Corporate Social Responsibility

• The Environment
• Global warming and energy conservation
• Air pollution and noise reduction
• Water conservation and liquid waste
• Solid waste and materials efficiency

The challenge for today's world is how we can change the way we produce and consume resources to reduce our impact on the earth's ecosystems to a sustainable level. Sustainable corporate development - that is, development that simultaneously seeks to protect and enhance earth's life support systems - is an urgent issue that all responsible, proactive companies must address.

Swire takes its environmental responsibilities very seriously. As a major diversified business group, we are very conscious of the impact our activities may have on the environment. As a responsible corporate citizen, we recognise that we have a duty to our customers, our staff and shareholders, and to the communities in which we do business, to continually strive to lessen that effect. Swire is committed to ensuring its businesses surpass legal requirements for environmental best practice in the countries where we operate. However, we recognise that simply measuring our performance against legislation is not enough, and finding new ways to 'do better' has become a priority for all Swire companies.

The Swire Environmental Policy encourages the pursuit of seven main aims:

• To ensure our activities are, whenever practicable, ahead of legal requirements and standards for environmental best practice.
• To reduce the quantity of polluting substances discharged.
• To minimise the impact of our activities on the neighbourhood.
• To increase the use of environmentally acceptable materials, equipment and technology in place of those considered harmful.
• To ensure that suppliers follow an acceptable environmental policy and to discourage dealing with those who do not.
• To encourage the widest possible environmental awareness among staff and their families.
• To actively promote environmental awareness amongst clients, customers and the general public.

All Swire companies are required to adhere to this policy. Swire's environmental steering committee meets regularly, and all Swire companies are encouraged to implement an Environmental Management System. Additionally, a number of Swire companies have developed their own environmental policies, to more accurately reflect their operations, and several have attained ISO: 14001 accreditation.

Swire has established a database to track key Environmental, Health and Safety (EHS) performance measures - including usage of energy, fuel, water and materials; water quality; waste disposal and recycling; legal compliance; health and safety, and greenhouse gases - across 11 major business units within Swire Pacific. Our aim is to establish baseline performance measures and set goals for continuous improvement. The 11 business units have been requested to report annually on their EHS developments.

Swire endorses the principles of Reduce, Reuse, Recycle and Recover in its approach to the consumption of materials. From down-gauging aluminium Coca-Cola cans and PET bottles, to recycling paper in our offices, Swire companies have adopted a wide variety of initiatives, ranging from the complex and large scale to the simple and cost-effective, to ensure efficient use of natural resources and address major sustainable development issues such as global warming and energy conservation, air and water pollution and the disposal of solid waste:

Global warming and energy conservation

Swire Pacific has established a Climate Change Task Force to focus on challenges associated with global warming.

The aviation industry is contributing to climate change through the emission of carbon dioxide (CO2), nitrogen oxide (NOx) and water vapour into the upper atmosphere. It is estimated that by 2050, aircraft will be responsible for 5% of global emissions of greenhouse gases. NOx emissions from aircraft, especially during takeoff and landing, can also have a significant effect on local air quality. Since 1998, annual CO2 and NOx emissions generated by Cathay Pacific Airways' aircraft have increased by 32% and 12% respectively, reflecting substantial growth of the airline's fleet. During the same period, however, Cathay Pacific achieved a decrease in CO2 emissions of 8.7% per ATK (Available Tonne Kilometre), and in NOx emissions of 22.3% per ATK, thanks in part to the introduction of newer generation aircraft, powered by engines that are quieter, more fuel-efficient, and generate lower levels of carbon dioxide and unburned fuel.

Coupled with rigorous engine and mainframe maintenance programmes on older aircraft, these factors have seen fuel efficiency improve by 9% per ATK since 1998. In 2006, Cathay Pacific's fuel costs accounted for HK$12,600 million - a 10.9% increase on the previous year and representing 30.4% of Cathay Pacific's operating costs - so improving fuel performance per unit of capacity is highly desirable for the airline. Cathay Pacific operates one of the youngest passenger fleets in the world, with an average age of just seven years, and the airline's current fleet development programme will see this figure drop further by 2010, with associated improvements in fuel efficiency as advanced new aircraft come on stream.

Cathay Pacific expends considerable effort on flight planning, and so far as is commercially practicable, selects optimal routes to minimise fuel consumption. The airline has endorsed the Pearl River Delta Project initiated by the Hong Kong Civil Aviation Department (CAD) to promote improved routings within the PRD region, and this project has the potential to reduce fuel consumption by some 25,000 tonnes a year. Close monitoring of fuel uptake and the application of stringent weight criteria in aircraft design and when purchasing aircraft fittings, are part of an ongoing effort to reduce consumption, while cockpit crews are trained on effective takeoff, landing and optimal cruising speeds.

Swire Properties has a dedicated Energy Manager, who is committed to developing and monitoring energy conservation programmes for the properties developed and managed by the company. Initiatives include installing passenger sensors on escalators, so they reduce operating speeds when traffic is light, and the use of occupancy sensors in apartment buildings, so that when no one is home, the room thermostats will automatically switch to energy saving mode.

Around 90% of Swire Properties' buildings (as measured by floor area) now operate with water-cooled air conditioning systems. 2005 data indicates that the chillers are saving in the order of 5,000 kWh/year, which equates to over 3,000 tonnes of carbon dioxide emissions. Three Pacific Place, Swire Properties' most recent 34-storey, Grade A office tower, is equipped with the latest energy efficient building services technology, including a Miconic 10® lift control system and LONWORKS® building control system. The tower façade consists of a non-reflective clear glass double-glazed curtain wall that is friendly to the neighbourhood in terms of reduced solar glare. The building has been graded 'Excellent' by the Hong Kong Building Environmental Assessment Method (HK-BEAM) scheme.

Environmental services contractor, Swire SITA, operates two major landfill sites and has aftercare contracts on six completed sites in Hong Kong. Together, these eight sites generate annually around 80 million cubic metres of methane (CH4) - a potent greenhouse gas that can be harmful to the environment; with an energy value of 49 Mega Jules per kilo when combusted, it is, however, a potential source of useful energy. Swire SITA and power generation company, Towngas, are jointly exploring the feasibility of capturing and converting gas from the WENT Landfill - one of the largest and deepest landfills in the world - for distribution to Towngas end users in Western New Territories. The project will be one of the largest 'green' energy recovery and reuse programmes in the world.

Swire Coca-Cola HK implements recycling and efficiency measures at its Shatin production plant to reduce energy consumption. These include using recycled bottle-rinsing water to cool the refrigerant in its air-conditioning systems, and employing a heat exchange system to transfer waste heat from one production line to another. The plant uses air blowers to generate low-pressure compressed air to dry bottles with less use of energy. Solar panels are now used to heat water for boilers.

Swire Cold Storage in Australia operates fully automated cold stores that have dramatically reduced energy consumption and chilled air wastage, and the division has converted the majority of its refrigeration plants to ammonia, which is more environmentally benign than other refrigerants. Energy saving devices, such as rapid roll doors and inflatable dock seals to reduce warm ambient air infiltration, have also been introduced in many cold store facilities. Energy management tools are used to control electricity usage. In addition, reject heat from the refrigeration process is used to heat defrost water and all water used in the refrigeration process is recycled.

In the UK, the Swire Group Charitable Trust has recently contributed £100,000 to the National Oceanographic Centre in Southampton to fund research into levels of dissolved CO2 in the world's oceans - an initiative supported by the installation of monitoring equipment onto The China Navigation Company's round-the-world service vessel Pacific Celebes.

Air pollution and noise reduction

Swire SITA's highway and off-road fleet, as well as the heavy equipment operating at its landfills, run on ultra-low sulphur diesel, as do the ramp vehicles operated by Cathay Pacific Catering Services at Hong Kong International Airport. The company has also converted the steam boilers in its flight kitchen from 0.5% sulphur diesel to 0.005% ultra low sulphur diesel, reducing sulphur emissions from 10.67 tonnes to 0.11 tonnes per year.

In Australia, Swire's specialist road transport subsidiary, Kalari Transport, operates a modern, aerodynamically designed, fuel-efficient road fleet, with an average age of just three years. The company has introduced a system of 'smart specification' which assigns particular vehicles to single, long-term contracts for their working life. This means trucks can be appropriately matched to road conditions; those assigned to routes that stick mainly to the tarmac are of relatively lighter specification than those required to travel off the highway, and the reduction in weight significantly increases their payload capacity over the course of a year, thereby reducing the number of truck movements, the amount of fuel consumed, and the level of exhaust emissions.

Also in Australia, scrap-processing joint venture, MultiServ NSW Pty, has developed a unique fume extraction system for the BHP steelworks at Port Kembla, which captures up to 90% of particulate fallout from its Flat Iron Processing facility - preventing up to 12 tonnes of matter per hour escaping into the atmosphere.

Several Swire companies became signatories to the Hong Kong Clean Air Charter. In the same year, Cathay Pacific completed installation of Flight Management Systems on its fleet, ensuring accurate track-keeping on preferred airport approach routes, thereby reducing the noise impact of aircraft operations on the local community. The airline continues to liaise with the Hong Kong CAD on noise reduction.

Swire Properties requires its contractors to submit an Environmental Management Plan that addresses air pollution and related issues, such as reducing the impact of noise, dust, water pollution and waste from its construction and demolition sites. Initiatives include overhead nozzles at site entrances for dust suppression and truck wheel-wash. Mitigating noise produced by construction and demolition in Hong Kong's densely populated urban environment is a major issue for Swire Properties. At its recent Castle Steps development, where neighbouring residential buildings were less than 10 metres from the site, noise barriers and non-percussive demolition methods, such as hydraulic crushers, were used. Wastewater collected from these and other on-site activities is treated and recycled.

Water conservation and liquid waste

Swire companies generate around 5.7 million cubic metres of wastewater per year. On this environmental issue, Swire's efforts focus on reducing wastewater volumes, increasing wastewater recycling, and ensuring the purity of wastewater discharge through proper monitoring and treatment when applicable.

By installing a continuous batch washer, Vogue Laundry saves up to 280 tonnes of water and 60 kilos of detergent a day. Hong Kong Aircraft Engineering uses phenol-free detergents to wash aircraft at its maintenance facility at Hong Kong International Airport, and has a dedicated washing bay with its own wastewater treatment plant to clean water of contaminants before discharging into the sewerage system. Cathay Pacific Catering Services has installed soaking tanks in its 'ware-wash' section for in-flight meal utensils, saving around 22,400 litres of water a day.

The efficient use of water and protection of the grazing resource base are major issues for Australian agricultural landowner, Clyde Agriculture. Wastage of irrigation water is minimised by the application of the latest technology, including the use of laser-levelled fields and radio-linked capacitance probes, which precisely measure crop water use and reduce soil water losses. GPS-linked tractor guidance systems are used to achieve 'dead straight' rows and common wheel tracks, thus minimising soil compaction, and the company has established Australia's largest drip irrigation trial. On the grazing properties, livestock numbers are limited, and notwithstanding the semi-arid regions in which the company operates, steps are continually taken to enhance the pasture base. The company has adopted the latest genetically modified cotton varieties, which have seen the reliance on insecticides more than halved. Where chemicals are used, strict application procedures are followed via Pesticide Application Management Plans and the use of GPS technology. All cotton farms are equipped with data logged weather stations, to ensure that the application of chemicals occurs in appropriate weather conditions, thus maximising the efficacy of the product while minimising risks such as product drift.

In 2006, Swire SITA completed construction of Mainland China's largest and most sophisticated chemical waste incinerator, a joint venture with the Shanghai Chemical Industrial Park. With a capacity of 60,000 tonnes a year, the plant is the only one of its kind in China to operate to European Community standards. CSR, a Swire SITA subsidiary, has won the design, build and operation contract for the new Macau hazardous waste incinerator; the facility is scheduled for commissioning in mid-2007.

Solid waste and materials efficiency

In Australia, Transwest's Environmental Services division has a seven-year contract to compost organic waste collected within the Colac Otway Shire in Victoria. The innovative collection and processing system has resulted in the local council achieving the State Government target of 50% reduction of landfill waste. Organic waste is composted using an in-vessel system developed by Transwest, which allows for the control of odours whilst producing quality compost in 10 days. Compost is sold back into the community for use in gardens, and also by the council's parks and gardens department.

In Hong Kong, Swire SITA works closely with the Government's Environmental Protection Department (EPD) to design long-term solid waste treatment solutions. The company employs the latest technology in the collection, compaction and transportation of containerised waste to its managed landfill sites from urban Hong Kong and the many outlying islands. In conjunction with the EPD, Swire SITA has set up two pilot recycling plants intended to test recycling feasibility. The first plant recycles electrical and electronic 'white goods', while the second is for sorting and recycling of domestic waste. Paper, cardboard, plastics, metals and glass are sorted from the waste stream and conditioned for sale to local recyclers. Through subsidiary Waylung Waste Services, the company has a contract to compost all of Hong Kong's livestock waste - around 7,500 tonnes a year.

Swire Properties takes great care to minimise the production of waste at demolition sites, by recycling materials such as aluminium, steel and even concrete, rather than sending them to the landfill. Swire Properties' One Island East development at Westlands Road set a new industry benchmark by minimising the proportion of waste from a demolition site going for landfill disposal to only one percent; this was achieved by using concrete crushers on site. In the construction of Cambridge House and Three Pacific Place, the use of pre-cast elements and pre-fabricated building services components significantly reduced construction waste and installation time, as well as improved building quality.

Swire Properties has pioneered the use in Hong Kong of 3D design software created by Gehry Technologies and known as Digital Project on the development of One Island East; use of this design tool assisted the calculation of precise quantities of construction material, allowing the company to 'design out' around 15%-25% of construction waste. Swire Properties seeks to promote recycling practices in large ways and in small: providing recycling facilities at residential properties and motivating contractors and tenants to adopt good recycling practices. It is estimated that some 3,300 tonnes of food waste per day is generated in Hong Kong - the majority of which inevitably ends up in the landfills. In an effort to minimise organic waste generation, Festival Walk is currently piloting a food waste digester that treats organic waste through a process of accelerated fermentation, so that it ultimately ends up as 95% water and CO2 and 5% residue, which is dissolved into discharge water by means of biotechnology.

Cathay Pacific operates a wide-ranging recycling and waste minimisation programme across its aircraft and ground operations, recycling everything from aircraft fuel for use in ground vehicles, to aircraft tyres, paper, aluminium, plastic, used printer cartridges, floppy disks and food scraps. The airline is currently studying the replacement of traditionally plastic in-flight materials with biodegradable alternatives. Cathay Pacific is also a member of the Hong Kong Government-led waste-reduction initiative, Wastewi$e. Waste arising from aircraft maintenance, fit out and the renovation of aircraft interiors is either resold or disposed of in an appropriate manner by the airline's engineering contractors, HAECO in Hong Kong and TAECO in Xiamen. These initiatives have generated savings for the airline amounting to several million Hong Kong dollars.

Swire Pacific companies actively seek to eliminate waste by practising materials efficiency. Since 2005, Swire Properties made significant progress towards the design of an Environmental Procurement Portal to provide staff with interactive, step-by-step guidance on procuring products that are less harmful to the environment, or use energy and/or resources more efficiently. Swire Beverages has successfully reduced the quantity of packaging material it uses and now selects material better suited to recycling. Several plants have reduced the quantity of paper wrapping required for cartons. In Hong Kong, Swire Coca-Cola's successful use of thinner aluminium cans without compromising product quality has achieved a material saving of nearly 10%.

Swire companies have proved time and again that while green initiatives may cost money to implement in the short term, in the longer term, many will bring substantial cost benefits. So taking a responsible and proactive stance on environmental issues is not just a luxury only large corporations can afford: it is a sound investment in the sustainable future of any business. Our message is that small-scale efforts are just as important as the high-profile ones and doing the right thing to our environment needs not depend on costly investment in new technology. This is why, over the last few years, we have tried to engender a whole new corporate culture, and to encourage individual Swire operating companies to apply such thinking to their own businesses, by incorporating sustainable development goals in their future budgets and business development plans - because sustainable corporate development needs to be embedded into core business models, rather than being treated as a desirable afterthought.

Experience has shown that a good, transparent environmental reporting system is an excellent communications and marketing tool that can generate a very real competitive advantage. Likewise, a sound environmental track record demonstrates that a company possesses an enlightened and disciplined management structure - a critical catalyst for success - making it attractive to investors and fund managers.

But environmental best practice is not just about improving one's image and one's bottom line: it is also about doing right by society, the environment and the economy, and avoiding costly trade-offs between them. It is Swire's aim to encourage the widest possible environmental awareness amongst our corporate family and the community as a whole. Green forums and workshops, widespread recycling campaigns, and activities such as beach cleaning, farming, environmental fun days and fairs have all helped to encourage a deeper appreciation of nature amongst our staff and to make environmental responsibility a part of their everyday lives. In conjunction with Friends of the Earth, Cathay Pacific has funded the planting of 10,000 trees in Hong Kong. A number of companies, such as Swire Coca-Cola HK, have also taken the message into schools, organising the School Environmental Creativity Challenge to teach youngsters about recycling, and a series of workshops on sustainable development for secondary students. Swire has also completed two educational videos in three languages, promoting simple ways in which a responsible approach to the environment can be adopted at both a corporate and a personal level. We believe that only by raising awareness of environmental issues can we hope to ensure our children will live in a clean and healthy world.

A founder member of the Hong Kong Business Environment Council, Swire joined the ranks of the prestigious United Nations Global 500 Roll of Honour in 1997, in recognition of its commitment to environmental best practice.