The Corporate Responsibility Report* - PwC

the late 1990s. To ensure proper conservation and eco-system viability, RSPO was established to develop a globally acceptable definition of sustainable palm oil production and use as well as to implement better management practices that comply with this definition. Retailer members include: Unilever, Cadbury Schweppes, Coop, CSM NV and Asda, with Waitrose and Northern Foods currently applying. ETP: This industry partnership sources tea from over 1,200 tea estates globally, accounting for over 70% of the UK’s annual tea import. Its members have undertaken a shared responsibility to work with overseas tea growers and manufacturers (producers) to develop a clear factual understanding of the current situation and to improve social conditions on tea estates. PwC was engaged to provide credible, independent monitoring of current standards against local labour law and collective bargaining agreements for approximately 300 tea producers annually. This service forms the long-term basis for encouraging continuous improvements in social conditions. 4C: The 4C is a joint initiative of coffee producers, trade and industry, trade unions and social as well as environmental NGOs to develop a global code of conduct aimed at overall sustainability in the production, post-harvest processing and trading of mainstream green coffee. The 4C is supported and facilitated by European Coffee Federation 4C Group, Staatssekretariat für Wirtschaf (SECO) and Deutsche Gesellschaft für Technische Zusammerarbeit (GTZ) Gmbh. Benefits   Companies develop a clear understanding of their supply chain—and the risks it represents. This helps them take steps in managing risk and protecting their reputation.   The integration of responsible supply chain management within a wider operational framework also helps improve supply chain management processes, while streamlining the agenda and reducing inefficiencies and silo effects.   Companies develop a robust and credible action plan. If challenged, or if problems do occur, they can demonstrate that they are collaborating with suppliers and taking proactive steps to improve social, ethical and environmental performance in their supply chain. Ethical supply chain management presents a way forward for responsible food manufacturers and retailers. Major players must set high standards in their promotion of ethical sourcing and supply practices; align internal structures and processes to achieve integrated risk management; and, where applicable, work with both peers and business partners within the supply chain to achieve the best results. When shareholders and others come asking crucial questions about your approach to CSR, let ethical supply chain management demonstrate your commitment. The Corporate responsibility report, June 2006 PricewaterhouseCoopers

PwC leading the way in CSR and fair trade practices A client interview with Jean-Guy Le Floc’h, Chairman of Armor Développement Bernard Galeron Bio express for Jean-Guy Le Floc’h Born in 1953 at Carhaix, Finistère Ecole Centrale Paris, Master of Sciences at Stanford University (California), Chartered Accountant Management Control Director at Bull Finance Director and then Managing Director of the Bolloré group 1993: acquisition of Bonneterie d’Armor with Michel Gueguen, formerly with Bolloré, currently Managing Director of the group PwC works with the Breton textile group, Armor Développement, in developing and refining its CSR programme and in the ethical certification of its foreign suppliers. Jean-Guy Le Floc’h, the company’s Chairman, explains how this measure is contributing to the company’s sustainable development policies. PwC: You were Finance Director and then Managing Director of the Bolloré group. What prompted you to take over an small-medium enterprise (SME)? Jean-Guy Le Floc’h: I always dreamt of becoming an entrepreneur, and found the courage to take this step with my colleague from Bolloré, Michel Gueguen. Both Bretons, we took on the challenge of taking over a regional company, the “Bonneterie d’Armor,” via a leveraged buyout (LBO) in 1993, with the aim of developing the business. PwC: You have created the group “Armor Développement,” a flourishing SME which now employs 700 people. What were the keys to your success? Jean-Guy Le Floc’h: Unremitting work. These days, we tend to forget it, and yet it enabled us to leave nothing to chance. For us, the two managing executives, it was a real break with the past. We knew nothing of the business and we discovered this complex and globalised sector without any preconceived ideas. And then with the financial pressure of the LBO, we didn’t have any choice. We either had to grow or die. The result was that in 10 years our sales rose from 20 million to 67 million. The Corporate responsibility report, June 2006 PricewaterhouseCoopers

Bernard Galeron An Armor Lux store “If one takes the example of a cotton polo shirt costing 12 in France, 7 in a North African country, 6 in Eastern Europe and 3.50 in China, one can appreciate the difficulty of finding a delicate balance between quality and cost.” We focused on developing and diversifying our brands; a difficult challenge at the beginning given that the basic brand, Armor Lux, had a rather dowdy image. To inject new life into it, we drew on the magic of creators. We didn’t hesitate on several occasions, ending or eliminating collections that didn’t seem attractive enough or too “flashy.” It was a delicate alchemy. Then, at the same time we were creating and acquiring other complementary “generalist” brands, we developed a broad range of professional clothing for companies and administrations. PwC: You set yourself the objective of contributing to the economic dynamism of Brittany by producing 40% of your output in France. Is it possible to be profitable under such circumstances given foreign competition is particularly ferocious in this sector? Jean-Guy Le Floc’h: Yes, provided a reasonable mix can be found between French and foreign production, with a focus on product quality and strict manufacturing standards—key criteria for consumers. However, it is certainly the case that the challenge is unending. If one takes the example of a cotton polo shirt costing 12 in France, 7 in a North African country, 6 in Eastern Europe and 3.50 in China, one can appreciate the difficulty of finding a delicate balance between quality and cost. And in this regard, as an SME, we come up against the problem of product traceability. Although it’s possible to control the manufacturing quality of our products abroad in regions that are close, such as North Africa and Eastern Europe, it is far more difficult in distant countries such as China. PwC: In January 2005, you became among the first companies in the textile sector to hold a Max Havelaar license enabling you to commercialise a range of articles labelled fair trade cotton. Do you think there is a market for this type of product in France? Jean-Guy Le Floc’h: If we seized this opportunity as soon as the licence was created, it wasn’t out of pure philanthropy. It was because we were convinced that this type of consumption was going to grow very fast and would generate substantial sales. For the time being, the facts have proven us right: in 2005, we generated 500,000 of sales with these products and in 2006, we exceeded 1,000,000. PwC: In May 2004, you won a contract with the French Post Office in which you were entrusted with managing clothing for its 130,000 employees. What were the criteria that enabled your group to be selected in this European bid? Jean-Guy Le Floc’h: First, our technical expertise in a wide range of clothing at competitive prices is widely recognised. Also, thanks to our know-how in logistics, we convinced the Post Office that we were capable of setting up a The Corporate responsibility report, June 2006 PricewaterhouseCoopers

sufficiently sophisticated system to manufacture and deliver 130,000 units in a very short time frame. Lastly, we were selected on the criteria of our attention to CSR and sustainable development, not only through the measures we have taken to preserve jobs in France but also through our commitment to controlling the production of our foreign suppliers from an ethical standpoint. PwC: How has PwC been helping you with this contract? Jean-Guy Le Floc’h: We have signed a partnership agreement under which PwC audits the factories of our foreign producers. These reports have shown us the extent to which these audits are absolutely necessary in enabling us to take corrective action and remedy deficiencies in the social domain. It isn’t unusual for us to ask for further investigations and controls. Indeed, we intend to intensify our efforts in this area and reinforce this collaboration, which has proven so effective. A factory worker If we decide, for example, to manufacture certain products in China, we have to have the ability to check the production process. This is a key area of concern today because the market is increasingly focusing on this low-cost country, but one which remains difficult to control. You have given us a list of fair trade companies under US standards, and this should help us to identify good suppliers, but we won’t be stopping there. PwC: Why did you choose PwC to help you? Jean-Guy Le Floc’h: Thierry Raes, SBS Leader for France, and I had a common friend. We signed a contract very quickly, and PwC had a lot of references. I also knew of PwC’s reputation as a classic consultant and auditor. PwC: How do you see your group in 10 years? What are your growth objectives? Key figures Jean-Guy Le Floc’h: We currently see four areas of growth. Development of 50 million in sales at year end 2004 clothing services for large organisations such as our contract with the Post of which 15% were international Office; an enlargement of our distribution network with the creation of new 700 staff boutiques; sales from direct sales outlets and mail order (Galeries Lafayette, La Production: 40% in France; the rest Redoute ) and the opening of a web site. Lastly, we expect an increase in export mainly in North Africa and Eastern sales (mainly North America, Japan and Northern Europe) which currently only Europe represents 12% of total sales. With profitability constraints being what they are, 3 plants in France, at Quimper we will not be creating any production jobs in France, but undoubtedly clothing(Armor-Lux) and Troyes (Guy de related service jobs instead. Our objective is to maintain growth of around 10% to Bérac) 15% per year. 10 brands: Armor-Lux, Armor Kids, Molène, Classe de Mer, Bérac PwC: What more can PwC do to help you achieve your objectives? Homme, Terre et Mer, Bermudes, Jean-Guy Le Floc’h: Not being a high-profile company, Armor Développement Tricomer, Lepoutre and Chairman doesn’t need a well-known signature such as yours in the audit area. On the other 4 million articles sold a year hand, we do need advice on asset management and transactions and we often 3,000 retailers need good mediators when having to resolve problems on delicate subjects. No 30 shops doubt these will be avenues worth exploring in widening our collaboration. The Corporate responsibility report, June 2006 PricewaterhouseCoopers

Information disclosure at Seiyu: case study Ayako Shimizu, SBS Japan Description of client’s business Seiyu, Ltd. (Seiyu) was established in 1963 as a supermarket chain and operates 405 stores in Japan (December 31, 2005), including stores operated by its consolidated subsidiaries. In December 2005, Seiyu became a subsidiary of US-based Wal-Mart Stores Inc. (Wal-Mart) after years of affiliation. Seiyu is listed on the FTSE4Good Index Series and the Ethibel Sustainability Index. For more information on Seiyu, please visit: http://www.seiyu.co.jp/english/corporate e.shtml Seiyu’s major activities on environmental and social issues Since the early 1990s, Seiyu has addressed environmental issues. In order to promote environmental management as a business challenge, Seiyu created the Eco Council as a cross-functional organization to promote the implementation of environmental management. In 1997, Seiyu gained ISO 14001 certification and adopted the Environmental Management System (EMS) as their internal management system. In addition, in 2001 Seiyu established “Green Board,” a forum where external experts and Seiyu executives could exchange opinions. Specific examples of Seiyu’s environmental efforts include the establishment of a recycling route for packaging and containers, specification criteria for its eco-friendly products, and holding environmental workshops at stores for children in various neighbourhoods. Regarding information disclosure, Seiyu published the “Seiyu Ecobook” in 1992, prior to its environmental reports. The report included its policy, structure, challenges and activities as a retailer as well as environmental information including data on packaging and containers. Seiyu has issued environmental reports every year since 1995 (from 2002, Sustainability Report), outlining not only environmental activities but also store-based social welfare activities. Seiyu has held various dialogues with stakeholders such as environmental workshops and round-table discussions with consumers. Cooperation between stakeholders and Seiyu was also initiated early on. Seiyu has prepared Sustainability Reports cooperating with Japan for Sustainability (JFS), a nongovernmental organization, since 2003. These efforts have been highly praised and recognized externally. Most notably, Seiyu’s reports have received many awards and top rankings in surveys: Nikkei Environmental Management Survey by Nihon Keizai Shimbun Inc., Environmental Communication Awards by the Global Environmental Forum, and the Environmental and Sustainability Report Award by Toyo Keizai Inc. For more information on Seiyu’s Sustainability Report, please visit: http://www.seiyu.co.jp/english/report e.shtml The Corporate responsibility report, June 2006 PricewaterhouseCoopers

The client’s challenge In 2005, Seiyu established the CSR Management System based on EMS with ISO 14001 certification. The in-house directors and heads of 11 functions are responsible for promoting CSR activities and have prepared objectives and targets and run a PDCA (plan-do-check-act) cycle to evaluate and review their implementation. In order to define CSR policy, Seiyu included external advisors in addition to the members on the Green Board. The CSR Management System defines the reporting procedure of sustainability reports, which are published regularly as a tool to disclose information to the public about the system. Ayako Shimizu, Senior Researcher, SBS Japan The challenge for Seiyu is both to integrate reporting procedure with the CSR Management System and to improve the level of information disclosure. If successful, we hope it will improve management operations and the quality of the Sustainability Report. In order to meet the challenge, it will be necessary to include discussions with stakeholders in the preparation process of reports, establish a reporting procedure, clarify reporting standards and improve data accuracy in reporting. The PricewaterhouseCoopers approach We, ChuoAoyama Sustainability Certification Co., Ltd. (CASCert)1 have provided either Independent Assurance Reports or Third Party Evaluation Comments as an independent third party on Seiyu’s Sustainability Reports since 2000.   Sustainability Report 2000-2002: We provided Independent Assurance Reports and submitted our recommendations on social and environmental issues that needed improvement. The summary of our recommendations which is regarded as most useful for readers appeared as “Our Recommendations” in the Report. S ustainability Report 2003-05: We provided Independent Assurance Reports, but the scope of the assurance in the Sustainability Reports was limited to environmental performance since no clear international standards have been established for assurance on sustainability information.   Sustainability Report 2006: We changed our approach to provide Seiyu with Third-Party Evaluation Comments, in which we focus on the preparation process of the report with reference to GRI Guidelines. We suggested the option in order to expand the scope from Independent Assurance on environmental performance to an evaluation of the whole report as a third party. Benefits for the client Achievement in management: In responding to our recommendation as a result of our Independent Assurance work, Seiyu has established a data-collection system and improved its process in order to enhance data accuracy. These improvements also contributed to improving the EMS. Efforts in information disclosure: Seiyu was the first entity to disclose recommendations from an independent third party in Japan. Seiyu was willing to illustrate the meaning of the Independent Assurance Report in ways that readers found easy to understand. This was based on Seiyu’s stance on the reliability and readability of the reports. ¹ CASCert: A 100% subsidiary of ChuoAoyama PwC in Japan, www.chuoaoyama-cert.com/eg/ index.html In our Third Party Evaluation Comments this year, we have pointed out challenges described under “The Client’s Challenge.” We hope Seiyu will meet further challenges by improving disclosure of non-financial information to the public and by increasing awareness among readers of these reports. The Corporate responsibility report, June 2006 PricewaterhouseCoopers

Perspectives: the Canadian Sustainability practice Dr. Mel Wilson, SBS Canada Q: Where is the Canadian Sustainability practice based? PwC Canada’s Sustainable Business Solutions (SBS) practice is primarily based in four cities: Vancouver, Calgary, Edmonton and Toronto. Q: How long has PwC had a Sustainability practice in Canada? The roots of the practice go back to the early 1990s. It was primarily an environmental practice for the first five years or so before broadening into other areas such as health and safety, and social performance. The practice has evolved significantly as our clients’ needs have evolved and new sustainability issues have risen on the corporate agenda. Dr. Mel Wilson, Associate Partner, SBS Canada, speaks at the ForestLeadership Conference in Toronto Q: What kinds of educational and work backgrounds do the Canadian SBS staff have? The Canadian SBS team is a diverse group including Professional Engineers, Professional Foresters, Professional Biologists, Chartered Accountants, some PhDs and many with Masters degrees. Most have worked for PwC or other professional service firms for much of their careers and several have deep industry experience as well. We find diverse backgrounds a huge asset as we work on challenging and interdisciplinary engagements for clients. Q: What are the key driving forces for our Sustainability services in Canada? Like most companies in other parts of the world, Canadian companies tend to manage their sustainability issues and disclosures from a variety of perspectives, including risk management, corporate governance and reputation enhancement. From the risk management perspective, most companies want to ensure that they are in compliance with applicable regulations and industry codes of conduct, and that their sustainability performance will not inhibit their ability to achieve other business goals. From a reputation enhancement perspective, companies want to “Like most companies in other parts of the world, Canadian companies tend to manage their sustainability issues and disclo sures from a variety of perspectives, including risk management, corporate governance and reputation enhancement.” be seen as “doing the right thing” because this can facilitate access to resources, markets and new clients, as well as improve alignment with employee goals and help to ensure community support for the business. Q: What are some of the key sustainability services PwC Canada provides? Like many national SBS practices outlined in the recent PwC publication, 10 The Corporate responsibility report, June 20

Corporate Social Responsibility (CSR) and the role of ethical supply chain management In the last decade, few industries have undergone more scrutiny than retailers and food companies. Europe witnessed a great deal of public unrest about food safety. Consumer skepticism about genetically modified organisms (GMOs)