Letter from the chairman of the DLC sustainable development committee and chief executive officer

We live in a world where rapid change is the norm and, while the sustainability landscape continues to evolve, we believe that the material issues we have identified remain valid and will allow us to address both current and emerging issues. However, we will continue to engage with our stakeholders to identify future trends.

It is reassuring that the strategies, systems and processes, and indeed the people we have in Mondi, continue to deliver good sustainability performance. This comment is not solely reliant on our own observation but is evident from the recognition of Mondi’s sustainability performance and reporting, see Awards and recognition. Sustainability is integrated into our business decision-making, and we use external gap analysis and benchmarking to evaluate our performance compared to our peers and incorporate any findings into our approach.

In compliance with the South African Companies Act, a social and ethics committee was established in 2012 and it is pleasing to report that, during the past year, the committee’s scrutiny of our social and ethics policies, practices and procedures has not identified any areas of major concern for Mondi. That is not to say that there is no room for improvement – there always is, and we continue to address a number of critical issues, as described below and throughout this report.

At the top of our agenda, for us personally and for our sustainable development committee members, is the issue of safety. In particular, the four contractor fatalities that we experienced in the Group during the year are a cause for great concern.

The executive team has placed a lot of focus and continuous effort on driving the establishment of a safe working environment and an appropriate attitude and culture towards safety and health in the day-to-day operations of the Group. There is strong evidence of the many measures that have driven this improved safety awareness and behaviour. Over the past five years, the Group has demonstrated a steady improvement in our total recordable case rate, contributing to our position as a safety leader in our industry. In addition, Group-wide initiatives such as Making a Difference Day (MADD) (see Focus on our people) and development of critical task safety training material are indicative of the executive team’s commitment to further improving our safety performance.

What has been a bigger challenge for the Group is how to deal with the safety risks associated with activities that are not part of the daily routine work schedule - because such activities are, by necessity, only conducted on an ad hoc or infrequent basis, the risk of fatalities and life-altering injuries is heightened. As a result, Mondi’s management has taken Group-wide steps to identify those activities that are considered of highest risk or those being of a low probability, high impact nature, and to take steps to engineer those risks out and/or implement robust controls and procedures to manage the residual risk. This is a key directive for 2014, with the aim of a greatly improved performance in the year ahead.

Over recent years, a large proportion of our capital expenditure has focused on improving energy efficiency, increasing electrical self-sufficiency and reducing our carbon footprint. In 2013, these investments included projects such as a bark boiler at Syktyvkar, Russia, a recovery boiler at Frantschach, Austria, and steam turbines at South Africa’s Richards Bay mill and our Stambolijski mill in Bulgaria. There are further investments planned for 2014.

Another area of increased focus in 2013 was the integration of our new acquisitions* into the business. This was a priority not only in respect of production and marketing, but also in sustainability. We do not see any new sustainability challenges being brought to the fore with the acquisition of these businesses or their integration into the Mondi fold. Instead, the challenge going forward is to ensure that a consistently high standard of planning and reporting exists across all business entities. As a rule, we expect new operations to be fully integrated within two years of the acquisition date, but encourage this to happen sooner where possible.

Another issue of on-going concern is the monitoring of our supply chain to ensure that all parties endorse and work to the same high standards that Mondi sets for itself. The introduction of EU Timber Regulations (EUTR) has heightened the need for traceable and transparent supply chain management for our wood and fibre based products. There are many challenges, given the extent of our operations and the complexities of our supply chain; our heavy reliance on the supply chain in certain aspects of the business (for example, small growers in Europe and South Africa, and contractors in our forests); and the fact that many of the codes and standards to which we subscribe require a high level of commitment. Nonetheless, we recognise our responsibility in this regard, and continue to participate and uphold the requirements of the UNGC and other relevant associations, institutions and regulatory bodies.

The report that follows has been developed with a focus on those issues that are most material to us as a Group – these may be challenges or opportunities, with both needing to be explored. We are also conscious that we do not work in isolation and that we have an important role to play as both custodian and steward of our natural resources. For this reason, we have sought to share those issues that are significant within a global context. The work we undertake with NGOs such as WWF, and industry bodies such as the WBCSD, is highly relevant. We have sought external assurance on selected key performance indicators reported in our sustainable development report, this information is available in the assurance statement. Further, we have asked UK-based business-led charity, Business in the Community, to consider our report and provide a third party review of the reasonableness of our sustainability approach in addressing our material issues.

In conclusion, we wish to pay tribute to our colleagues on the Boards, to the executive, to management and our employees. They together are Mondi, who are credited for past performance and who are responsible for its future successes. To them our message is simple: maintain our focus on performance and eliminate fatalities and life-altering injuries. There can be no other way forward.

Stephen Harris
Chairman of the DLC sustainable development committee

David Hathorn
Chief executive officer