Consumer Electronics: ESG Emerging as a Hidden Highlight

The consumer electronics industry has been experiencing a sustained downturn in recent years. From a global perspective, the surge in global sales of consumer electronics from 2020 to 2021, driven by the home-stay effect during the pandemic, has significantly reduced the demand for consumers to replace electronic devices over the past two years. Coupled with the impact of macroeconomic factors and supply chain issues since 2022, overall demand has been weak, resulting in a 3% decline in global market revenue for consumer electronics in 2022. However, potential opportunities for industry recovery are gradually emerging.

On the one hand, consumer electronics continue to benefit from favorable policies. On the other hand, companies in the consumer electronics sector are exploring new growth areas by experimenting with second fields and integrating sustainable concepts, achieving a "curve rescue."

In terms of sustainable development, at the beginning of this year, the 2023 Consumer Electronics Show (CES) was held in Las Vegas, USA, restoring its pre-pandemic scale and popularity. Surprisingly, internationally renowned consumer electronics manufacturers unanimously defined the theme of 2023 as "sustainable," "net-zero emissions," "recyclable," etc., seemingly diverging from traditional consumerism. Industry leaders such as Industrial Foxconn Industrial Internet, Huawei, Lenovo, Xiaomi, and others widely regard ESG management as a key factor in shaping the future of their companies. They have disclosed ESG sustainable development reports covering various dimensions of practice, including green and low-carbon development, social welfare, and corporate governance. In the following, this article will review ESG practices in domestic consumer electronics companies and explore the industry's future prospects.

Empowering Green Products with Numerical Values: The First Step towards Sustainability

In the latest 2021 edition of the "National Hazardous Waste List," hazardous waste related to the consumer electronics industry is primarily concentrated in electronic production raw materials. The consumer electronics industry generates wastewater pollutants containing various metal ions such as nickel, chromium, and aluminum during the electroplating process. In addition to this, it also emits organic wastewater, phosphorus-containing wastewater, nitro-containing wastewater, and other pollutants. According to the list of "Key Monitoring Enterprises" published by the Ministry of Ecology and Environment over the years, the China Securities Regulatory Commission requires heavily polluting companies to disclose in their annual reports whether "listed companies and their subsidiaries belong to the key pollution-discharging units announced by the environmental protection department," including nearly 30% of A-share consumer electronics listed companies. Therefore, consumer electronics companies need to pay special attention to pollution issues arising from raw materials and production processes.

In its 2022 CSR report, Foxconn Industrial Internet proposed achieving net-zero emissions across the entire value chain by 2050, with more than 50% of green revenue (clean technology products/services) by 2025. They formulated biodiversity policies and implemented sustainable site maintenance plans, conducting soil/groundwater inventory monitoring more than five times. Leveraging the intelligent attributes of the consumer electronics industry itself, Foxconn Industrial Internet aims to promote the green transformation of the value chain through clean technology products. In August 2022, the China Electronic Energy Conservation Technology Association officially initiated the compilation of the "Data Center Carbon Labeling Evaluation Specification" and "Data Center Carbon Emission Control Specification." As a member of the drafting working group, Foxconn Industrial Internet shared its design concepts and project experience in creating green data center products, contributing positively to achieving low-carbon development throughout the entire consumer electronics industry.

Xiaomi's R&D investment in the field of clean technology in 2023 accounts for over 50% of its overall R&D investment. Revenue related to patented technologies and product applications in clean technology represents 59.7% of its total income. Xiaomi's investment in clean technology establishes a competitive advantage in the process of societal and economic transformation towards a low-carbon economy. Specifically, Xiaomi enhances smartphone operation and power-saving efficiency through 5G information transmission power-saving technology. Simultaneously, it optimized the self-developed algorithm for the AI voice assistant "Xiao Ai," reducing wake-up energy consumption by 37%. In terms of production processes, Xiaomi reuses molds for manufacturing electrical products like air conditioners, reducing mold opening energy consumption. On average, each set of molds saves about 48,500 kWh of energy consumption. Xiaomi also adopts green packaging, replacing all packaging paper with bamboo and sugarcane pulp, achieving 100% degradability.

Huawei emphasizes the cleanliness, efficiency, and low-carbon circulation of its products, striving to reduce the environmental impact of production, operation processes, and the entire life cycle of products and services. It promotes energy-saving and emission reduction in various industries through innovative products and solutions, fostering continuous collaboration with all parties in the industry chain to build a low-carbon society. Huawei's digital energy has helped customers achieve a cumulative total of 695.1 billion kWh of green power generation, saving 19.5 billion kWh of electricity. In terms of production, Huawei's Shenzhen and Dongguan campuses already use 100% clean energy. Through product design optimizations that focus on simplicity and green thermal cycling, Huawei achieved energy savings of 19.67 million kWh in 2022, avoiding the emission of 11,218 tons of carbon dioxide. Through continuous efforts, Huawei's average product energy efficiency in 2022 increased 2.1 times compared to 2019.

In its 2022 ESG report, Lenovo states its commitment to restricting the use of environmentally polluting materials in its products. This includes prohibiting the use of substances that deplete the ozone layer in all applicable products. It also restricts the use of persistent organic pollutants (POPs) according to the Stockholm Convention. In line with the European Union's Restriction of Hazardous Substances (RoHS) Directive and the Registration, Evaluation, Authorization, and Restriction of Chemicals (REACH) regulation, Lenovo is gradually phasing out relevant materials. Even beyond the specified requirements, Lenovo has implemented these measures. Lenovo's environmental implementation strategy and related requirements comply with the requirements of the EU RoHS directive and REACH regulations. In terms of product materials, Lenovo uses post-industrial recycled (PIC) plastics, post-consumer recycled (PCC) plastics, and closed-loop post-consumer recycled (CLPCC) plastics. By 2022, Lenovo applied CLPCC to 298 product types, up from 248 the previous year. Lenovo aims to have 100% of its PC products include post-consumer recycled content by 2025.

Total Lifecycle Management: The Key to Achieving Green Transformation in the Consumer Electronics Industry

In addition to emissions and waste generated during the production process, the consumer electronics industry also faces a significant issue of electronic waste. Lead in computer and TV cathode ray tubes, arsenic and mercury in computer components, and various persistent and bioaccumulative toxic substances in the raw materials of phones, such as arsenic, cadmium, lead, pose substantial risks to both human health and the environment. Therefore, enhancing resource efficiency, recycling, and reusing electronic waste are critical considerations for the consumer electronics industry.

Foxconn Industrial Internet strictly adheres to relevant environmental laws and regulations, promoting harmless disposal of solid waste, efficient resource recovery, and comprehensive utilization. Through process and technology improvements, it effectively manages the incremental generation of waste. By increasing the effective utilization rate of raw materials, it reduces the amount of waste disposed of at the end, thus achieving waste reduction targets. General waste such as paper and plastic is recycled and reused, while hazardous waste is disposed of in compliance with internal regulations, transferred to qualified units for processing. In 2022, 39,070 tons of hazardous waste and 152,133 tons of general industrial solid waste were generated, totaling 191,203 tons. In response to the call for "zero pollution, zero landfill, and zero incineration" during the "14th Five-Year Plan" period, Foxconn Industrial Internet has established a systematic management approach. Currently, five units have passed the UL2799 zero landfill certification, with Nanning Park becoming the first enterprise in Guangxi to complete UL2799.

Huawei is committed to establishing a circular economy business model and a closed-loop industrial chain. Based on the full product lifecycle, it continually pursues more environmentally friendly materials, durable products, greener packaging, and less waste to ensure all resources are efficiently and circularly used, reducing natural resource consumption and protecting ecosystems. Increasing the reuse rate of electronic waste, allowing it to fully realize its value, is an effective means of reducing the environmental impact of electronic products. Huawei has established a reverse recycling system covering more than 170 countries globally, collaborating with scrap service providers to recycle and reuse materials in electronic waste. In 2022, Huawei's ICT business disposed of 13,404 tons of electronic waste, with a landfill rate of only 0.63%; the smart terminal business processed 2,884 tons of various waste materials, with a zero landfill rate.

Xiaomi primarily classifies, collects, and reuses waste generated during its operational processes. It ensures proper handling of waste through qualified third parties. By posting environmental symbols and playing environmental videos, Xiaomi raises employee awareness, minimizing waste generated during daily operations. Hazardous waste mainly includes carbon powder cartridges and ink cartridges required for printing devices, as well as metals, wastewater, alcohol-based paper, trimmings, and other waste generated from research and development activities. Xiaomi hands over used toner cartridges and ink cartridges to suppliers for unified processing. It establishes independent spaces for temporarily storing hazardous waste between laboratories and the Yizhuang smart factory, which are then recovered and processed by qualified waste management companies.

Lenovo's end-of-life management project supports the company's transition to a circular economy by promoting the reuse and recycling of products and components, helping reduce the landfill volume of discarded electronic products. Measures taken for products, components, and peripherals that have been discontinued, reached the end of their life cycle, or been discarded include reuse, refurbishment, remanufacturing, dismantling, recycling, disassembly, reuse, waste disposal, and disposal. The Product End-of-Life Management (PELM) covers Lenovo-branded products and non-branded products received from customers and other sources. Lenovo provides suppliers with the "Electronic Product End-of-life Supplier Standards," detailing Lenovo's requirements for end-of-life management and industry-standard certifications, along with detailed disclosure of waste emission indicators.

Compliance Certification and Data Security: The Passport to Internationalization

The consumer electronics industry faces frequent updates to industry regulations and related laws, especially when conducting overseas business in developed countries such as Europe, the United States, and Japan. Overseas countries promptly verify whether products comply with international product regulations, such as the EU's REACH, RoHS, SVCH, the United States' TSCA, etc. Therefore, for the consumer electronics industry to go global, meeting international certification standards and ensuring data security has become a passport for internationalization. Simultaneously, the inherent nature of consumer electronics products poses a high risk of data security and privacy breaches. Thus, companies need to pay special attention, as per MSCI's ESG ratings for domestic companies, indicating that Chinese companies generally need improvement in privacy protection.

Foxconn Industrial Internet, in its chemical platform management, adheres to local environmental laws, industry standards, and requirements from relevant parties. Referring to international conventions such as RoHS, REACH, PoPs, TSCA, CA Prop 65, Industrial Criteria, it has completed standard assessments of all products, services, and activities for the company, responding to stakeholder demands and concerns by proactively disclosing chemical usage information. In 2022, a total of 29 rectifications were completed.

Huawei has been managing harmful substances in its phone products beyond regulatory requirements since 2016. It initiates harmful substance reduction design from the source to minimize the environmental impact of its products. The Smart Product Green Medal certification, evaluated by the international certification institution SGS's expert team based on the requirements of the Smart Green Product certification standard, assesses products comprehensively from various dimensions, including green materials, durability, energy efficiency, safety, user experience, and enterprise production operations. Moreover, Huawei places great importance on network security and privacy protection, with a dedicated section detailing its practices in this area. Huawei released the "Huawei Privacy Protection Governance White Paper," sharing its privacy protection governance methods and practices with the industry, making positive contributions to privacy protection work in the industry. It handled over 25,000 data subject requests promptly and effectively, safeguarding the rights of data subjects. Huawei conducted over 50 certifications and audits based on industry best practices in different countries and business areas to ensure effective implementation of the company's privacy protection policy.

Lenovo restricts the use of materials that may pollute the environment in its products, including prohibiting the use of substances that deplete the ozone layer in all applicable products. Based on the Stockholm Convention, it restricts the use of persistent organic pollutants (POPs). Following the EU's Directive on the Restriction of Hazardous Substances in Electrical and Electronic Equipment (RoHS) and the Registration, Evaluation, Authorization, and Restriction of Chemicals (REACH) regulation, Lenovo gradually eliminates relevant materials, even beyond the required regions. Lenovo's environmental implementation strategy and related requirements comply with the requirements of the EU's RoHS directive and REACH regulation. Regarding data security, Lenovo commits to continually improving its privacy protection project, providing IT lifecycle solutions such as asset recovery services, zero-carbon services, and official refurbishment services. These efforts help optimize the sustainability delivery model of IT assets, mitigate environmental and data security risks related to the disposal of scrapped assets, and aim to maximize the value potential of these assets. The primary goal is to reuse, recycle, and ultimately circulate resources.

Collaborating for a Green Value Chain

China's consumer electronics industry has become highly internationalized, with an increasing number of participants in the supply chain. Creating a truly sustainable green supply chain requires not only a well-established ESG management structure but also collaborative efforts from all parties in the supply chain.

Foxconn Industrial Internet practices a sustainable development strategy of "Smart Industry, Green Technology" and established the FiiCSR committee in 2018 to implement ESG practices. Since its IPO in 2018, Foxconn Industrial Internet has released corporate social responsibility reports for three consecutive years and is about to publish its fourth, providing a more comprehensive and scientific disclosure of the company's ESG management work. Notably, Foxconn Industrial Internet will release its first carbon-neutral white paper this year, contributing intelligence and strength to the dual-carbon strategies of the industry, country, and society. Since 2020, using that year as a baseline, the company has completed greenhouse gas emission accounting (including Scope 1, Scope 2, and part of Scope 3) and updates it annually. Following the "3R" path, it aims to gradually achieve carbon neutrality in its operations and the entire value chain based on a strategy prioritizing energy conservation, emissions reduction, and renewable energy supply.

Huawei collaborates with upstream and downstream partners in the supply chain, adhering to customer sustainable development requirements and conducting joint audits. It requires suppliers to transmit the same requirements level by level upstream, respecting employee rights, complying with legal requirements related to environmental protection, health and safety, privacy, anti-bribery, etc., to build a responsible supply chain. Huawei conducts comprehensive entry certification for new suppliers and annual audits for existing suppliers based on risks. It assesses them based on sustainable development performance, audit results, and improvements. Additionally, Huawei adopts a zero-tolerance policy towards forced labor, taking serious actions, including terminating business relationships, upon verification of any supplier using forced labor. To date, no suppliers using forced labor have been identified.

As a globally operating enterprise serving 180 markets, Lenovo manages a diverse and dynamic supply chain. Its suppliers include in-house manufacturing centers, production procurement, original design manufacturers (ODMs), and non-production procurement. In the 2022/23 fiscal year, Lenovo initiated a supplier emissions reduction plan with key suppliers to drive more climate-related actions throughout its supply chain. For suppliers joining climate action, Lenovo encourages participation in CDP disclosure and reporting of emission data. For more mature suppliers, Lenovo collaborates to establish emission reduction targets, procure renewable energy, and implement energy efficiency projects. Lenovo also encourages suppliers to collaborate within their supply chains to promote emissions reduction and share experiences and knowledge with the industry for mutual growth.