priority as ever. Achieving thatbalance is the aim of sustainable development. Many of thesolutions capable of promoting sustainable development arisefrom the knowledge and access to information that form thebasis of IBM’s worldwide business. Realizing that the well-being of the world, as well as its own prosperity, will benefitfrom its efforts, IBM is committed to helping the world developin a more sustainable way.

This is nothing new for IBM, however, as it essentially incorpo-rates the company’s long-held commitments to environmentalprotection and good corporate citizenship. Both bring withthem the responsibility to enhance the environmental, eco-nomic and social quality of the communities in which IBMoperates. Through its operations, its environmental leadershipand its corporate philanthropy, IBM is doing much in thisregard, as this section highlights.

e-businessIBM’s strategic priority of e-business continues to offer positiveopportunities for economic development with environmentalprotection. IBM created the term e-business to capture thebreadth of this revolution, which involves completely rethink-ing the ways in which governments, businesses, organizationsand people all over the world interact and prosper.

Access to marketse-business in a networked world has the power of removingtraditional barriers for people all over the world to take part ineconomic development. It can provide access to markets andbring a wealth of services to people everywhere.

The creation of user-friendly, easily accessible internationalelectronic marketplaces enables a trade environment in whichcompanies of all sizes can enter or expand markets in and from all over the world, and do so with lower costs and greater operational efficiencies. With e-business, a brick-and-mortarpresence can become less significant. You do not have to bephysically located everywhere to sell everywhere.

IBM’s new e-commerce software is enabling worldwide com-merce in another way, by cutting through the costs and com-plexities of selling goods across cultures and countries. Thesoftware, known as WebSphere Commerce Suite Version 5.1,also provides access to Web sites via handheld devices. It sup-ports such functions as region-specific sales tax and shippingrules, customized product catalogs and localized paymentmethods and pricing, helping companies conduct businessmore efficiently across diverse countries.

3IBM’s corporate philanthropy spans the globe with diverse and sustained giving programs.

Information on IBM’s community relations and corporate philanthropy may be found at

http://www.ibm.com/ibm/ibmgives/

as employees in distant places can communicate and collabo-rate electronically across countries and across time zones. Thiscan increase productivity and reduce the energy consumptionand emissions associated with travel.

Distance learning is yet another opportunity for resource effi-ciency. IBM saved more than $350 million last year by moving36 percent of its employee training to an on-line environment.But dollar savings aren’t the only benefit — the on-line educa-tion and training provides just-in-time learning while alsoreducing the travel and time spent in getting to centralizedclassroom education.

Eco-efficient technology IBM has a long tradition of reducing the environmental impactsof its operations and products. One way of reducing impacts isthrough eco-efficiency, which is defined as producing morevalue while using fewer resources. Two examples from IBM’smicroelectronics and storage technology divisions follow here.

In December 2000, IBM announced production of new micro-chips for servers, communications and pervasive computingproducts using CMOS 9S, the most advanced chip-makingtechnology. CMOS 9S unites for the first time IBM’s innovationsin copper wiring, silicon-on-insulator (SOI) transistors, andimproved “low-k dielectric” insulation to build circuits as smallas 0.13 microns (800 times thinner than a human hair). SOI dramatically improves transistor performance — up to 35 percent — while demanding less power. Low-k dielectricinsulation reduces electrical interference that can hinder performance and waste power.

IBM has become the first company to mass-produce hard diskdrives using a revolutionary new type of magnetic coating con-sisting of a three-atom-thick layer of ruthenium, a preciousmetal similar to platinum, sandwiched between two magneticlayers. Informally dubbed “pixie dust” because just a few atomshave such a dramatic impact, the new material is expected topermit hard disk drives to store 100 billion bits of data persquare inch of disk area by the year 2003, quadrupling the density of current products. Though not yet at its full potential,it is being shipped in IBM’s new Travelstar notebook hard disk drive products, doubling their areal density over previous products for the same energy requirements. Increased data densities enable smaller disk drives that consume less energyand stimulate the creation of more capable digital-media anddata-intensive applications.

A look aheadSeveral of IBM’s technologies for the future also bring eco-efficiency potential. For example, cellular computing, in whichscores of tiny processors are integrated directly with memory

Access to informationOne of the greatest benefits of a networked world is the opportu-nity to help close the gap between the haves and have nots. Itcan open up access to information for millions of people,empowering them to engage new global resources never beforeavailable to them. Through new intelligent, portable and satellite-linked devices, people everywhere can use informationstored on powerful remote servers, and services can be offered“virtually”. Examples range from accessing available governmentprograms and agricultural information such as planting adviceand crop prices to obtaining basic health information andremotely accessing medical expertise and diagnoses.

Such access is likely to keep expanding as PC-based computingis overcome by network computing and what IBM calls pervasivecomputing. There are and will be an increasing number of waysto access the Internet through a variety of appliances like wire-less phones and personal digital assistants. Such appliances willbecome more portable, less expensive, increasingly wireless, andeasier to use through natural interfaces like voice recognition.

In addition to its enabling hardware, IBM software is helping to remove language as a barrier to global communication and e-commerce. Web pages, e-mail messages and chat conversationscan be done in multiple languages and in real time by using the IBM WebSphere Translation Server. The server supports bi-directional text translation between English and French,German, Spanish and Italian as well as from English to bothsimplified and traditional Chinese and to Japanese and Korean.

Resource efficiencye-business solutions are making business more resource efficient.One example is optimization of the supply chain. IBM uses its e-business tools to maximize the efficiency of its supply chain,which improves process efficiency and resource utilization,thereby reducing unnecessary inventories and costs and avoidingthe associated waste. The company also has entered into a number of alliances that focus on helping customers managetheir supply chains and logistics for such increased efficiencies.

By substituting the digital for the physical, the Internet also hasthe potential to significantly reduce the resources used in producing goods. Called dematerialization or “servicizing”, a newspaper becomes an on-line service, an instruction manualbecomes an interactive technical service, and a post-operativerecuperation institution becomes a remote medical surveillanceservice for at-home recovery.

Telework and e-conferencing tools represent another dimensionof resource efficiency. As e-business grows and more jobs involveconsiderable use of computers and the Internet, an increasingnumber of jobs can be done from a person’s home rather than atan office. The impact on business travel also can be substantial

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IBM has begun a $100 million exploratory research initiativeto build a supercomputer 500 times more powerful than theworld’s fastest computers. Known as “Blue Gene,” the newcomputer will be capable of operating at one petaflop or onequadrillion operations per second. The massive computingpower will be used for large-scale biomolecular simulation andto model the folding of human proteins in an effort to betterunderstand genetic diseases and develop drugs for them.

And in a look ahead, IBM Research is exploring the potentialof autonomic computing — self-managing computers capableof handling burgeoning amounts of data with far less humandirection. This new computing concept will make computernetworks faster, more reliable, always available, flexible andself-managing. Areas that will benefit are those with comput-ers operating financial markets, finding new gene-based drugs,studying climate and geology or modeling the management ofwaste resources.

Promoting economic growthIBM operations contribute to economies around the world inseveral ways. The company employs over 300,000 people inmore than 160 nations. Through its use of thousands of suppliers, IBM also indirectly supports the employment ofcountless others. In addition, the company promotes economicgrowth through taxes, employee purchasing and more.

In 2000, IBM invested $5.6 billion in research and develop-ment. For the eighth consecutive year, IBM led all companiesin U.S. patents, achieving 2,886. IBM holds nearly 34,000patents worldwide. IBM’s patent leadership is a direct result ofits continued investment in research and development, withfocus on innovative technologies and bringing those technolo-gies to market quickly.

IBM’s technology and the e-business it makes possible contin-ue to be a major force for economic growth around the world.IBM solutions are opening up global markets and playing a significant role in empowering people all over the world to participate in economic development.

The corporation as citizen: societal benefitThe IBM commitment to responsible corporate citizenship islongstanding. IBM’s corporate philanthropy program respondsto needs in the areas of education, arts and culture, humanservices and the environment. In 2000, IBM provided morethan $126 million in technology, technical expertise and cashto schools and nonprofit organizations and efforts dedicated tobenefiting society and assisting those in need. IBM employeescontributed another $49 million and more than 4 millionhours of their own time and expertise to local causes.

“Valuing Diversity: An Ongoing Commitment,” which communicates the importance IBM places on the diversity

of its workplace and marketplace, may be found at http://www.ibm.com/diversity

and communications circuits, moves computing power out towhere the data are. With this comes the potential to drasticallyreduce the size of servers, their power consumption, and theamount of real estate that server “farms” currently require.

Another example is IBM’s announcement in March 2001, withToshiba and Sony, that it will develop a “supercomputer on achip” that will bring more power and capability than DeepBlue — the IBM supercomputer that beat chess master GaryKasparov — to consumer devices while requiring only the lowpower desired for the new handheld products and appliances.

And finally, there’s quantum computing, in which the magnet-ic properties of atoms can be altered to represent 0s and 1s.This might one day change everything, including the funda-mental energy required to compute.

Solving problems through IBM products and servicesThe massive computing power, simulation capabilities and soft-ware advancements of IBM’s technology are bringing increasedunderstanding and swifter solutions to the world’s mostdemanding environmental and scientific problems. Beneficialuses of this technology have ranged from the study of air qual-ity and acid rain to analyses to better understand and preservethe world’s coral reefs and identify critical areas of biodiversityfor conservation. Some recent examples:

In June 2001, IBM delivered the world’s second-most powerfulsupercomputer to the National Energy Research ScientificComputer Center (NERSC) at the Lawrence Berkeley NationalLaboratory in California. The computer will be used to testcomputer models of internal combustion engines in hopes offinding a model that burns less fuel and emits fewer pollutants.It also will be used in global climate modeling and researchinto fusion energy, proteins, the environment and biology.

At the University of Hawaii, an IBM supercomputer code-named “Blue Hawaii” will explore the inner workings of activehurricanes. Donated by IBM to the University, Blue Hawaii isthe technological heir to IBM’s Deep Blue supercomputer. Thecomputer will be used in such areas as hurricane research, climate modeling and weather forecasting.

In August 2000, IBM announced that the U.S. Department of Defense will be using one of the world’s fastest supercom-puters to help Navy vessels avoid maritime disasters. Code-named “Blue Wave,” the IBM RS/6000 SP can process twotrillion calculations per second and will help the U.S. Navycreate the most detailed model ever constructed of the world’soceans. Research performed by the computer is expected toimprove maritime storm forecasting, as well as search-and- rescue efforts.

5

Good corporate citizenship also means strict adherence to highethical standards. IBM’s Business Conduct Guidelines provideguidance on a variety of legal and ethical questions for employ-ees of IBM, including its subsidiaries and affiliates. Employeeswho work in marketing and specialized areas such as govern-ment procurement and regulatory matters also must comply with additional functional guidelines.

Improving educationEducation is vital to a healthy community and a thriving economy, and thus plays a primary role in IBM’s corporate philanthropy. Central to IBM’s commitment is its $70 millionReinventing Education grant program, through which IBM isworking with school partners around the world to develop inno-vative technology solutions to strengthen K-12 education. Grantshave been awarded to programs in Australia, Brazil, Ireland,Italy, Mexico, Singapore, the U.K., the U.S. and Vietnam. Theprogram has demonstrated significantly higher achievement forstudents in grades 7-11, across all core academic areas.

In recognition of its Reinventing Education program, IBM washonored with the Ron Brown Award for Corporate Leadership.The award, managed by The Conference Board, is the onlyPresidential Award honoring companies for outstanding achievements in employee and community relations.

IBM’s focus on education extends to other programs as well:

❦ IBM and the Hispanic Association of Colleges andUniversities are working together to address concerns over the“digital divide,” beginning with a program to bring technologyto higher education institutions supported by HACU. The twoorganizations also will work together to recruit Hispanics topursue careers in information technology.

❦ TryScience, the first on-line worldwide science andtechnology center, at www.tryscience.org, is a collaboration ofIBM, the New York Hall of Science and over 400 memberinstitutions of the Association of Science-Technology Centers.TryScience offers access to science museums around the worldthrough interactive exhibits, multimedia adventures and hands-on science projects for students, parents and teachers.

❦ In South Africa, IBM is assisting social and economicdevelopment through contributions of technology and servicesfocused on primary, secondary and tertiary education and Black economic empowerment.

❦ In Australia, IBM has donated cash and technology tothe National Science and Technology Center to refurbish an interactive exhibit called Mathematica that teaches mathemati-cal concepts to people of all ages but focuses on children.Mathematica is now travelling to other Asian and Pacific

countries. IBM is also providing an innovative literacy programin which teachers in training from the Victoria University ofTechnology School of Education travel to the outback to workwith the Aboriginal children, using computers to help studentsrecord traditional and contemporary folk stories.

Meeting communities’ needsOur world’s overall well-being is tightly linked to the health andvitality of its individual communities, and as a multinational,IBM is mindful of the countries and communities in which itoperates. IBM’s programs aim to protect the environment anduse its technology to help solve problems and improve lives.

In 2000, the IBM Matching Grants Program matched the contributions of U.S. employees to over 550 environmentalorganizations, ranging from international organizations such asthe Nature Conservancy and the World Wildlife Fund to smallergroups preserving lands and habitats in local communities. IBM also works with and supports such organizations as theConservation Fund, the Alliance to Save Energy, the WorldResources Institute and the Environmental Law Institute.

Helping people succeed in the workplace is another way IBM’stechnology can make a difference in communities. IBM hasestablished training centers or awarded grants to nonprofitorganizations providing adult education in Bosnia, Denmark,France, India, Ireland, Portugal and the UK. The objectives ofthese centers and programs range from helping women inBosnia enter the workforce and become self-sufficient to providing computer training for students from economicallydisadvantaged backgrounds in India to providing the unemployed in economically depressed areas of Europe withtechnical skills that complement emerging industries.

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Global Occupational

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● Emergency Services

● Clinical Preventive Services

● Health Promotion

● Worksite Evaluations

● Disability Risk Management

● Education & Training

● Regulatory Compliance

IBM’s commitment to the environment includes the environ-ment in which its employees work. IBM is a recognized leaderin safety and well-being in the workplace, providing medical,industrial hygiene, ergonomics and safety services commensu-rate with business needs. Through its ergonomic task forcesand safety programs, its wellness activities and health-relatedprograms, IBM is dedicated to the well-being of its people andthe safety of the workplace — wherever it does business.

Two years ago, IBM combined its global medical, safety, ergo-nomics and industrial hygiene resources under one organiza-tion, Global Occupational Health Services (GOHS). The resultshave produced high standards of excellence and consistency.In addition, local operations have been able to take advantageof well-being solutions and work efforts from other sitesaround the world. They can also access a wealth of new solu-tions for their well-being programs from a global database.

Well-Being Management SystemIBM’s Well-Being Management System (WBMS) reflects thecompany’s commitment to its employees and makes a strategicdifference in IBM’s business. Designed in 1999, the WBMShas been implemented at 28 locations in 13 countries. Itbegins with a Corporate Policy on Well-Being and ProductSafety (see page 12) that provides executive direction for thisoccupational health, well-being and safety management master plan.

The WBMS is a centralized system that links IBM’s occupa-tional medicine, safety, industrial hygiene and ergonomics programs across geographies to meet the needs of a growingwork force and changing occupational environments. The system assures integrated teamwork and improvements inwell-being that are continual and consistent across geogra-phies. At the same time, it has the flexibility to accommodateindividual programs to meet specific local needs, such as public health in China, preventive dental care in Japan anddriver safety in the U.K.

Last year, IBM targeted nine significant well-being aspects at the global level for special emphasis worldwide. They included well-being skills, ergonomics, fire/life safety, stress management, contractor safety, electrical safety, mobility andinfectious diseases. Each year, this targeting process considersnew and significant global objectives and links them with local well-being activities. For instance, 22 IBM locations set specific targets for improving their ergonomic programs.

The WBMS assures a process that monitors and audits well-being requirements. The system also provides a process bywhich necessary corrective or preventive actions will be takenand both line and top management are kept informed andcommitted to the goals of employee well-being. The followingsections highlight various programs of the WBMS.

Skills development Skills is a critical issue for Global Occupational HealthServices in its mission of improving the well-being of IBMemployees worldwide. Concerns include the scarcity of trainedpersonnel in some areas of the world and the wide variance inexpertise and experience. Accordingly, GOHS allocates sub-stantial resources to enhancing skills, including holding anannual global professional development conference. Skillsassessments are in place for the professions of nurse, doctor,industrial hygienist and safety professional, and cross-trainingin other professional skills is encouraged to allow for maximum flexibility in the use of personnel.

6

7

Other procedures and practices to ensure the proper develop-ment and management of needed skills include project teamscomprised of representatives from different geographies andregions, strategic skills templates, assessment processes andtools, and the precise identification of skills needs within a localorganization.

Workplace safety performanceIBM’s safety record remains one of the best in the industry. ItsU.S. OSHA injury/illness rate consistently has been 50 percentbelow that of industry peers — while the industry’s itself is 40 percent below that of the national average. In 2000, IBM’s OSHA rate at its manufacturing, development and research sites declined 11.5 percent from the previous year. This ratereduction continues a five-year trend in decreasing injury/illness incidents.

In its U.S. manufacturing, development and research sites, IBMachieved incident rate reductions in 2000 in several key areas.These include: a 19 percent decrease in its lost workday caserate; a 19 percent decrease in the away-from-work rate; and a33 percent decrease in the restricted work activity rate.Attention to ongoing well-being initiatives will continue to assistline management in maintaining this kind of performance.

Repetitive trauma disorders continue to be an area receivingattention at manufacturing, development and research sites.Although frequency rates have declined minimally (by 6 percent) year-to-year, the lost-time severity rate decreased by 37 percent. This remains an area of sustained focus for all locations to continue these reductions.

Outside the U.S., IBM’s safety programs continued to achieveexcellent results, as shown on the table on page 8. In all countries, IBM’s case rates were lower than those of its peers,where peer data were available.

In many countries, IBM employees injured in the workplace areeligible for workers’ compensation benefits. When an injury orillness occurs, the objective is threefold: to help restore theemployee’s health as soon as possible; to prevent further occur-rence; and to support the injured employee financially duringhis or her time off from work. In the U.S., the 2000 case ratefor IBM employees was down 13.1 percent from the previousyear, and the total claims cost was down 16.2 percent.

Contractor safetyIBM’s focus on workplace safety extends to the contractorsworking on its premises and includes requirements for qualifying vendors based on their documented safety programs and history.

The program at IBM Mexico’s manufacturing site atGuadalajara has served as a model for other IBM locations.The staff there has instituted extensive guidelines for contrac-tors’ operations. They encompass the execution of all proce-dures of hygiene, safety and environmental engineering.Measurements include accidents and incidents, generated permits, training, frequency rate, contractors’ self-assessments,and compliance with all procedures of hygiene, safety andenvironmental engineering.

Emergency preparedness To ensure both the safety of its employees and the protectionof its assets, IBM maintains emergency response programs atits sites. Plans include safe evacuation in case of chemicalreleases, fire, natural disasters or other emergencies. Responseteams are trained in rescue and control operations, oftenworking with local community emergency response teams.

The IBM site in Burlington, Vermont, has a highly trainedemergency response team whose members receive more than120 hours of training annually. The team works closely withits counterparts in the community. In addition, IBMBurlington has signed an agreement with the Vermont

8

4

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2

U.S. Work-Related Injury/IllnessRate ComparisonsRate per 100 Employees

Total U.S. Industry

Computer Equipment & Electronic Components Industry

IBM Manufacturing,Development & Research

OSHA

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8

Employee Well-Being(continued)

Department of Public Safety to respond with IBM personneland equipment to hazardous waste incidents across Vermont,providing a valuable resource to the state.

In India’s worst earthquake in 50 years, IBM India and theIBM Crisis Response Team worked closely with the Indian government to provide assistance in the disaster relief effort.IBM systems also provided logistical support in the distributionof food and medical supplies and in communications and otherforms of assistance.

Clean roomsAs noted in last year’s report, questions have been raised aboutpossible adverse health effects associated with chemicals insemiconductor and disk drive clean rooms. Lawsuits have been filed by current and former IBM employees and othersfrom some sites in the northeastern U.S. and California againstchemical suppliers and, in some cases, IBM. While IBM sym-pathizes with anyone who develops a serious medical problemand addresses questions like these very seriously, the companybelieves that these lawsuits are without merit.

IBM is always concerned about maintaining safe and healthfulconditions in its facilities. Reviews of operations are routinelyconducted on a periodic basis. These reviews show that the useof chemicals in clean rooms and other areas is being properlymanaged, and that employees are well-informed about the substances present and requisite safety procedures.

WellnessIBM’s wellness process, designed to support behavior conduciveto good health, includes assessing local initiatives and needs,using effective communication and information processingtools and fostering employee involvement in wellness programs.Those programs involve both primary and secondary prevention efforts.

Primary prevention efforts, which are designed to promote andprotect health, include such programs as education, immuniza-tion, protection from accidents and hazards, fitness and nutri-tion, stress management, ergonomics and work/life balance.Secondary prevention includes programs focusing on earlydiagnosis and prompt treatment. Examples in this area includescreenings and surveys, targeted examinations, and diseasemanagement in such areas as cardiovascular disease, cancer,diabetes and asthma.

Note:

Countries shown represent the majority of IBM’s manufacturing operations. The injury

rates assume an average of 2,000 hours worked per employee per year. The U.K. and

Singapore data pertain only to injuries with 3 or more days lost time. Because of the

differences in governmental reporting requirements, a direct comparison between

countries is not appropriate. The peer industry rate is an estimate of the average rate

for companies doing a type of work similar to that done by IBM in that country. Some

country numbers have been updated from prior years.

Lost Workday Case Rate Per 100 Employees

N/A = Not Available 1997 1998 1999 2000

Brazil IBM 0.19 0.15 0.23 0.35

Available Peer Industry 1.68 0.53 0.32 N/A

Canada IBM 0.11 0.06 0.07 0.11

Available Peer Industry 0.49 0.71 0.61 0.61

China IBM — — 0.16 0.15

Available Peer Industry — — N/A N/A

France IBM 0.45 0.36 0.34 0.24

Available Peer Industry 0.92 0.93 0.93 0.94

Germany IBM 0.31 0.37 0.27 0.34

Available Peer Industry N/A N/A N/A N/A

Hungary IBM — 0.36 0.50 0.57

Available Peer Industry — — N/A N/A

Ireland IBM — 0.28 0.23 0.29

Available Peer Industry — — 1.29 N/A

Italy IBM 0.51 0.44 0.58 0.61

Available Peer Industry N/A N/A N/A N/A

Japan IBM 0.00 0.01 0.01 0.00

Available Peer Industry 0.07 0.02 0.09 N/A

Mexico IBM — 0.03 0.00 0.00

Available Peer Industry N/A N/A N/A N/A

Singapore IBM — 0.22 0.11 0.05

Available Peer Industry — 0.06 0.12 0.06

Thailand IBM — 0.04 0.10 0.04

Available Peer Industry — N/A N/A N/A

U.K. IBM 0.07 0.21 0.30 0.19

Available Peer Industry 0.58 0.51 0.54 N/A

U.S. IBM 0.72 0.34 0.46 0.36

Available Peer Industry 1.90 1.85 1.70 N/A

Everyone can access the ergonomics information found in IBM’s Healthy Computing Web site located at

http://www.pc.ibm.com/healthycomputing, which integrates text, graphics and animation to offer a

comprehensive source of information on topics ranging from the proper physical setup of a workstation

to mobile computing and telecommuting.

9

IBM’s GOHS organization is working to transform many of itsWellness programs into e-business solutions to better promoteemployee well-being globally and improve the efficiency, access, usability and quality of delivery of GOHS services. Its strategy is to provide Web-based tools that can be “just-in-time” solutions that meet its employees’ needs and promote a healthy work environment.

A case in point is the new IBM Global Health & WellnessCompanion, which is being deployed initially in Canada, theUnited Kingdom and the U.S. This tool is a highly interactive Web-based health management solution designed to improveemployee health and well-being. Employees and their familiescan complete interactive health-risk assessments, create anelectronic health record, follow targeted health improvementprograms, analyze medical symptoms, learn about medical testsand procedures, and search a vast health library—with all of thenecessary safeguards for security and confidentiality.

Other significant wellness undertakings in 2000 include:

❦ In China, more than 4,500 IBM employees partici-pated in wellness education sessions on a variety of subjectsdesigned to establish a culture of prevention and self-care.

❦ In Japan, more than 3,400 employees took part in avariety of wellness programs, including physical fitness andexercise.

❦ In Singapore, monthly wellness presentations wereprovided for employees, as well as one-on-one counseling services and health screenings.

❦ In the U.S., wellness initiatives included a screeningprogram for cardiovascular disease, diabetes, osteoporosis andmore; an immunization program for influenza and tetanus;stress workshops; and a 10-week Step Into Summer exerciseprogram.

❦ Europe/Middle East/Africa activities included immu-nization programs and screenings in such areas as cardiovas-cular disease, cancer, diabetes and osteoporosis. Health fairsand seminars focused on work/life balance, stress manage-ment, job fitness, women’s health and travel safety.

❦ In Latin America, well-being fairs were held inMexico, Brazil, Peru and Colombia. Safety workshops, wellnesseducation, immunizations and medical check-ups were keyelements on the agendas.

Ergonomics As a leader in ergonomics, IBM continues to enhance itsexisting programs and activities through its WBMS.

During 2000, ergonomic training for all IBM office, remoteand mobile workers across the world was deployed on theIBM intranet in nine language versions. This training alsowas made available on compact disc and as a hard-copy “Web book.” This suite of offerings encompasses Web pages,Web videos and a global campus class.

In addition, training in manufacturing ergonomics was provided at IBM locations in Mexico, Ireland, Hungary,Thailand, Singapore and China. In EMEA, ergonomic training for VDT and ThinkPad users was conducted overthe Web and on-site throughout the region with a specialfocus on employees in emerging countries.

Accessibility/disabilityIBM’s commitment to workforce diversity includes a policyagainst discrimination and a commitment to both integrating people with disabilities into the workplace and ensuring thatthey have the necessary access to the facilities and technologyneeded to perform their jobs.

In 2000, the company continued its emphasis on hiring persons with disabilities, and country organizations wereactive in evaluating the accessibility of their operations, identifying barriers and developing strategies to addressthem. For example, the Asia Pacific Accessibility Centerdefined barriers and developed strategies to address issues forall Asia Pacific countries where IBM has operations.

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10

Employee Well-Being(continued)

In 2000, IGS employees received 15,000 copies of a brochureto increase their awareness of well-being issues. The brochurewas produced in English, Japanese, Portuguese, Spanish andFrench. A revised edition will be available soon for distribu-tion to all IBM employees.

Life safetyIBM uses the U.S. National Fire Protection Association standard for all of its space worldwide. A corporate instructionmandates this code for fire protection and life safety. In 2000, a new global process was announced for integrating therequirements, control points and organizational responsibilityfor life safety requirements for IBM’s leased and owned workspaces.

IBM has enhanced its global loss-prevention program by conducting safety and health reviews in all countries where itdoes business. The aim is to assess work environments using acommon process and set of safety and health criteria. In addi-tion, these locations continue to be evaluated against IBM’sworldwide safety and health standards. In 2000, an estimated149 building reviews were conducted in 40 countries, cover-ing the work environment of more than an estimated 55,000employees. As a result of these reviews, numerous safety andhealth enhancements have been implemented at these locations and improvements made in previous years were confirmed.

New operationsIBM makes it a practice to analyze new operations duringtheir design phase to make certain that safety and ergonomicissues are addressed properly.

Even before last October’s announcement of a $2.5 billionexpansion of IBM’s microelectronics manufacturing capacityin East Fishkill, N.Y., an IBM well-being team was working toensure that the new facility will meet the highest standards.The team’s work includes design reviews, inspections of morethan 600 new manufacturing tools and more than 760,000square feet of facilities, as well as the development of specificsafety and health training programs. Similar well-being plan-ning is being done for a new IBM facility being constructed in Shanghai.

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IBM has a long history of leadership in designing technologysolutions to assist persons with disabilities. The company has been recognized for many years for the accessibility of its workplace and its leadership in providing solutions.

Activities in this effort have now been enhanced and more fully coordinated through IBM’s establishment of its WorldwideAccessibility Center, which consolidated the two groups previously working on accessibility solutions. The Center hascontinued to advance such existing products as the IBMSpeechViewer III, which transforms spoken words and soundsinto graphics, and which has now been translated into 19 languages, and the IBM Home Page Reader, a Web browser forthe blind. The Center also developed a ScreenReader keypad,which is available worldwide, and a voice-controlled mouse.

There have been road shows in the U.S. for the display of prod-ucts; partnerships with companies, such as Sun Microsystemsto codesign a new Java accessibility infrastructure and applica-tion development standards; and a joint undertaking with theUniversity of Texas and Sprint to develop a prototype speechrecognition system for deaf students for real-time speech transcription of classroom activities.

Programs for Global Services employeesLocated all over the world, the employees of IBM’s GlobalServices (IGS) organization help customers assess, design,implement and run the information technology operations oftheir businesses. IGS employees either are mobile or work in anoffice environment. IBM has developed programs to ensure thatthe particular needs of this large group of employees are metand also has extended its health and safety programs to coverIGS employees who work in customer locations.

11

Work/life balanceFor IBM, creating an environment that will support employeeneeds and help create more effective, productive people is notonly the right thing to do but also creates competitive advantageby attracting and retaining the highest quality and most productive employees. IBM has been recognized as a leader inhelping employees manage their personal and work lives. It wasthe first company to institute work/life surveys as an ongoingtool of its human resources strategy. Depending on businessrequirements, work/life programs may include flexible workhours and working from home. Leaves of absence for parentingor other responsibilities also are made available.

In July 2000, IBM announced a $50 million global fund todevelop and support work/life programs in communities whereits employees work and live. To be expended from 2001 through2005, the fund’s primary focus is dependent care programs thathelp employees and their communities respond to the child andelder care responsibilities of working families. These were wide-spread concerns identified in the work/life surveys. Programsalready under development in Canada, Mexico, Ireland,Germany and the U.S. range from new child care centers andscience/technology camps for school-age children to collabora-tions with other companies to expand existing child care centers. “We congratulate IBM,” said Ellen Galinsky, presidentof the Families and Work Institute, “for their efforts to addressthis growing concern. We are hopeful that IBM’s example willprompt other leading employers to implement similar programsfor their employees around the globe.”

For the 13th straight year IBM has been named among the topten companies of the Working Mother magazine “Top 100” list,based on the six criteria of child care, leave for new parents,flexible work arrangements, work/life, and pay and opportuni-ties for women to advance. In addition, Working Woman maga-zine named IBM as one of the top 25 companies for initiativesto advance women as well as fostering a culture that encouragesand supports women in work/life and mentoring programs. IBM was selected for expanding and creating generous work/family programs, including flexible schedules, telecommutingand job sharing.

In Singapore, IBM was one of three organizations honored fortheir family-friendly work environment. IBM was commendedfor its telecommuting program that enables employees to reduce traveling time and achieve a better work/family balance and for its practice of granting up to three years of no-pay leave for study, caring for a first baby or accompanying a working spouse overseas.

RecognitionIBM France was awarded a special “Prix Sante et Entreprise”by the European Health Club for its longstanding and continuing commitment to the well-being of its employees.IBM France also was awarded the Edelman Health, AIDS & Employment Award for outstanding policies and practicesrelating to health information and education, and nondis-crimination practices.

In Ireland, the IBM Dublin Technology Campus won a“Highly Commended” Safety Award from the National IrishSafety Organization/Northern Ireland Safety Group. This elevation to the “Highly Commended” Award follows two consecutive Certificates of Merit for Excellence in health and safety management.

IBM’s site in Greenock, Scotland, received the Sword ofHonour from the British Safety Council.

The Blood Donation Center of S. Raffaele Hospital awardedIBM Medical Services and its Segrate, Italy, employees with a Special Recognition Medal.

In the United States, IBM Charlotte was given an award by the North Carolina Department of Labor/Safety and theHealth Council of North Carolina for the number of employeehours with no injuries or illnesses involving days away fromwork. Both Charlotte and IBM Research Triangle Park werealso honored for having no fatalities and an incidence rate of at least 50 percent below the statewide rate for comparableindustry. IB

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12

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CorporatePolicy

IBM has a longstanding tradition ofexcellence in employee well-beingand product safety. The importancewe place on these efforts is the resultof our commitment to the well-beingof our employees, customers and the communities in which we operate. Like quality, employee well-being and product safety is a fundamental component, a value in our com-pany’s strategic vision and critical to our continued success.

Thousands of injuries have been prevented and several hundred million dollars saved worldwidethrough the excellence of our effortsin these areas. Our product safetyefforts have generated enormous dividends through customer confi-dence in the safety of our products.And our support for improved health through prevention is vital to our innovation, productivity and employee morale.

Corporate strategies, instructions andprocedures in employee well-beingand product safety must support thisIBM strategic company value andensure we continue to:

❦ Provide a safe and healthfulworkplace based on prevention of accidents and injuries

❦ Incorporate employee well-beingand product safety requirements in strategies and plans

❦ Provide adequate training toemployees to ensure they understand andcan perform their jobs safely

❦ Foster employee involvement inworkplace safety and a healthy lifestyle

❦ Perform rigorous audits and self-assessments of our compliancewith employee and product safety requirements

❦ Provide adequate resources to fulfill the objectives of this Policy.

Employee Well-Being(continued)

IBM San Jose was recertified under the Cal/Star Safety andHealth Award program, California-OSHA’s equivalent to theU.S. Occupational Safety and Health Administration’s VoluntaryProtection Program (VPP) Star award.

IBM Storage Products Thailand received the Prime Minister’sIndustry Award 2000, the country’s highest award for excellence in safety management and performance.

The IBM Japan manufacturing site at Yasu was presented withan award by the Minister of Labor for the longstanding excel-lence of its industrial hygiene and health programs, including

hazardous process controls. The award was based on a nation-wide review conducted by the Labor Ministry of corporateindustrial hygiene and health programs.

IBM Singapore received the Silver Award from the Ministry ofManpower in recognition of its outstanding safety programsand management system. It also won the Gold H.E.A.L.T.H.(Helping Employees Achieve Life-Time Health) Award for thesecond consecutive year.

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13

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m IBM’s businessIBM creates, develops and manufactures advanced informationtechnologies that include computer and networking systems,storage devices, microelectronics and software. These tech-nologies are transformed into value for its customers throughIBM’s services and professional solutions businesses worldwide.The data in this report cover the operations at 31 IBM manufacturing, hardware development and research sites in 13countries. A listing of these sites, along with other companyinformation, appears on the inside back cover. Unless other-wise noted, IBM’s major administrative facilities and officesaround the world are covered in most of the data.

Potential environmental impactsIBM operations could potentially impact the environment in anumber of ways. Chemicals needed for research, developmentand manufacturing processes must be properly used, treatedand disposed of. In addition, materials of various kinds areused, certain processes are energy- and water-intensive, andproducts should be designed so that they can be reused, recy-cled or disposed of properly at the end of their useful lives.

IBM’s global environmental management systemFor more than a quarter-century, IBM has maintained a strongworldwide environmental management system. It is a vital element of the company’s efforts to achieve results consistentwith environmental leadership.

Corporate policy and instructionsIBM’s environmental policy, set forth on page 32, is the strategic framework for the company’s environmental affairsobjectives. These objectives include workplace safety, energy conservation, environmental protection and environmentallyconscious products.

This policy is supported by corporate instructions that governIBM’s worldwide operations and are basic to its environmentalmanagement programs. The corporate instructions cover areassuch as chemical management, management and disposal of hazardous wastes, energy management, environmental evaluation of suppliers, environmentally conscious products,incident prevention and reporting, and environmental impactassessment for real estate transactions.

14

Management System

(continued)

Responsibilities and integrationIBM’s environmental management system involves IBM employees across all of its business units in the company’s commitment to leadership in environmental affairs. Its structureand programs ensure that environmental considerations areintegrated throughout the company’s operations.

IBM’s corporate environmental affairs staff is responsible forestablishing a worldwide environmental affairs strategy and alsofor tracking its implementation. The company’s environmentalprograms are implemented by professionals at manufacturing,development and research sites around the world. Local per-formance is overseen by environmental staff at headquarters ofmajor IBM geographic organizations.

Within operating units, IBM employees serve as focal points forenvironmental affairs. This ensures that their organizationscoordinate with other functions on interrelated activities affect-ing environmental issues and programs.

IBM executives are responsible for the safety and environmentalperformance of their organizations. All employees are requiredto comply with environmental laws and with IBM’s own envi-ronmental, health and safety programs as set forth in the com-pany’s Business Conduct Guidelines.

Environmental programs and performance are reviewed by theIBM Board of Directors committee responsible for corporategovernance.

The IBM Environmental Master Plan (EMP)The EMP functions as IBM’s internal measurement and track-ing system and is submitted annually by all manufacturing,development and research sites. The plan measures environ-mental performance in such areas as effluents, chemical useand emissions, hazardous and nonhazardous waste manage-ment, recycling and conservation, and energy.

IBM locations such as office buildings and distribution centersalso report their environmental data internally as part of coun-try annual environmental reports (CAER).

The EMP and CAER provide the data used in this report, aswell as in periodic updates on performance and programs thatgo to IBM’s chief executive officer, the board of directors and itsdesignated board committee. Business units also make use ofthem in analyzing their environmental performance and identi-fying areas for improvement.

Setting the standard: ISO 14001In 1997, IBM established a new global standard for leadershipunder ISO 14001 by receiving the first edition of a singleworldwide ISO 14001 registration. The registration coveredmanufacturing, product design and hardware developmentoperations at all of its business units worldwide. At year-end2000, 27 sites were covered by IBM’s global registration.

In 2000, IBM expanded its global ISO14001 registration toinclude research locations involved in process research (andthus using chemicals). IBM’s Watson Research Center inYorktown Heights, N.Y., completed the registration processand audit and was added to the certificate in early 2001. Thisyear IBM’s Research Center in Almaden, California, is prepar-ing to go through the registration process.

The ISO 14001 Environmental Management System (EMS)standard is a voluntary international standard issued in 1996.It identifies the elements of an EMS needed for an organiza-tion to manage effectively its impact on the environment. Thestandard’s ultimate objective is to integrate the EMS withoverall business management processes so that environmentalconsiderations become a standard part of business decisions.

Because of its longstanding global environmental managementsystem, IBM earned the unique single worldwide ISO 14001registration. Because the IBM system is applied to all world-wide manufacturing and development operations, it fosterscommon solutions, continual improvement and worldwide consistency. The result is a more effective and efficient EMS.The single registration also ensures that IBM will execute thesame EMS anywhere in the world where it does business.

Under IBM’s single global registration, 12 to 14 of the com-pany’s manufacturing and hardware development sites and theCorporate Environmental Affairs staff are audited each yearon a sampling or rolling basis by BVQI (Bureau VeritasQuality International), IBM’s ISO 14001 registrar. Last year, 14such audits were performed by BVQI. These audits of IBM’smanagement system include sampling and verification of theimplementation of IBM’s internal requirements, monitoringand measurement as reported in the Environmental MasterPlan and other tools used to provide the information for thisreport and for management review.

Monitoring supplier performanceIBM is committed to doing business with environmentallyresponsible companies whenever it contracts for supplies andservices. Corporate instructions are designed to prevent thetransfer of responsibility for environmentally sensitive opera-tions to any company lacking the commitment or capability tomanage them properly.

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15

IBM has tens of thousands of supply agreements around theworld with suppliers, subcontractors and vendors. Work coveredby these agreements includes everything from consulting services and off-the-shelf commodities to manufacturing andassembly operations and equipment maintenance. By contract,these suppliers must comply with all applicable regulations andlaws in the performance of their work for IBM.

Through substantive environmental evaluations, IBM alsofocuses on environmental responsibilities for a certain subset ofits suppliers. Although it is neither appropriate nor feasible forIBM to evaluate all of its thousands of suppliers, the companydoes so for certain production-related suppliers based upon thedegree of environmental risk inherent in their operations forIBM and the extent to which their work is unique to IBM. The aim of these evaluations is to assess whether the suppliershave a strong focus on environmental management, includingcomplying with laws and regulations and sound managementpractices.

IBM evaluates all of its hazardous waste disposal vendors, theirfacilities and methods prior to approving them for use — exceptin those few countries where the approved supplier of such services is designated by the government. In order to verify thattheir environmental operations remain satisfactory, vendors are re-evaluated periodically. The same process is followed withproduct disposal vendors, even though IBM conducts much ofthis activity in-house.

Any relevant concern arising during evaluations is addressedwith the supplier or vendor and must be resolved to IBM’s satis-faction. IBM’s conformance with these evaluation programs ispart of its comprehensive audit program (see page 17).

As part of its ISO 14001 leadership, IBM encourages its suppliers to pursue ISO 14001 registration. A copy of IBM’s letter to suppliers regarding ISO 14001 can be found at www-l.ibm.com/procurement/html/supplier.html

IBM shares expertise and technology as appropriate with many of its suppliers. This not only ensures that its products are produced in an environmentally responsible manner, but alsohelps suppliers improve their own environmental performance.

The environmental staff at IBM Guadalajara shared their expert-ise and helped two vendors — one providing packing materialsand one providing printed materials — implement environmentalmanagement systems at their companies. They also participatedin the creation of the Guadalajara ISO 14001 project supportedby the World Bank for the benefit of small- and medium-sizedenterprises in Mexico.

IBM Venezuela provided education on its environmental management system to a supplier involved in equipment repairand parts reutilization and ensured that the supplier receivedappropriate chemical management training. IBM Argentina provided environmental management system education for a number of its vendors.

IBM has worked with suppliers in Asia Pacific to help them shift from using solvent-based paints to using powder coatings for painting metal covers of computers. Powder coatings signifi-cantly reduce volatile organic compound emissions and wastefrom the painting process while providing a more durable finish.

Partnerships and voluntary initiatives IBM partners with and supports the work of a number of envi-ronmental organizations, and participates in voluntary initiativeswith regulators. IBM involvement with the Pew Center for GlobalClimate Change, The World Resources Institute’s Green PowerMarket Development Group and the Climate Savers program with the World Wildlife Fund are included in theEnergy section on page 23.

In addition, IBM’s seven U.S. manufacturing sites were acceptedinto the U.S. EPA’s new National Environmental AchievementTrack (NEAT). Of the 225 companies accepted, only IBM andJohnson & Johnson are participating with 100 percent of theirU.S. manufacturing locations. The program is designed to recog-nize and encourage top environmentally performing companieswith proven records of regulatory compliance, operational envi-ronmental management systems and demonstrated commitmentto continued improvement and outreach to the local communityand the public. Companies make specific environmental com-mitments and are expected to demonstrate continuous improve-ment and communicate progress to their stakeholders and thepublic. Benefits for participating may include regulatory andadministrative flexibility, expedited permit applications and minimized inspections to the extent permitted by law.

16

2000 Environmental Savings & Cost Avoidance $M

Site Pollution Prevention & Operations $50.2

Corporate Operations 5.3

Packaging & Packaging Waste Reductions 1.3

Energy Conservation & Cost Avoidance 39.7

Superfund & Site Remediation Efficiencies 0.5

Insurance Savings* 8.0

Spill Remediation Cost Avoidance** 32.0

Compliance Cost Avoidance** 56.0

Total Savings/Cost Avoidance $193.0

Note:

* Savings achieved through use of RCRA financial

assurance in lieu of environmental impairment

insurance.

** These savings are estimates based upon assumptions.

The figure for spill remediation cost avoidance is

estimated from IBM’s actual experience with

remediation costs. Compliance cost avoidance includes

consideration of penalties, legal fees and business

interruption that are avoided. A figure for penalties

and legal fees was estimated from an analysis of 2000

U.S. EPA data. An estimate for business interruption

was based upon the potential impact of a plant shutdown.

Estimated Environmental Expenses & Savings Worldwide

2000 Environmental Expenses $M

Personnel $ 40.9

Consultant Fees 3.7

Laboratory Fees 3.6

Permit Fees 0.8

Waste Treatment & Disposal 16.7

Water & Wastewater Management Operations 22.2

Air Emission Control Operations 2.7

Groundwater Protection Operations 1.5

Other Environmental Systems Operations 2.3

Waste & Materials Recycling 3.2

Superfund & Former IBM Site Remediation 6.0

Miscellaneous/Other 6.1

Total Environmental Expenses $109.7

Environmental Capital & Expense ($M)

1996 1997 1998 1999 2000

Capital 31 40 64 80 54.0

Expense 95 95 101 107 109.7

Total 126 135 165 187 $163.7

Management System

(continued)

IBM is also a member of the Wildlife Habitat Council, a nonprofit, nonadvocacy group of corporations, conservationorganizations and individuals dedicated to protecting andenhancing wildlife habitat. The WHC helps large land owners,particularly corporations, manage their unused lands in an ecologically sensitive manner for the benefit of wildlife.

In 2000, IBM’s land management and habitat program at thecompany’s new lab in Toronto, Canada, joined that of IBM’sCorporate Headquarters in Armonk, N.Y. and its research lab in San Jose, C.A. in earning certification from the WildlifeHabitat Council. A number of other IBM sites are also pursuing this certification.

Investing in environmental protectionOver the past five years, IBM has spent approximately $270million in capital and $500 million in operating expenses at itsplants and laboratories in order to build, maintain and upgradeits infrastructure for environmental protection and manage itsworldwide environmental programs. It is IBM’s belief that itsfocus on pollution prevention and design for the environmentalso makes good business sense.

IBM has compared its environmental expenses to estimatedsavings resulting from its pursuit of environmental leadership.These expenses include such items as personnel, laboratorytesting, waste treatment and disposal, water and wastewatermanagement, groundwater protection, remediation and otherenvironmental system operations. Savings arise from such practices as chemical use and waste reduction; recycling; energy, material and water conservation; reusable packaginginitiatives; and process improvements from pollution preven-tion. Ongoing savings from previous years’ initiatives are notcarried over in this comparison, which yields very conservativeestimates.

IBM also realizes savings through the avoidance of costs thatlikely would occur were there no company environmental management system. Although not measurable in the same waythat expenses and the aforementioned savings are, such costsdo result in savings for IBM, and a reasonable attempt hasbeen made to quantify them.

Since first initiating this analysis four years ago, IBM’s estimat-ed savings from its pursuit of environmental leadership hasexceeded its environmental expenses by an average of approxi-mately two-to-one.

17

Fines and Penalties:

1996 1997 1998 1999 2000

Number 3 1 4 5 1

Fine ($K) $0.1 $3.5 $2.8 $9.3 $1.9

IBM measures its environmental performance against bothinternal and external requirements. In addition, each manu-facturing and hardware development site undertakes an annualself-assessment, with some functions and operations beingassessed even more frequently.

Every year, 10 to 12 facilities are also audited by CorporateInternal Audit. This independent and comprehensive audittakes from three to four weeks. It focuses on regulatory as wellas internal IBM requirements in environmental, safety andindustrial hygiene, and chemical management programs. TheIBM audit protocol includes provisions for auditing the envi-ronmental management system consistent with ISO 14001.Audit results are communicated to top management, and follow-up, accountability and actions are all clearly delineated.

Accidental spills and releasesIBM sites throughout the world use the company’s Environ-mental Incident Reporting System (EIRS) to report to IBMmanagement on incidents of noncompliance and accidentalreleases. Each incident meeting IBM’s environmental incidentreporting criteria — which either equal or surpass regulatoryreporting requirements — has to be reported through EIRS. Inaddition, each IBM location must have a documented incidentprevention program (including provisions for preventing environmental incidents or their recurrence) and reportingprocedures.

In 2000, a total of 58 accidental releases was reported throughEIRS. Ten of them were contained in secondary containment.Of the remaining 48, 16 involved refrigerants, 12 involvedpetroleum products such as fuel and hydraulic oils, 9 involveddilute water solutions (for example, fire protection water,domestic water, recycled water, secondary hot water, chilledwater and treated wastewater) and 6 involved dilute industrialwastewater. The rest of the incidents included two releases ofsanitary waste, two acid releases and one involving 0.4 poundsof polychlorinated biphenyl. The polychlorinated biphenyl, the suspected source of which was removed long ago, was discovered under one of IBM’s buildings. The contaminatedsoil was removed and no environmental damage is believed to have occurred.

The incident with relatively greatest potential environ-mental impact was the release of 650 gallons of num-ber 2 fuel oil from an emergency generator at an IBMlocation in Irving, Texas. During a scheduled operationof the generator, an in-line pressure gauge came loosefrom the system, causing the spill of oil. Upon discov-ery of the spill, IBM emergency response plans wereactivated immediately, and about 390 gallons of the oilwere recovered. Although approximately 260 gallonsreached the environment, there was no significantenvironmental damage once cleanup was complete.

All other incidents were responded to promptly andhad little environmental impact.

Fines and penalties One significant measure of a company’s environmentalperformance is its record for fines and penalties. In2000, IBM was assessed one fine in the amount of$1,916. This was an administrative fine assessed againstone site in association with documentation relating toits water discharges and water extraction permit.

Over the past five years, IBM has paid 14 fines,amounting to $17,584.

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18

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Center of competenceIBM’s ECP program is supported by its Engineering Center for Environmentally Conscious Products (ECECP) in IBM’sfacility at Research Triangle Park, N.C. The ECECP serves as a center of competence for Design for Environment (DfE)activities and a resource for division environmental specialists,procurement and product development engineers, product recycling centers and suppliers.

Activities in 2000 focused on IBM’s components and materialssuppliers. The ECECP continued to work with IBM’s majorplastics suppliers to promote IBM targets and objectives for theuse of recycled plastics, increasing IBM usage to more than 1.5million pounds of recycled content resin. Evaluations of newplastics with non-halogenated flame retardants also continue tobe a key item.

IBM’s supplier focus also resulted in the revision of theCorporate Environmental Engineering Specification for purchased products, assemblies and parts. This specification isreferenced on all new mechanical and electrical part drawingsused by IBM. It communicates the latest changes in environ-mental requirements to IBM suppliers and is based on the cri-teria of IBM’s internal corporate standard for EnvironmentallyConscious Design for product development.

Through its Product Finishes Laboratory, the ECECP contin-ued its efforts to expand the use of environmentally preferablepowder coatings throughout IBM and its suppliers. In 2000, the usage of powder coatings increased by 50 percent.

The ECECP also supports the Product Environmental Profile(PEP) process, which is an important element of IBM’sEnvironmental Management System. The PEP process is usedto monitor and document the environmental characteristics ofproducts. In addition, it provides a tool for measuring ECPprogress as part of the environmental management system andis a means for evaluating IBM products for compliance withlegal requirements and worldwide environmental standards.

In April of 2001, the Center held its tenth International ECPSymposium in Raleigh, N.C. Attended by over 100 IBM productdesign, procurement, materials reutilization and environmentalspecialists from 11 countries, the meeting provided an opportu-nity to share best practices and product requirements. Thefour-day event included workshops on environmental require-ments in the supply chain, materials recovery center activitiesand emerging environmental issues worldwide.

18

Established in 1991, IBM’s Environmentally ConsciousProducts (ECP) program has brought about industry-leadingpractices in design for the environment, product environmen-tal metrics and product recycling. Its objectives are to:

❦ Develop products with consideration for theirupgradeability to extend product life.

❦ Develop products with consideration for their reuse and recyclability at the end of product life.

❦ Develop products that can safely be disposed of at the end of product life.

❦ Develop and manufacture products that use recycled materials where they are technically and economically justifiable.

❦ Develop products that will provide improvements in energy efficiency and/or reduced consumption of energy.

❦ Develop products that minimize resource use and environmental impacts through selection ofenvironmentally preferred materials and finishes.

IBM’s ECP requirements are included in its IntegratedProduct Development process, a strategic tool used by processand product development engineers. They are also part ofIBM’s environmental management system.

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19

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●

Program metricsIBM’s corporate ECP program measured its progress against goals established at the beginning of 2000. The program metrics continued the corporate focus on energy efficiency, recycled plastics usage and landfill reduction.

IBM’s goals for improving energy efficiency vary dependingupon product type. For personal computers, the 2000 goal wasto qualify 80 percent of new models introduced during the year to ENERGY STAR

® criteria. Of the new personal computer models, 91 percent qualified as being ENERGY STAR-compliant, representing 263 models and configurations introduced. Whilesome new models did not meet the criteria due to functionalrequirements, all personal computer and ThinkPad modelsshipped by IBM included power management technology toreduce energy consumption.

IBM also measured its energy efficiency performance for monitors and office printers against ENERGY STAR criteria. In2000, all 16 new monitors and all four new office printer modelsintroduced by IBM qualified for the ENERGY STAR label.

For servers, the goal was to decrease operating power consumption per unit of work as compared with previous-generation products. Continued progress was made in thepSeries (formerly called RS/6000), which reported a 36 percentreduction; the iSeries (formerly AS/400), with a reduction of 77 to 86 percent and the zSeries (formerly S/390) with a 39 to51 percent reduction.

For storage systems, the goal was to decrease operating powerper unit of storage versus previous generation products. In 2000,a reduction of up to 70 percent in power/storage unit wasreported for hard disk drives (HDDs) versus previous generationproducts; for disk storage systems, the reduction was 21 to 66.7percent; and for tape products, 29 percent.

IBM remains the industry leader in the use of recycled plastics.The corporate goal was to provide a year-to-year increase in the percentage of recycled content plastics used in IBM productswith an ultimate goal of purchasing 10 percent of IBM’s totalplastic procurement volumes as recyclate by 2001. Results farexceeded this goal, with 10.2 percent of plastics having beenmade from recycled content in 2000. This represents anincrease of more than 50 percent from 1999 levels.

For 2000, IBM’s landfill reduction goal was a 10 percent reduction in landfill used by the IBM Asset Recovery Centersversus 1999. This goal was surpassed with a reduction of 12.5 percent in landfill use. Approximately 3.22 percent ofmaterials, or 1,651 metric tons, of the 51,304 tons processedwere sent to landfill during the year.

20

Material substitutionIBM’s design objectives include developing products that canbe disposed of safely at the end of their useful lives. This can involve substituting environmentally preferable materials when concerns over materials presently in use become known.Lead (Pb) is a current example of this.

Lead is used in information technology equipment primarily insolder for interconnections between components and printedwiring boards or cards. The pace of advancements in informa-tion technology, pervasive computing and communicationsdevices is accelerating product disposal, and some believe thatthe increasing numbers of landfilled Pb-bearing products posean increased risk of contamination to groundwater.

Mindful of this, IBM initiated a worldwide program focusingon lead reduction/elimination alternatives that includes keyelements of its business as well as its supply chain, on whichmuch of IBM and the entire IT industry depend. IBM’sMicroelectronics Division is investigating a variety of Pb-freematerials for components, developing Pb-free assemblyprocesses and testing to assess the reliability of Pb-free inter-connections. The effort consists of a major internal develop-ment program and actively working with suppliers andcustomers. IBM also hosted a symposium for its suppliers toshare information and efforts to produce lead-free components.

Product design for added customer valueWhile benefiting the environment, design for environment(DfE) improvements in products also often provide additionalvalue for customers, improving their performance, durabilityand quality and decreasing their cost of operation.

Product Energy EfficiencyPerhaps the single greatest customer benefit from IBM’s environmental design initiatives is the decreased operatingcosts resulting from more energy-efficient technology, saving customers money while decreasing the environmental impactassociated with the generation of electricity.

IBM continues to enhance the power management capabilitiesof its computers through technological advances in both hard-ware and software. For example, a 25 percent reduction inoperating wattage and over 90 percent reduction in sleep statewas achieved with the PC300GL desktop through the intro-duction of new sleep state and suspend technologies. Powerconsumption in IBM’s ThinkPad mobile computers wasreduced through CPU clock throttling and optimized grayscale controls on the display, achieving energy reductions inboth idle and sleep states. In IBM’s CRT technology, an energyreduction of 20 percent in operating watts was achieved acrossthe various sizes as well as a 45 percent improvement across

standby states. Flat panel monitors continue to provide superior energy performance to conventional CRTs with morethan 50 percent reductions in power consumption.

In 2000, IBM was one of the first companies to sign the Codeof Conduct for External Power Supplies introduced in Europe.Addressing power losses associated with the AC adapters formobile computers, the agreement demonstrates IBM’s leader-ship and sustained focus in all areas of product energy efficiency.

Product UpgradeabilityIn addition to providing environmental benefits by reducingthe need to discard older machines and build new products,product upgradeability also provides a major benefit to cus-tomers who want to preserve their investments in existingproducts while upgrading product performance. Wheneverpossible, IBM strives to provide upgrade options for products.In addition, many components, such as microprocessors andhard disk drives, are designed for replacement as higher performance components become available. For example:

The NetVista A40 includes 6 expansion slots that can be used to upgrade systems with features such as extra harddrives, rewritable CD drives, Zip drives or cable modems.Additionally, the NetVista A40 includes up to 7 bays for disk drives, hard drives and other storage devices, and memory can be expanded from 64MB to 256 MB.

The eServer pSeries model F80 can be upgraded with 1, 2, 4 or 6 processors. Memory can be upgraded from 512 MB to 32GB. The system includes multiple expansion slots anddrives for feature upgrades.

IBM’s second-generation 2105 Enterprise Storage Serverfeatures hot-swappable disk drives plus hot spare drives foradded reliability. The first generation boxes are upgradeableto second generation, which store up to 11.2 terabytes of data.The 2106 Modular Storage Server has not only hot-swappabledrives but also other hot-swappable, redundant components,including power supplies and controllers, and accommodatesup to 4 terabytes of data.

Product materials reductionsCustomers looking for lighter and smaller products also benefitfrom design efforts to reduce the amounts of materials used inproducts. One example is IBM’s NetVista X40 all-on-onedesktop PC, which integrates a 15-inch flat panel display witha full function computer, providing a system that is 75 percentsmaller than traditional desktops. The X40 not only fits intotight office spaces, it offers a 34 percent reduction in overallweight and uses less plastics, metals and other materials.

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21

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IBM Asset RecoveryCenters’ Annual LandfillReduction Performance

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Saving on suppliesThe cost of supplies like paper, toner and print cartridges cansignificantly add to the total cost of operating a system. IBM’sPrinting Systems Division has implemented a number of newtechnologies to reduce the usage and disposal of supplies. Tohelp conserve paper, all of IBM’s laser printers are availablewith duplex capability. The offering of a pinless paper drive forthe InfoPrint 3000 and 4000 models allows printing on contin-uous form paper without the tractor drive holes. This eliminatespaper waste by allowing printing to the edge of the paper. Theimplementation of Fidelity Manager, which reduces toner andpaper waste by limiting printer contrast drift, has been extendedacross multiple printers. Software calibrations across multipleprinters for toner half tones also conserve toner.

Product end-of-life programsAs part of its Product End-of-Life Management (PELM) activities, IBM began offering product takeback programs inEurope in 1989 and continues to expand and enhance theseofferings. Currently, there are product recycling programs in 15 countries across North America, Europe and Asia.

In the United States, IBM expanded its previous commercialoffering and added the new IBM PC Recycling Service, allowingconsumers and small businesses to recycle any manufacturer’sPCs, including system units, monitors, printers and optionalattachments. Certain refurbished hardware will find a new life benefiting charities typically lacking funding for computerequipment. A similar program has also been announced by IBMCanada, with some hardware finding new life through donationto schools in Canada. More information on IBM’s product recycling programs in the various countries may be found athttp://www.ibm.com/ibm/environment/products/prp.phtml

IBM operates nine major Asset Recovery Centers around the world. Additional locations support parts return and regional collection. In 2000, 51,304 metric tons of manufacturing scrap, IBM-owned end-of-life machines and customer-returned equipment were processed through these operations. Only 3.22 percent of this amount was sent to landfills by IBM.

The Asset Recovery Centers share recycling and dismantlingexpertise to increase recycling efficiencies and reduce theamount of waste sent to landfills. They also share their experi-ences and recommendations with IBM product developmentteams to ensure that issues affecting the end-of-life manage-ment of products can be addressed early in the design of newproducts.

22

Packaging programsIBM’s Worldwide Distribution organization developedEnvironmental Packaging Guidelines in 1990. Periodicallyupdated, they provide a reference and working tool for IBM’spackaging engineers, designers and suppliers to minimize environmental impacts when evaluating packaging material and distribution process alternatives for IBM products, suppliesand parts.

The Guidelines provide direction for:

❦ banning ozone-depleting expansion agents and heavy metals

❦ excluding polybrominated biphenyls (PBBs) and polybrominated biphenyl oxides (PBBOs) from all IBM packaging materials

❦ minimizing toxic elements in packaging materialsand the by-products of their manufacture

❦ identifying methods, processes, programs and package designs to reduce the volume in the solid waste stream

❦ promoting the use of packaging materials that are reusable, recyclable and/or contain recycled content.

Achievements and activities in packaging included:❦ The development and implementation of a packagingmaterials database to document packaging material weights and types and to facilitate country reporting requirements and the payments of tariffs and fees. The database includes a classification system for packaging materials based on theirenvironmental characteristics that can be used to promote and track selection of environmentally preferable materials.

❦ A program in Japan focused on enhancing theruggedness attributes of IBM ThinkPads to further reduce thepackaging needed for shipping. By carefully evaluating compo-nents that could be damaged during transport and improvingtheir mountings, IBM was able to switch to all paper packagingfor the ThinkPad T20. Package size was reduced by nearly 50 percent with a net savings of more than $2 million. Thetechnique will be used for follow-on models of the T-series laptop computers.

❦ IBM’s server hard disk packaging is being made from plastic recycled from milk bottles. Its nest-able designallows 500 percent more packs per pallet and saved $267,000in materials in 2000.

RecognitionIBM received the U.S. Environmental Protection Agency’s2001 ENERGY STAR “Excellence in Corporate Commitment”award. ENERGY STAR awards recognize trend-setters for theirleadership in voluntarily reducing energy use and preventingpollution. This was the first year that the EPA has given the“Excellence in Corporate Commitment” award and IBM wasthe sole winner.

IBM Tucson won the 2000 Governor’s Pride in Arizona awardin the recycling category for its use of recycled plastic resin inthe 3584 and 3494 tape libraries. The award recognizes effortsin sustaining and improving the Arizona quality of life.

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(continued)

23

IBM Electricity Use and CO2 Emission Data

Electric Use CO2 (est)Million kWhrs Tons (000)

1996 6,187 4,286

1997 5,820 4,031

1998 5,898 4,085

1999 5,800 3,951

2000 5,325 3,412Note: 1. The above figures include estimates for

portions of IBM’s office space that are leased.2. CO2 emissions are calculated for all energy

use, including electricity, fuel oil and natural gas.

IBM Energy Conservation and Avoided CO2 Emissions

Cumulative CumulativeElectric Savings Avoided CO2

Million kWhrs Tons (000)

1996 390 241

1997 610 331

1998 853 436

1999 1,007 511

2000 1,089 541

Note: The above annual figures represent results from each year’s new conservation programs, plus results from programs of previous years (which are discounted by 25% per year). Savings prior to 1995 are not included.

IBM’s energy management program dates back to 1974 when aformal policy was issued calling for the conservation of energyand materials in the design and manufacture of IBM products.

Objectives and examplesThe objectives of the IBM energy program are to achieve andsustain progress in:

❦ Improving the environment in which we live by maintaining a position of leadership in energy conservation.

❦ Reducing costs and increasing competitiveness and shareholder value through gains in energy efficiency.

The worldwide cost and energy use by IBM have been signifi-cantly reduced over the years by conservation efforts involvingchanges in manufacturing processes and facility infrastructure.Those efforts range from high-efficiency motors and lighting tothe reduction of reheat energy and the use of free cooling. Costavoidance actions have included peak-demand shaving and thepurchase of higher-voltage electricity. Operational efficiencieshave been achieved by consolidating space and operations.

Corporate goal and results The IBM corporate conservation goal is to achieve annual energy conservation savings equivalent to 4 percent of the company’s annual fuel and electricity use. IBM includes in itsgoal only the results of conservation projects. Reductions inenergy consumption from downsizings, consolidations, the saleof operations or cost avoidance actions are not included.

A key element of IBM’s energy conservation objective is minimizing carbon dioxide emissions through burning less fueland using less electricity. In 2000, efforts in this area reduced electricity use by 271 million kilowatt hours and fuel use by the equivalent of 1.4 million gallons of oil. These savings represent 4.72 percent of IBM’s total energy use in 2000.Worldwide emissions of 157,547 tons of CO2 and other combustion-related gases were avoided, and savings of approximately $15.2 million in expenses were realized.

Over the past 10 years, IBM has conserved an estimated 8.9billion kilowatt hours of electricity. As a result, the companyhas avoided approximately 5.6 million tons of carbon dioxideemissions and saved approximately $527 million in expense.

Recognition and partnershipsIBM was a charter company of Climate Savers, a partnershipwith the World Wildlife Fund and the Center for Energy andClimate Solutions to help businesses voluntarily reduce

emissions of greenhouse gases. Having already achieved an estimated 20 percent reduction in global CO2 emissionsthrough energy conservation efforts from l990 through 1997,IBM pledged to achieve average annual CO2 emissions reductions equivalent to 4 percent of the company’s annualenergy use through 2004 from a 1998 baseline. The nonprofitCenter for Energy and Climate Solutions verifies the levels ofCO2 emissions.

IBM is also a member of the Green Power Market Develop-ment Group, a group comprised of leading multinational corporations, the World Resources Institute and Business forSocial Responsibility. Its objective is to help accelerate thedevelopment of cost-competitive green power solutions and foster market demand for environmentally and economicallysound energy.

In 2000 IBM became affiliated with the Pew Center on GlobalClimate Change. As a new member of the center’s BusinessEnvironmental Leadership Council, IBM will help explore howbusinesses can become part of the solution to climate changewhile sustaining a growing global economy.

IBM’s site in Guadalajara received a National Energy SavingsAward in the large-company category, presented by then-President Ernesto Zedillo of Mexico. The award is given by the National Federal Commission to industries and institutionsthat demonstrate excellence in the use of electrical energy.

In Canada, the IBM Bromont site has been recognized forenergy innovation by the federal government’s Office of EnergyEfficiency. Bromont was cited for the results and overall contribution of its energy efficiency programs.

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have had as their working philosophy the pinpointing of apotential problem before it becomes an actual one. One way toprevent pollution is to reduce the generation of hazardouswaste at its source. Examples of IBM’s source reduction actionsinclude redesigning processes to eliminate chemical use; opti-mizing processes to reduce chemical use; and substitutingchemicals to replace those that are less environmentallypreferable. For the waste that is generated, IBM strives to prevent pollution through a comprehensive, proactive wastemanagement program.

Pollution prevention through source reductionIBM measures the change in its generation of hazardous wastefrom manufacturing and hardware development operations relative to output. Through this metric, IBM can track howwaste from these processes changes as a result of actions toreduce hazardous waste at its source, while also accounting for increases or decreases in output.

The IBM hazardous waste reduction metric involves an annual correlation of output data from IBM’s principal products withthe hazardous waste generation associated with these products.Where appropriate, the index also may incorporate a measureof technology complexity, which is a key element when defining output in a high-technology industry. Because this particular metric seeks to track changes in the initial genera-tion of IBM’s waste resulting from source reduction actions, itdoes not include waste that is recycled in closed loop systems.

In 2000, this hazardous waste reduction metric encompassedapproximately 90 percent of IBM’s manufacturing and development-related hazardous waste, which came from 10sites. Based on this, IBM’s source reduction efforts reduced the generation of hazardous waste by 620 metric tons or 4.5percent relative to output. This means that, had it not been forsource reduction efforts, IBM’s 2000 hazardous waste wouldhave been 620 metric tons higher, due solely to greater output.

Waste managementIBM manages the waste that it generates (both hazardous andnonhazardous) according to a waste hierarchy that requires, inorder of preference:❦ reduction❦ reuse❦ recycling❦ chemical or physical treatment❦ disposal (only as a last resort)

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IBM Hazardous Waste Management Worldwide 2000 Quantities — 22,087 Metric Tons

IBM Total Nonhazardous WasteGenerated and Recycled WorldwideMetric Tons x 1,000

1996 1997 1998 1999 2000

Total Recycled

Total Generated

Recycled %

Hazardous wasteIBM’s total hazardous waste figure includes waste from non-manufacturing, manufacturing and development operations.Waste from manufacturing includes waste recycled in closedloop systems where process chemicals are recovered for subsequent reuse, rather than disposing of the waste and using new chemical supplies.

From 1999 to 2000, IBM’s total hazardous waste decreased by 15,703 metric tons or 41.6 percent. This substantial reduc-tion was due primarily to the August 1999 completion of aproject that eliminated the use of perchloroethylene in aclosed loop recycling stream at IBM’s site in East Fishkill, N.Y. This resulted in an increase in the relative proportion of wastethat IBM sent to landfill, though the landfill amount actuallydecreased by 1318 metric tons from 1999. In 2000, approxi-mately 61 percent of hazardous waste generated was recycled.

As is shown by the chart on the previous page, over the past five years IBM’s total hazardous waste decreased by 65 percent. This decline can be traced mostly to pollution prevention initiatives in manufacturing operations, althoughsome of it can be attributed to the sale of some operations.Hazardous waste generated and managed by IBM has declined by 90 percent since 1987.

Nonhazardous wasteAs of January 1, 1999, IBM modified its nonhazardous wasterecycling goal by dividing nonhazardous waste into two wastetypes: Category 1 and Category 2 waste, with recycling goals of67 percent and 35 percent, respectively. Category 1 waste con-sists of the more recyclable waste: cardboard, paper, metal,plastic, wood, glass, construction debris and ordinary trash.

The new goals focus strongly on the less easily recycled Category 2 waste, which includes all nonhazardous waste notdefined as Category 1 waste. Examples of Category 2 waste arebatteries, deionized water plant resin and nonhazardous chemicals.

Last year, both of these goals were surpassed with recyclingrates of 79 percent and 64 percent, respectively, in Category 1and Category 2 waste. Seventy-four percent of the sites mettheir recycling goals for Category 1 waste and 62 percent mettheir goal for Category 2 waste. Over the past few years, somesites with mature waste management programs and in areaswith the necessary infrastructure have been able to recycle virtually all nonhazardous waste generated.

RecognitionIn 2000, IBM Singapore won the Singapore Green Leaf Award,presented by the Minister of the Environment to individualsand organizations who have made outstanding contributions toenvironmental protection and preservation in Singapore.

IBM San Jose received an award in 2000 from California’sWaste Reduction Awards Program, which recognizes businesses for outstanding waste reduction efforts. Recyclingefforts at the site extended beyond traditional materials such as paper, glass, metals and plastics to materials such as clean construction debris, ink toner cartridges and glass disk rejects from disk manufacturing. The site achieved an overall nonhazardous waste recycling rate of nearly 78 percent.

26

In order to manufacture its extensive line of products, IBMmust rely on the use of chemicals, some of which are on the U.S. Toxic Release Inventory (TRI) list. Most of the manufac-turing capacity for these products continues to be in the U.S.,and IBM produces a substantial amount of the electronic components that it uses in-house.

IBM strives for continual improvement in this area and is continuing its efforts to minimize global TRI chemical quantities, including releases and transfers off-site for treatment and disposal.

International performance measuresUnder the requirements of the U.S. Superfund Amendmentsand Reauthorization Act (SARA) of 1986 and the U.S.Pollution Prevention Act (PPA) of 1990, companies must file anannual inventory of routine releases and off-site transfers inaddition to recycling, treatment and energy recovery activitiesfor more than 600 chemicals. Using as its measure the U.S.reporting requirements, IBM tracks such activities worldwide.In 2000, IBM sites worldwide used 25 of these chemicals inquantities greater than the reporting threshold of 4,536 metrictons (10,000 pounds) of use per year.

In 2000, the total releases to the environment and waste transferred off-site for treatment and disposal from IBM’sworldwide operations were 1,103 metric tons, which represents a 16 percent decrease from 1999.

Over that same period, the total quantities covered by bothSARA and PPA reported by IBM worldwide were 7,909 metrictons, a 31 percent decrease over 1999.

Efforts to eliminate the use of perchloroethylene (perc) continued throughout 2000. As a result, the total reportablequantity for perc decreased by 2,855 metric tons or 70 percentcompared to the previous year. This reduction is responsible for 80 percent of the decrease in IBM’s total reportable chemical quantities worldwide in 2000.

Last year also saw the transition from aluminum to glass substrates in disk drive manufacturing, resulting in a 15 percent decrease in IBM’s total reportable chemical quantities worldwide in 2000. Specifically, nickel and zinccompounds decreased to the point that they no longer requirereporting. Nitrate and nitric acid reportable quantities associated with disk drive manufacturing also decreased significantly. Finally, the sale of two manufacturing locations in Europe caused a 5 percent reduction in IBM’s totalreportable chemical quantities worldwide in 2000.

Climate changeIBM’s operations do not release significant quantities of thosegases believed to have an effect on global climate change.IBM’s greatest potential impact is an indirect one, through therelease of carbon dioxide by the utility companies providingthe electricity used by the company. Accordingly, IBM’s mainfocus is on energy conservation.

IBM directly releases some perfluorocompounds (PFCs) fromsemiconductor manufacturing operations, although they are inrelatively small amounts, in carbon equivalents, when com-pared to indirect carbon dioxide emissions. In 2000, IBM’sMicroelectronics Division, together with other U.S. semicon-ductor manufacturers, signed a new memorandum of under-standing (MOU), continuing a voluntary agreement with theU.S. EPA that began in 1996 but which now commits thecompanies to reduce PFC emissions from semiconductor man-ufacturing processes by an absolute 10 percent between thebase year 1995 and 2010.

Even though only the U.S. operations of signatory companiesare subject to the MOU, IBM is extending its voluntary PFCemission reduction commitment to include its semiconductormanufacturing operations worldwide.

IBM remains committed to its goal of reducing PFC emissionsfrom semiconductor manufacturing by 40 percent worldwideby year-end 2002, indexed to production against a base year of1995, established in 1998. IBM was the first semiconductormanufacturer to set specific emissions reduction targets forPFCs, which are among the chemicals whose emissions aretargeted for reduction in the Kyoto Protocol on ClimateChange.

RecognitionIBM Canada received a Leadership Award from the Ministerof National Resources for its achievements in reducing greenhouse gas emissions. Awards are given to organizationsthat have displayed extraordinary commitment, action andleadership in the voluntary reduction of such emissions. IBM Canada was the winner in the general manufacturingcategory.

27

1.0

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96

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ric T

ons

x 10

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97

IBM Total Releases to Environment and Wastes Transferred Off-Site for Treatment and Disposal Worldwide (As Defined by U.S. SARA Section 313)

98 99 00

20

10

15

5

96

Met

ric T

ons

x 10

00

IBM Total Chemical Quantities* Worldwide(As defined by U.S. SARA Section 313 and PPA) * Includes recycling, treatment, energy recovery, releases and off-site transfers.

97 98 99 00

IBM Chemical Quantities Worldwide(As defined by SARA Section 313 and PPA) 2000 Total Reportable Quantities

Chemical (Metric Tons)

Copper Compounds 2,361

Xylene 1,283

Perchloroethylene 1,200

n-methyl-2-pyrrolidone 997

Nitrate Compounds 547

All others 1,521

Total: 7,909

53.07

17.86

10.89

4.57

4.24

2.38

17.86

53.07

10.89 1.93

3.59

1.47

2.38

4.24

4.57

On-SiteRecycling

Off-SiteRecycling

On-SiteTreatment

Publicly OwnedTreatment Works

Off-SiteTreatment

Release toWater

Release toAir

Off-SiteDisposal

Off-Site EnergyRecovery

Percent Reported in Each Category

IBM Total Chemical Quantities Worldwide(As Defined Under SARA Section 313 and PPA)2000 Reportable Quantities — 7,909 Metric Tons

1.473.59

1.93

Notwithstanding its tradition of excellence in manufacturing,IBM is involved, as are other major manufacturing compa-nies, in certain remediation efforts that stem from past activi-ties. Because pollution prevention technologies have changedgreatly since the 1950s, some measures that had then beenconsidered state-of-the-art are now either outmoded or inef-fective. IBM’s response to this reality has been to recognizethe need for corrective action where necessary and to actswiftly and responsibly.

A case in point: IBM has vigorously remediated groundwatercontamination ever since the problem was discovered at itsDayton, N.J., site in 1977. Due to that discovery, IBM volun-tarily began monitoring groundwater at its manufacturing anddevelopment locations around the world.

Worldwide, IBM has approximately 2,800 monitoring and 140 extraction wells. In 2000, approximately 18,300 pounds of solvents from past contamination were extracted whileremediating, controlling and containing groundwater at 10currently operating sites and 9 former sites in 3 countries. At 3 of those sites, an additional 860 pounds of solvents were removed by soil vapor extraction or other methods.

As a result of the U.S. Superfund law, IBM is also involved in cleanup operations at some non-IBM sites in the U.S. towhich wastes had been sent for disposal in the past. TheSuperfund law creates a retroactive liability for past actions,even though they may have been legally and technicallyacceptable at the time, and requires that companies whosewaste was sent to such sites share in cleanup costs.

As of year-end 2000, IBM had received notification (througheither Federal, State or private party) of its potential liabilityat 94 sites. Of these, 52 are on the U.S. National Priority List (NPL).

Of those 94 sites, IBM believes that it has some kind ofinvolvement — either resolved, ongoing or under investigation— at 64. The company believes that it has no responsibility atthe others.

When a cleanup program becomes likely and its costs can bereasonably estimated, IBM accrues remediation costs for allknown environmental liabilities. Estimated environmentalcosts that are connected with post-closure activities (such asremoving and restoring chemical storage facilities) areaccrued when the decision is made to close down a facility. As of December 31, 2000, the accrued amount was $240 million. Accrued amounts do not cover any site in a preliminary stage of investigation, where neither the extent of the cleanup nor the company’s percentage of responsibilityhas been established.

28

●

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97 98 99 00

5

10

15

20

25

30

IBM Water ConsumptionPlants and Labs Worldwide

Percent Manufacturing Use

69%

69%70%72%

cons

erva

tion

Water use reduction projects and savings included 26 TCMfrom maximizing the use of no-clean flux in printed circuitcard manufacturing at the Shenzhen, China, location; 40 TCM from the circuit packaging operation at the Yasu,Japan, location; and 39 TCM from chemical mechanical polishing operations of semiconductor manufacturing at theBurlington, Vermont, location in the U.S. At the Endicott, N.Y., location, a new chlorine analyzer reduced water use bynearly 14-fold, the use of a cascading rinse approach in achemical polishing rinse chamber reduced water flow from 5 gallons to 1 gallon per minute, and the installation of a shut-off valve on a circuit board copper plate cleaning processreduced the water rinse time from 12 to 2 minutes. Thesethree changes reduced water consumption by nearly 10 TCM.Finally, a significant amount of water (72 TCM) was saved atthe East Fishkill, N.Y., site as a result of reduced water use in manufacturing processes. A number of projects — includingthose involving a higher equipment utilization rate, the use of a water conserving tool set, and an increase in batch processing size — all contributed to the reduction in water use.

Elsewhere in IBM Though not subject to the 2 percent water savings goal, otherIBM locations are continuing their water conservation initia-tives. Rinse water for parts from the manufacturing process is often reused as feed for a cooling tower, which reduces thedemand on unused water. This is practiced at a number ofIBM locations, including Mainz, Germany; Szekesfehervar,Hungary, and Yorktown, N.Y. At IBM’s location in Guadalajara,Mexico, all water used in manufacturing and all sanitarywastewater is treated and used for irrigation. And at theFujisawa, Japan, location, rinse water is used for the production of deionized water.

Because water is so critical a natural resource, protecting andconserving it is an important environmental priority for IBM.This is especially true where water is either in limited supply orIBM’s operations are water-intensive. The transfer to aqueouscleaning processes, which was implemented to eliminate the useof solvents in manufacturing, has significantly reduced pollution.However, it has resulted in an increased use of water, which, inturn, has brought water conservation in IBM into sharper focus.

Water recycling projects frequently involve process-cooling water,ultra-filtration water and deionized water. Typical water reuseprojects include substituting process water for city water or wellwater in appropriate applications, such as removing contami-nants from air exhaust treatment units, and the recovery and use of the discharge from reverse osmosis or deionized water production systems.

Water savings goalWater use data from the past four years at IBM’s manufacturing,development and research facilities worldwide indicated thateach year IBM’s Microelectronics Division used approximately 70 percent of the total water consumed at these locations. Thiscaused that division to establish in April 2000 an annual watersavings goal of 2 percent of total water usage, based on the pre-vious year’s actual usage and measured as an average over arolling five-year period.

In 2000, IBM’s Microelectronics Division achieved a 4.65 percent savings rate against its goal of 2 percent, translating to a savings of 690 TCM (thousand cubic meters) of water. Ofthe amount saved, 375 TCM were due to conservation projectsthat reduced water demand, and 315 TCM came from improvements to water recycling and reuse efforts.

29

30

Two high level corporate awards again were conferred by IBM in 2000, demonstrating yet once more the company’scommitment to environmental leadership.

Corporate Environmental Affairs Excellence AwardBegun in 1991, this program gives awards of up to $50,000 to individuals and teams of employees for innovative achieve-ments contributing to IBM’s energy, environmental and occupational health objectives. Thus far, the award has beengranted to 292 employees from 9 countries in the amount ofnearly $2.1 million. In 2000, the 39 winners of 7 awards totaling $230,000 were from Japan and the United States.

Scott Cummings, Jonathan Orth and Alfred Rouleau, III ofBurlington, VT., shared $50,000 for developing a unique newprocess to remove encrusted photoresist materials from waferprocessing chambers in semiconductor manufacturing. Thenew process, a first in the industry, uses glacial acetic acidinstead of traditional organic solvents. Benefits include theelimination of 87,000 gallons of solvent use and its disposal as well as the associated off-site transporting of the wastes.The new process reduces the amount of chemicals requiredfor chamber cleaning by 97 percent and saves $300,000 inannual operating expenses.

Also in Burlington, James Elliott, Richard Gaylord, Donald J.Martin, Sheldon McNickle and Mark Pakulski shared $35,000for developing a process that replaces a static sulfuric-nitricmixture bath with an in-situ generated mixture of sulfuric-ozone used in two high-volume wafer cleaning steps in themanufacture of semiconductors. Annually, the process elimi-nates 1,850 gallons of nitric acid use, decreases sulfuric aciduse by 12,500 gallons, and reduces energy consumption by108,500 kWhr and associated emissions of 13 tons of carbondioxide. The achievement, which saves IBM $135,000 per year,reduces chemical handling and decreases the discharge ofnitrates and acid emissions to the environment.

John Butler, Robert Magee, Tim Makara, Mary Mayotte,Krishna Sachdev, John Simon, David Speed, Ron Shipley,Salvatore Tranchina and Bruce Tripp of East Fishkill, N.Y.,shared a $35,000 award for a pollution prevention achievementin the manufacture of multilayer ceramic substrates. Theirteam developed, qualified and implemented a new aqueous-based cleaning process, decreased hazardous waste generationby more than 100 tons annually, and installed state-of-the-artabatement technology for reducing air emissions.

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Takuji Satoh of Fujisawa, Japan, and Seita Horikoshi andTetsuya Ohtani of Yamato, Japan, shared $35,000 for reduc-ing the packaging used to ship IBM ThinkPads worldwide.The team developed a mounting method for the hard drive inthe ThinkPad to enhance its inherent ruggedness. Thisadvancement made it possible to replace plastic foam shippingmaterial with recyclable paper packaging, thereby eliminating45 percent of the packaging by weight per product, decreas-ing package size by 50 percent and reducing the disposal ofplastic foam packaging. As a result of reduced package size,IBM is realizing annual savings of $873,000 in packagingmaterial and $539,000 in transportation costs.

A $25,000 award was shared by Ash Bhatt, Gerald W. Jones,John Konrad, Joseph Kotylo, Amarjit Rai, Gary Vlasak andJerome Wagner of Endicott, N.Y., for implementation of aselective gold plating process using advanced solder mask inthe manufacture of high-end printed wiring boards. By selectively plating only the desired areas of a board, the newprocess avoids the use of 75,000 square feet of photoresistand reduces waste disposal by 10,500 gallons per year. It alsosimplifies the manufacturing process, shortens cycle time,reduces defect levels and results in annual savings in manu-facturing costs of $2.65 million.

Jimmy Blaylock, Chuck Dabney, Lee Davis, O. D. Ellis, GarryGarver and Kenny Slater of Research Triangle Park, N.C.,shared $25,000 for implementation of the first performancecontract between IBM and a company specializing in energymanagement. The contract makes possible sitewide infra-structure upgrades, including heating, ventilation and air-conditioning and an upgrade of a cooling tower and flat plateheat exchanger for winter free cooling. The contract achievesannual energy conservation savings of 9.3 million kWhr andoperating cost savings of $1.3 million.

Kaoru Furuta, Katsumi Inden, Kazuyuki Nakahara, TatsurohOdagiri and Hiroyuki Ueda of Yasu, Japan, shared a $25,000award for developing a new etching process in Thin-FilmTransistor-Liquid Crystal Display manufacturing. Theprocess involves the use of an improved thin film that can be processed with oxalic acid, which is a weak organic acid. It eliminates the annual use of 132,000 and 62,000 liters,respectively, of hydrochloric acid and nitric acid. In addition,etching steps are reduced from 7 to 5, causing a reduction of 37 percent in the use of tetrafluoromethane and sulfur hexafluoride, which are etching gases of high global warmingpotential. Other benefits from the process: a 13 percentincrease in production capacity and the avoidance of $30 million in equipment upgrades.

IBM Chairman’s Environmental Affairs CitationIBM established this award in 1991 to encourage leadershipand recognize environmental achievements on the part of thecompany’s manufacturing sites and organizations. Winners in2000 were IBM San Jose and IBM Spain. San Jose received itsaward in the competition among manufacturing sites; IBMSpain’s award was gained from competition among sales anddistribution and services organizations.

IBM San Jose’s internal health and safety program and contractor safety program have both produced excellentresults, including “Star Certification” under California OSHA’sVoluntary Protection Program. The site’s integration of envi-ronmental considerations into business processes has enabledit to make a wide range of significant contributions. San Josehas consistently exceeded IBM’s nonhazardous waste recyclinggoal. Over the last three years, its sustained water conservationprogram has conserved 19.7 million gallons. Over that samespan, its chemical source reduction initiatives have saved morethan $2.7 million, and energy conservation efforts have saved$1.8 million, while contributing substantially to pollution prevention and reductions in CO2 emissions. In addition tohelping the Storage Technology Division’s expanding operationsoutside the U.S. with their environmental management systems, San Jose is recognized as a leader in sharing itsexpertise externally.

Over the past three years, IBM Spain has deployed a comprehensive environmental management system with excellent results. It has continually increased its nonhazardouswaste recycling rate, recently achieving 81 percent. Duringthis same period, its average energy conservation rate of 3.1percent has yielded expense reductions of $870,000. IBMSpain also has contributed significantly to IBM’s environmen-tally conscious product objectives by developing a system togather and analyze customers’ environment-related questionsin bid requests and by compiling environmental informationon non-IBM products for IBM Global Services solutions. IBMSpain has used IBM technology to develop an environmentalplanning tool for the island of Menorca and is the first IBMcountry organization to have its environmental managementsystem registered to the voluntary ISO 14001 environmentalmanagement system standard.

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32

A Commitment to Leadership, Built Upon RespectIBM is committed to environmental affairs leadership in all of its business activities. IBM has had longstanding corporate policies of providing a safe and healthful workplace, protecting the environment, and conserving energyand natural resources, which were formalized in 1967, 1971and 1974 respectively. They have served the environment andour business well over the years and provide the foundationfor the following corporate policy objectives:

❦ Provide a safe and healthful workplace and ensurethat personnel are properly trained and have appropriate safety and emergency equipment.

❦ Be an environmentally responsible neighbor in thecommunities where we operate, and act promptly and responsibly to correct incidents or conditions that endangerhealth, safety, or the environment. Report them to authoritiespromptly and inform affected parties as appropriate.

❦ Conserve natural resources by reusing and recyclingmaterials, purchasing recycled materials, and using recyclablepackaging and other materials.

❦ Develop, manufacture, and market products that are safe for their intended use, efficient in their use of energy, protective of the environment, and that can bereused, recycled or disposed of safely.

❦ Use development and manufacturing processes thatdo not adversely affect the environment, including developingand improving operations and technologies to minimize waste,prevent air, water, and other pollution, minimize health andsafety risks, and dispose of waste safely and responsibly.

❦ Ensure the responsible use of energy throughout our business, including conserving energy, improving energy efficiency, and giving preference to renewable over non-renewable energy sources when feasible.

❦ Participate in efforts to improve environmental protection and understanding around the world and shareappropriate pollution prevention technology, knowledge and methods.

❦ Utilize IBM products, services and expertise aroundthe world to assist in the development of solutions to environmental problems.

❦ Meet or exceed all applicable government require-ments and voluntary requirements to which IBM subscribes.Set and adhere to stringent requirements of our own no matter where in the world the company does business.

❦ Strive to continually improve IBM’s environmentalmanagement system and performance, and periodically issueprogress reports to the general public.

❦ Conduct rigorous audits and self-assessments ofIBM’s compliance with this policy, measure progress of IBM’senvironmental affairs performance, and report periodically tothe Board of Directors.

Every employee and every contractor on IBM premises isexpected to follow this policy and to report any environmen-tal, health, or safety concern to IBM management. Managersare expected to take prompt action.

Policy last revised: July 29, 1997

Corp

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Corporate Profile Sizing Data

1996 1997 1998 1999 2000

Total Revenue ($M) $75,947 $78,508 $81,667 $87,548 $88,396

Employees 240,615 269,465 291,067 307,401 316,303

Asia PacificFujisawa, JapanFutian, ChinaPrachinburi, ThailandSingaporeYamato, JapanYasu, Japan

Europe/Middle East/AfricaGreenock, Scotland, U.K.LaGaude, FranceMainz, GermanyMontpellier, FranceMulhuddart, IrelandSzekesfehervar, HungaryZurich, Switzerland

Joint Ventures (Majority Owned)Shenzhen, China (3)

IBM Manufacturing, HardwareDevelopment and Research Sites:

The AmericasAlmaden, CaliforniaAustin, TexasBeaverton, OregonBoulder, ColoradoBromont, CanadaBurlington, VermontEast Fishkill, New YorkEndicott, New YorkGuadalajara, MexicoPoughkeepsie, New YorkResearch Triangle Park, North CarolinaRochester, MinnesotaSan Jose, CaliforniaTucson, ArizonaYorktown Heights, New York

Note:

IBM sold its manufacturing operations in

Essonnes, France, and at its Vimercate and

Santa Palomba sites in Italy during 2000.

Their performance data for 2000 are not

included in this report. Research locations

that do not use chemicals are not included

in the site listing.

The 2000 IBM annual report may be

obtained from EquiServe, First Chicago

Trust Division, Mail Suite 4688,

P.O. Box 2530, Jersey City, N.J. 07303,

or found at:

www.ibm.com/annualreport/

“Valuing Diversity: An Ongoing

Commitment,” which communicates the

importance IBM places on the diversity

of its workplace and marketplace, also

may be obtained from EquiServe’s First

Chicago Trust Division, or found at:

www.ibm.com/diversity

IBM Sales and DistributionGeographic Units:

IBM AmericasIBM Asia PacificIBM Europe/Middle East/Africa

Research & Product Organizations:IBM ResearchSoftware Group

Application & Integration MiddlewareData ManagementPervasive ComputingLotus Development CorporationTivoli Systems

Personal & Printing Systems GroupPersonal Computing DivisionPrinting Systems DivisionRetail Store Solutions

Server GroupEnterprise ServersMid-Market ServersWeb ServersxSeries Servers

Storage Systems GroupStorage NetworkingStorage Products Division

Technology Group Microelectronics DivisionStorage Technology Division

© International Business Machines Corporation2001

Corporate Environmental AffairsRoute 100Somers, New York 10589

® IBM, AS/400, DEEP BLUE, InfoPrint, RS/6000, PC 300, S/390, ThinkPad, Travelstar and WebSphere are registered trademarks ofInternational Business Machines Corporation.

Blue Gene, e (logo) business, Enterprise StorageServer, iSeries, NetVista, pSeries, SpeechViewer andzSeries are trademarks of IBM.

This report is printed with soy ink on recycledpaper and is recyclable.

This report is available on the Internet at:http://www.ibm.com/ibm/environment/