Cisco recognizes international concerns over the availability of energy and climate change. As our customers demand greater functionality and higher performance, our networking equipment consumes more energy. To address these issues, Cisco is committed to reducing two significant sources of energy consumption that today largely rely on fossil fuels: that used by our buildings and facilities, and that used by our products. We also support the development of alternative technologies and management techniques, sponsored within our operations, that work to neutralize the adverse environmental effects of our energy demands.

Office Environments

Cisco's networking solutions enable our customers and employees to work remotely and collaborate electronically. These changes in the way we work also allow us to rethink the way we design and operate our facilities, ultimately reducing our environmental footprint.

Cisco's Connected Real Estate (CRE) concept, launched at our San Jose headquarters in 2004, benefits the business by:

• Saving materials and equipment
• Saving electricity and reducing greenhouse gases
• Saving construction costs and reducing land use
• Reducing the need for employee commuting

The Cisco CRE concept allows companies to replace the traditional workplace environment by incorporating IP communications, wireless network access, and virtual private networks (VPNs) to create flexible work environments. Employees can work at desks, from conference rooms, in outdoor environments, or from home or other remote locations with networking capability. This enables employees to be productive while helping the company to reduce overall real estate requirements.

The concept accommodates twice the number of employees in a traditional office environment, and has improved staff productivity, increased space efficiency, and reduced per capita use of equipment and IT infrastructure.

One way the project improves energy efficiency is through the design, monitoring, and control of multiple building-management systems. Traditionally, buildings require multiple proprietary management systems for security, ventilation, and energy management. The Cisco CRE program integrates the control and management of these systems with Cisco's network infrastructure, which allows staff working in buildings to adjust room temperature and other aspects of the environmental system to suit their needs.

The convergence of IT and communications systems, security, and environmental systems to a single IP network allows 24-hour control, either onsite or remotely. A study commissioned by the Converged Buildings Technology Group, a consortium of building system manufacturers, found that the converged approach generated capital savings of 24 percent in the construction phase and reduced operating expenses by 30 percent over the life of the building.

Following the success of the San Jose pilot project, the CRE program has been implemented in Cisco offices in:

• Bangkok, Thailand
• Taipei, Taiwan
• Charlotte, North Carolina
• New York City, New York

Laboratories and Data Centers

Cisco is continuously exploring the use of advanced energy management techniques to reduce the energy consumption of equipment in our laboratories. As an example, Cisco has initiated an automated power management system to control energy consumption in our laboratories where we develop and test new equipment. These labs represent approximately 20 percent of Cisco's real estate, though we rarely use testing equipment continuously. The system identifies equipment not in use and automatically switches it off. Upon successful completion of the pilot project and rollout across Cisco, advanced energy management techniques will lead to significant energy and greenhouse-gas reductions both at Cisco and for our customers.

Cisco is also partnering with the Department of Energy's Lawrence Berkeley National Laboratory to research technologies that could significantly reduce energy demands, as well as improve reliability and lengthen equipment life in data centers. The technology eliminates power conversion losses by using DC (direct current) rather than AC (alternating current) power to provide electricity throughout the data center. Initial findings indicate that the new techniques could reduce energy consumption by 10 to 20 percent.

Other Environmental Projects

Some of Cisco's other activities to reduce energy use in our operations include:

• Renewable energy procurement: In FY2006 we purchased more than 17.3 million kilowatt hours of renewable energy at our sites in the United Kingdom and Ireland. We also procured 9 million kilowatt hours at two sites in the United States.
• Green building design: The U.S. Green Building Council has developed guidelines under its Leadership in Energy and Environmental Design (LEED) certification governing sustainability, water savings, energy efficiency, materials selection, and indoor environmental quality. Cisco is seeking LEED certification for our new data center facilities in the United States, India, and Switzerland, as well as for many of our existing buildings, which may qualify in their current state. We are also currently seeking LEED certification for the Connected Real Estate office environments.
• Energy monitoring: We track the energy use and calculate our greenhouse gas emissions of Cisco sites on a monthly basis.

Energy Use and Greenhouse Gas Emissions Performance Data^{1 2}

Between FY2005 and FY2006, our energy consumption and greenhouse gas emissions grew by 19 percent and 12 percent, respectively. Energy consumption has steadily increased as the business has grown, but we have reduced the rate of increase in greenhouse gas emissions through an ongoing program to switch to renewable energy.

Normalized by sales revenue, our greenhouse gas emissions fell by 2.3 percent during FY2006. This reduction is a result of our ongoing energy efficiency programs, switching to more renewable energy, and improving the productivity of our offices and laboratories.

¹ Cisco's Energy and Greenhouse Gas Inventory is prepared in accordance with the International Greenhouse Gas Protocol's Corporate Accounting and Reporting Standard and calculations provided by the World Resources Institute. During FY2006, the following sites were added to the Inventory: Kanata, Canada; Lisbon, Portugal; Singapore; Barcelona and Madrid, Spain; Austin, Texas, and Santa Clara, California, United States. Estimates for the period of FY2002 to FY2005 have been revised from Cisco's FY2005 Citizenship Report to reflect improved data quality and updated emissions factors.

² Energy Consumption chart added and Worldwide Greenhouse Gas Emissions chart reflects accurate content as of November 16, 2006.

Future Plans

Cisco will improve our energy and greenhouse gas emissions programs, and we will quantify and communicate the environmental impact of our product and real estate initiatives. Key objectives and targets for FY2007:

• Increase renewable energy procurement by an additional 47 million kilowatt hours per year at our U.S. facilities
• Implement additional projects to generate energy efficiency, such as a plan to reduce energy used by air conditioning systems by matching the need for air circulation with building occupancy
• Initiate onsite photovoltaic projects to generate renewable energy at our San Jose headquarters
• Implement advanced programs that progressively shut down nonessential equipment at our California and Texas facilities to reduce energy during periods of peak energy demand