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?

During our stakeholder engagement we realised the full extent of the high expectations that civil society, government and customers place on retailers because of the position we occupy as the link between suppliers and consumers in the supply chain.

We are perceived to have significant supplier-convening power, which creates opportunities to encourage suppliers to act responsibly in sourcing, manufacturing and distributing their products. Equally, we are seen to have direct and credible face-to-face access to consumers, which presents opportunities to influence their buying decisions.

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

Key objectives

• 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)

Reducing the Group environmental footprint

Key objectives

• 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

Key objectives

• 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

Achievements and area focused on over the last year include:

• Our Eco-wise brand, promoting environmentally responsible merchandise to customers, was expanded from 34 lines last year to over 100 Eco-wise products this year. 
• Massmart invested R24.4 million, equating to 2.0% PAT, in Corporate Social Investment (CSI) initiatives during the 2010/2011 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 English literacy at quintile 1 primary schools. The Group’s decentralised model means that this initiative is progressing more slowly than we would like.
• Massmart achieved a level -3 BBBEE score of 75.89 during the financial year, which represents the highest score in retail and the Group’s EE score of 12.33 was the 7th highest of all listed companies. 
• Due to more accurate energy data and the analysis of Group energy consumption, Scope 2 emissions data has been restated. Furthermore, energy intensity has been calculated using Gross Lettable Area (GLA). On the basis of these more accurate calculations the Group’s energy intensity was 178 KWh/m2 for the 2010/2011 reporting period.
• The installation of rainwater harvesting solutions at Builders Warehouse and Builders Express stores has resulted in the harvesting of approximately 3 240 kilolitres of rain water during the  2010 calendar year.  
• E-waste recycling schemes that have been implemented at all Makro stores have, since their implementation in 2008, resulted in the collection of 214 tons of e-waste and it is expected that 120 tons of E-waste will have been collected by the end of the 2011 calendar year.
• The infection rate among employees has remained stable at 5.6%, lower than the national average (11%).  We have improved testing penetration, with Voluntary Counselling and Testing (VCT) increasing from 3 180 in 2009/2010 to 8 153 for 2010/2011. This constitutes a 156.4% increase in penetration. 
• A total of 87% of all HIV-positive staff have enrolled on the Impilo treatment programme, representing good progress in our initiative to ensure that all HIV-positive permanent employees receive treatment. However, this process continues to be hampered by the stigma which surrounds the virus. To facilitate greater treatment uptake, Massmart has extended its treatment hotline operating hours to enable employees to seek help and treatment advice after hours.  We would like 100% of HIV-positive permanent staff to enrol for treatment and we aspire to achieve a 70% voluntary testing penetration rate. Please refer to accountability for further datail.

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.

Please refer to the CEO’s review for further detail.

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 Polokwane Declaration and the emphasis being placed by Government on the reduction of waste to landfill. To this end, Massmart is engaging with Walmart to leverage their considerable expertise in this area to reduce primary product packaging and effectively reduce waste sent to landfill.
• 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. To this end, Massmart has implemented a number of energy conservation interventions in its Masswarehouse, Massbuild and Massdiscounters divisions. Not only do more energy efficient stores reduce operating cost but they help to reduce the Group’s carbon footprint.
• 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. To this end, Massmart engages with suppliers through environmental supplier surveys to better understand their environmental practices and advocate environmentally responsible interventions.
• There is the possibility of adverse or undue reputational exposure due to the Divisions or the Group not fulfilling, or under-delivering,  B-BBEE requirements. To mitigate this risk the Group has committed to maintaining a level 4 B-BBEE contributor status.
• This covers four broad issues : the national scarcity of retail-specific skills; the challenge to develop and retain sufficient business and leadership skills internally to ensure our longer-term competitiveness; a possible over-dependence on key leaders in the Group; and the need for an actively managed leadership succession pipeline.
• 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.