Closing Remarks during the IBM Summit at Start “Smarter Supply Chains for a Sustainable Future”

Monday, September 13, 2010 London, England, United Kingdom

Wayne S. Balta

Vice President, Corporate Environmental Affairs & Product Safety IBM Corporation

As Prepared

Thank you for the opportunity to speak with as you as we close out a very insightful and robust day of discussions about sustainability in the supply chain. I have thoroughly enjoyed participating with you during today’s dialogue. I’d like to speak with you about some of the practices IBM has initiated over the years in an effort to strengthen the environmental sustainability of our own supply chain, and then offer some thoughts about areas for further innovation across multiple industry sectors. As you may realize, IBM is a company that operates quite a large supply chain itself, one which includes all of the elements necessary for us to successfully manufacture microelectronics and servers as well as support our software development and the delivery of technology and business consulting services. In fact, IBM's heritage as a manufacturer has caused us to consider environmentally responsible and sustainable supply chains for many years. • we've had experience from having once been predominantly a vertically

integrated manufacturer • and experience in more recent years operating a global supply chain that

spends over $30 billion with about 28,000 suppliers in close to 90 countries For these reasons, IBM has had early involvement which has expanded in scope and impact over the years. Along the way, we have seen first-hand how our own various initiatives make not only good environmental sense, but also good business sense. That's not a supposition; it's a conviction. So here are some key examples, from earlier decades through to today: Almost four decades ago, in 1972, IBM established a corporate directive within its management system requiring the environmental evaluation of suppliers performing hazardous waste services. While it remains in place today, there have also been two follow-up directives: • in 1980, we expanded it to include certain production suppliers whose work

for IBM is particularly sensitive towards the environment; and

• in 1991, we expanded it again to include our suppliers who are involved in recycling or otherwise disposing of electronic waste

Although back in the early 1970s we were significantly motivated by limiting our exposure to potential liability, it didn't take long to understand that focusing on this element of our overall supply chain also brings business efficiency. Then, in the early 1990s, when societal concern further expanded from manufacturing processes to finished products, we established in 1993 the first version of IBM's baseline environmental requirements for the parts and sub-assemblies provided to us by our suppliers. We update that document regularly. By using it as a tool for dialogue and collaboration with our suppliers, we've been able to voluntarily restrict or eliminate the use of various substances of concern over the years. For example, we stopped using a couple of brominated flame retardants 10 years before the EU's WEEE Directive required it. That was not just good for sustainability, but also for our business. Then, a few years later in 1998, we wrote to all of our global suppliers encouraging them to align their own environmental management systems with the ISO 14001 standard. A year earlier, IBM had been the first major company in the world to earn a single global registration to ISO 14001. As the first decade of this new century got underway, we expanded our thinking about the supply chain and published -- in 2004 -- the IBM Supplier Conduct Principles. They articulated IBM's overall social and environmental requirements for IBM suppliers and launched an era of increasing follow-up via audits. Immediately thereafter, we joined with several other companies in our industry to create and launch the Electronic Industry Code of Conduct. This collaboration within our industry sector has leveraged the best ideas from peers and competitors to sustain uniform and clear expectations within our industry sector. And that brings me to today, six years later in 2010. Earlier this year, we began requiring our global suppliers to do three new things: I. define, deploy an sustain a corporate responsibility and environmental

management system II. set voluntary goals and measure performance III. publicly disclose results against those goals and other relevant matters We believe this is the first time a company has required its suppliers to do these specific things, particularly the aspect of public disclosure. Why did we do this? We're interested in helping our suppliers build their own long-term capacities to succeed, because when they succeed we succeed. And we're not asking any of them to do anything we haven't already done ourselves. So this is a brief outline of some of IBM's own initiatives with its supply chain over the years. I hope you can see from these few examples that we've had reason to address types of issues not just with clients, but also for our own operations.

Where do I see it all going? Well, you answered that question in a most robust and compelling way today. I won't fully repeat everything you've already summarized, but I’ll simply recap a few particular areas of interest. One clear area for further innovation encompasses logistics operations across different industry sectors. By this, I mean the way we choose to move everything from parts to finished goods to food across supply chains. By integrating an understanding of the existing logistics processes (i.e., routings) with expertise in mathematics, we have the opportunity to optimize existing distribution practices for genuine energy efficiency and reduced cost while continuing to deliver customer satisfaction. Good old-fashioned math may, in fact, be the “secret sauce.” In terms of sustainability, this is clearly an area worthy of a fresh look and close examination. Another area for further innovation will involve packaging. Although numerous organizations continue to improve the way they protect their products during shipment, I believe we’ve all encountered circumstances when we’ve wondered why something has to be packaged a certain way and why it can’t be protected during shipment with less material or more environmentally conscious materials. Having mentioned logistics and packaging in the supply chain, there is one more particular topic that I’d like to discuss for a few minutes. One topic I’m certain will grow in importance, expectation, and the extent to which leaders will innovate is Traceability -- also called track & trace. Why? We must innovate for Traceability for at least three reasons: I. The concerns are all around us. Lead in the paint on children's toys.

Melamine in milk. Mad cow in beef. Bisphenol-A in consumer plastics. Mercury in consumer electronics. Sourcing of palm oil that threatens destruction of natural resources. Paper and wood-based products sourced from old growth rainforests. Cadmium in earrings. Contaminants in pharmaceuticals. Conflict minerals in jewelry and electronics. Need I go on? You see these items in the news just like I do. People are increasingly worried about these things. And what do you notice about them? They occur across diverse industry sectors and they’re global in character.

II. The second reason we must innovate for traceability is as follows. In a globalized economy with a democratization of information, stakeholders are demanding that businesses routinely possess the kind of knowledge that comes from traceability. And what sustainable business wouldn't want to know everything it can about the things it buys, makes, or sells? Think about it. Who wouldn’t want to know about these things?

III. Third -- as business, we're not going to be able to be efficient in terms of cost or compliance or client satisfaction without it. The business processes that will get put in place to support the acquisition, analysis, and dispersion of

traceability information will differentiate efficient, low cost providers from what I believe will be increasingly endangered species.

I also said we can innovate for Traceability. We can do it based on three things: I. The underlying, enabling technology is available and affordable II. We understand the business processes that must accompany traceability

across diverse industry sectors – at IBM, our own operational experience can also help inform that

III. We can integrate the technology and the business process, and thanks to Business Analytics, we can mine the acquired data and information to routinely -- not episodically -- make better, smarter business decisions.

We've seen value in driving standards. We've led large scale collaborations towards a common goal with diverse companies. We've routinely dialogued and partnered with constructive NGOs to learn and calibrate our thinking. Going forward, please know that IBM is ready and would be pleased to innovate with like-minded leaders like you.