Environmental, Safety and Health (ESH) Management

TSMC believes its environmental, safety and health practices must not only comply with legal requirements, but also measure up to or exceed recognized international practices. In 2010, the Company’s ESH policy was renewed and endorsed by Chairman and Chief Executive Officer Dr. Morris Chang. The policy aims to reach the goals of “zero incident” and “sustainable development,” and to make TSMC a world-class company in environmental, safety and health management. The Company’s strategies for reaching these goals are to comply with regulations, promote safety and health, strengthen recycling and pollution prevention, manage ESH risks, instill an ESH culture, establish a green supply chain, and fulfill its related corporate social responsibilities.

All TSMC manufacturing facilities have received ISO 14001:2004 certification for environmental management systems and OHSAS 18001:2007 certification for occupational safety and health management systems. All fabs in Taiwan have also been TOSHMS (Taiwan Occupational Safety and Health Management System) certified since 2009.

TSMC strives for continuous improvement and actively seeks to enhance pollution prevention, power and resource conservation, waste reduction, safety and health management, fire and explosion prevention and minimize the impact of other risks, such as earthquakes, in order to reduce the overall environmental, safety and health risk.

In 2006, TSMC began to adopt the IECQ QC 080000 Hazardous Substance Process Management (HSPM) System in order to meet regulatory and customer needs for the management of hazardous materials. All TSMC manufacturing facilities have been QC 080000 certified since 2007. By practicing QC 080000, TSMC ensures that its products comply with regulatory and customer requirements, including the European Union’s Restriction of Hazardous Substances (RoHS) Directive, EU REACH (Registration, Evaluation, Authorization and Restriction of Chemicals), Montreal Protocol on substances that deplete the ozone layer, halogen free in electronic products, and Perfluorooctane Sulfonates (PFOS) restriction standards.

In 2011, TSMC adopted ISO 50001 Energy Management System for the continuous improvement of energy conservation. TSMC, represented by Fab 12 Phase 4 data center, has become Taiwan’s first company to earn the ISO 50001 certification for a high density computing data center. In 2012, Fab 12 Phase 4/5 and Fab 14 Phase 3/4 also earned the ISO 50001 certifications.

TSMC regularly communicates with suppliers and contractors regarding environmental, safety and health issues and encourages them to improve their ESH performance. In line with this policy, TSMC uses priority work management and self-management to govern work performed by contractors. TSMC requires contractors performing high-risk operations to complete certification for technicians, and to establish their own OHSAS 18001 safety and health management system before bidding on contracts. This self-management is aimed at increasing the sense of responsibility of TSMC’s contractors, with the goal of promoting safety awareness and technical improvement for all contractors in the industry.

TSMC collaborates with suppliers to improve the sustainability of the Company’s supply chain regarding ESH-related issues such as carbon and water footprinting, and conflict mineral management. TSMC not only performs on-site ESH audits at its suppliers manufacturing sites, but also proactively assists them with improving ESH performance.

Reducing the carbon and water footprints of TSMC’s supply chain is essential to the Company’s green supply chain ideals. Since 2009, TSMC has required suppliers to set up carbon inventory procedures. In 2010 TSMC led 15 selected suppliers to join the carbon footprint development project, which was sponsored by the Taiwan Industrial Development Bureau and assisted by the Industrial Technology Research Institute. In this project, the Company completed a carbon footprint of both TSMC and suppliers’ products. In addition to 12-inch, TSMC continued to set up 8-inch wafer and 6-inch wafer product carbon footprints and received PAS2050 certifications in 2011 and 2012.

TSMC also monitors potential water shortages in the supply chain and investigates the supply chain’s water inventory. TSMC is also preparing to work with suppliers on water footprinting and conservation plans. The ESH management programs of TSMC suppliers are tied to a sustainability index that includes three components: the Green Index, the Social Index and the Risk Index. The “Green Index” includes environmental management systems, regulatory compliance, hazardous substance management, conflict mineral investigation, greenhouse gas inventory, carbon footprinting, water footprinting and other green activities. The “Social Index” includes labor and ethical conduct and participation in social activities. The “Risk Index” includes safety and health management, fire prevention, natural disaster mitigation, IT interruption recovery, transportation reliability, supply chain management, pandemic response planning and a business continuity plan. This sustainability index is applied to TSMC’s critical suppliers.

Environmental Protection

Greenhouse Gas (GHG) Emission Reduction

TSMC is an active participant in international environmental regulatory and protection programs. TSMC achieved its voluntary PFC emissions reduction goal as per its commitment to the World Semiconductor Council (WSC) and the Taiwan Environmental Protection Administration (EPA) in 2010.

In 2005, TSMC was Taiwan’s first semiconductor company to make a complete inventory of its GHG emissions and to gain ISO 14064 certification for its processes and outputs. The purpose of the inventory was to serve as a baseline reference for TSMC’s strategy to reduce GHG emissions, to meet future domestic regulatory requirements, and to prepare for carbon trading and corporate carbon asset management. All TSMC facilities continue to conduct a GHG inventory on an annual basis. The inventory result shows that the major direct GHG emissions are perfluorinated compounds (PFCs), which are used in the semiconductor manufacturing process. The primary indirect GHG emission is electricity consumption.

TSMC is also taking measures to reduce its emission of GHGs. TSMC endorsed a memorandum of understanding between the Taiwan Semiconductor Industry Association, the Taiwan EPA, and the WSC, whereby TSMC committed to reducing PFC emissions to 10% below the average of 1997 and 1999 by 2010, a commitment that it was proud to achieve. This emissions target remains fixed as TSMC continues to grow and expand its manufacturing facilities.

TSMC continues its active participation in WSC’s activities to set up a global voluntary PFC emissions reduction goal for the next 10 years and integrated past experience to develop best practices. The implementation of best practices for new semiconductor fabs has been adopted by WSC for the major element of the 2020 goal.

Coal-fired power generators are the major source of electricity in Taiwan and emit large amounts of carbon dioxide (CO₂). TSMC has not only adopted energy-conserving designs for both its manufacturing fabs and offices, but has also continuously improved the energy efficiency of facilities during operation. These efforts simultaneously reduce both carbon dioxide gas emissions and costs.

Air and Water Pollution Control

TSMC has installed effective air and water pollution control equipment in each wafer fab to meet regulatory emissions standards. In addition, TSMC maintains backup pollution control systems, including emergency power supplies, to lower the risk of pollutant emission in the event of equipment breakdown. TSMC centrally monitors the operations of air and water pollution control equipment around the clock and tracks system effectiveness to ensure the quality of emitted air and discharged water.

To make the most effective use of Taiwan’s limited water resources, all TSMC fabs make an effort to increase water reclamation rates by adjusting the water usage of manufacturing equipment and improving wastewater reclamation systems. New fabs are able to reclaim more than 85% of process water, meeting or exceeding the standards of the each Science Park Administration and outperforming most semiconductor fabs around the world. TSMC also strives to reduce non-manufacturing-related water consumption, including water used in air conditioning systems, sanitary facilities, cleaning, landscaping and kitchens. TSMC uses an intranet website to collect and measure water recycling volumes company wide.

Since water resources are inherently local, TSMC shares its water saving experiences with other semiconductor companies through the Association of Science-Based Industrial Park to promote water conservation. At the same time, TSMC collaborates with the Science Park Administrations to assist small facilities in each Science Park with water resource management in order to achieve the Science Park’s goals and ensure a long-term balance of supply and demand.

Waste Management and Recycling

TSMC has established a designated unit responsible for waste recycling and disposal. To meet the goal of sustainable resource utilization, TSMC’s first priority is to reduce process waste before considering recycling or disposal. TSMC carefully selects waste disposal and recycling contractors and performs annual audits of certification documents, site operations and transportation routes to ensure the legal and proper disposal of waste. TSMC achieved a 92% waste recycling rate in 2012, surpassing its goal of 90%. The Company’s landfill rate has been remained less than 1% since 2008.

Environmental Accounting

The purpose of TSMC’s environmental accounting system is to identify and calculate environmental costs for internal management. At the same time, we can also evaluate the cost reduction or economic benefits of environmental protection programs so as to promote economically efficient programs. With environmental costs expected to continue growing, environmental accounting can help us manage more effectively. TSMC’s environmental accounting measures are to define the various environmental costs and set up independent environmental account codes, then provide these to all units for use in annual budgeting. This online system can output data for environmental cost statistics.

Our economic benefit evaluation calculates cost savings for reduction of energy, water or wastes and waste recycling benefits according to our environmental protection programs.

The environmental benefits disclosed in this report include real income from projects such as waste recycling and savings from major environmental projects. In 2012, 101 environmental projects were completed and the total benefits including waste recycling are more than NT$1,368 million.

2012 Environmental Cost of TSMC Fabs in Taiwan

Unit: NT$ thousands

2012 Environmental Efficiency of TSMC Fabs in Taiwan

Unit: NT$ thousands

Other Environmental Protection Programs

TSMC conducts “Product Life Cycle Assessments” (Product LCA), collecting and analyzing data from the entire semiconductor manufacturing chain from raw materials suppliers to finished products, including statistics for such items as energy, raw material consumption, and pollution. The Product LCA study has established “Eco-Profiles” for all TSMC fabs and will help the Company to meet future international regulations, such as the European Union’s “Energy-Using Product” directive. These “Eco-Profiles” can also be provided to customers who require such documentation.

TSMC also maintains “green procurement” procedures, requiring raw materials suppliers to declare that the materials they supply to TSMC do not contain any prohibited substances. This ensures that products manufactured by TSMC comply with customer requirements and the regulatory requirements of the European Union’s RoHS Directive. TSMC also encourages employees to use “Green Mark” products in offices, such as recycled paper, desktop PCs, LCD monitors, and batteries.

TSMC has adopted both the Taiwan “Green Building” and the U.S. Leadership in Energy and Environmental Design (LEED) standards for new fab and office building designs since 2006 to achieve better energy and resource efficiency than conventional designs. At the same time, TSMC planed to upgrade existing office buildings to comply with the LEED standard each year. From 2008 to 2012, seven of TSMC’s fabs and office buildings (Fab 14 Phase 3&4 manufacturing facility, Fab 14 Phase 3 office building, Fab 12 Phase 4 manufacturing facility and office building, and Fab 12 Phase 1&2 manufacturing facility and office building) achieved LEED certifications. Four of them also won Taiwan’s EEWH Diamond class certification. For these projects, TSMC invited Dr. Kath Williams, former vice president of the United States Green Building Council (USGBC) to serve as a consultant, and also consulted experts from leading Taiwan universities. TSMC believes that manufacturing companies should convert their facilities into green factories to effectively improve the environment and lower construction costs. Therefore, TSMC freely shares its practical experience with industry, government, and academia. As of the end of 2012, more than 4,628 visitors from 112 different industry, government, academia and general community groups contacted TSMC to gain understanding on the Company’s green factory practices. TSMC led industry to support the Taiwan government to establish “Green Factory Labeling System” from 2009, a system that included “Clean Production Evaluation System” and “Green Factory Evaluation System”. In 2012, TSMC received Taiwan’s first “Green Factory Label” from the government and three labels in total for Fab 12 Phase 4, Fab 14 Phase 3 and Fab 14 Phase 4.

Environmental Compliance Record

As of February 28, 2013, TSMC had not received any environmental penalties or fines during or related to 2012 and early 2013.

Safety and Health

Safety and Health Management

TSMC’s safety and health management is built on the framework of the OHSAS 18001 system, and adheres to the management principle of “Plan, Do, Check, Act” to prevent accidents and protect employee safety and health as well as Company assets. TSMC fabs in Taiwan have also received TOSHMS (Taiwan Occupational Safety and Health Management System) certification.

Besides accident prevention, TSMC has established emergency response procedures to protect the lives of employees and contractors if disasters should occur, as well as to minimize the negative impact on society and the environment. TSMC continually communicates with its suppliers to ensure that potential risk in the operation of production equipment is minimized, and rigorously follows safety control procedures when installing production equipment. The Company places stringent controls on high-risk operations and also evaluates the seismic tolerance of its facilities and equipment to reduce the risk of earthquake damage.

TSMC believes that employees’ physical and mental health is not only fundamental to maintaining normal business operations but also part of a corporation’s responsibility.

In 2012, TSMC strengthened industry-academy cooperation to enhance the Company’s capability on occupational management. TSMC and the National Taiwan University (NTU) College of Public Health signed a memorandum of understanding (MOU) to collaborate on occupational health enhancement. This MOU marked as an important step in the long-term industry-academy cooperation in the field of occupational health. Under this MOU, both TSMC and NTU held the second Workplace Health Improvement Forum on October 12, 2012, inviting representatives from government, industry, and academia to join an in-depth discussion on improving occupational health. The forum has become an important platform for dialog. The theme of 2012 forum is “New Labor Health Policies and Prevention of Occupational Illness” and “Promoting Work/Life Balance,” focusing industry and academic attention on a timely issue of public concern in the fields of employee health and safety and human resources.

TSMC also developed occupational management tools tailored for TSMC by industry-academic cooperation, including the promotion of personnel stress management and the measurement of radio frequency (RF) exposure to wireless network antennas and mobile phone in the offices. TSMC offers annual employee health examinations and consultation services as well as on-site clinics and a dental clinic for a better access to medical assistance.

In order to avoid infectious disease epidemics, TSMC has established company-level prevention committees and procedures for emergency response to infectious diseases outbreak.

Working Environment and Employee Safety Protection

TSMC’s ESH policy is committed to establishing a safe working environment, preventing occupational injury and illness, keeping employees healthy, enhancing every employee’s awareness and sense of accountability to ESH, and building an ESH culture. TSMC safety and health management operations apply to:

• Hardware Equipment Safety and Health Management

In addition to meeting regulatory requirements and internal standards as well as mitigating ESH-related risks when building or rebuilding facilities, TSMC also maintains procedures governing new equipment and raw materials, safety approvals for bringing new tools online, updating safety rules, seismic protection measures, and other safety measures.

• Environmental, Safety and Health Evaluation of Hazardous Chemical Substances

Any new chemical substance introduced to TSMC – from the R&D phase to mass production – is carefully reviewed before use by the “New Chemical Review Committee” to ensure that environmental and safety and health concerns are well controlled, including engineering control, the installation of personal protection equipment, and operational safety training during storage, transportation, usage, and disposal.

• General Safety Management, Training and Audit

All TSMC manufacturing facilities hold environmental, safety and health committee meetings on a monthly basis. TSMC takes preventive measures such as controls on high-risk work, contractor management, chemical safety management, personal protective equipment requirements, and safety audit management. In addition, TSMC also maintains detailed disaster response procedures and performs regular drills designed to minimize harm to employees and property, as well as the impact on society and the environment in the event of a disaster.

• Working Environment Measurement

TSMC conducts workplace hazard assessment and interventions to provide a comfortable and safe workplace to Company employees. TSMC also requests employees to use personal protective equipment (PPE) to prevent hazard exposures.

As office work is primarily performed on computers, TSMC launched an office ergonomics program to adjust the height of office chairs and desks to meet the needs of taller or shorter employees. Whenever new employees of significantly above or below-average height enter the Company, the assessment and intervention will be initiated proactively by site ESH professionals.

TSMC requires that all new tools meet SEMI-S8 requirements and that appropriate supplementary control measures be taken to reduce ergonomic risk. Moreover, TSMC endeavors to automate 300mm front-opening unified pod (FOUP) transportation to prevent accumulative damage caused by long-term manual handling of 300mm FOUPs. TSMC 300mm fabs have achieved 99.9% in automatic transportation.

TSMC performs semi-annual workplace environment assessments of physical and chemical hazards, including CO²   concentration, illumination, noise, and hazardous chemical substances regulated by domestic laws. When abnormal measurements or events happen, site ESH professionals will conduct onsite observation and interventions to ensure exposure risk acceptable. TSMC also conducts Indoor Air Quality Program to set up indoor air quality standard, measurement, and control measures to provide a more comfortable and safer workplace continuously.

• Emerging Infectious Disease Response

TSMC has a dedicated corporate ESH organization which monitors emerging infectious diseases around the world, assesses any potential impact on the workplace and provides a strategic response plan. In previous outbreaks (such as SARS in 2003 and the H1N1 influenza outbreak in 2009), TSMC convened the Corporate Influenza Response Committee to develop the Company’s strategies. These strategies include educating employees in prevention and response, publishing guidelines for managers, establishing guidelines for employee sick leave due to flu, and installing alcohol-based hand sanitizers at appropriate locations. The Committee also monitors the status of employee leave due to illness and, at the same time, develops a continuous plan to address manpower shortages as well as minimize business impact.

• Emergency Response

The planning and execution of an effective emergency response requires big-picture thinking, continuous improvement and practice drills. TSMC’s emergency response plans include procedures for rapid response to accidents and disaster recovery as well as establishing response procedures for potential disasters.

All TSMC fabs conduct major annual emergency response exercises and evacuation drills. TSMC’s Tainan-site fabs initiated quarterly spot drills, which have been recognized as good practices. TSMC’s on-site service contractors also participate in emergency response planning and exercises to ensure cooperation in handling accidents and to effectively minimize any damage caused by disasters.

In addition to the regular emergency response drills held by engineering and facilities departments each quarter, the Company’s laboratory, canteen, dormitory, and shuttle bus personnel also hold emergency response drills to prepare for events such as earthquakes, chemical leakage, ammonia release, fires and automobile accidents.

• Employee Health Enhancement

Workplace stress and employee health have recently become new topics of concern for the government, society, employers, and employees as areas that require further attention and effort. The TSMC Employee Assistance Program (EAP) provides free individual counseling sessions, group sharing, workshops, and mental assessment, as well as lectures on personal and family issues to take care of employees’ well-being.

Health promotion activities for employees include fitness programs, women’s health care programs, mother’s rooms, body weight control programs, sleep problem management, massage and chiropractic services, hepatitis and flu vaccinations, and health lectures. TSMC believes employees who are physically and mentally fit can enjoy a better quality of life and be more productive.

Supplier and Contractor Management

• Supplier Management

As a means of enhancing its supply chain management, TSMC is committed to communicating with and encouraging its contractors and suppliers to improve their quality, cost effectiveness, delivery performance and sustainability on environmental protection, safety and health. By means of communication between senior managers, site audits and experience sharing, TSMC collaborates with major suppliers and contractors to enhance partnership and ensure continual improvement for better performance and increased joint contributions to society. Contractors performing high-risk activities must lay out clearly defined safety precautions and preventative measures. In addition, contractors working on high-risk engineering projects must establish OHSAS 18001 systems and the workers must successfully complete work skill training.

• Supply Chain Sustainability

As one of the global leaders in semiconductor industry, TSMC has been working together with our suppliers in several fields of sustainable development, such as greening our supply chain, carbon management for climate change, ESH management and business continuity plans for natural disasters. In 2012, TSMC announced our sustainability standard for suppliers and encouraged our suppliers to create sustainable value in these fields. To enhance the supply chain sustainability and partnership with our suppliers, TSMC also shared its experience and practice at the TSMC 2012 Supply Chain Sustainability and Risk Management Forum.

Environmental, Safety and Health-related Awards in 2012

TSMC was honored to be chosen for membership in the Dow Jones Sustainability World Index for a 12^th    consecutive year in 2012, and be the semiconductor sector leader in 2010 and 2012. The Company’s Environmental, Safety and Health-related Awards in 2012 are listed as follows.

Note:
1. EPA: Environmental Protection Administration
2. MOEA: Ministry of Economic Affairs
3. SPA: Science Park Administration
4. EPB: Environmental Protection Bureau
5. BHP: Bureau of Health Promotion