Social and environmental sustainability

Environmental, Social and Governance (ESG) issues remain high on the global, national and regional agendas. Environmental and social risks dominated the high impact/high likelihood quadrant of the World Economic Forum’s ninth global risks report in January 2014. Sustainability has always been a key principle of our business, and we have a long track record of investing in social and environmental initiatives. To ensure we focus on key priorities, we review the issues and risks and build them into our strategy.

What environmental, social and governance (ESG) issues are impacting our retail sector today?

The connected challenges of energy, food and water security

We see water security joining energy and food security as a key business risk. Growing population and industrial demand at a time of less predictable supply is prompting businesses and others to develop strategies both on water efficiency and more sustainable supply chains.

Increasing levels of inequality

Poverty remains a major problem in many parts of southern Africa. Chronic unemployment, inequality and lack of opportunity give rise to significant social issues as well as health challenges. These problems are exacerbated by higher levels of household indebtedness and an ongoing dissatisfaction with service delivery in poorer areas.

Public health

This is a double challenge in many parts of Africa. On the one hand, large sections of the population face the challenge of insufficient diet and nutritional knowledge borne out of poverty, giving rise to disease and other risks. At the same time, affluent populations face an increasing risk of obesity and related health conditions. As well as seeking to raise greater awareness, governments are under pressure to legislate to mitigate some of the risks. For example, salt reduction for processed food became mandatory in South Africa and similar requirements on sugar in processed products are expected.

Supply chain transparency

Awareness of the need to ensure that ethical and environmental standards are upheld in the supply chain has grown significantly over the past decade. Greater transparency is important in ensuring standards are upheld. New global accords are emerging to tackle problems such as corruption, breaches of human rights and health and safety challenges. Growing consumer demand for accurate labelling and traceability was highlighted through the global controversy on meat mislabelling in 2013.

Carbon tax

The development of carbon taxes in various parts of the world has often created a dilemma for governments in balancing action to mitigate climate change against the desire not to impose significant additional cost pressures on consumers and businesses. A carbon tax in South Africa is now set for 2016. Prudent carbon management and footprint auditing are fundamental to the retail response.

Reporting and governance standards

This year saw new guidance documents from the International Integrated Reporting Council, the Global Reporting Initiative and SASB. This has increased the pressure on companies to comply and keep up to date.

Our priority in 2014 has been to make further progress in implementing our sustainability strategy, deepening its impact within the Group and ensuring that it adds value for our customers, our business and broader society. Our sustainability governance structure continues to provide us with oversight, performance management and reporting.

We see our sustainability strategy as inextricably linked to our business strategy, shaping our thinking and actions in two broad areas:

1. Ensuring that we become a more resilient business in the face of increasing environmental and related pressures both in the short term (e.g. fuel and electricity price increases) and in the longer term (e.g. food and water security linked to climate change).
2. Seeking to add more value to society by helping our customers, suppliers and other stakeholders meet sustainability challenges and opportunities. We see scope for innovation and partnership, for example in seeking to meet the needs of our customers who want to live more sustainable lifestyles, and in giving opportunities to previously disadvantaged communities through mentoring, support and access to our supply chain and stores.

We must respond effectively in both of these areas if our business is to be successful and sustainable in the future.

The following areas have received significant attention during the year:

• Increased savings through resource optimisation and efficiency measures, particularly in our use of energy and handling of waste. We have invested more than R55 million in lighting and refrigeration efficiency during the 2014 year. We have developed owned stores which are 20% to 40% more energy efficient than stores opened in 2008;
• Benchmarking of stores on environmental performance, with key problem areas being addressed;
• Increasing the number of SMMEs and BBBEE businesses in the Group’s supply chain;
• Increased understanding of the value of partnerships, which help us to deliver sustainability benefits in strategic ways, through building broad stakeholder support, such as our sustainable seafood partnership with World Wide Fund for Nature South Africa (WWF-SA), through which more than 1 000 fishermen have been trained in sustainable fishing practices and 1 million SASSI cards distributed to consumers, assisting them to make more sustainable seafood choices;
• Continued development of our internal audit, data and document management systems;
• A review of our key performance indicators and their alignment to our business strategy;
• Implementation of waste reduction activities, not only through increasing levels of recycling, but focusing on activities that lead to the creation of less waste. These include more accurate demand planning, better control of stock levels at store and the maintenance of the cold chain;
• We had set a carbon footprint reduction target of -15% by 2015 in 2010, which we have met during this financial year. Compared with our 2008 baseline, we have reduced energy use per square metre by 30%;
• Through collaboration with the Ackerman Pick n Pay Foundation we developed 113 community gardens to assist communities in becoming more food secure; and
• Our preferential procurement spend with businesses which have more than 50% black ownership increased to R793 million, of which R459 million was spent with businesses which are 100% black owned.

Refer to the engagement with our stakeholder reports, the risk management report and the sustainable living report for more detail.