• Message from the President (p2)
• STMicroelectronics at a Glance (p3)
• Commitment to Sustainable Development (p5)
• Social Review (p7)
• Environmental Report (p17)
• General Principles and Management System (p18)
• Energy (p24)
• Water (p28)
• Emissions to Air (p30)
• Chemicals (p32)
• Waste (p34)
• Products and Technologies (p37)
• A History of Environmental Progress (p38)
• Decalogue for the Environment (p39)
• Ladder Concept (p41)
• Awards and Accolades (p41)

Message from the President

At ST we have long recognized the importance of sustainable development and our objectives in the last fifteen years have always closely interlinked the three aspects of economic prosperity, environmental protection and social equity.

Our strong commitment to the protection of the earth is rooted in our Environmental Decalogue first published in 1995, with a revised 1999 edition setting even more aggressive targets. Probably our most ambitious goal is to become a CO2-neutral company by 2010, largely surpassing the Kyoto Protocol targets, and this report shows our progress in reaching that goal.

The deep recession in the microelectronics industry during 2001 brought a sharply declining demand for our products and a corresponding down turn in manufacturing activity. Since key environmental measurements are normalized on financial added value, our performance in 2001 was therefore slightly below target in some areas. Even in this difficult situation, however, the application of our new environmental accounting index shows that our environmental strategy still produces considerable savings, reinforcing our conviction that "ecology is free".

This year, in addition to reporting on the environment, we move a step further and include a short review of social issues: how we care for our people; our approach to managing individual and corporate performance; and our interaction with local communities and the broader society. This social reporting will be further developed in the future, and we will follow the Global Reporting Initiative (GRI) guidelines for sustainability reporting.

The real world in which we do business is complex and challenging - as is the achievement of sustainability in economic, environmental and social issues. As a member of the United Nations Global Compact which addresses corporate social citizenship, we will remain total in our pledge to our people, to our planet and to the prosperity of our stakeholders.

Pasquale Pistorio
President and Chief Executive Officer

SUMMARY OF THE REPORT

Commitment to Sustainable Development (Pages 5 and 6)

ST recognizes that economic prosperity, environmental protection and social equity are essential and interlinked goals in balancing the positive aspects of wealth creation and economic growth needed to fund a better quality of life for present and future generations. The Company is deeply committed to its people, the planet and to the prosperity of all its stakeholders.

Total Quality Management (TQM) is the enabling framework that has helped ST adapt and grow as a leader in a fast-moving industry. For employees, TQM is much more than a philosophy or management tool. It is the measure of the Company's dedication to exceptional individual and corporate performance, a committed way of working that has been developed by sustained and detailed effort at all levels within the business, by every employee and every manager.

Social Issues: ST people (pages 8-12)

While ST is global in outlook, it knows that its strength and competitiveness is built on respect for cultural differences. The Company has always promoted a 'meta-national' culture, where it seeks to identify and nurture local strengths within local markets. Such an approach optimizes its collective capabilities and underpins its strategic intent to operate fully integrated businesses in every macro-economic system in the world.

ST's aim is to develop the ability to attract and retain the best and most creative talent in a highly competitive market. It strives to be the employer of first choice by providing a workplace that encourages its people to reach their full potential, through education, training and personal recognition.

One measure of creative success is the Company's patent record: inventions by ST employees produce, on average, two new patents every day. With the world's largest semiconductor product portfolio, ST offers the largest range of career opportunities in its field. The retention rate is excellent: the average career length at ST is more than 10 years.

In terms of training and career development, ST has a formal policy to provide effective career and personal development for its people. Employees are constantly exposed to new situations, cultures and jobs that develop their strengths and skills, broaden their experience and foster adaptability. Mobility is encouraged across functions, sites and countries and, on average, all ST employees receive between 50 and 55 hours of training each year.

Knowledge Sharing is a skill that ST has refined to a high degree. Half of ST professionals are involved in knowledge-sharing teams and there are also over 60 Communities of Practice that link people involved in the same areas of expertise.

In 1994, as part of its commitment to bringing education and opportunities for growth to all employees throughout their careers, ST established ST University (STU) to ensure the personal development of its employees.

Social Issues: ST in the Community (pages 13-15)

ST takes its impact on the economy, employment and on the social structure of the communities in which it operates very seriously. Over the years, the Company's considerable capital investments around the world have created many thousands of jobs and significantly contributed to the growth of local economies. ST's contribution to local communities is expressed through a wide range of projects focusing on some of the pressing needs of local people. Besides providing jobs, contributions include support for local medical initiatives, donations of supplies and computers to schools and universities, help for underprivileged children, sponsorship of local arts and culture, many environmental initiatives and community and national education.

The Company's charitable work is increasingly being coordinated by the ST Foundation, established in August 2001 with the mission to make known the vital importance of microelectronics in world development and to highlight the contribution that this technology can make to human progress; to promote the ideals of environmental protection and Total Quality Management, and to coordinate ST's charity initiatives worldwide. For example, the ST Foundation coordinated the Company's contribution to disaster relief after the Gujarat earthquake in India in 2001.

Social Issues: ST in the World (page 16)

ST believes that, as a leading technology company, it has a strong obligation to help cultivate technological development worldwide, not just in the most economically advantaged nations and communities. This is why it is a signatory to The Global Compact, the UN initiative that promotes responsible corporate citizenship based on the Universal Declaration of Human Rights, the International Labour Organization's core standards and the Rio Principles on the environment.

ST is an Executive Committee Member of the World Business Council for Sustainable Development, chairs the European Union delegation to the World Semiconductor Council, and is a member of numerous national and international trade associations. Through the ST Foundation, the Company aims to play a leading role in the United Nations Information and Communications Task Force, a UN initiative to narrow the digital divide that separates those with access to modern digital technologies from those who do not.

Environment: General Principles (pages 18-21)

ST's environmental policy goes beyond the principle of customer satisfaction and aims for stakeholder satisfaction through initiatives and programs based on the ST Decalogue for the Environment. First published in 1995, the revised 1999 edition set even more aggressive targets with objectives up until the year 2010.

ST's environmental vision is to be recognized by all of its stakeholders as a leader in environmental care. The aim is to reduce ST's impact on the environment to levels that do not exceed those corresponding to the Economically Viable Application of the Best Available Technology (EVABAT).

At the beginning of 2002, 16 of ST's 18 manufacturing sites are EMAS validated and ISO 14001 certified. One recently acquired site in Tuas, Singapore will be certified in mid 2002 and our new plant in Bouskoura, Morocco, which was inaugurated in 2001, will be certified next year.

Environmental data from each site is measured against the relevant Decalogue target. This process is managed through the Environmental Database, which enables environmental indicators to be compared, site-by-site. ST has worked closely with the World Business Council for Sustainable Development (WBCSD) on the definition of eco-efficiency indicators and their implementation at ST.

Corporate Environmental Audits are conducted every 18 months at every site. Each audit ends with an action plan and scoring of the audited site. ST also strongly encourages its suppliers and subcontractors to become EMAS validated or ISO 14001 certified and assist them to do so. The Company's goal was for 80% of its key suppliers to be certified to either of these standards by the end of 2001. It has achieved 87% of its goal and evaluation of new suppliers is ongoing.

Investing in the Environment (pages 22-23)

ST believes that in the long term companies investing in environmental protection have a significant advantage over those who delay. It has already proved that business can be both environmentally responsible and profitable. None of ST's investments in energy conservation has taken longer than three years to pay back, with an average of two years. Environmental measures represented more than 2% of ST's capital investments in 2001, roughly in line with the previous year.

Environmental conservation and recycling led to savings of $29 million in 2001: $5 million in energy costs, $4.5 million in water costs and $19.5 million in the cost of chemicals. Due to the dramatic downturn in the semiconductor market during 2001, this is well below the savings of $77 million achieved in 2000 but still represents a significant success.

Increasingly, investors are choosing companies that deliver an excellent environmental and financial performance. ST continues to be highly ranked among the leading companies pursuing sustainability. In the semiconductor industry, the Dow Jones Sustainability Group Indexes (DJSGI) rank ST as leader in the integration of sustainability in a comprehensive Total Quality Management System.

Since 1994, ST has coordinated the European participation in the International Semiconductor Conference on Environment, Safety and Health sponsored by the world's semiconductor industry associations. ST is also on the Executive Committee of the World Business Council for Sustainable Development (WBCSD), and the World Semiconductor Council ESH (Environment Safety and Health) Task Force. The Company is also involved with a wide range of national and international trade and non-governmental organizations worldwide.

Energy (pages 24-27)

ST believes that the most pressing environmental threat is climate change, caused by increased levels of greenhouse gases (GHGs) in the atmosphere. Carbon dioxide (CO2) is the principal greenhouse gas and the Company has therefore set itself the highly ambitious goal of becoming CO2 neutral by 2010. It intends to achieve this in the following ways:

• reduce total energy consumption by at least 5% a year for each million dollars of added value by increasing energy efficiency;
• be supplied by a greater percentage of its energy from heat and power plants, which are more efficient, and from renewable energies such as wind and solar (zero CO2);
• neutralize the remaining carbon emissions by creating carbon sinks through reforestation.

For a typical semiconductor manufacturer, electricity can be the largest single expense - in 2001 it was 1.7% of ST's net revenue. If the improvement in energy mix foreseen for 2010 is achieved (65% cogeneration, 30% conventional, 5% renewable), this will allow the Company to reduce CO2 emissions for each million dollars of added value by more than 80% from the 300 tonnes in 1990 to only 60 tonnes in 2010. ST estimates that overall CO2 savings of more than 10 million tonnes can be achieved for the period 1994-2010, with company-wide energy savings of $900 million for that period.

Energy consumption performance in 2001 was dramatically affected by the market slow-down and the marked fall in the price of our products. While total production decreased by 2% compared to 2000, the added value fell dramatically by 15%. This has increased the Company's total energy consumption in relation to added value. Nevertheless, energy efficiency measures produced savings of around $60 million in the period 1994-2001.

More than 350 energy efficiency actions have been identified and will be implemented over the next three years. These actions will contribute to an annual saving of more than $11 million.

By 2010, ST aims to source 65% of its electricity from combined heat and power (cogeneration) plants, which are more efficient than conventional power stations. Pilot projects in both wind and solar energy have also been started at ST and reforestation projects are underway.

Water (pages 28-29)

Water plays a critical role in the manufacturing of semiconductors and conservation of water is one of ST's corporate goals. The Company has largely met its Decalogue target, reducing water consumption by an average of 30%, compared with the 1994 baseline.

The dramatic downturn in the semiconductor market in 2001 affected the water indicator (measured in cubic meters per million dollars of added value). Despite this, savings for the period since 1994 remain high - more than $20 million.

Emissions to air (pages 30-31)

Almost all semiconductor manufacturing processes use chemicals and gases that can be harmful to the environment. At each manufacturing site air emission parameters are continually monitored to ensure they are within the corporate specification limits. These are based on the most stringent regulations of any country where the Company operates, even if this is more than local regulations require.

The World Semiconductor Council (WSC) has set a challenging goal of reducing the aggregate absolute emissions of Perfluorinated compounds (PFCs) to 10% below 1995 levels by 2010. ST intends to achieve this reduction at least two years before the WSC deadline. Alternative chemicals that can reduce PFC emissions by 40-70% have been tested and implemented in several of ST's locations worldwide.

Chemicals (pages 32-33)

ST is also working to minimize the use of chemicals substances such as sulphuric acid, fluorhydric acid, hydrogen peroxide and solvents. Total chemicals consumption per manufacturing units has improved from 1.36kg per wafer in 2000 to 1.24kg in 2001 for front-end sites and from 0.38kg per thousand units in 2000 to 0.21kg in 2001 for assembly sites.

For example, ST's manufacturing site in Tours, France has drastically reduced its sulphuric acid consumption from 2.1kg per wafer in December 1999 to 0.7kg in December 2001, while the site in Agrate, Italy, has pioneered a new process in which sulphuric acid is completely replaced with de-ionized water and ozone.

Waste (pages 34-36)

At ST, waste is separated into more than 30 different categories, facilitating reuse and recycling. The proportion of waste that goes to landfill has been reduced from 70% in 1994 to 20% in 2001. Conversely, the proportion of waste that is reused or recycled has increased from 25% in 1994 to over 70% in 2001. Examples of reuse and recycling activities include sending sludge produced by the waste water treatment plants to the cement and brick industry and selling reject silicon wafers for use in solar panels.

In April 2002, ST signed a contract with a large waste recycling company to recycle resin waste to manufacture floor tiles and bricks. By 2003, two years ahead of the Decalogue target of 2005, ST plans to reduce the ratio of landfilled/total waste from its current value of 30% to 5%.

A number of chemicals are used in manufacturing semiconductors. ST's ECOPACK® program is intended to help eliminate hazardous materials such as lead, antimony and bromine from chip packages. A lead-free BGA (Ball Grid Array) package was developed and validated in 1999. In 2000 the first TSOP (Thin Small Outline Package) using bromine/antimony-free molding compounds was qualified and is now in full production. A lead- and bromine/antimony-free BGA was validated in the fourth quarter of 2001.

Use of recycled paper has risen from about 50% in 1994 to over 98% in 2001 and ST has reduced the use of paper per employee by 46% from 1997-2001. By publishing technical documents on CD-ROM and DVD, the number of publications printed by its corporate technical documentation center has decreased by 95% since 1995.

Products and technologies (page 37)

ST's aim is to make products that are energy-efficient when used. Where possible, its designs comply with the US Energy Star programs, a government-backed energy efficiency initiative for electronic products.

In addition to energy saving applications, such as the stand-by feature on battery chargers, the latest generation of lighting lamps, audio amplification through pulse modulation, there are several other applications in the automotive sector that are making a significant contribution to minimizing environmental impacts.

For example, ST is working with Marelli and the Istituto Motori di Napoli on a hybrid car project using a fuel cell and gas. ST has also worked on a system to reduce the energy needed for power-assisted steering that could produce 10% fuel savings under normal conditions. The Company's devices, already used in several engine control systems, optimize fuel consumption and reduce emissions.

More examples, data and charts can be found in the full Corporate Environmental Report and Social Review 2001. The full document can be downloaded from http://www.st.com.

Appendix 1

A History of Environmental Progress

These key Environmental Events are a testimony to ST's proactive environmental approach.

1993

Change in attitude: from compliance with international and local regulations to a proactive mode. Created the Corporate Environment Strategies Management organization; issued the Environmental Policy. Launched a long range company-wide initiative with the goal of establishing ST as the world leader in environmental protection by the year 2000. Complete elimination of the ODS Class 1 from our processes.

1994

Initial environmental review of all manufacturing sites and decision to apply for EMAS validation. Adherence to ICC Business Charter for Sustainable Development.

1995

First Corporate Environmental Day. Issued first Environmental Decalogue with environmental objectives (distributed worldwide to all employees, customers, suppliers and partners). First site EMAS validated. First worldwide Environment Meeting (all sites represented).

1996

Environmental training for top management and start up of the "train the trainers" sessions.

1997

All 17 manufacturing sites both EMAS validated and ISO 14001 certified (all 7 European sites EMAS registered by the European Commission). ODS Class 1 elimination from facilities.

1998

First Life Cycle Inventory on a finished product. Publication: Chemical Content of a Semiconductor Package. Environmental training for suppliers (through CDROM).

1999

Second Environmental Decalogue issued setting aggressive goal of making ST a zero CO2 equivalent emission Company by the year 2010. Energy, PFC and Chemicals Road Maps defined. More than 50% of ST key suppliers gained environmental certification.

2000

In 2000, at equal production rate, electricity and water consumption were reduced by 29% and 45% respectively compared with the 1994 baseline.

2001

First global worldwide Energy Survey on all ST manufacturing sites. First non-manufacturing site EMAS validated and ISO 14001 certified.

Appendix 2

Second Environmental Decalogue ( Released August 1999 )

At STMicroelectronics we believe firmly that it is mandatory for a TQM driven corporation to be at the forefront of ecological commitment, not only for ethical and social reasons, but also for financial return, and the ability to attract the most responsible and high performing people. Our "ecological vision" is to become a corporation that closely approaches environmental neutrality. To that end we will not only meet all environmental requirements of those communities in which we operate but, in addition, we will strive to comply with the following ten commandments:

1.0 REGULATIONS

1.1 Meet the most stringent environmental regulations of any country in which we operate, at all our locations.
1.2 Comply with all international protocols at least one year ahead of official deadlines at all our locations.

2.0 CONSERVATION

2.1 Energy : continue to reduce total energy consumption (KWh per K$ of added value) by at least 5% per year, through process and facilities optimization, conservation and building design.
2.2 Water consumption : continue to reduce water draw-down (cubic meters per K$ of added value) by at least 5% per year, through conservation, process optimization and recycling.
2.3 Water recycling : reach a minimum of 90% recycling ratio in two pilot sites by end 2005.
2.4 Trees : reduce office and manufacturing paper consumption (kg per employee) by at least 10% per year, and use at least 95% recycled paper, or paper produced from environmentally certified forests.

3.0 GREENHOUSE GAS EMISSIONS

3.1 CO2: reduce total emissions due to our energy consumption (tons of carbon equivalent per M$ of added value) by at least a factor of 10 in 2010 versus 1990, which is a goal five times better than the average of the industries meeting the Kyoto Protocol goal.
3.2 Renewable energies : increase their utilization (wind, photovoltaics and thermal solar) so that they represent at least 5% of our total energy supplies by end 2010.
3.3 Alternative energies : adopt, wherever possible, alternative energy sources such as cogeneration and fuel cells.
3.4 Carbon sequestration : compensate the remaining CO2 emissions due to our energy consumption through reforestation or other means, aiming at total neutrality towards the environment by 2010.
3.5 PFC : reduce emissions of PFC ( tons of carbon equivalent per M$ of added value) by at least a factor of 10 in 2008 versus 1995.

4.0 POLLUTION

4.1 Noise : meet a "noise-to-neighbours" below 60dB(A) at any point and any time outside our property perimeter for all sites, or comply with local regulations (whichever the most restrictive).
4.2 Contaminants : handle, store and dispose of all potential contaminants and hazardous substances at all sites, in a manner to meet or exceed the strictest environmental standards of any community in which we operate.
4.3 ODS : phase out all remaining Class 1 ODS included also in closed loops of small equipment before end 2001.

5.0 CHEMICALS

5.1 Reduce the consumption of the six most relevant chemicals by at least 5% per year ( tons per M$ of added value), through process optimization and recycling (baseline 1998).

6.0 WASTE

6.1 Landfill : reduce the amount of landfilled waste below 5% of our total waste by 2005.
6.2 Reuse or recycle at least 80% of our manufacturing and packing waste by end 1999, and 95% by end 2005.
6.3 Use the "Ladder Concept" as a guideline for all our actions in waste management.

7.0 PRODUCTS AND PROCESSES

7.1 Design products for decreased energy consumption and for enablement of more energy efficient applications.
7.2 Contribute to global environmental control by establishing a database of Life Cycle Assessment of our products.
7.3 Systematically include the environmental impact study in our development process .
7.4 Publish and update information about the chemical content of our products.

8.0 PROACTIVITY

8.1Support local initiatives for sponsoring environmental projects at each site where we operate.
8.2 Sponsor an annual Corporate Environmental Day, and encourage similar initiatives in each site.
8.3 Encourage our people to lead/participate in environmental committees, symposia, groups etc.
8.4 Include an "Environmental Awareness" training course in the ST University curriculum and offer it to suppliers and customers.
8.5 Strongly encourage our suppliers and subcontractors to be EMAS validated or ISO 14001 certified and assist them through training, support and auditing. At least 80% of our key suppliers should be certified by end 2001.

9.0 MEASUREMENT

9.1 Continuously monitor our progress, including periodic audits of all our sites worldwide.
9.2 Cooperate with international organizations to define and to implement eco-efficiency indicators.
9.3 Measure progress and achievements using 1994 as a baseline (where applicable) and publish our results in our annual Corporate Environmental Report.

10.0 VALIDATION

10.1 Maintain the ISO 14001 certification and EMAS validation of all our sites worldwide. 10.2 Certify new sites within 18 months of their operational start-up, including regional warehouses.