2023 Environmental, Social, and Governance Report

PDF Solutions, Inc.

April 20, 2024

2023 ESG Report

Page i

© 2024 PDF Solutions

2023 ESG Report

Introduction to the Report

This 2023 Environmental, Social, and Governance ("ESG") Report covers the operations of PDF Solutions, Inc. ("PDF Solutions," "PDF," or the "Company") for fiscal year 2023, which began on January 1, 2023, and ended on December 31, 2023, unless otherwise noted.

Throughout this report, we define ESG as a way of categorizing factors that impact a company's performance as well as a strategy for integrating these factors into the business to operate in a sustainable manner.

The contents of this report are informed by our ESG Priority Assessment, which leveraged leading sustainability reporting standards and frameworks, including the Sustainability Accounting Standards Board ("SASB"), the Global Reporting Initiative ("GRI"), and the Task Force on Climate-Related Financial Disclosures ("TCFD").

This is PDF's second annual ESG Report. It has been prepared in alignment with disclosure topics included in the SASB Software & IT Services Standard and the Electrical & Electronic Equipment Standard.

About PDF Solutions

PDF Solutions, Inc. (Nasdaq: PDFS) provides comprehensive data solutions designed to empower organizations across the semiconductor and electronics industry ecosystem to improve the yield and quality of their products and operational efficiency for increased profitability. Our customers include Fortune 500 companies across the broader semiconductor and electronics industry ecosystems to achieve smart manufacturing goals by connecting and controlling equipment, collecting data generated during manufacturing and test operations, and performing advanced analytics and machine learning to enable profitable, high-volume manufacturing.

PDF Solutions was first incorporated in Pennsylvania in 1992, and we reincorporated in California in 1995. In 2000, we reincorporated in Delaware, and in 2001, we completed an initial public offering.

From 2000 through 2009, we expanded our technology footprint and our operations in various countries through acquisitions. From 2009 to 2019, we primarily focused on the pervasive application of our technology to leading edge logic manufacturing and achieving yield targets with our clients that maximized Gainshare royalties. In 2013, we leveraged our extensive experience in yield simulation software and CV® test chip development and started research and development on an e-beam solution for non-contact, inline electrical inspection, and process control for wafer inspection. In a parallel effort, starting in 2014, we re-architected our point-solution software tools into a new generation, highly-integrated data analytics Exensio platform, which resulted in accelerated growth in our software business through 2019. In December 2020, we completed the acquisition of Cimetrix and began providing software products based on open standards for equipment control and connectivity to equipment manufacturers and factories. We released our first e-beam tool in 2015, the second generation in 2019, and the third generation in late 2022.

Page ii

© 2024 PDF Solutions

2023 ESG Report

Advancing Sustainability Together - A Message from Our CEO

Dear Stakeholders,

I am pleased to present to you our Environmental, Social, and Governance (ESG) report for the year 2023. At PDF Solutions, we recognize the importance of operating sustainably and responsibly in an ever-evolving world.

As we delve into the report, I want to draw your attention to some key statistics and industry trends that underscore the importance of our collective efforts:

  • Today, the technology industry consumes about 1% of the world's energy production. At the current rapid rate of consumption growth for the technology industry compared to the growth of energy production, this could surge to over 60% by 2040.1
  • Emissions from Scope 1 (related to activities within the fabs) and Scope 2 (arising from the generation of purchased electricity, steam, heating, and cooling equipment) of semiconductor companies constitute a substantial 65% of the total GHG emissions of the semiconductor industry. 1
  • The steps that semiconductor companies are now taking are unlikely to achieve the 1.5°C trajectory by 2030.2

We believe PDF Solutions has an important role in helping to minimize the environmental footprint of the semiconductor industry. Our innovative solutions are designed to speed the move to smaller nodes, to improve semiconductor yield, and to improve operational efficiencies of the manufacturing facilities. Smaller nodes result in lower power consumption when the chip is put to use compared to previous generation product. Improving yields and operational efficiencies reduces the consumption of power, water, and materials in the fab, test and assembly facilities - for the same volumes of good die.

Looking ahead, we are excited about the opportunity to partner with our customers in their journey towards achieving climate-related and other environmental goals. By leveraging our expertise and resources, we aim to be a catalyst for progress and positive change within the industry.

In conclusion, I want to express my gratitude to you for your support of our mission to provide semiconductor and electronics companies innovative solutions to create, access, and organize data to enable analysis and control and achieve better time-to-market, yields, quality, and operational efficiencies.

Thank you for your continued trust and collaboration. Warm regards,

Dr. John K. Kibarian

CEO, President, and co-founder

  1. Tembey, Gaurav, et al. "A Net Zero Plan for the Semiconductor Industry." Bcg.Com, 7 Nov. 2023, www.bcg.com/publications/2023/a-plan-to-reduce-semiconductor-emissions.Accessed 15 Apr. 2024.
  2. Goumlke, S., et al. "Keeping the semiconductor industry on the path to net zero." Mckinsey.com, 4 Nov. 2022,https://www.mckinsey.com/industries/semiconductors/our-insights/keeping-the-semiconductor-industry-on-the-path-to-net-zero#/.Accessed 15 Apr. 2024.

Page iii

© 2024 PDF Solutions

2023 ESG Report

ESG Priority Assessment

In 2022, we conducted our first ESG Priority Assessment, which we use to guide our overall ESG strategy. The ESG Priority Assessment was designed to identify the environmental, social, and governance topics with the greatest impact on our business strategy, operations, and value creation, including topics that are important to our customers and business partners. Going forward, we aim to regularly assess a wide range of ESG topics to inform our strategy, with the goal of increasing the scope of our priority assessment in future reports.

Our priority ESG topics, in order of highest priority to our business, are as follows:

  • Data Security
  • Human Capital Management
  • Corporate Governance
  • Public Policy
  • Risk Management
  • Business Ethics
  • Diversity, Equity, and Inclusion
  • Sustainable Products
  • Responsible Sourcing
  • Impact and Local Communities
  • Environmental Sustainability
  • Climate Change

This ESG Report describes the initiatives that are in alignment with the priority ESG topics and includes relevant metrics aligned with the SASB standards. As we continue to develop our ESG strategy and goals, our aim is to increase the scope of our program and our reporting to cover more of our priority topics.

For more information around the scope and methodology of the ESG Priority Assessment, please see our 2022 ESG Report.

Page 1

© 2024 PDF Solutions

2023 ESG Report

ESG Oversight

Given the importance of ESG to the long-term success of our business, our Board and its committees play a critical role in overseeing ESG matters.

Board of Directors

The Board is responsible for (i) oversight of ESG risks and opportunities and (ii) the integration of ESG into

strategy, to the extent material to the business.

NCG Committee

The NCG Committee reviews and oversees our programs, policies, practices, disclosures, risks and

opportunities, measures, objectives and performance relating to environmental, social and governance issues, and makes recommendations to the Board regarding the integration of ESG matters into our business strategy and operation.

CHCM Committee

The CHCM Committee reviews and oversees our programs, policies, practices, disclosures, relevant risks and opportunities, measures, objectives and performance relating to human capital matters, including but not limited to matters regarding culture, recruiting, retention, career development and progression, diversity, equity and inclusion, human health and safety, and total rewards, and makes recommendations to the Board regarding the integration of human capital matters into our business strategy and operation.

Audit Committee

The Audit Committee, on behalf of the Board, oversees the principal enterprise risk exposures facing the Company and the Company's mitigation, control and monitoring efforts in respect of such risks, including, but not limited to environmental and sustainability risks, and reviews with management the Company's business continuity and disaster preparedness planning.

The Audit Committee also reviews cybersecurity risks, incidents, the adequacy and effectiveness of the Company's information and cyber security policies and the internal controls regarding information and cyber security and any other risks and incidents relevant to the

Company's computerized information system controls and security.

Management-Level ESG Steering Committee

The purpose of the management-level ESG Steering Committee is to (i) establish programs, policies and practices relating to ESG matters and (ii) assist the NCG Committee of the Board in fulfilling its oversight responsibilities with respect to ESG matters. The ESG Steering Committee is chaired by the General Counsel.

Page 2

© 2024 PDF Solutions

Environmental Challenges in the
Semiconductor Industry
The semiconductor industry faces significant challenges as part of the transition to a green economy, including direct environmental impacts from the manufacturing of ICs.
Large amounts of energy are needed to operate tools across IC manufacturing, assembly, test, and packaging processes. Foundries also consume large amounts of energy to operate cleanrooms with strict climate and humidity controls. The amount of energy required at scale is often significant, with some individual foundries consuming more energy than major cities. More than 80% of semiconductor greenhouse gas emissions (GHGE) come from consumption of electricity.3
Other direct environmental impacts from manufacturing ICs include the use of GHGs in the manufacturing process, which accounts for approximately 13% of the semiconductor industry's emissions.3 Other environmental impacts are caused by the significant use of ultrapure water and silicone, which in turn require large amounts of energy to produce and transport.
The large amount of GHGE generated from chip manufacturing account for the plurality of lifecycle emissions for most consumer electronic devices, with greater emissions from the IC manufacturing process than from energy consumption over the lifecycle of many electronics. As major purchasers of semiconductors transition their own operations to renewable power, GHGE from manufacturing the ICs that these companies purchase may represent a plurality of their total GHGE. The information and communication technology sector as a whole is expected to account for 14% of the 2016-levelglobal GHGE in 2040, up from approximately 1% to 1.6% in 2007. 4

2023 ESG Report

Environmental Sustainability

PDF Solutions is committed to addressing environmental sustainability in its business activities. Our approach to environmental sustainability considers both our own operations and the significant indirect environmental impact that our products can have on our customers' operations. Our products drive efficiencies for our customers, which can indirectly lower their environmental footprint. In the future, we may work to identify and measure the direct environmental benefits of our products.

Product Sustainability Strategy

We work with some of the largest logic semiconductor manufacturers in the world to help improve the time-to-market and yield of their manufacturing processes. Our products and services can indirectly help to reduce our customers' consumption of natural resources, including energy, water, and silicon, with significant indirect impacts on waste and greenhouse gas (GHG) emissions.

We implement hybrid or on-cloud solutions for semiconductor manufacturers' process control and manufacturing analysis. These solutions use less energy than traditional on-premises IT infrastructure, reduce waste such as paper, and enable remote work, reducing the need for commuting and travel.

We believe sustainability will play an increasing role in our customers' priorities as they seek to decarbonize their operations. Helping our customers achieve their environmental sustainability goals may represent an opportunity for us. In the future, we intend to review the direct and indirect environmental benefits of our solutions and to assess opportunities to integrate environmental factors into the development of new products.

Sustainability Strategy

We strive to protect the environment through sound business and operations management practices and decisions.

We look for opportunities to conserve energy, reduce consumption of natural resources, preserve air, soil, and water quality, manage waste properly, and

reuse and recycle. In 2023, at our headquarters, lab, and cleanroom facilities, we renewed focus on individual actions to reduce and recycle, including by offering

a learning program for employees and custodians and replacing single-use utensils and coffee cups with more sustainable options. We continue to look for opportunities to reduce the use of toxic substances in our operations where possible, including in our cleanroom and lab facilities.

In 2023, our independent safety and environmental consultant, Boretti, Inc., completed its ISO 14001 pre-certification assessment of our cleanroom facility. When certified this ISO 14001 program will provide a specific framework for implementing our environmental management system.

In the future, we intend to conduct self-assessments regarding relevant environmental protection measures and to measure and evaluate our use of energy, water, and the generation of waste in our worldwide facilities. At our cleanroom and lab facilities, in 2023, we recycled 100% of wood, metal, and recyclable plastic waste.

  1. Tembey, Gaurav, et al. "A Net Zero Plan for the Semiconductor Industry." Bcg.Com, 7 Nov. 2023, www.bcg.com/publications/2023/a-plan-to-reduce-semiconductor-emissions.Accessed 15 Apr. 2024.
  2. Belkhir, L., & Elmeligi, A. (2018). Assessing ICT global emissions footprint: Trends to 2040 & recommendations. Journal of Cleaner Production, 177, 448-463. https://doi.org/10.1016/j.jclepro.2017.12.239

Page 3

© 2024 PDF Solutions

2023 ESG Report

Sustainability Oversight and Management

Our Board holds the highest level of responsibility related to our environmental strategy. The Board has delegated this responsibility to the Nominating and Corporate Governance Committee.

Our newly formed management-level ESG Steering Committee, which includes members of our executive leadership team and internal experts with knowledge of relevant environmental topics, was formed to (i) establish programs, policies, and practices relating to ESG matters, and (ii) assist the NCG Committee of the Board in fulfilling its oversight responsibilities with respect to ESG matters. The ESG Steering Committee is chaired by the General Counsel.

Sustainable Operations

We intend, in the future, to look for ways to reduce energy consumption in our worldwide facilities. Some of our facilities, including our headquarters, cleanroom, and lab facilities, have been remodeled within the last four years and have features such as LED lighting, motion detector lighting, and smart thermostats. All three facilities are compliant with California's Title 24 energy efficiency standards.

We track and monitor energy consumption in our cleanroom and lab facilities.

Water is a critical sustainability challenge for our customers in the semiconductor industry but is not material in our own operations. We do not use water in our product development and manufacturing processes. In 2023, we used water only in connection with kitchens and restrooms, which all have low flow valves at our headquarters, cleanroom, lab, and Canadian facilities.

Our product development and manufacturing processes are inert, producing no off gas or emissions. The only reportable, hazardous material that we use is in our cleanroom: liquid nitrogen. The liquid nitrogen is stored in a tank external to our building and monitored using telematics by an independent third-party specializing in such activity. In 2023, we had no reportable incidents related to liquid nitrogen stored in our facilities.

Responsible Sourcing

We are committed to responsible sourcing in our product supply chain, including ethical production, and the protection of human rights.

Although we are not a member of the Responsible Business Alliance ("RBA") (formerly the Electronics Industry Citizenship Coalition or EICC), in 2021 in an effort to further our ESG efforts, we incorporated the RBA Code of Conduct into our Supplier Code of Conduct to supplement our Code of Ethics, including the specific policies of the RBA Code relating to the five critical areas of corporate social responsibility: labor, health and safety, environment, management systems, and ethics. A copy of the Supplier Code of Conduct is available at www.pdf.com/company/trust-center/working-with-pdf-solutions/supplier-code-of-conduct/.

We request that our suppliers adhere to the RBA Code of Conduct or an equivalent code by flowing this requirement through our commercial contracts.

We have a variety of resources available to assist suppliers with reporting questionable behavior or possible violation of our supplier standards, including our Ethics Hotline and emailing our legal department directly.

We will not tolerate any retribution or retaliation taken against any individual who has, in good faith, sought out advice or has reported questionable behavior and/or a possible violation.

We are committed to sourcing components and materials from companies that share our values around human rights, ethics, and environmental responsibility. As part of this commitment, we support the goals and objectives of Section 1502 of the Dodd-Frank Act (the "Act").

As part of our compliance with the Act, we perform due diligence and file annual reports regarding the use of conflict minerals in our products. Accordingly, all of our suppliers are expected to comply with our Supplier Code of Conduct, which includes requirements relating to conflict minerals and responsible sourcing.

Specifically, we expect all of our suppliers to comply with the Act, and to exercise due diligence on the source and chain of custody of any tantalum, tin, tungsten, or gold used in the products made for us and make their due diligence measures available to us. Under the Supplier Code of Conduct, our suppliers are responsible for passing these same requirements on to their suppliers. We seek to source products only from suppliers that comply with these requirements.

Page 4

© 2024 PDF Solutions

2023 ESG Report

Human Capital Management

We believe we have a responsibility to foster a healthy, balanced, and ethical work environment for everyone in our organization through sound ethical and organizational governance, by promoting business ethics and integrity, and by embracing equality, diversity, and inclusion throughout our organization and even extending to the board room.

In February 2024, our Compensation and Human Capital Management Committee and Board of Directors each approved the adoption of a Human Rights Policy.This Human Rights Policy is rooted in our core values and reflected in our Code of Conduct and other policies and agreements. In developing this Policy, we leveraged the human rights standards set forth in the Responsible Business Alliance Code of Conduct and other internationally recognized human rights standards. We are committed to the following guiding principles:

  • Treating all people with respect and dignity.
  • A workplace free of harassment and discrimination.
  • An inclusive and diverse workplace.
  • A safe and healthy workplace, including the right to access water.
  • Fair wages and benefits.
  • Protection of personal data from unauthorized access, use, or disclosure.
  • Zero tolerance for child labor or forced labor, including but not limited to bonded labor, slavery, and trafficking of persons.

As of December 31, 2023, we had 493 employees worldwide, including 157 field application engineers and consultants, 155 in research and development, 106 in sales and marketing, and 75 in general and administrative functions. Of these employees, 286a re located in North America, 171 in Asia, and 36 in Europe.

Our commitment to human capital management is embedded in our governance structure.

At the Board level, our Compensation and Human Capital Management Committee is tasked with oversight of the development, implementation and effectiveness of the Company's policies and strategies relating to human capital management, including but not limited to strategies regarding culture, recruiting, selection, career development and progression, diversity, equity and inclusion, human health and safety and total rewards.

Talent Development

We are committed to the development and growth of our employees because we believe this is crucial for our long-term success. This includes offering training, mentorship, and other development opportunities to further enhance the talent we have today, but also entails having the right skill sets for our future.

To this end, in 2023 we deployed a set of online training courses spanning topics such as difficult conversations for managers and technical aptitude (e.g., new coding languages), and a promotion process to formalize managerial focus on progressing employees' careers. We plan to continue to explore and expand our offerings and programs to achieve our development and employee growth goals.

We believe that our team of engineers will continue to advance our market and technological leadership. We conduct in-house training for our engineers in certain technical areas.

We also fund attendance at continuing education courses, symposia, and participation in professional organizations.

Employee Engagement

Employee engagement is crucial for the overall health of the organization. In 2023, we conducted a large-scale employee survey. In total, more than 250 employees, or approximately 40% of our global workforce, participated in the survey, and included individuals with tenure from 2 to 30 years. The Employee Net Promoter Score (eNPS) score is a survey-based method of determining whether employees are happy, satisfied, and loyal to their workplace, and are used by many employers to take an overall gauge of the engagement health of their organization. Our eNPS based on the survey rated us 3.97 against a benchmark of 4.01 for employers that had 500-999 employees (source: Qualtrics). We intend to conduct shorter, pulse surveys periodically to continue monitoring overall employee engagement.

Page 5

© 2024 PDF Solutions

2023 ESG Report

In addition to our efforts to address employee engagement, we are committed to supporting our employees and creating an engaged workforce by prioritizing the items below:

  1. Personal growth through training and development
  2. Recognizing and rewarding our people for their commitment to our values and our organization
  3. Flexible work locations and schedules
  4. Providing a sense of organizational community by hosting online as well as in-person events where our people can gather and connect.

In 2023, we were also included on the Forbes list of America's Best Small Employers, based on their independent surveys. We consider these results to be positive indicators of our workplace environment and progress on the above priorities.

Health and Safety

We are committed to ensuring that proper working conditions exist for the safety of our employees, such as developing, implementing, and improving health and safety systems and conditions, and providing appropriate preparation, education, reporting, and controls. For example, at our headquarters, we have Illness Prevention and Ergonomics Evaluation programs and an Emergency Action Plan for employee health and safety. We are developing these programs for worldwide facilities. In addition, for worker safety at our lab and cleanroom facilities we have, for example, Lockout/Tag out, Forklift Safety, Electrical Safety, Hand and Power Tools Safety, Ladder Safety, and Hazard Communication programs.

Our headquarters, lab, and cleanroom facilities use an independent safety consultant for the review of policies, evaluation, assessment, analysis, development of written safety process, training, reports, and research for resolving safety issues.

We have a safety handbook, and every employee located at our lab and cleanroom facility goes through environmental and lab safety training. In 2023, employees completed 100% of the required training. Our safety consultant is on-site at our lab and cleanroom biweekly to help oversee our environmental, health and safety management. Our employees take additional safety training if required by our customers for access to their sites. Additionally, at our headquarters, cleanroom, and lab, we host CPR and AED classes every two years for employees to participate and become certified.

We are proud of our safety record. In 2023, we had no significant work-related injuries to report to the Occupational Safety and Health Administration (OSHA) and no lost time due to work-related injuries.

Diversity, Equity and Inclusion

We embrace equality, diversity, and inclusion throughout our organization. We strive to foster an environment where our employees feel respected, valued, and empowered. We know that diversity of thought and experiences makes our collaboration and results better, and our team members are at the forefront in helping us promote and sustain an inclusive workplace.

We work to ensure that our business practices support diversity and inclusion to build an innovative workforce and to strive toward having our organization reflect the complexion of our customers and suppliers.

In February 2024, our Compensation and Human Capital Management Committee and Board of Directors each approved the adoption of a Diversity, Equity, and Inclusion Global Policy. This policy is intended to encourage a connection between our Company values and our actions by building on a foundation of:

  • Respectful communication and cooperation between all employees.
  • Teamwork and employee participation, permitting the representation of all groups and employee perspectives.

In 2023, we formalized the connection between cash bonus for 2023 performance and consistent practice of our core values. We also highlighted our values in every quarterly meeting by identifying the specific core value in each case of employee recognition. We also deployed, as part of a set of online training courses, development modules about diversity, which are now available to employees worldwide. We intend to continue to strengthen our diversity and inclusion programs with further organization-wide training.

We value a range of diverse perspectives with reference to our business model and specific needs, including, but not limited to, gender, age, race, language, cultural background, educational background, industry experience, professional experience and veteran and active armed service status or other similar characteristics. Our Board has adopted a Board Diversity Policy, pursuant to which we are committed to actively seeking highly qualified individuals from minority groups to include in the pool from which new Director candidates are selected. 38% of our Board is gender diverse, and 38% of our Board is racially diverse.

Page 6

© 2024 PDF Solutions


  • Original Link
  • Original Document
  • Permalink


PDF Solutions Inc. published this content on 20 April 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 21 April 2024 03:43:05 UTC.