STMicroelectronics ESG Highlights
Marouane Samghour
MSc Sustainable Finance & Fintech - Corporate finance graduate - SKEMA BS. Looking for an opportunity in Finance, ESG or Investment Analysis
?? STMicroelectronics preserves its best-in-class position in the semis industry
Board Members:
?? STMicroelectronics’s board benefits from a clear distinction between the supervisory board and the management board thanks to a dual-board structure. The members have extensive experience in the semis field and are highly competent, ensuring they are wellplaced to manage the company.
STMicroelectronics’ governance structure includes a supervisory board and a management board. The supervisory board supervises the policies pursued by the management board, the way in which it implements the long-term value creation strategy, and the company’s general course of affairs and business, supporting the management board with its advice. As of 2024, the supervisory board is made up of nine members, all of which are shareholder representatives and independents according to the New York Stock Exchange and the Dutch Corporate Governance Code. Additionally, the supervisory board does not include any management board members and 44% of its members are women. It is chaired by Nicolas Dufourcq. Jean-Marc Chery has been a member of STMicroelectronics’ management board and the CEO since May 2018. The supervisory board has decided to propose for shareholder approval at the company’s 2024 Annual General Meeting of Shareholders Jean-Marc Chery’s reappointment for a three-year mandate as a member of the management board and as the company’s CEO. The latest proposal was approved by the shareholders at the most recent AGM (2024). Chery began his career in the Quality division of Matra, the French engineering group. In 1986, he joined Thomson Semiconducteurs, which subsequently became ST, and held various management positions in product planning and manufacturing, rising to lead ST’s wafer fabs in Tours, France, and later in Rousset, France.
Chery sits on the board of directors at the Global Semiconductor Alliance (GSA) and France Industries’ and serves as Chairman of the France-Malaysia Business Council at Medef International. He is a member of the board of directors at Legrand. Previously, he was chairman of the European microelectronics R&D program AENEAS and of the European Semiconductor Industry Association (ESIA) in 2019-21. Chery was named Knight of the Legion of Honor by the French Ministry of Economy and Finance in July 2019. Note that Heleen Kersten and Alessandro Rivera were members of the supervisory board until 24 May 2023, when their terms expired, and Paolo Visca and Hélène Vletter-van Dort were appointed as new members of the supervisory board. Supervisory board members have a wealth of experience in various industries where they held top-level positions. Hence, they are well qualified to represent shareholder interests. The supervisory board is completed by five committees:
In 2023, the board met 12 times, with an average attendance rate of 91%. Supervisory board remuneration is made up of two components:
The aggregate compensation for current and former members of the supervisory board with respect to service in 2023 was EUR996,500.
In our view, STMicroelectronics benefits from a highly experienced supervisory board. Additionally, the segmentation of the board into five committees allows the company to focus on key areas.
After analysing the membership of the executive board, we noted that Lorenzo Grandi joined STMicroelectronics in 1987 as an R&D process engineer. In 1990, he moved to ST’s Memory Product Group (MPG) as a financial analyst. In 1995, Grandi was promoted to the position of Group Controller of the Memory Product Group, contributing to the expansion of ST’s flash memory business. In 2005, Grandi joined the ST’s Corporate Finance organisation, taking responsibility for Budgeting and Reporting. In 2012, Grandi was promoted to Corporate Vice President in charge of Corporate Control. Finally, in 2018 he was appointed CFO of the company. As CFO, his extensive experience at STMicroelectronics gives him a high degree of expertise. Marco Cassis is President, Analog, Power & Discrete, MEMS and Sensors Group and has held this position since February 2024. He also heads up the corporate functions of Strategy Development, System Research and Applications, and Innovation Office, and is a member of ST’s executive committee. He joined SGS-Thomson Microelectronics (now STMicroelectronics) as a car-radio chip designer in 1987. Cassis moved to Japan to help expand ST’s audio business and took charge of the Audio Business Unit. He was subsequently promoted to Director of Audio and Automotive Group. In 2004, Cassis was named VP of Marketing for Automotive, Computer Peripheral, and Telecom Products and in 2005, he became Vice President of the Automotive Segment Group. Cassis also led ST’s operations in Japan in 2005 and his mandate was expanded to include Korea in 2010 and Greater China and South Asia in 2016. Cassis was appointed President of ST’s Asia Pacific Region in 2016 and was appointed as President, Global Sales and Marketing in 2017. Marco was also appointed President Analog, MEMS and Sensors Group in January 2022. Remi El-Ouazzane is the President of ST Microcontrollers, Digital ICs and RF products Group and has held this position since February 2024. He is a member of ST’s Executive Committee. ElOuazzane started his career at Texas Instruments in 1997.
He rose through the ranks across the broadband, mobile, and embedded processing divisions to become Vice President and General Manager of the Open Multimedia Applications Platform (OMAP) in 2009. El-Ouazzane was appointed CEO of Movidius in 2013, responsible for driving its vision-processing technologies to advance the adoption of AI in the Internet of Things. With the acquisition of Movidius by Intel in 2016, he joined Intel’s New Technology Group as Vice President and General Manager and became COO of Intel’s Artificial Intelligence Products Group in 2018. In 2020, El-Ouazzane became Intel’s Datacenter Platform Group Chief Strategy Officer, driving strategic initiatives in the data centre and cloud markets. Fabio Gualandris is STMicroelectronics’ Quality, Manufacturing, and Technology president and has held this position since July 2023. He has been responsible for the company’s Back-End Manufacturing & Technology organisation since 2016 and led the company’s Testing Council, alongside its manufacturing strategy in Asia and efforts in System-in-Package technology. Gualandris is a member of ST’s Executive Committee. Gualandris joined STMicroelectronics R&D in 1984. He became R&D Director of Operations in 1989 and became Automotive BU Director in 1996. After two years as President and CEO of Semitool, he rejoined ST in 2000 as Group VP responsible for memory products, including the RAM/PSRAM and Automotive Flash. In 2005, Gualandris was appointed CEO of ST Incard, an ST smart-card subsidiary. Over 2008-10, he served as VP and Supply Chain General Manager at ST’s memory JV with Intel. In 2011, Gualandris was appointed ST’s Executive Vice President, Product Quality Excellence. All in all, the executive board has extensive experience in the semis field and is highly qualified to manage STMicroelectronics.
Remuneration policy:
?? A new remuneration policy for the managing board was approved at the 2021 AGM and in our view, the review of the financial and non-financial performance criteria at the AGM in 2023 made the company more aligned with shareholder expectations, as ESG targets are now included. In addition, a large part of the variable remuneration (65% in 2023) was also included.
The former remuneration policy was determined by the supervisory board and adopted at the 2005 AGM. The supervisory board proposed a new managing board remuneration policy at the 2020 AGM, but the proposition was rejected by shareholders. The shareholders also rejected the report on how the remuneration policy was implemented during the year. The compensation committee received several negative signals from shareholders who were not satisfied with the remuneration policy before the 2020 vote. At the 2018 AGM, 40% of votes were against the share-based part of the CEO’s remuneration, while at the 2019 AGM 31% of votes were against a special bonus for the CEO. An amended proposal was finally approved during the 2021 AGM (95.9% in favour). In the 2023 AGM, the board revised the financial and non-financial criteria used to calculate the remuneration of the executive team and CEO. Over 92% of voting shareholders voted in favour of the 2023 remuneration report. The factors considered for the determination of the sole member of the managing board, chairman’s, and CEO’s remuneration package are as follows:
The financial performance metrics are as follows: market share performance (performance above stretch, payout of 45%), revenue growth (performance equal to threshold, payout of 20%), operating income (performance equal to target, payout of 40%), net operating cash flow (performance above stretch, payout of 60%).
The non-financial metrics were all achieved in 2023 and include recordable cases of employee safety (a 108% achievement rate), GHG emissions (104%), the percentage of women managers to senior managers (100%), and the employee survey (a 125% achievement rate).
The previous remuneration allowed shares to vest over three years with one-third vesting each year, meaning that the recently adopted remuneration policy is an improvement. In our view, the updated remuneration policy contains positive improvements and is likely to help the company to reach its ESG targets and contribute to the long-term success of the firm.
Shareholders Structure:
???? STMicroelectronics’ free float is close to 73%, and the remaining 37% is owned by ST Holding (equally split between Bpifrance and the Italian Ministry of the Economy and Finance). BlackRock is the largest shareholder by far, with 8.3% of the shares.
The shareholder structure looks favourable for the company’s development, as a large part of it consists of free float. However, ST Holding (27.5% of the capital) is controlled by the French and Italian governments, and their interest could potentially not always be aligned with those of shareholders (we believe that ST Holding has likely slowed the group’s transformation process after the collapse of Nokia’s mobile phone business a decade ago). Concerning the dividend policy, for 2023 the AGM approved the payment of USD0.36 per share, equivalent to USD328m out of net profit of USD4.2bn in 2023. During 2023, the company repurchased USD346m worth of ordinary shares.
Quality of Reporting:
STMicroelectronics has focused on small acquisitions in recent years but may consider larger deals due to a strong financial position and market conditions. The company has transparent accounts and, following significant restructuring after Nokia's collapse a decade ago, now faces minimal exceptional items.
Earnings quality is high, with similar adjusted and reported profits. Capex has been around 17% of sales, with moderate cash conversion (33% FCF/EBITDA). Share-based payments have slightly impacted earnings since 2019.
STMicroelectronics benefits from a low tax rate (about 15%) due to global presence and past losses. The company has consistently paid and increased dividends, along with regular share buybacks averaging USD 260 million annually since 2017. Limited pension liabilities and goodwill enhance financial stability.
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Detailed quarterly reports and annual strategy updates, especially during Capital Markets Day, aid precise financial modeling. Management is expected to confirm mid-term targets with a timeline of 2027-29. Overall, the company has improved its earnings quality and communication, standing strong in the semiconductor sector.
Business Ethics:
STMicroelectronics is subject to a great deal of criticism regarding its impact on landscapes, local pollution, and waste issues in France, in addition to a controversy related to gender discrimination. In 2024, Reprisk graded the company’s ESG risk exposure at BBB.
In November 2023, French authorities imposed a fine of EUR800,000 in damages on STMicroelectronics for reportedly ignoring complaints of gender discrimination for over a decade. The company is charged with unequal treatment of female and male employees in matters of pay and career advancement opportunities, contradicting its public stance against discrimination. Investigations by labour inspectors have revealed discrepancies contrary to the company’s declarations. In 2024, the case developed to become an accusation of discriminatory harassment and discriminatory dismissals, and for some employees, proceedings have been reopened due to salary issues linked to their repositioning. Overall, STMicroelectronics could reportedly be fined over EUR1m. On 21 February, a French NGO criticised STMicroelectronics and Soitec for their environmental and ethical impacts in France. They are accused of excessive use of drinking water and electricity, and of discharging chemicals. The expansion of STMicroelectronics' Crolles fab is expected to use 21,500 cubic metres of drinking water daily. Around 75% of this water, contaminated by 20,000 tonnes of toxic chemicals annually, is to be treated and released into the Isere river.
In a related accusation, Arkema, a partner of STMicroelectronics, is charged with causing permanent environmental damage in Pierre-Benite, France, through pollution with PFAS chemicals. Additionally, the NGO claims that the companies' semiconductors, used in military equipment with nuclear capabilities, contribute to global conflicts. These chips are found in Google's Pixel 7 smartphones, Starlink satellites, and even Russian military drones and missiles used in Ukraine, despite trade sanctions.
Environmental Footprint:
?? STMicroelectronics is committed to becoming carbon neutral by 2027 on scopes 1, 2 and partially scope 3 (this target is science-based). The company was given an A- score by CDP in 2023. Overall, ST has one of the most ambitious carbon footprint targets in the industry.
The company has set SBTi-approved intermediate milestones to reduce its scope 1 and 2 emissions by 50% in 2025 compared to the base year of 2018. Furthermore, the company aims to be carbon neutral in its scope 1 and 2 emissions, as well as in a minority of its scope 3 emissions (product transportation, business travel, and employee commuting).
In 2023, STMicroelectronics reduced its CO2 equivalent emissions by 10.5% per unit of production, although we note that it recorded an increase in its scope 1 and 3 emissions. This is mainly due to the change in its GHG emissions calculation methodology from (PFC) perfluorinated compounds use to the 2019 refinement to the IPCC Guidelines for national GHG Inventories in order to align this with the World Semiconductor Council’s recommendation from May 2023.
ST’s emissions intensity has been increasing over the last three years, going from 0.27 in 2021 to 0.32 in 2022, and 0.35 in 2023. This is below the levels seen at Infineon, which recorded an 8.5 emissions intensity level in 2023. In 2023, 71% of STM’s energy consumption came from renewable energy sources. This figure increased significantly compared to 2022 (62%), reflecting the company’s strong commitment to reducing its climate change impact. The company aims to use 80% renewable electricity sourcing by 2025. Regarding water management, water consumption per unit of production has increased in 023 compared to 2022, but STMicroelectronics recorded a 10% water efficiency improvement versus 2016. Nevertheless, the company needs to make greater efforts in order to achieve its 20% efficiency target by 2025
Given that the semiconductor industry produces a huge amount of waste, the company aims to reuse and recycle 95% of its waste volume by 2025. The company reached a recycling level 96% in 2023, ahead of its target. Finally, the company is graded A- by the CDP for climate change, placing STMicroelectronics among the top 5% of companies graded by the CDP. Compared to its closet peers, the company is one of the best environmental performers.
Climate Change Impact:
ST defined criteria for a “responsible products and technology” label and reached more than 82% of new products fulfilling this ESG label’s criteria in 2023 compared to 77% in 2022.
In 2023, 23% of group sales already come from responsible products (including EVs, ADAS, power semis, etc.) compared to 22% in 2022, so the company is on track to reach 33% of revenues by 2027. For Infineon, we estimate that its pure responsible products sales could be close to 40% of group sales (including ATV division, the GIP division as a whole, and the computing, communication, and industrial businesses within the PSS division). ST estimates that 12% of its revenues, 17% of its capex, and 14% of its opex were aligned with the EU taxonomy. Furthermore, ST scaled up its LCA methodology to provide the carbon footprint for 98% of its products based on semi-automated LCA methodology. It also initiated the certification of the LCA process to ISO 14067.
Health & Safety:
STMicroelectronics monitors several KPIs related to safety, which are reinforced through visits, training, audits, best-practice sharing, and communication. The company prioritises the prevention of potential employee exposure to chemicals, fire, and radiation and works to minimise the risks relating to ergonomics, machinery, handling, and nanomaterials. In 2023, the injury rate amounted to 0.1 injuries per 100 employees per year, in line with 2022, which exceeded its target of 0.1 set to be achieved in 2023. This is a considerably better performance than Infineon, which registered an injury rate of 0.36 in 2023. However, the severity of the injuries increased from 1.8 to 2.1 days lost per 100 employees in 2023. The two companies report differently on this: Infineon uses the total number of lost days divided by the total hours worked times 200,000, while STMicroelectronics uses days lost by 100 employees, which make the comparison less meaningful. STMicroelectronics also tracks its subcontractors’ incident rates under the KPI Lost Workday Case (LWDC). The number increased from 0.17 in 2022 to 0.26 lost workdays per 100 subcontractor employees in 2023.
Additionally, 89% of ST’s manufacturing sites have the “health and safety ISO 45001” certification. In our view, the certification of the company’s sites and the decreasing incident rate registered over the last four years (down from 0.14 to 0.1), are good for the company’s development.
Working Conditions:
STM boosted its headcount during 2021-22, reaching 51,730 employees in 2022, and down slightly in 2023 to 51,288, recording a turnover rate of 7.9% in 2023, down from 12% in 2022.
Around 87% of employees participated in the engagement index and recommended STMicroelectronics as a great place to work in 2023. This result is four points higher than 2021, and is relevant, as 86% of employees voted in 2023 compared to 67% in 2022. Additionally, the number of training hours rose from 47 hours per employee in 2022 to 49 in 2023, including mandatory safety training. It is clear that the company has become more attractive in the last two years. The company continued to provide a large amount of training. Responding to the accusations of labour at its sites in Asia, ST targets having 100% of its sites classified by RBA (Responsible Business Alliance) audit by 2025. This alliance is the world’s largest industry coalition dedicated to responsible business conduct in global supply chains.
Regarding gender equality, the number of women remains low (21% experienced, 16% senior, and 14% executive) but STMicroelectronics aims to have more than 20% women at all management levels by 2025. In the meantime, it has been sentenced for union discrimination and past gender inequality issues in France. Authorities found the company guilty of systemic wage discrimination and ordered it to pay EUR815,000 to ten female employees, who were also union members. The company is accused of discriminatory harassment, dismissals, and reopened proceedings for salary issues linked to employee repositioning. Overall, STMicroelectronics could face fines exceeding EUR1m. The company is also accused of pinkwashing by falsely claiming a commitment to fighting gender discrimination while practising it.
Product Responsability:
In 2023, a fuel pump manufactured in Poland by the German company Ti Automotive GmbH, as well as a microcontroller with built-in flash memory and a very low voltage drop regulator with inhibitor made by STMicroelectronics, were discovered in an Iranian drone used by Russia in its attacks against Ukraine. In our view, given the number of customers and complexity of the supply chain, it is hard for STMicroelectronics to assure that its product won’t be used for harmful purposes, Moreover, the company does not authorise or condone the use of its products outside of their intended purpose and complies with all international trade regulations, while through training programmes it also assures that all parties in its sales channels understand and respect their responsibilities and compliance requirements with the established laws.
Supply Chain:
STMicroelectronics aims to audit 100% of its suppliers at risk by 2025. As of 2023, the company had audited only 29% of them. The audit process is as follows:
STMicroelectronics requires its suppliers to implement the Responsible Business Alliance (RBA) standards and encourages ISO and OHSAS certifications to address ethics, social, environmental, and health & safety risks. In 2023, 97% of their high-risk suppliers signed the RBA commitment letter to engage in RBA standards and audits. It also conducts an annual risk assessment of its entire tier 1 supply chain, to determine the risks related to labour and human rights, the environment, health and safety, and ethics. In 2023, STMicroelectronics was among ICT companies mentioned in the NGO Know TheChain’s report, highlighting significant gaps in practices to address forced labourrisks. It reports also that ST faced significant issues in Malaysia during the pandemic. According to the report by NGO, 19 workers at the company's Malaysian site died from the coronavirus. The pandemic highlighted severe health and safety risks for employees. This incident underscores the broader problem of inadequate protections for workers in the electronics supply chain, as emphasised by the benchmark report. In response to that, STM’s EMRT (Extended Minerals Reporting Template) demonstrated significant progress in 2023, and 82% of the smelters in their supply chain are now RMAP (responsible Mineral Assurance Process) compliant compared to 60% in 2022. Note that RMAP's standards incorporate human rights due diligence based on internationally recognized frameworks such as the OECD Due Diligence Guidance. This includes assessing risks related to labour practices, such as forced labour, child labour, and other forms of exploitation, within the supply chain. All in all, we would appreciate more disclosure regarding this subject and even more engagement from ST in addressing these issues.