1.1

* What is the relevance of sustainability to Massmart? List some key events, achievements and failures during the period and what are considered to be Massmart’s main targets over the next few years?

Massmart’s corporate accountability proposition is to achieve commercial success by adopting a mass distribution business model that pro-actively incorporates the input of our stakeholders to effectively integrate commerciality and accountability.

Our accountability initiatives demonstrate how we give practical effect to this proposition, from our first engagement with stakeholders through to the implementation that respond to opportunities to: champion social equality initiatives, enable sustainable supply and consumerism and minimize our group environmental footprint.

Our accountability initiatives are wide ranging and extend from integrating smallholder farmers into our supply chain, rationalizing private label product packaging and improving store energy efficiency to championing black economic empowerment and increasing employee access to affordable private healthcare benefits.

We believe that, as a retailer, Massmart can play a pivotal role by advocating responsible business practice to our suppliers and responsible consumerism to our customers, recognising that a prerequisite for doing this credibly requires that we embrace the principles of responsible corporate citizenship.  The Massmart Board places the advancement of the company’s sustainability agenda among its most important obligations.

Our sustainability agenda over the short to medium term focuses on the achievement of sustainability objectives that fall under three main sustainability themes; these are:

Enabling sustainable supply and consumerism

• To support and integrate emerging farmers into Massmart’s new fresh produce supply chain
• To partner with willing suppliers to identify and implement opportunities to reduce primary packaging
• To promote adoption by suppliers of independently verified eco-labels, such as Marine Stewardship Council (MSC), Forestry Stewardship Council (FSC), and Energy Star (or their equivalents)
• To partner with private label, direct import and non-branded merchandise suppliers to ensure adherence to Walmart Supplier Standards
• To share knowledge with willing local suppliers to facilitate voluntary achievement of higher environmental and human rights standards in the retail supply chain
• To implement post-consumer e-waste recycling schemes in major metropolitan areas
• To implement, in line with customer demand, regionally based post-consumer waste recycling schemes in our stores
• To promote adoption by suppliers of independently verified eco-labels, such as Marine Stewardship Council (MSC), Forestry Stewardship Council (FSC), and Energy Star (or their equivalents)
• To empower consumers to make responsible consumer choices more frequently

 Reducing the Group environmental footprint

• To improve energy efficiency in line with format-specific energy intensity benchmark ranges
• To recycle secondary packaging (specifically board and plastic waste) that is generated in stores and distribution centres
• To harvest rainwater to supplement nurseries (at Builders Warehouse) and landscaping irrigation requirements

Championing social equality initiatives

• To increase permanent employees’ access to affordable subsidised private medical benefits
• To combat the rate of infection amongst employees and to provide all HIV-positive permanent employees and their spouses with free access to pre-HAART and HAART programmes
• To achieve and maintain level 4 B-BBEE contributor status
• To invest a minimum of 1% profit after tax (PAT) in education-focused social development initiatives that benefits the poorest of the poor
• To increase economic opportunities for women by improving employment, education and business opportunities
• To commission an academic study of the socio-economic impact of Walmart’s entry into South Africa

Achievements and areas focused on over the last year include the following:

• The initiation of a Direct Farm programme that aims to provide emerging farmers with market access by integrating them into Massmart’s fresh produce supply chain.
• The hosting of the first ever product packaging workshop with private label buyers in the group. The workshop, which included support from Astrapak, Packaging Council of South Africa (PACSA) and South African Plastic Recycling Organisation (SAPRO), provided buyers with a practical framework to identify opportunities to reduce materials content and improve recyclability of private label product packaging.The workshop has resulted in the implementation, by Builders Warehouse, of a private label packaging audit.
• Massmart runs an active supplier advocacy process with the objective of encouraging responsible supplier conduct in our supply chain. A combined total of 750 suppliers have participated in the process since it was launched in 2009. Our 2012 supplier advocacy agenda covered 117 suppliers and focused on understanding palm oil procurement practices of private label suppliers, marine harvesting practices of seafood suppliers and the integrated environmental planning commitment of strategic suppliers.
• Makro’s e-waste partnership with Fujitsu Siemens enables consumers to responsibly dispose of e-waste. We currently operate e-waste collection facilities at ten Makro stores and estimate that 334 tons of e-waste have been collected since inception of the project. 
• An important Eco-wise development has been the introduction of an Eco-wise product information panel that has been designed to inform and assist consumers to make better informed product choices that are good for the environment. To date these information panels are being trialed on twelve private label products including lawn dressing and potting soil.
• By assisting to procure skylights at considerably more affordable prices, Walmart has enabled Makro to embark on a legacy store retrofit programme that will see electrical lighting being supplemented by natural lighting. Makro's five newest stores, starting with Makro Vaal, are 25% more energy efficient than their legacy stores. Similarly, Game's Foodco stores incorporate solutions such as advanced energy efficient refrigeration units to reduce electricity consumption.
• This year we can confirm that we have 226 active recycling sites representing 71% of all South African stores. The majority of all store waste recycled is board (83.5%) followed by plastic (9.4%) and paper (7.1%). We estimate that approximately 9600 tons of plastic, board and paper waste were diverted from landfill and recycled during the current reporting period. 
• We harvest water at approximately 34 standalone store sites. This includes harvesting rainwater at all Builders Warehouse and Builders Express stores and condensate harvesting at our 5 new generation Makro stores. We estimate that in the 2011 calendar year, 2000 kilolitres of rainwater were harvested by Builders Warehouse and Builders Express representing a 38% decrease on the 2010 calendar year.
• Massmart's current level 4 BBBEE score of 72.82%, led to our being ranked second amongst all listed retailers in the 2012 FM Top Empowerment Companies Survey. The Massdiscounters’ (Game & Dionwired) verified score of 77.41% is higher than the score of the top ranked retailer in the survey. Our group score declined marginally as the result of the vesting of 3.4 million staff shares held by Employee Empowerment Trust. Although this resulted in a 7.16 point decline in the Ownership element of the group scorecard, our overall BBBEE score decreased by only three points.
• Massmart invested R46.4 million, equating to 3.1% PAT, in Corporate Social Investment (CSI) initiatives during the 2011/2012 financial year, exceeding the minimum investment guideline by 1.0%. Based on external review of the Group’s CSI investment policy, Massmart continues to encourage the divisions to adopt central guidelines that will see a minimum of 85% of CSI support being allocated, in partnership with the Basic Education Department, to nutrition (container kitchens & vegetable tunnels) and early childhood development. The Walmart Foundation joined the container kitchen programme and donated $1 million, under the auspices of the Nelson Mandela Foundation and Basic Education Department's 94+ campaign, that will assist in providing an additional 100 kitchens.  
• At Massmart, women represent 45% of managers and professionals, the Massmart-WDB Rural Women's Trust has disbursed micro-loans to 12 024 rural women, the Massmart bursary scheme is targeted exclusively at women undergraduates and one focus of our wholesale stores is to optimize procurement opportunities for women managed "stokvel" collective savings schemes. As important, is our initiative to better understand the career barriers that confront female employees at Massmart, through the deployment of an empowerment survey to 1409 females across all of our divisions.
• We estimate that 48.4% of permanent employees have access to private medical benefits, representing an improvement of 6% over last year, but still short of the target of 60% that we set in 2008. To achieve this target we have, since 2008, implemented a choice of four additional affordable private health benefit packages.
• Since July 2010 more than 17 000 tests have been conducted, resulting in health counselling for staff who were found to be at risk. More recently (August 2012) we used the opportunity presented by the appointment of a new health services provider to enhance this screening intervention by implementing improved chronic disease and employee assistance programmes
• The number of voluntary HIV tests that were conducted since inception of the programme numbers 43723. Currently 88% of HIV-positive staff and their spouses are receiving support and treatment, including antiretrovirals and nutritional supplements, from the Massmart Impilo Employee Wellness programme

Please refer to accountability and CEO’s review for further detail.

NOTE: Data gathering and consolidation accuracy can prove challenging in areas such as water consumption and greenhouse gas emissions, so it is important to disclose that there could be up to a 15% margin for error in the figures presented in this report.

1.2

* Provide a description of key impacts, risks and opportunities 

The Group has implemented transparent stakeholder interactions with special interest groups, which inform our view on stakeholder expectations and the management thereof. There is ongoing identification, monitoring and adoption of relevant principles and standards of sustainability that are consistent with Massmart’s core values and industry norms. The Board considers risk management to be a key business discipline designed to balance risk and reward, and to protect the Group against risks and uncertainties that could threaten the achievement of our business objectives. The newly constituted Audit and Risk Committee is responsible to the Board for overseeing the Group’s risk management programme.

• Waste management and the reduction and disposal of post-consumer waste represent key areas of risk for the Group, particularly in light of the extensive legislation that has now been implemented in this space. Massmart has undertaken a detailed waste management evaluation exercise that assesses the extent of recycling being undertaken at stores and the management of the waste management service providers.
• Given rapidly increasing energy tariffs and the fragility of South Africa’s energy supply, Massmart recognises that failure to adopt more energy efficient practices presents a significant operational risk. We continue to embed energy efficient solutions in new store design. Makro's five newest stores, starting with Makro Vaal, are 25% more energy efficient than their legacy stores. Similarly, Game's Foodco stores incorporate solutions such as advanced energy efficient refrigeration units to reduce electricity consumption.
• In addition to the legislation laid out by the Consumer Protection Act (CPA), there is growing sentiment among stakeholders that retailers should assume more responsibility for monitoring the practices of their suppliers and the quality of the products they offer their customers. Massmart engages with suppliers through environmental supplier surveys to better understand their environmental practices and advocate environmentally responsible interventions. This year, we extended this to include supplier surveys on sustainable palm oil and marine advocacy.
• There is the possibility of adverse or undue reputational exposure due to the Divisions or the Group not fulfilling, or under-delivering, on B-BBEE requirements. To mitigate this risk the Group has committed to maintaining a level 4 B-BBEE contributor status. Our group score declined marginally as the result of the vesting of 3.4 million staff shares held by Employee Empowerment Trust. Although this resulted in a 7.16 point decline in the Ownership element of the group scorecard, our overall BBBEE score decreased by only three points. The difference was offset, mainly, by improving Preferential Procurement performance from 12.9 to 15 points and improving Skills Development performance from 10.6 to 12.2 points.
• Corporate Social Investment has also been identified as an area of risk. It is essential for divisions to ensure symmetry of interests and goals when developing relationships with any governmental entity and importantly that any giving, however small, is free from even the taint of fraud or corruption. Hence, we require before any donation commitment is made or granted, to conduct and document certain background inquiries (due diligence) to ensure this objective is fulfilled. We have implemented a process that involves the pre-approval of beneficiaries and suppliers on CSI projects as well as ensuring that new beneficiaries above a certain threshold are vetted prior to any donations being provided. 
• A growing potential threat of significant reputational risk associated with the failure to meet stakeholders’ increased expectations around sustainability has been identified, although with a low probability.

For further information regarding risk identification, refer to our Group Risk Landscape.

Our focus on opportunities remains fixed on a reduction in energy consumption, with the resultant gains in lower operating costs and emissions, a supplier advocacy project focused on packaging reduction and increased recycling and the expansion of our Eco-wise brand, promoting environmentally responsible merchandise to our customers.