The International Integrated Reporting Committee recommends that “a company present its strategy, governance, performance and prospects in a way that reflects the commercial, social and environmental context within which it operates”.

This section of our Integrated Annual Report specifically addresses our response to the social and environmental concerns that are shaping the retail industry in South Africa.

As a major retailer in South Africa, we strive to address socio-economic challenges through the supply of high quality, affordable food for all South Africans, whilst providing significant employment and economic opportunities across our value chain.

A wide range of environmental, social and governance trends are combining to create new commercial and socioeconomic challenges, which continue to redefine the role we have to play in South Africa.

From an economic and environmental perspective:

• Rising energy prices continue to increase our operating costs. We continue to reduce electricity usage, cut down on non-essential corporate travel, and further optimise our logistics and distribution network.

• We believe that the continued volatility of global commodity prices and limited global resources will continue to put upward pressure on food prices.

• Soil fertility, water demand, fertiliser prices and erratic rainfall, are just some of the issues which are of key concern to our local produce suppliers, and all will continue to impact on our ability to provide quality food at affordable prices.

• We believe that partnerships will become increasingly important in addressing social and environmental challenges. We will continue to pursue opportunities in this regard. A good example of this is the Organic Farmer and Retailer programme, an initiative between Pick n Pay, Spar, Shoprite, and the Department of Trade and Industry to facilitate the supply of organic produce from emerging farmers.

• The potential carbon tax raised in the SA Treasury’s Green Paper will have implications for our operating costs, as well as affect the disposable income of our customers in lower LSM categories who spend a larger proportion of their income on energy.

From a social and governance perspective:

• The primary social issue in South Africa remains the continued high levels of economic disparity in our society. Our response is focused on food affordability and on initiatives that create and sustain jobs and small businesses within our supply chain.

• Consumer interest in green and ethical products remains strong. We continue our work and support in this area, and have earned significant recognition of our efforts in independent polls. While the demand for green and ethical products increases, consumers continue to expect price parity in the product offerings. Our attention is therefore focused on meeting these dual requirements.

• The world-wide activism that gained much media attention in the past year has been comparatively limited in South Africa. We do however continue to engage actively with our stakeholders, including customers, on all our social initiatives. We appreciate the continued feedback from our stakeholders on issues of concern, and have developed strong systems to ensure our response is timely and well-directed.

• Governance and disclosure requirements continue to be developed and enhanced. Demand for greater transparency, accountability and transformation are expected to increase across the full value chain over the coming years.

Based on these trends, Pick n Pay’s sustainability strategy is framed around six strategic focus areas. Each of these focus areas aligns with our overarching commitment to work towards greater food security and a sustainable future:

All of our sustainability initiatives are directed at increasing the resilience of our business, through encouraging innovative thinking, partnerships and the transformation of systems and processes. We will continue to improve and grow, to ensure that we not only become the retailer of choice for all South Africans, but that we lead by example, as a strong and principled corporate citizen, playing an integral role in building a strong and successful South Africa.

This review provides a brief, high level overview of our sustainability initiatives and performance. Further detail may be accessed on our website at www.picknpay-ir.co.za/sustainability-reports.php.

Customers know and trust Pick n Pay branded products because they deliver on our promises of good quality and value for money. We strive to not only deliver safe, quality products to our consumers but also to ensure the welfare of the animals and environment that supports us. We regularly audit our key corporate brand suppliers along strict health and safety guidelines, to ensure food safety. In addition we work closely with many suppliers to ensure that we share a common vision to promote and expand ethical and sustainable product lines.

Achievements include:

• Pick n Pay was the first retailer in South Africa to commit to sell only sustainably sourced seafood by 2015.

• The launch of 21 new organic food products.

• The launch of our “Finest” range encompassing over 200 products. All ingredients used in these products are assessed for quality, value, availability, the carbon footprint in respect of its transport and manufacture, and any possible allergens.

Key challenges include:

• Supporting efforts to address food security while acknowledging and balancing the concerns and interests of all stakeholders.

• We continue to look for opportunities to reduce the ecological footprint of the packaging of Pick n Pay corporate brands.

• Ensuring compliance with new legislation and regulations, including the Consumer Protection Act, no 68 of 2008 and new labelling regulations.

	Key performance indicator	2012	2011
	Green range sales	up 27%	up 266%
	Corporate brand products sourced locally	91%	88%
	Corporate brand suppliers audited on health, safety and environmental issues	94%	94%

We continue to work closely with suppliers to ensure the sustainability of our supply base, with enterprise development remaining a clear focus. We support the agricultural sector through our efforts to address the challenge of market access for emerging farmers.

Achievements include:

• Our Pick n Pay small business incubator now provides ongoing mentorship to more than 50 small businesses.

• Through our Enterprise Development Foundation 33 emerging entrepreneurs have been able to gain access to markets through our stores during the past year.

• We have completed an initial supply chain risk assessment, in order to quantify the possible impact external environmental trends could have on our business, including the effect of scarce natural resources, pollutants and increased green house gases.

Key challenges include:

• Communicating sustainability risks, opportunities and requirements to all our suppliers.

• Mapping environment-related risks in our supply chain. This is an ongoing process that is yielding interesting and significant results – a key challenge is incorporating this information into our decision-making to build greater resilience in our supply base.

	Key performance indicator	2012	2011
	Small farmers and businesses in our small business incubator	62	54