Sustainability review

Sustainable development is integral to our business as it addresses the delivery of long-term value to shareholders, employees, customers and the communities in which we operate. Our products are inherently sustainable – based on natural fibres, manufactured using renewable sources and easy to recycle.

We aim to be the best-performing paper and packaging company in the world and, as such, we recognise that we need to integrate sound principles governing safety, business conduct, social, environmental and economic activities into our business practices and decision-making.

Four key objectives underpin our sustainability vision:

• producing sought-after products in a responsible manner;
• securing continued access to raw materials in a resource-constrained world;
• attracting and retaining talented people; and
• maintaining our licence to operate within our host communities.

This is a brief review of our approach to sustainability and the most material issues facing the Group. We publish more detailed information in the sustainability section of our website at www.mondigroup.com/sustainability and in our printed Sustainability Summary Report. Our printed and online reports have been developed in accordance with the Global Reporting Initiative’s (GRI) G3 guidelines, with Mondi declaring a B+ level of reporting. As a signatory to the UN Global Compact, we also report in compliance with its requirements on an annual basis.

Sustainable development footprint

Mondi is a leading international paper and packaging group and our sustainability footprint is extensive, spanning developed and developing countries on four continents. At the end of 2009, we operated 101 plants across 31 countries and managed 2.44 million hectares of land, of which 380,000 hectares are plantations in South Africa and 2.06 million hectares are natural forests in Russia.

In 2009, the Group employed an average of 31,000 people. Restructuring undertaken during the year in response to challenging market conditions resulted in the closure, sale, mothballing or downscaling of various operations, which in turn resulted in a decrease in employee numbers by around 10%.

Our business is highly integrated, spanning the entire product life cycle, from the development and management of forests, to the production and marketing of a variety of sustainable paper and packaging products. Recycling also forms an integral part of our business. Mondi considers the global threats posed by climate change and ecosystem degradation to be very serious and we acknowledge the role that we can play in counteracting these effects by reducing our carbon emissions and promoting the protection of ecosystems. Operating an efficient and effective business in a resource constrained world is one of our key objectives and involves partnerships with a wide range of stakeholders.

Management approach

Our approach to sustainability is supported by our broader business ethics and guided by our over-arching sustainable development policy. This in turn, is supported by seven sector policies on:

• sustainable forestry;
• environment;
• climate change;
• product stewardship;
• corporate citizenship;
• global employment; and
• safety and occupational health.

These policies are reviewed on a regular basis. They are available in a downloadable format from the Group’s website at www.mondigroup.com/sustainability.

Our Sustainable Development Management System (SDMS), comprising policies, standards and performance requirements, is integrated within the Group’s core business processes to ensure that our commitments are met at every level. We have put in place the necessary resources and training to meet our objectives, and maintain pro-active, multi-stakeholder engagement with communities, nongovernmental organisations (NGOs), peers and other groups to improve our understanding of stakeholders’ concerns and address our environmental and social impacts. The DLC sustainable development committee, which guides policy, reviews performance and monitors progress made in implementing our strategy, is chaired by independent non-executive director, Colin Matthews. The committee met on six occasions in 2009, receiving regular reports from executive team members. Sustainability is also an agenda item at every meeting of the Mondi Boards.

Our Group-level sustainable development function provides strategic guidance on sustainability issues and policy, compliance, international best practice and the integration of sustainability approaches across the Group. The function is also responsible for sustainability reporting. Operational line management is responsible for the day-to-day management of safety, health, environment, community matters, people processes and other sustainability issues.

We also work with many international and local stakeholders, including the World Wide Fund for Nature (WWF) in Russia and South Africa; Silver Taiga in Russia; the Wildlife and Environment Society of South Africa (WESSA) and The Forest Dialogue (TFD) internationally. We also actively participate in the World Business Council for Sustainable Development (WBCSD), a CEO-led, global association of some 200 companies dealing exclusively with business and its role in sustainable development. We are specifically involved in the Sustainable Forest Products Working Group, the Ecosystem Focus Area Action Team (FACT), Climate and Energy FACT and the Water Project. In 2009 we supported and, in some cases, co-sponsored the development of a number of global sustainability initiatives, including:

• the WWF New Generation Plantation (NGP) Project;
• the High Conservation Value Resource Network; and
• The Forest Dialogue (TFD) topics, such as: Poverty Reduction Through Commercial Forestry; Investment in Locally Controlled Forestry; REDD+; Company-led Approach to Conflict Resolution in The Forestry Sector.

An independent and credible assuror, ERM, was appointed to undertake an annual independent audit of our performance against key performance indicators and their assurance statement appears on the Mondi website.

Managing sustainability at Mondi is part of the Group’s overall approach to integrated risk management. A review of these risks and mitigating measures is undertaken on an annual basis. Key sustainability risks identified in 2009 are aligned with the Group’s sustainability priorities. The following table classifies the primary risks identified and mitigating measures that are in place.

Material sustainability risk issues identified in 2009

Creating economic value

As a corporate taxpayer, major employer, investor and purchaser of goods and services, Mondi makes a significant contribution to the economies in which we operate. Key economic parameters for the year under review include:

• €862 million relating to employees, including base wages, other related costs and any restructuring costs where applicable;
• €3,861 million paid to suppliers, for goods and services;
• Capital expenditure, including the purchase of intangible assets, of €522 million;
• €190 million paid in taxes and related payments to host countries, including company tax, employee tax, royalties, import and export duties, transfer and sale duties; and
• €48 million paid to shareholders, including minority interests, by way of dividends.

Mondi – a fair and responsible employer

Mondi is committed to the development and well-being of its employees and contractors. The Group’s health and safety policies and standards are fundamental to this commitment. Mondi’s goal is to achieve ‘Zero Harm’ in the workplace, believing that an injury-free workplace is not only achievable but is imperative to the ongoing success of our business. The Group therefore undertakes significant initiatives on a continuing basis to achieve further improvements in safety and occupational health performance.

The main focus of the Group’s diversity initiatives is in South Africa. Mondi is committed to meeting the requirements of the Broad-Based Black Economic Empowerment (BBBEE) Act’s charter and has taken active steps to this end.

Applications for employment by disabled persons are fully considered. In the event of employees becoming disabled, every effort is made to ensure that their employment with the Group continues and that appropriate training is arranged. It is the policy of the Group that the training, career development and promotion of disabled persons should, as far as possible, be consistent with that of other employees.

Mondi also places a strong emphasis on the training and development of employees and on employee communication, involvement, participation and respect for human rights.

We invested some 2.24 million hours (2008: 1.55 million) on training and development during the year. In South Africa in particular, we focused on the recruitment, training, development and retention of previously disadvantaged South Africans and women. Reviews of the Group’s organisational structure and talent management processes have been conducted to maximise effectiveness and efficiency.

The Group places considerable value on employee involvement and we have continued to keep our people informed about issues that impact them as employees and factors that affect the performance of the Group. This is achieved through formal and informal meetings and through a range of other internal communication channels, including publications and electronic communications. Employee representatives are consulted regularly on the range of matters affecting their current and future interests. In the UK, the Group operates a Share Incentive Plan and a Sharesave plan.

We subscribe to the human rights principles advocated by the International Labour Organization (ILO), in particular employees’ right to freedom of association and collective bargaining. We do not engage in under-age labour, forced or compulsory labour and none of our operations are deemed to be at risk in this regard.

Sustainability commitments

In 2007, we published five key sustainable development commitments, addressing the most significant and material sustainability issues facing Mondi. We set specific targets and developed strategies and plans to meet these commitments by 2010, or in some cases, 2014.

Our commitments cover:

• Governance – the establishment of information gathering and auditing systems to facilitate the monitoring, management, control and reporting of sustainable development parameters and performances.
• Extending our sustainable forestry footprint – this includes the certification to Forest Stewardship Council (FSC) standards of all our owned and managed forests and the introduction of standards and systems to ensure that we can trace the origins of our procured wood, virgin fibre and biomass. We support the development of global methodologies for identifying and protecting high conservation value (HCV) areas and have consequently set aside pristine forests in the Komi Republic of Russia and ecological networks in our South African plantations.
• Reducing our environmental footprint – by achieving targeted reductions in emissions in energy usage, carbon dioxide (CO₂), effluent load to receiving waters and waste to landfill. We have also implemented the international environmental standard, ISO14001 at all our environmentally material operations.
• Making ‘Just No Harm’ a reality – by implementing effective safety and health programmes and developing a diverse, trained and participative workforce.
• Improving our social footprint and engaging with local communities – by implementing community engagement plans based on our region-specific socio-economic assessment toolbox (SEAT) process and addressing significant issues that concern both employees and communities.

These commitment areas and specific targets were in place throughout 2009.

Performance in 2009

We made good progress in addressing our commitments and targets in 2009 and are confident that we will meet our commitments in 2010.

Governance

We recorded a number of important achievements relating to governance issues and have embedded our sustainability systems into our operations. We have also developed and implemented our own Mondi policies and structures, following our separation from the Anglo American group in 2007.

Significant emphasis has been placed on information gathering and auditing systems to facilitate the monitoring, management, control and reporting of sustainable development parameters and performances. Of particular importance has been our decision to increase the level of reporting on sustainability issues during the year to a B+ level in terms of the GRI guidelines.

Sustainable forestry

Our commitment to sustainable forestry continues to underpin the way we work, with these principles firmly entrenched within our forestry management systems.

Land we own, lease and manage is accredited to FSC standards. In South Africa, all our planted land (243,000 hectares) is FSC certified. In Russia, all our leased land (2.06 million hectares) has been assessed by the FSC and some 1.35 million hectares (71%) are already certified.

We reached a major milestone when our last uncertified area was assessed for FSC certification in December 2009. The area, comprising 707,000 hectares of natural forest in the remote region of the Komi Republic, Russia, required a complex multi-stakeholder process to agree on substantial offsets as HCV forests. Our agreement not to harvest or construct roads on any of our leased areas within the proposed HCV forest areas provided key support for the HCV process and enabled the delayed FSC assessment to proceed in this sensitive region. Alongside our leased land, we have also certified 1.76 million hectares of state forest to FSC standards. Another objective for 2010 is to extend our chain of custody to recycled fibre so that a greater proportion of our products can be FSC-labelled.

While the environmental aspects of sustainable forestry are critical, there is a significant social dimension as well and FSC certification is a good measure of our adherence to important social standards.

As an active participant in the development of both TFD Review on Intensively Managed Planted Forests (October 2008), and the WWF New Generation Plantation (NGP) Project synthesis report (August 2009), we emphasise the need to swiftly introduce aspects of new generation plantations that demonstrate how responsibly managed plantations can support biodiversity conservation, benefit local communities and contribute to economic growth. While a number of the South African plantations already meet the current NGP criteria, we will continue to participate in the second phase of the project to define the importance of water management, biomass for bio-energy and forest carbon within the plantation context.

Environmental performance

Ensuring cleaner production and reduced energy usage is an environmental and business imperative. We operate in a highly regulated environment in this respect, particularly in Europe, and have acted in compliance in all the regions in which we operate.

In 2009, together with ClimatePartner, an Austrian climate change consultancy, we calculated our carbon footprint as a Group, as well as the carbon footprints of a selection of individual products. Our annual greenhouse gas emissions totalled 5.92 million tonnes of CO₂ from fossil fuels, including 1.45 million tonnes of CO₂ from purchased energy.

By 2009 we had reduced our direct (scope 1) and indirect (scope 2) specific CO₂ emissions by 14% against a 2004 baseline, meeting our 2014 15% reduction target in almost five years. Absolute emissions are down by almost 12% against the 2004 baseline.

An important objective for the Group is improving the way in which we produce and use energy. In 2009 we reached 83% self-sufficiency in electricity production, while our use of renewable energy increased from 47% to 53% from a 2004 baseline. In 2009, our energy usage amounted to 6.1 million MW/h, with 58.4 million GJ coming from fossil fuels and 70.4 million GJ from biomass. In 2009 specific energy consumption was down almost 12% (against the 2004 baseline), but overall efficiency of site energy usage was up 4% reflecting the change towards biomass in our energy mix.

We have also initiated a process to measure the water footprints of our products given the increasing importance of water in many of the regions in which we operate.

Safety and health

We value the well-being of our people above all else and focusing on injuryfree workplaces remained a priority area in 2009. ‘Just No Harm’ has had a positive impact on the quality of life for everyone working at a Mondi site.

Embracing a safety culture requires constant attention but it is imperative for us to do everything we can to ensure that our employees and contractors return home safely every day. It is also a critical factor in giving our shareholders the confidence that strong safety performance drives operational excellence.

We are very pleased to report that, for the first time, there were no reportable fatalities in 2009 involving Mondi employees or contractors.

Three principles underpin our vision for safety and health:

• all incidents, injuries and occupational illnesses are preventable;
• all necessary steps must be taken to learn from incidents so that they are not repeated; and
• our safety and occupational health standards must be applied consistently at all times.

We measure our safety performance using the industry standard Lost Time Injury Frequency Rate (LTIFR), which is based on 200,000 hours worked. In 2009 we recorded an LTIFR of 0.13 against a target of 0.14. This is a 28% improvement compared with 2008 and a 44% improvement compared with 2007. We also achieved a 16% reduction in our overall injury frequency rate measured using the Total Recordable Case Rate (TRCR).

Although our focus on safety resulted in a commendable workplace safety record for the year, two people sadly lost their lives outside the workplace in Russia in 2009, one in a business travel-related road accident and one in a trailer-home fire in a logging camp. In 2010, we are disappointed that we have already experienced a fatality in our forestry operations in South Africa.

This underlines the need to continue being vigilant about potential dangers and safety hazards and to correct atrisk behaviours and unsafe conditions as soon as they are observed.

Communities

We value our relationships with local communities and are concerned for their well-being and sustainability. Over the past two years we have made substantial efforts to develop appropriate community engagement plans at all our operations, based specifically on our socio-economic assessment toolbox (SEAT) process. The SEAT review for the Syktyvkar forestry operations was completed in 2009. While the Group was praised for meeting all the community social agreements, the topic of new capital investments in the Komi Republic was raised as a concern in terms of the potential impact on employment. Details on specific issues and the full response from the management team are available in the SEAT report, which is available on our website. Working in partnership with the Russian state, we have also launched the Mondi Academy in the Komi Republic to provide local people with the new skills required to support a modern forest industry.

Our South African land restitution models are widely acknowledged as best practice by industry peers and government. Mondi has achieved significant progress in the area of land reform by transferring land to two communities and signing settlements with a further seven. We continue to be committed to working with government and communities to find commercially sound solutions with sustainable and mutually beneficial outcomes.

The Mkhondo Mondi Development Programme, a public-private partnership based in Piet Retief, puts us in a leadership role. The programme offers people resident on Mondi land, but not necessarily employed by Mondi, the chance to relocate to either an urban or agrivillage settlement where they can improve their livelihoods, access better economic opportunities and social services while also accruing personal assets through home ownership and land rights. The Jabulani Agri-Village has been chosen by the Premier of the Mpumalanga province as a flagship pilot site for rural development in the province.

We believe that community social investments are best managed by local operations, because they have an intimate understanding and knowledge of local needs and circumstances.

We spent €9.3 million on social investment directly related to our business in 2009 (2008: €5.3 million), with a focus on health and education.

The Group also made charitable donations totalling €1.3 million (2008: €1.9 million). Operating within guidelines set by the Group, Mondi’s local businesses are responsible for choosing and funding causes through discretionary volunteering, donations and sponsorships. This devolved approach has resulted in support for a variety of programmes that have an impact on Mondi’s employees and the communities in which they work and live.

The Group’s policy is that no company in the Group shall make contributions or donations for political purposes.

Recognition

We have again been included in the London Stock Exchange’s FTSE4Good index as well as the JSE Limited’s Socially Responsible Investment (SRI) index.

We also participated in the Carbon Disclosure Project’s survey of energy usage, CO₂ emissions and our approach to climate change. Further information is available at www.cdproject.net.

Mondi was also recently awarded as the best performer in the Basic Materials Sector of the Forest Footprint Disclosure Project (FFD). The FFD Project is a new initiative, backed by 34 financial institutions with US$3.5 trillion in collective assets under management. It was created to help investors identify how an organisation’s activities and supply chain impact deforestation and link this forest footprint to their value. Further information is available at www.forestdisclosure.com.

Research and development

Our research and development activities aim to provide continuous and proactive improvements in processes and products. Research is focused on improving the quality and range of products in terms of both cost and environmental factors. Expenditure on research and development during 2009 was €8 million (2008: €10 million).

A number of new sustainable products were introduced to the market in 2009, including lightweight papers and boards that minimise the use of natural resources, a range of bio-degradable plastics, a low-cost and more resource-efficient liner product and a carbon-neutral office paper.