Marking our route 2005 Accountability Report

Transcription

1 Marking our route 2005 Accountability Report

2 Hikers mark new routes and follow existing trail markers to ensure they are travelling in the right direction. This helps them plot their course forward and retrace their steps if they go astray. If it is a well-planned and clearly defined trail, others will inevitably follow. We ve marked our accountability route for the same reasons. It clearly identifies the path we are on as an organization and helps us take stock of where we are, where we ve been, and where we want to go. ii

3 welcome Welcome to Mountain Equipment Co-op s (MEC s) inaugural Accountability Report. When we began this exercise, we planned to write a Sustainability Report an overview of our social, environmental, and economic impacts and performance. In many ways, what follows is just that. However, this report is also much more. We quickly realized this effort represents how MEC, as Canada s largest outdoor retail co-operative, is accountable to our members, our staff, and the communities and places we impact. Simply put, it is a transparent account of how we are living up to our promise to be a leader in social and environmental responsibility, as well as a leader in the co-operative movement. MEC has a culture of simply doing, but not talking about what we re doing. In the past, we didn t want to report on our performance because we didn t want to appear boastful. We also didn t want our efforts to be perceived as a marketing effort. In recent years, though, we have come to realize that publishing reports on our environmental and social performance is not just a good thing to do, but an essential thing to do. It holds us accountable and provides examples for the broader community to learn from. MEC is both a retailer and a brand. Our brand is our starting point. We need to take responsibility from the moment one of our buyers or designers dreams up the next great piece of MEC gear. Our core purpose is to help people achieve the benefit of self-propelled wilderness recreation, and our core competency is to build and select the best products that enable members to get outside. This fundamental connection to the outdoors also presents a compelling rationale to pursue a sustainable future. Everything we make, buy, sell, touch, or do has an impact human, social, economic, and environmental on a planet already stretched to its limits. So it s up to all of us to stretch our own limits and do more than we ve ever done to live, work, and play in a different, more sustainable way. We believe that pursuing a sustainable future is both a moral and business imperative. Take climate change. The debate on the legitimacy of the issue is (thankfully) over and we need to consider the implications on our industry. The very nature of Canada s outdoor playground is changing. Classic climbing routes are shifting and even disappearing; rivers are running too high, or not at all. According to NASA, 2005 was the warmest recorded year in history. Canada s reputation as a haven of parks and protected areas isn t supported by the facts. The World Conservation Union ranks Canada 33rd out of 39 nations in terms of protected areas. 14 of Canada s 39 natural regions still lack national parks. If we are to thrive and survive, these are some of the issues that must drive business strategy in the outdoor industry. At MEC, we are just beginning to understand how to weave these urgent issues into our day-to-day decision making. This report provides a window into our deliberations and decisions. As a first effort, we learned a lot from this report. In areas like greening our operations, the report findings validate years of hard work reducing our environmental footprint. In areas like product sustainability, the report highlights just how far we have to go to better understand the make-up of our products and how we can mitigate the impacts of the harmful toxins and chemicals used in these products. Most importantly, researching and writing this report has provided an impetus to improve our management systems, and highlighted the importance of tracking and measuring our efforts. Without the numbers, it s tough to manage our impacts and identify opportunities. This report is an effort to be transparent, to show leadership by example, and to challenge ourselves, our members, and the business community to create a more sustainable future. Let us know what you think. We would like to say a special thanks to Denise Taschereau, MEC s Sustainability and Community Manager, who was the driving force and author of this report. Peter Robinson, Linda Bartlett, CEO Chair

4 Executive Summary In this, MEC s inaugural Accountability Report, we have created a baseline of our social, economic, and environmental performance, which we can use to inform our future course of action. For years we have been measuring and monitoring different aspects of our business, such as our recycling rates and the working conditions in our factories. This report, however, represents the first time we have pulled all our performance data together in one place for our employees and members to access. Earlier this year, MEC was ranked top retailer in the Globe & Mail s Report on Business annual Corporate Social Responsibility Ranking something we re incredibly proud of. In 2005, MEC operated 10 stores across Canada and realized revenue of over $197 million a 10% increase over Our membership base grew to 2.3 million members and we employed 1,120 people at our various locations. For the 7th time in 35 years, we distributed a share redemption to members based on their patronage. At $2 million, it was the largest patronage return in MEC s history. Our product design and selection, and our sourcing efforts, both received a boost in A product sustainability commitment was endorsed that laid the groundwork for a new role focused on minimizing and mitigating the environmental impacts of the products we manufacture. While our research revealed that MEC is in the top 25 global buyers of organic cotton, it also identified the fact that we have very little recycled content in our product lines. MEC s first Ethical Sourcing Manager was hired in late 2005 to lead our efforts in ensuring workers rights are met in the factories we use. We expect this new capacity will allow us to identify the root causes of non-compliance and build programs to better address and remedy the issues we find. We were able to measure the impacts of several activities for the first time as was the case with determining the greenhouse gas emissions that result from transporting our products from the point of manufacture to our stores. The process provided a first baseline. More importantly, it highlighted opportunities to become more efficient in our internal business processes (such as consolidating purchase orders). Our efforts to green our operations have the longest history of all our sustainability related activities, and this report shows that our efforts are reaping rewards. Our recycling rates are at 83% and saved us over $90,000 in A decision in 2004 to procure wind power credits for two of our thirteen facilities resulted in a 52% reduction in our overall greenhouse gas emissions over 2003 levels. In 2005, our senior leadership team prioritized increasing employee engagement (in other words, how staff feel about working at MEC). A 2004 survey found overall engagement of MEC staff low (48%). Our efforts to understand and respond to the issues affecting our staff are outlined on page 32. In 2005, a follow-up survey showed a marked improvement in staff engagement, up 15% to 63%. Our members are our lifeline as a co-operative, we exist to serve them. In 2005, in-store surveys suggested that 80% of our members were satisfied with the level of service they received at our stores also saw significant investments to improve supply chain logistics and ensure the right products are available at the right time. In 2005, we launched our Outdoor Resource Centre, an online resource where the public can find used gear, courses, trail information, events, clubs, and trip partners. MEC s community involvement programs got a make-over in 2005, the result of a major stakeholder consultation in late The new Community Involvement Vision has focused programming towards ensuring that Canada will be home to the world s most comprehensive network of parks and protected areas, will sustain the world s most outstanding outdoor playground, and that self-propelled outdoor activity will be a defining feature of Canadian identity. In 2005, MEC contributed over $1 million in grants towards achieving this Vision. Our ability to engage our members in the democratic process of running the Co-operative remains a challenge. In 2005, just over 1% of our total membership voted for our Board of Directors. That said, the report outlines our intent to look at member engagement in all aspects of the Co-operative (from voting to participating in dialogue sessions) to map out opportunities for engagement in addition to voting. As you will find in the following pages, we ve learned a lot in this first effort. The report outlines how we re doing, but it also provides a useful road map for how we operate and how we meet our members needs. Our next effort to measure progress will land in 2008 and will cover highlights from

5 table of contents introduction... 4 MEC and the co-operative structure... 6 Benchmarks Share redemption distributed to members: $2 million Membership: 2.3 million Revenue: $197 million Future goals Distribute $2 million in share redemptions in 2006 Realize 2% same-store growth over 2005 Product Design Benchmarks Recycled polyester used in MEC-brand apparel: 4% MEC-brand cotton apparel using organic cotton: 100% Future goal Create a 5-year Product Sustainability Strategy and workplan manufacturing mec-brand products Benchmarks MEC products made in Canada: 43% Factories audited: 27 Code infractions: 218 Future goal Disclose factory locations in 2008 Greening our Operations Benchmarks Increase in energy consumption from 2003: 1.5% Decrease in facilities GHG emissions from 2003: 52% Recycling rate of all MEC facilities: 83% Future goal Reduce GHG emissions by 15% in 2006 TRANSPORTING OUR PRODUCTS Benchmark GHG emissions of logistics: 5,517 tonnes Future goal Reduce our GHG emissions by 5% in 2006 Staff satisfaction Benchmarks Employees: 1,120 MEC staff who felt engaged at MEC: 63% MEC staff who were certain our business creates something that adds value to our community : 89% Future goals Develop MEC Diversity Policy Score between 65-70% in 2007 Hewitt Engagement Survey Member Satisfaction Benchmarks MEC members, surveyed in-store, who were satisfied overall with level of service at MEC: 80% MEC members who strongly agreed they would recommend MEC to a friend: 94% Future goal Increase member satisfaction to 83% Supporting our community Benchmark Total cash contributions: over $4 million Future goal Contribute 1% of sales to Canadian conservation and access issues in 2007 maximizing product life Benchmark Listed 21,000 postings on OutdoorGearSwap.com Future goal Increase number of gear swap postings by 10% in 2006 Governing the Co-operative Benchmark MEC members who voted in our Board of Directors election: 1.2% Future goal Develop strategy to improve member engagement in co-op and democratic processes appendix: stakeholder panel review appendix: gri table MEC Accountability Report 2005

6 introduction HOW WE DEVELOPED THIS REPORT This is MEC s first comprehensive report on sustainability, governance, and accountability, and covers the year In 2004, we published a short report on compliance with our Sourcing Policy. In our early discussions that led to this document, we did not speak of the report, but our reporting system. We were initially more interested in developing our capacity to measure and understand our performance for internal purposes. The lure was the potential for better management information. This report helps us achieve that. We began by assembling a working group of people from every department not necessarily the managers, but folks with their hands on the information we needed, people who knew what we could measure and what we could realistically strive for. OUR GUIDELINES We had been encouraged (warned, perhaps) by other companies to start small and keep the report relevant to our business. As we made critical decisions about scope, subject matter, and level of detail, we applied the principle of materiality that we found in the Global Reporting Initiative (GRI) 2002 Guidelines and in the AccountAbility 1000 (AA1000) Standards. GRI s definition of materiality is: the information in the report should cover issues and indicators that would substantively influence the decisions of the stakeholders using the report. 1 We expect those users to be: our Board and management, members and employees, community groups and wilderness recreation advocates, sustainability enthusiasts and professionals, other co-operatives, and suppliers. As a medium-sized Canadian co-operative with no foreign operations, we found some of the GRI indicators were not relevant for this report. Others are potentially material but beyond our ability to measure at the present time. Some issues that are important to us or our stakeholders are not captured in the GRI 2002 Guidelines. As a result, we decided to generally follow GRI principles, rather than specific indicators. The GRI table in the Appendix shows which indicators we used. STAKEHOLDER REVIEWS When designing and writing this report, we solicited three stakeholder reviews. One was the multi-disciplinary working group mentioned earlier. They provided input on the selection of indicators and the draft report, and they also provided much of the data. We relied heavily on this group to ensure this report met the relevance test. As a further check, we conducted a focus group of employees drawn from our Service Centre and two of our Vancouver-area stores. This group reviewed our proposed indicators for the employee section. They gave us valuable feedback, noting our draft indicators were technically complete but failed to capture the spirit of camaraderie and shared adventure that makes a job at MEC so much more than a job. Our most ambitious review consisted of a panel of stakeholders and experts who came to Vancouver to review the draft report. The panel selection reflected the interests of our key stakeholder groups (members, employees, co-operatives, suppliers, and peers, as well as advocates for human rights, wilderness, outdoor recreation, and sustainability). The individuals from these groups were chosen because of their knowledge, commitment, and demonstrated willingness to tell us the truth. Our report about the Stakeholder Panel Review appears in the Appendix. Assurance We decided not to have this first Accountability Report independently reviewed or audited. We wanted to gain experience with reporting before subjecting the report to a full audit. The stakeholder panel, while it does not provide the same level or type of assurance, serves to ensure we have not missed any major issues and that the targets we have set seem reasonable. Our internal assurance process included the input and critique of our working group, an all-day review by the Senior Management Team, oversight by a Board of Directors committee, and an assessment of risk and materiality for major data sources by a consultant supporting the reporting process. We will reconsider an independent audit/review in future reports. In addition to the GRI and AA1000, we have been guided by the International Co-operative Principles, the Global Compact (adopted in 2006), and the Fair Labor Association (FLA). 4 Introduction

7 EMBEDDING SUSTAINABILITY AT MEC In 2002, our Board of Directors adopted a Sustainability Policy 2 to guide our efforts. The policy provides a definition of sustainability, as well as an articulation of our role: Our Sustainability Policy We believe a sustainable world is defined by three inter-dependent principles: The planet has a limited carrying capacity and we are all dependent on a healthy, functioning biosphere. Individuals can best meet their needs in caring and vibrant communities. A just economy is dependent on an equitable society and a healthy planet. We believe MEC has a responsibility to make the world a more sustainable place. We define our role as: Encouraging and supporting our members to enjoy selfpropelled wilderness recreation; lead healthy, active lives; and be stewards of the natural environment. Promoting and supporting wilderness conservation and responsible use of the outdoors. Reducing the social and environmental impacts of our products, services, and business operations. Providing leadership in the community and working with others to pursue collective social and environmental goals. Empowering our members to be active participants in our Co-op and other co-operative endeavors. HOW WE IMPLEMENT SUSTAINABILITY Policies are useful, but the real work is in their implementation. Here is the flow of how things get done at MEC: 1. Our Board is democratically elected by our members. 2. They hire our CEO. 3. The CEO leads a team of eight Senior Managers (at most companies, they re called VPs): Finance and Administration, Communications and Marketing, Production, Buying and Design, Operations, Logistics, Human Resources, and Information Services. For the last three years, these Senior Managers have had at least one sustainability related performance goal linked to their incentive compensation (bonus) plan. 4. Our Ethical Sourcing Manager, and Sustainability and Community Manager, also report directly to the CEO and work cross-functionally with multiple departments. They ensure the organization delivers on the Board vision to be a leader in social and environmental responsibility. 5. Our Community Involvement Coordinator reports to the Sustainability and Community Manager, and oversees our community granting and partnership programs. 6. Sustainability Coordinators in each store report directly to their Store Managers and work closely with the Head Office sustainability team. They deliver our sustainability programs in the communities where we operate, and ensure we re in touch with our members. We ve worked hard not to develop a large sustainability department with centralized control and accountability. Nor have we decided to put vague sustainability objectives in everyone s job description. We believe we ll be more successful if specific accountabilities are formalized into key roles within multiple departments. In that way, the role of the sustainability team is to help everyone pursue initiatives linked to our day-to-day business practices. All our sustainability efforts fall into four program areas reviewed in this report: Product Sustainability, Ethical Sourcing, Greening our Operations, and Community Involvement. ENGAGING OUR STAKEHOLDERs We believe that engaging with the right stakeholders at the right time and in the right way can help us understand and manage our business better, as well as improve our sustainability efforts. We also believe we have a responsibility to listen to and consider the concerns of people we affect or who need us to act. We won t always be able to do what they want, but we ll give every idea a fair hearing. In recent years, we have been learning a lot from advocates for human rights in supply chains. We have ongoing dialogues with human rights advocates, and in 2004 we joined the FLA. The chapter on Manufacturing MEC-brand Products provides more detail on what we learned from these relationships. We also conduct regular employee surveys. The results of our 2004 and 2005 surveys provided key information for the chapter on Staff Satisfaction. Like other retailers, we conduct market research. This includes surveying our members about their shopping experiences at MEC, and learning about their preferences and attitudes (the Member Satisfaction chapter). In 2005, we undertook a stakeholder engagement process to inform a strategic review of our community involvement programs and advocacy efforts (Supporting our Community). Of course, we also actively engage our members in our annual Board of Directors election and at our Annual General Meeting (Governing the Co-operative) The full text can be found at MEC Accountability Report

8 MEC and the co-operative structure Mountain Equipment Co-op was conceived within the cozy confines of a storm-battered tent by a small group of students. They agreed they needed a place to buy specialized outdoor gear like ice axes and climbing rope. Thirty-five years later MEC has grown into Canada s largest supplier of quality outdoor gear and now has 11 stores across Canada, a comprehensive bilingual web store, and more than two million members.

9 THE CO-OPERATIVE DIFFERENCE MEC was incorporated as a co-operative. Unlike a privately or publicly held company, a co-op is a self-governing association of persons united voluntarily to meet common economic, social, and cultural needs and aspirations through a jointly owned and democratically controlled enterprise. Being a co-operative is a unique starting point. It lays the foundation for our business based on the International Co-operative Alliance s seven principles. 1 These principles guide us and have enabled many of our efforts to be a socially and environmentally responsible retailer: 1. Voluntary and open membership MEC membership is open to anyone who wants to join and is willing to accept the responsibilities of membership (e.g., buying a $5 share). 2. Democratic member control MEC s Board of Directors is elected by the membership to govern MEC each member has one vote. 3. Member economic participation Each member of MEC purchases one $5 lifetime share to support our ability to meet member needs. 4. Autonomy and independence Our Co-operative is controlled by our members through a democratically elected Board not through external advisors or investors. 5. Education, training, and information Our staff training materials and member communications include information on the co-operative difference. 6. Co-operation among co-operatives MEC has memberships in co-operative associations in most provinces where we have a store presence. In 2005 we joined The Co-operators, a co-op of Canadian companies focused on insurance. 7. Concern for community MEC has a long-standing commitment to the community. We have contributed over $8 million to environmental and conservation causes in Canada, and we have an awardwinning Green Building Program. MEC s mission and values Our Purpose To support people in achieving the benefit of self-propelled wilderness-oriented recreation. Our Vision Mountain Equipment Co-op is an innovative, thriving co-operative that inspires excellence in products and services, passion for wilderness experiences, leadership for a just world, and action for a healthy planet. Our Mission Mountain Equipment Co-op provides quality products and services for self-propelled wilderness-oriented recreation, such as hiking and mountaineering, at the lowest reasonable price in an informative, respectful manner. We are a member-owned co-operative striving for social and environmental leadership. Our Values We conduct ourselves ethically and with integrity. We show respect for others in our words and actions. We act in the spirit of community and co-operation. We respect and protect our natural environment. We strive for personal growth, continual learning, and adventure. AN ECONOMIC PRIMER ON MEC Being a co-operative has unique advantages. Here are some key aspects of what being a co-operative means to MEC. We don t have to maximize profit. As a member-owned co-op, our purpose is not to maximize profits but to enable our members to enjoy the outdoors. We do have to make enough of a surplus over costs to be financially sustainable. This means we can keep our prices low without putting the squeeze on suppliers, cutting corners on our commitments to be socially and environmentally responsible, or compromising quality. Our members are our owners. Member shares in co-operatives reflect the concept of one member, one vote. No single individual can own controlling shares in our Co-operative. Members share accounts grow as a result of the purchases they make, or their patronage, to MEC. If there is a surplus of revenues over expenses in a year, that surplus is returned to members in proportion to their purchases during that year. Members receive their proportion of the surplus in the form of additional shares in MEC. The cash is retained to ensure we are able to continue to serve the owners (members) by opening stores and filling them with quality products at reasonable prices. 1 MEC Accountability Report 2005

10 waypoint REVIEWing was a good year for MEC. Our sales increased 10% over 2004 and we issued a share redemption to return $2 million to 21,000 members. The number of members increased to 2.3 million, up 8.5% from We made great strides in implementing critical business systems to improve our supply chain management. Our focus on supply chain resulted in improvements in our stock levels. We also decided to expand and relocate our Distribution Centre by also represented the first full year we operated two stores in the same city. We opened our North Vancouver store in December 2004, with the goal of serving our North Shore members and those in the Sea to Sky Corridor towards Whistler and beyond. We won several awards relating to our retail efforts. These included recognition from the Office québécois de la langue française for the creation of Le Petit MEC, our illustrated French dictionary of outdoor recreation and gear terms. We also received the Retail Council of Canada s Excellence in Multi-Channel Retailing Award. 1 In addition, MEC garnered the Globe & Mail s Report on Business top retail ranking in their annual Corporate Social Responsibility Ranking, 2 and we were the top-placed Canadian retailer (tying for 4th place overall) in the Ethical Trading Action Group s Transparency Report Card. 3 Each year the Board of Directors determines whether we have enough cash to meet our projected needs and then decides if we are able to buy back (or redeem) some shares. Since inception, MEC has instituted seven share redemptions to members, totalling over $7 million. In 2005, we gave back $2 million to 21,000 members through a share redemption. Our co-operative structure ensures that people, not capital, control MEC. We decide how fast to grow. To satisfy shareholders, most corporations are driven to turn in growth performance every quarter. We self-fund most of our growth through reinvestment of members patronage returns. We can grow at a rate that makes sense for the Co-op and its members and not by a rate dictated by outside investors. We can measure success our own way. As a result of our structure which allows members equity to be retained for future efforts, some traditional economic ratios like return on equity don t best describe success at MEC. Because we don t solely chase profit we are able to make longer-term decisions. That said, we need to continue to be efficient and maximize the use of our assets to remain competitive. BUT being a co-op doesn t insulate us from adhering to business basics. We are taxable. MEC generally has no taxable income, as all our surplus is allocated to patronage returns to members. We do pay all the usual business taxes like payroll tax, provincial sales taxes, import duties, capital tax, and property tax. We re conservative. Really we are at least financially. We try to self-finance where it makes sense, and invest in long-term sustainable opportunities. This means we have to be prudent in our spending and make sure we always retain sufficient cash to prevent a future crunch. We are subject to business realities. Our co-operative status can t insulate us from general economic trends or competitive forces. For example, just to match rising costs, our revenues need to grow each year. While we may be a household name in Canada, we re pretty small in the margindriven, seasonal world of retailing and don t always have the influence we d like. The co-operative difference enables MEC s sustainability efforts. Each member s $5 share enables us to be an innovative, thriving co-operative that inspires excellence in products and services, passion for wilderness experiences, leadership for a just world, and action for a healthy planet. 8 MEC and the co-operative structure

11 The Co-op coast to coast Member origin Canadian 89% International 11% Member language preference Yukon 5, % Northwest Territories 6, % Nunavut 4, % English 92.5% French 7.5% British Columbia 539, % Alberta 388, % Saskatchewan 35, % Edmonton Manitoba 64, % Quebec 237, % Newfoundland and Labrador 13, % Legend Store Location North Vancouver Vancouver Victoria (opened 2006) Board Member Hometown Calgary # of 2005 Members, % of total Canadian members Winnipeg Ontario 699, % Toronto Ottawa Montreal Quebec City New Brunswick 17, % Halifax Nova Scotia 51, % Prince Edward Island 3, % MEC S ECONOMIC CONTRIBUTION Our economic impact stretches beyond the story told on our balance sheet (see page 11). We employ more than 1,100 people in our Head Office, Service Centre, Distribution Centre, and stores across Canada. Members, who buy MEC clothing and gear, participate in outdoor recreational activities which contribute to the Canadian economy through related activity such as travel expenditures. Many of our stores have become magnets for complementary retail activity in their neighbourhoods. In the majority of our locations, we have drawn outdoor retail competitors, coffee shops, and travel agencies to the surrounding areas. Our supply chain expenditures alone reach 52 countries and many lives (we go into more detail in the chapter on Manufacturing MEC-brand Products). However, according to Statistics Canada data, MEC represents only.05% of total retail sales in Canada, or 2% of the sports and leisure retail sales sector. 4 We sometimes have to remind ourselves that we are a retailer we face the same seasonal sales cycles, the same pressures on costs, and the same challenges in finding great employees as our retail peers. Global economic forces, demographic shifts, industry trends, and environmental issues also affect our business. For us, each of these is connected to the way we view sustainability. 1 pastrecipients.asp /BNStory/specialROBmagazine/home/?pageRequested= www40.statcan.ca/l01/cst01/trad15a.htm?sdi=retail%20trade MEC Accountability Report 2005

12 Global economic forces We work in a global context. Manufacturing capacity in Canada has been in steady decline over the past decade as jobs, new technologies, equipment, and raw materials have shifted overseas. In 2005, a significant shift in the apparel industry took place the phase-out of the Multi Fibre Agreement (MFA). Back in 1974, the United States, Europe, and Canada adopted the MFA and imposed import quotas to protect their domestic industries. Quotas limited the amount of textiles and apparel that could be imported into these countries and helped globally diversify the industry. The phase-out has removed the quotas and enabled countries with large-scale capacity, such as China and India, to maximize production at the cost of smaller countries and the North American industry. MEC is not immune to these global shifts. In 2001, 60% of MEC-brand products were made in Canada. 1 In 2005, that figure was reduced to 43%. As a case in point, 2005 saw the closure of MEC s only wholly owned manufacturing facility. This Burnaby, BC-based facility, which manufactured outdoor gear under the Serratus brand, had been operated by MEC since the early 1980s. After years of declining sales of the Serratus brand, MEC s Board of Directors decided to close Serratus and discontinue using members funds to subsidize the operation. At the time of its closing in early 2005, Serratus had 28 employees, all of whom received severance packages and support to transition from their roles at Serratus. The decision to close Serratus was a difficult one. Nonetheless, we remain committed to sourcing products made in Canada. Page 17 goes into greater detail on how our Made in Canada Policy guides sourcing decisions. Demographic shifts Our members represent three generations: youth who are getting into outdoors sports, middle-aged adults faced with competing pressures on their recreational habits, and aging members who are finding more time to recreate, but not always in the same way they did 20 years ago. Some members are spending their recreational time on day hikes, and some members are cranking some of the hardest climbs out there. MEC has to be positioned to respond to a wider range of activities and attitudes. Like Canadians in general, our members are concentrated in urban centres. Our product managers work hard to find the thread that connects our members a passion for the outdoors. The very face of Canada is changing. In 2001, 18% of Canadians were immigrants, a higher share than any other OECD country except Australia and Switzerland. 2 Moving forward, Canada s immigrant population is expected to grow. A key challenge in MEC s future will be igniting a passion for the outdoors in new Canadians. Industry trends Research by the Outdoor Industry Association (and our sales data) is showing a steady decline in multi-day backcountry trips like alpine climbing and ski touring, and a steady increase of short, front-country or near-urban endeavours such as trail running and bouldering. How our members recreate is changing, and MEC has to continue to meet their needs. MEC is also faced with trends showing a decline in activity levels in youth. We feel there is a role MEC can play to ensure our youth are exposed to the outdoors and healthy active lifestyles. Environmental issues For our business, issues like climate change and conservation have direct links. We are both impacted by and contribute to these issues. Climate change is creating extreme weather events, as well as unstable snow packs and lower river flows, affecting the nature of outdoor recreation. Resource development and user impacts are threatening the very spaces we encourage members to access. This motivates us to encourage our members to be stewards and responsible users of the outdoors. It also affects our members ability to use our gear to get outside. These are issues we need to respond to within our own operations (and we begin to address them in the chapters that follow) but we also need to watch their impact on our industry. THE WAY AHEAD Realize 2% same-store growth over Ensure all stores contribute to MEC s financial health (that is, no store will be subsidized). Distribute $2 million in share redemptions in Develop a mechanism to measure whether we are meeting our core purpose of supporting members to achieve the benefits of self-propelled wilderness recreation MEC Sourcing Fact Sheet. 2 Comparative profile based on the 2001 Census of Canada, prepared by Strategic Research and Statistics in collaboration with Informetrica Limited, April MEC and the co-operative structure

13 FINANCIAL OVERVIEW 2005 To review our audited 2005 financial statements, please visit What we were worth at year-end (in thousands of dollars) What we owned Cash... 25,238 Gear and other products to be sold... 43,999 Buildings and equipment to run our operations... 37,587 Where a member s dollar goes Total ,824 What we owed Money we owed suppliers, staff, etc (17,649) Gift certificates that hadn t yet been redeemed... (4,263) Total... (21,912) Members investment in MEC Members shares... 85,071 Deficit... (159) Total... 84,912 What we sold, spent, and saved (in thousands of dollars) Cost of gear 65.8 Salaries and benefits 14.8 Supplies and services 5.1 Occupancy and depreciation 6.4 Community contributions 2.1 Patronage return 5.6 Surplus 0.2 Our income We sold gear and provided services to our members (and earned other income) ,408 Our expenses We paid suppliers for gear and related costs... (129,873) We paid staff salaries and benefits... (29,273) We bought supplies and services and paid taxes... (10,000) We made a contribution to our Endowment Fund... (3,000) We gave grants to community groups that support conservation, access, and environmental education... (1,230) We paid for use and operation of buildings to work in... (7,819) We made an allowance for depreciation of buildings and equipment... (4,846) Our surplus What was left... 11,367 We reinvested most of the surplus in members share accounts... (11,000) Our net surplus for the year We started the year with a deficit... (526) We used our 2005 net surplus to reduce our deficit... (159) 1 Other amounts included capital lease, deferred lease inducements, and allowances for future income taxes.

14 product design Sell outdoor gear. When it comes down to it, that s what we do. From our MEC-brand products, to gear from independent vendors, everything in our stores has been selected by our product managers. Folks who work hard to ensure that what we sell meets the needs of our members. We place a premium on quality, value, and durability. In other words, we try very hard to ensure that every product we sell is built to last. We believe creating and selling durable, long-lasting products is a critical first step towards sustainability.

15 THE mec design charter Our MEC Design Charter provides the foundation for building innovative, functional, and durable MEC-brand products. It ensures our products are designed with the following principles in mind: Accountable Design is the first step to building our members trust. Quality MEC s brand promise is first and foremost one of quality and integrity. Quality is designed into every product. Inspiration The goal behind an MEC product is to inspire the user and enhance their experience. Progressive MEC s product design meets the functional requirements of our current and future members through the use of appropriate resources and technology. Simple MEC design is functional and intuitive in both line and form. Responsible MEC designs incorporate social and environmental responsibility as an inherent part of our conceptual thinking. Dynamic MEC design responds to the evolution of our membership. Product Selection Policy Our Board-level Product Selection Policy ensures MEC will not design or buy products specifically for: motorized activities activities that have an unacceptable impact on the environment 1 activities intended to kill or harm animals IMPACTS OF OUR PRODUCTS From an environmental perspective, the gear we sell represents our greatest challenge. The majority of our products consist of derivatives of the petrochemical industry, complex polymers, and chemical treatments and finishings. The scale of complexity we grapple with is daunting. Our early efforts to address these issues focused on more sustainable materials such as organic cotton and recycled polyester. Many of the initial wins at MEC, such as our transition to 100% organic cotton, were driven by individual staff members inspired by our mission. This report marks our first effort to measure organic cotton and recycled polyester, and will serve as a first baseline from which to measure future efforts. In 2005, we were one of the top 25 global buyers of organic cotton fibre, 2 but only used 4% recycled polyester in our products (a number we will be increasing in future years). MEC use of sustainable materials: 2005 Baseline Amount of organic cotton (raw material) used to make products (MEC-brand vendors) Amount of chemicals avoided by MEC s use of organic cotton Percentage of recycled polyester used in MEC-brand apparel 129,300kg 42,600kg 3 More recently, we have begun to identify materials we deem to be hazardous to the planet or our members (such as polyvinyl chloride, or PVC) and are working to eliminate them from MEC-brand products. To date, we have lacked a cohesive, long-term strategy to reduce the environmental footprint of our products. Elements of such a strategy, which will be developed in , will include: Identifying the substances in our products that could be harmful to human health or the environment and/or may be listed as Restricted Substances (i.e., substances that are limited by legislation in consumer goods). Prioritizing critical substances we will seek to eliminate from MEC-brand products. Seeking opportunities to pursue best practice in maximizing eco-efficiency (minimizing waste, pollution, and 4% natural resource depletion) and eco-effectiveness (designing products and processes so they do not generate toxic pollution and waste in the first place) in our raw material supply chain. 1 Unacceptable impact on the environment is undefined in the Policy but will be in the future. 2 Organic Exchange estimates ( 3 Based on the Organic Exchange estimate of one-third of a pound of chemicals avoided for every pound of organic cotton used. MEC Accountability Report

16 FROM THEORY TO ACTION Our Buying and Design team began 2005 with the arrival of individual copies of Cradle to Cradle (William McDonough and Michael Braungart, North Point Press), a sustainable product design manifesto. It was their holiday gift from the Senior Manager of the Buying Department, and a telling start to the year. In early 2005, they also had a training session on the basics of product sustainability. A key decision in 2005 was the creation of a Materials Development and Sourcing Manager position. That position embeds accountability for product sustainability within the Buying and Design Department. The new role, which was filled in 2006, includes responsibility for researching, identifying, and in some cases, developing materials with reduced environmental footprints. In addition, we forged a new relationship with the University of British Columbia s School of Chemistry to found a fellowship in Green Chemistry with a focus on sustainability. We are exploring opportunities with other brands to collaborate on reducing the impact of our raw material supply chain. Because of the relatively small size of MEC, these collaborations with community partners and business peers enable us to better drive change. As a tiny player in global production, MEC needs to be strategic about where we allocate our resources. Our efforts are best focused on the MEC brand, where we ve determined we have most control, and on textiles, which the majority of our products are made of. We have made measurable strides in the past decade that will serve to benchmark future efforts. However, we have not been able to measure all of the impacts our products have on the environment. We are missing product level information on greenhouse gas emissions, chemical composition, and waste and water footprint. THE WAY AHEAD Create a 5-year Product Sustainability Strategy and work plan based on our capacity, impacts, and ability to control and influence change. A key challenge is getting from policy to strategy to the dayto-day reality of making decisions. It takes 18 months for an MEC-brand product to go from initial design to arrival in our stores. In many cases, we commit to fabrics up to two years in advance. The research to develop a more environmentally benign fabric or process can take much longer. It is frustrating to not get the product to our members sooner, but ideas must be worked through the design and production cycles. 14 Product design

17 IN SEARCH OF A PVC-FREE PFD In 2005, our Watersports Buyer, Mark Kelly, was given a challenge: get polyvinyl chloride (PVC) out of MEC drybags and personal flotation devices (PFDs, or life jackets). PVC (also known as vinyl) is a common compound found in thousands of products. There is a growing concern about environmental and health risks created by PVC. During its manufacture, PVC produces carcinogens and toxins including dioxins, chlorine residue, and heavy metal pollutants. Over their lifespan, PVC products can off-gas and leak dangerous additives. PVC is difficult to recycle; most of it ends up in landfills. When burned, it releases more dioxins and gases, such as hydrogen chloride, into the environment. Mark s challenge was to find a substitute that had (at a minimum) the performance features of PVC, without the environmental impacts, at a cost that wasn t prohibitive to members. After great perseverance, he found substitute materials for both our drybags and PFDs. The new materials have the look, feel, and function of PVC without the environmental nastiness. Our Brooks Drybag is made of a thermoplastic elastomer, causing no dioxin or heavy metal pollution, and releasing no chlorine-based chemicals during the product s lifespan. And our PFDs are now made of cross-linked polyethylene (PE) foam. Here s the cool bit in our efforts to find a more environmentally benign alternative, we have actually improved the performance aspects of the PFD. The foam is lighter, more buoyant, and ages better. Best of all, manufacturing it doesn t require the same problematic chemicals as PVC, produces no dioxins if burnt, and is much easier to recycle. The new foam also enabled our designer to create a form-fitting curve in the PFD, resulting in a better fit. We ve made a better product for our members and a better product for the planet. As the first PFD manufacturer using PE foam, we invested considerable time and money to get it approved for use. The foam meets all UL and ULC testing standards, and exceeds many of them. We think the benefits are such a good thing that we re making the PE foam available to any other manufacturer who wants to use it. Mark backed up by samples of MEC s new PFDs.

18 MANUFACTURING MEC-BRAND PRODUCTS Our goal is to provide durable, high-quality gear in a way that respects the environment, as well as the health, safety, and dignity of the workers who make our products. We select factories that work to be role models of responsible business and labour practices and we believe that supporting good practices at a factory level is part of a broader human rights solution.

19 WHERE OUR GEAR IS MADE We manufacture the majority of our apparel in Canada, but the capacity to build technical products (hard goods) exists almost exclusively in Asia. waypoint MEC-brand apparel Canada 67.6% Asia 29.7% Oceania 2.2% Europe 0.5% OUR MADE IN CANADA POLICY As part of our Sourcing Policy, we make Canadian factories a priority, providing all other factory conditions are equal. With apparel and hard goods combined, factories in Canada manufacture about 43% of MEC-brand products. Factories in Vietnam and China (including Hong Kong and Taiwan) manufacture 23% and 25%, respectively. The other brands we carry are manufactured in over 600 factories in 49 countries. Of all our products sold, American factories supply 17% of these products, factories in China (including Hong Kong and Taiwan) provide 26%, and Canadian ones supply just over 27%. HOW WE MONITOR OUR FACTORIES: THE MEC SUPPLIER TEAM EVALUATION PROCESS (STEP) STEP is our program of assessing factory compliance. It has been in place since 2000, and continues to evolve to meet best practices. All contract factories that build MEC-brand products are required to sign our Vendor Code of Conduct, which covers worker and human rights, and health and safety. We expect our vendors of non-brand product to adhere to our Code of Conduct, but, because we don t directly audit their factories, we have minimal influence to enforce this. (In 2008, we will start auditing non- MEC-brand factories.) MEC-brand hard goods (tents, sleeping bags, packs) Canada 2.5% Asia 96% Europe 1% USA 0.5% We audit all our contract factories for compliance with our Code. Every factory is audited at least once over a two-year period. Our audits address human rights conduct and basic health and safety issues, but to date have not extended to environmental In 2005, MEC developed a Sourcing Matrix to support our Made in Canada commitment. The tool enables us to be systematic and consistent in determining whether a product can be made in Canada. More importantly, it helps us identify the product categories that have a greater chance of success of remaining made in Canada, and allows us to focus our efforts accordingly. Factories are assessed on four criteria: Technology/ Quality (can they produce to our quality specifications), Price (will the price remain within a reasonable range for member/market acceptance), Logistics (can they produce to the volume and timeline targets we set) and, of course, STEP (do they meet our Code of Conduct). In practice, these are complex decisions, with constantly shifting variables (such as whether we find a domestic source for a fabric). A case in point is our rainwear program, which is manufactured in a Canadian factory. When it was assessed using the Matrix, we considered moving production offshore. Our members were telling us our existing program was too expensive already, and the fabric was also coming from Asia. However, other variables were brought into the analysis. That Canadian factory produces two other programs for us, and shifting rainwear may have jeopardized their ability to produce and deliver on those. Therefore, the decision was made to commit to the Made in Canada option until at least Note: we are currently researching and documenting human rights and corruption records of countries to provide our sourcing teams with an additional resource to guide sourcing decisions. MEC Accountability Report

20 issues such as waste, energy, and chemical handling. In 2008 we will look to develop an environmental audit program to complement our human rights program. In a typical audit, the STEP team conducts interviews with factory managers, reviews documentation, and completes a 30-page evaluation survey, which contains over 200 questions covering employee health and safety, employment practices, and environmental records. The process includes a full day of in-house observation, and a review and analysis of the factory s administrative documents, but historically, has not included worker interviews. When it is done, the factory receives a detailed remediation report. For many of the infractions, such as Health and Safety violations, our follow-up action plans reap swift hard questions results. If factory management is We encourage our members unable or unwilling to make improvements, our final resort is termination to ask hard questions of MEC, and other businesses: of the relationship. Severing a relationship with a factory is a last-resort Do you have a Code of decision. We believe more can be Conduct to protect worker achieved by working with suppliers. rights in your supply chain? However, in 2005, we severed How do you ensure your relations with two factories. suppliers are upholding your In 2004, we joined the Fair Labor Code of Conduct? Association (FLA), a non-profit organization combining the efforts of industry, civil society organizations, colleges, and universities to protect workers rights and improve working conditions by promoting adherence to international labor standards. The FLA conducts independent monitoring and verification to ensure the FLA s Workplace Standards are upheld where FLA company products are produced. Through public reporting, the FLA provides consumers and shareholders with credible information to make responsible buying decisions. 1 Our external audits are now being performed using FLA-accredited monitors. Comparison of our STEP results with the FLA audits highlighted some ways we could improve our audit process, such as including worker interviews to improve our chances of uncovering human rights abuses. In late 2005, we hired our first Ethical Sourcing Manager, who reports directly to the CEO. After undertaking a thorough review of our monitoring program, he suspected that code violations were being under-reported using our current audit approach. (The audit findings in the next section need to be read with this in mind.) In 2006 and beyond, we will be shifting our focus from internal audits to independent monitoring. Other improvements to our monitoring program will include: Independent worker interviews. Enhanced data management systems, making it easier to manage audit results and track improvement. A new factory rating system to summarize the results of audits into an overall score, which will improve our leverage with underperforming factories and enable us to reward the best. Environmental factors are at play in manufacturing facilities (energy efficiency, handling of chemicals, waste and recycling, etc.). However, we are unable to address all of these factors at this time, and believe the environmental impacts of manufacturing raw materials are of greatest significance. As such, we are focusing our environmental program efforts on textile mills, and our ethical sourcing program on worker and human rights in manufacturing facilities. WHAT ARE WE FINDING IN OUR FACTORIES? In 2005, we audited 27 factories that manufacture MEC-brand products. Six were new factories under consideration. The other 21 were active suppliers, or 33% of our MEC-brand supplier base. Collectively, these 21 factories produced 42% of our MEC products. Altogether, we detected 218 code infractions among the 27 factories, with an average of 8 infractions per facility. The industry average is 17 infractions per facility (based on the FLA s independent monitoring results of 954 factories in 2004). 2 In keeping with industry findings, 3 MEC s most frequent violations were unsafe working conditions (health and safety infractions), excessive overtime, and inadequate wages and benefits. FACTORY AUDITS: UNDERSTANDING AND ADDRESSING ROOT CAUSES Some issues, such as excessive hours of work and gender discrim-- ination, have proven to be stubborn and industry wide. For this reason, we need to go beyond monitoring individual factories to understand the forces affecting our supply chain. We also need to extend our influence through collaborative action. This root cause approach will be another thrust of our sourcing program for 2006 onwards Ibid. 18 Manufacturing MEC-brand products

21 2005 NON-COMPLIANCE INCIDENTS: SUMMARY Factories (Number audited) China (11) India (2) Thailand (4) Vietnam (3) Canada (4) New Zealand (3) Total incidents General Forced labour Child labour Juvenile workers Harassment & abuse Discrimination Health & safety Freedom of association Wages & benefits Other Total General principle Adherence to local laws (appropriate business licenses and permits), not obstructing an audit, and visible implementation of the MEC Supplier Code of Conduct. Few reported infractions (34). Factories in China had the largest concentration within this category. All factories did not appear to fully understand our Code obligations. Forced labour Workers choose to work as opposed to working under implicit duress or explicit threats; workers are free to leave work sites and dormitories during off hours. We detected two incidents in which workers could not leave the factory premises (dormitories) during off hours without the authorization of management. Child labour Workers of non-legal age, inadequate proof of age. No confirmed incidents of child labour were found. However, worker records were often inadequate in terms of verifying age and other requirements. All five incidents were found in factories in China. We have instructed these parties to better manage their documentation systems. Juvenile workers Respecting laws that protect juvenile workers from possibly hazardous work. Our audits detected 10 incidents in which factories exposed juvenile workers to equipment and chemicals that could harm them. Harassment & abuse Workers are not subjected to any form of physical, emotional, verbal, or sexual abuse or harassment. We found no incidents in this category. This is an anomaly, which leads us to believe that our methodology is not accurately probing this area. We expect that our move to the FLA methodology should resolve this. Discrimination Workers are not discriminated against because of their race, gender, beliefs, marital, or parental status. Incidents against this standard were minimal at just over 1% of all infractions (or 3 occurrences). Health & safety/working conditions Workers are not exposed to a harmful or dangerous work environment. Inadequate protective coverings on machinery or chemicals, lack of protective gear such as gloves and masks, and poorly equipped first aid stations were common infractions found in nearly all factories. This provision had the highest rate of incidents at 119 of all infractions. Freedom of association Workers are free to organize. We found one incident in which workers were discouraged and or prevented from organizing. We suspect infractions of this provision are actually higher than reported. Wages & benefits Workers are remunerated according to local laws and agreed-upon terms. Excessive overtime, inaccurate payroll and benefit systems, poor documentation, and non-payment of full wages and benefits were found in most factories, making this the second highest abuse with 42 incidents. Other Work is not outsourced to homeworkers or unauthorized subcontractors, formal grievance systems are in place, and workers are informed of their rights. Our audits found two incidents. Subcontracting is a predominant concern as is the absence of formal systems to resolve worker grievances.

22 waypoint WHY DO YOU FIND MADE IN CHINA LABELS ON MEC-BRAND PRODUCTS? Regardless of our ethical sourcing efforts over the past six years, we still receive one question from members: why does MEC source from China? Sourcing offshore, and specifically in China, has been a tough issue for us and our members. Our starting point, of course, is a commitment to provide the best quality gear, at a reasonable price, made by a factory that meets our standards for ethical sourcing. In 2004, we explored this issue through member focus groups. Members were presented with scenarios of Made in Canada vs. Made in China products. Both met our ethical sourcing standards -- but reflected different price points. The Made in China product was approximately 30% cheaper. Overwhelmingly, members voted with their dollar, and chose the less expensive Made in China product. Offshore sourcing is controversial. One position advocates boycotting countries with totalitarian regimes and scant regard for human rights. The best way to address this, according to such a view, is to not do business there, which economically punishes the belligerent state and loosens its oppressive grasp. A second position encourages a buycott, as opposed to a boycott. This approach aims to drive change through supply chain practices rather than by isolating nations. It is an approach advocated by many civil society groups to ensure workers are supported and not abandoned. Not surprisingly, both positions can be found among our members and staff. As Chinese factories have emerged as key players in the realm of technical sewing and manufacturing of outdoor products, we believe that meeting member needs requires adopting the buycott approach. We are committed to trying to drive change through our sourcing practices. Our buycott approach has recently shown success in northern China. After denying production orders to a Chinese factory due to major violations found during the audit, we told them they needed to make critical decisions about the kind of business they wanted to be. We reminded them that irrespective of whether or not laws are policed, there is an ethical requirement to fully understand laws and comply with them. We were clear that we would not close the door if they were willing to implement changes. With a corrective action plan in hand, the factory ownership considered the potential business (with MEC and other brands) important enough that they immediately moved into a full-scale improvement plan of their operations, which included control of working hours, payment of wages, work area and equipment safety, and working condition improvements. A follow-up audit was requested by the factory. The factory had made significant progress but had still not appropriately corrected the wages. We remained consistent with our message that they needed to fully comply. The next day, the factory responded with a written commitment. MEC granted them a future order placement provided wages were fully corrected before that order could be produced. They remediated the issue as promised and are now producing for MEC. There is still much to be done with this factory and ongoing work is needed to ensure the change is sustained. However, what s most important is that this factory has indicated, in action and attitude, their willingness to change. As a result, our members get great product that s fairly manufactured, workers lives are improved, and the factory is able to show leadership in this region. We are hopeful that these types of small changes enable growth and success for the factory s overall business, and better the lives of workers who make our products. 20 Manufacturing MEC-brand products

23 There are many causes of labour rights violations, and they are complex and wide-ranging: Global economic forces Examples include poverty or the elimination of the Multi Fibre Agreement (see the first chapter). Weak implementation of local laws Many countries have strong worker rights protections on the books, but weak or non-existent enforcement. Industry trends The seasonality of retail and consumer demand places cyclical pressure on factories, creating pressure for more overtime hours and other violations of worker rights. Retail purchasing decisions Our buying decisions (e.g., increasing the order volume close to the delivery date) can affect a factory s ability to produce on time without increasing hours. Factory management For some factories, weak planning and procedures have led to unsafe working conditions or improper pay and benefits. For others, infractions are not the result of technical inadequacy but of will. For this minority, workers rights are not a priority. Clearly, many companies, including MEC, have a role to play in addressing the root causes of labour rights violations. We are looking to collaborate with other brands to drive change. We are also looking at our own operations to identify opportunities to mitigate the impacts our actions may have on worker rights. With our new Ethical Sourcing Manager in place, we are ready to engage on these issues. We will engage in a collaborative effort with other brands and civil society groups in a project/initiative in China aiming to improve worker rights. By 2007 we will have a strategy in place to move forward on this collaborative effort. MEC S FIRST TRANSPARENCY REPORT CARD In 2005, MEC tied for 4th place in the inaugural Ethical Trading Action Group s (ETAG s) Transparency Report Card. MEC was at the top of the list of Canadian retailers, but behind US peers such as Levi s, Nike, and the Gap (ranked #1, 2, and 3 respectively). The report highlighted gaps in our program, including a lack of transparency. ETAG looked at publicly available documents and determined five key gaps. Here is how we have addressed them: 1. A lack of clear Board oversight for strategic issues relating to ethical sourcing. Our Board of Directors has revised its committee structure (effective April 2006) to expand the scope and responsibility of the Community Involvement Committee to include strategic oversight of the risks and opportunities relating to MEC s sustainability efforts. These include product sustainability, ethical sourcing, community involvement, and green operations. 2. No mention of living wage in our Code of Conduct. Our Code of Conduct is based on the ILO core worker standards and the FLA s Code, neither of which include living wage provisions. We will continue to look to the ILO and FLA for direction on this issue, with particular focus on how to calculate regionally relevant living wages. 3. No evidence of stakeholder engagement. In 2005, MEC actively participated in the development of a common code and audit program for outdoor retailers, through the Outdoor Industry Association. In addition, we sponsored a Canadian Business for Social Responsibility Retail Learning Circle, to bring Canadian retailers and the NGO community together. In 2005 MEC s CEO was the presenter of ETAG s Ethical Sourcing Forum. We believe stakeholder consultation is a critical component of a strong ethical sourcing program; the more we connect with those in this field, the more we learn. We also recognize the need to improve our consultation efforts with stakeholders in our countries of manufacture. 4. Lack of training for buyers and/factory managers in our supply chain. In 2007, we will deliver an internal training program for all production, buying, and design staff, in addition to staff responsible for auditing. 5. Public disclosure of the location of our factories. Nike set the stage in 2005 with full disclosure of their factory locations, and we applaud them. We have been reluctant to reveal locations to our stakeholders, because we haven t wanted to disclose some of our smaller, longtime strategic suppliers to our competitors. However, we recognize the value in disclosure as a driver for collaboration and transparency. We will work with MECbrand product suppliers to inform them of our intention to disclose factory locations by the end of THE WAY AHEAD Develop a Human Rights and Corruption Index to assess countries where we do or may do business. Disclose factory locations in Complete factory audit cycle for all major MEC-brand suppliers by Develop a rating system to summarize overall factory compliance with our Code of Conduct. In 2007, conduct an internal training program for all production, buying, and design staff, in addition to those responsible for auditing. MEC Accountability Report

24 greening our operations The hard reality is that every aspect of our business has a negative impact on the environment. As a company that sells outdoor gear, our success is inextricably linked to a healthy and robust natural environment. We are constantly searching for ways to reduce the ecological footprint of our operations. From the development of a comprehensive green building program to the implementation of a progressive Energy Management Plan our goal is very simple: minimize the impact MEC has on people and our planet.

25 OUR ENERGY MASTER PLAN (EMP) Our goal is to reduce our energy consumption, maximize green and renewable energy sources, and minimize emissions. Our EMP provides a structure for systematically encouraging and enabling environmentally sound energy management decisions and practices. The long-term goals included in our EMP are: 1. Continuous improvement in energy conservation, energy efficiency, and energy intensity (e.g., eco-efficiency, or maximizing units of useful output per unit of energy input). 2. Use of green and renewable energy resources (e.g., solar, wind, mini-hydroelectricity, sustainable biomass, ground- or water-source heat pumps). 3. Reduction in greenhouse gases and other harmful emissions, eventually achieving a zero net emissions rate. 4. Setting an example of responsible energy management and providing leadership and positive influence to our members, suppliers, and other organizations. CALCULATING OUR FACILITIES EMISSIONS For the past five years, MEC has worked with the Pembina Institute to calculate the greenhouse gas inventory for our facilities emissions. The Pembina methodology for calculating GHG emissions is based on Natural Resources Canada s Voluntary Challenge Registry GHG Protocol, which allows us to measure the impacts of our stores based on the actual energy mix of their region. For example, a store in Manitoba will realize fewer emissions than a store in Alberta. This is because Manitoba predominantly utilizes hydro and Alberta uses coal (which emits more GHG emissions). In 2005, our annual energy consumption increased by 1.5% (due to the new North Vancouver store), while our actual GHG emissions decreased by 52%. Energy consumption vs. GHG emissions GJ Tonnes CO 2 e 40,000 3, % 30,000 2,000 20,000 52% 1,000 10, The 52% reduction was due to our decision to procure 100% wind power for our two Alberta stores. Those two stores represent 15% of our facilities and 23% of our overall electricity consumption. However, due to Alberta s coal-generated electricity, those two stores produced 56% of our GHG emissions. GHG emissions by energy type Tonnes CO 2 e 1,500 1, Overall, our total direct energy consumption for facilities was 32,399GJ, resulting in GHG emissions of 1,184 CO 2 e tonnes, compared to 2,294 CO 2 e tonnes in Electricity Natural gas Oil MEC Energy Use Direct Indirect Buildings Transportation Space heating (currently via electricity, oil, or gas) Electricity for lighting, ventilation, computers, cash registers, and other equipment Shipping goods from manufacturer to warehouse to store Shipping goods from warehouse to members Staff and Board of Directors travel Energy generation, transmission, and distribution Manufacturing and shipping of building supplies Member travel to and from stores Supplier transportation Member travel to outdoor recreation sites Products Manufacturing of products Disposal of products by members Processing of raw materials used in our products Raw material extraction MEC Accountability Report

26 We procured wind power to offset direct emissions in Alberta through the purchase of Renewable Energy Certificates (RECs). RECs represent a certified reduction in GHG emissions because they ensure power from wind, instead of coal or natural gas, is put on the electricity grid. waypoint We are continuing to invest in green power or other offsets, based on the actual GHG footprint of our locations. As shown in the chart below, our Halifax and Toronto stores are our next priorities. The Halifax store currently uses heating oil, but we re in the process of transitioning to 100% biodiesel fuel. We expect to show a reduction in emissions when we measure again. THE WAY AHEAD Energy consumption Conventional hydro 50.2% Natural gas 34.7% Wind 12.4% Oil 2.7% being carbon neutral At MEC we are taking a measured approach to becoming what many refer to as being Carbon Neutral (a strategy that ensures you have reduced or offset 100% of your carbon or GHG emissions footprint). We recognize the importance of Carbon Neutrality and we support it. We have yet to make a formal commitment to be climate neutral by a certain date. Instead our priority is the early adoption of new technologies that support the emerging green building sector. We believe we can show leadership in Canada by investing our limited resources in green building and energy conservation technologies and helping bring new technologies to market. In the short term we commit to: Reducing MEC s GHG emissions by 15% in Ensuring all new MEC facilities will meet LEED Certification (previously known as Bronze) or an equivalent standard. Absolute emissions and GHG intensity 1 by facility Tonnes CO 2 e Tonnes CO 2 e/1000sq.ft Calgary Edmonton N. Vancouver Vancouver Winnipeg Halifax Ottawa Toronto Montreal 24 Greening our operations

27 our green BUILDING program In the early 1990s, our Board of Directors approved a policy to phase out ozone-depleting substances from our heating and cooling systems. This policy quickly evolved into one of Canada s most comprehensive green building programs. Green building is an attempt to mitigate environmental degradation by designing and siting structures that are sensitive to and (ideally) enhance their environment, while maximizing efficiency in energy, water, and materials. The foundation of our Green Building Program is based on four principles: 1. Reduce -- Avoid using unnecessary materials. 2. Reuse -- Incorporate existing materials. 3. Recycle -- Incorporate existing materials in new ways. 4. Rethink -- Look for new and better building solutions. Three of our facilities are third party certified green buildings. Our Winnipeg, Ottawa, and Montreal stores comply with the C2000, Natural Resources Canada s Advanced Commercial Buildings Program, whose principal objective is a 50% reduction in energy use. Winnipeg also received a Leadership in Energy and Environmental Design (LEED) Gold rating. We have collaborated with the Canadian Green Building Council and Natural Resources Canada to ensure our buildings continually reflect our commitment to the environment. Our stores also adhere to a green cleaning program, ensuring the use of environmentally responsible cleaners and processes. zero WASTE In natural systems, waste does not exist. Take a forest, for example. All waste materials are recycled back into the natural system. We asked ourselves: is this possible in a world of manufactured products and global trade? Could the concept of zero waste serve as a long-term goal achievable through a systematic and incremental approach? And could it be a prompt for continuous improvement, innovation, and creativity? We think so. While we are just beginning efforts to optimize resources in our supply chain, we ve been working on the waste streams generated by our operations for over five years. Our buyers have been working on our product packaging to ensure it minimizes material use and is consistent with the recycling programs at our stores, while ensuring our products arrive undamaged. Measuring and improving our transport and product packaging is an area earmarked for future efforts. A key component of our strategy is examining what makes up the waste stream in our day-to-day operations. There are two ways we measure this: waypoint WINNIPEG STORE A SECOND LIFE FOR AN OLD BUILDING When we built our Winnipeg store, our goal was to build green, design green, and implement systems that reduce waste and energy consumption wherever possible. Three large masonry and timber structures existed on the building site, so retaining and reusing these were important principles in developing the new store. The largest building was retained and repaired with existing materials. The other two buildings were carefully dismantled so that 75% of the old building materials could be recycled. In fact, almost everything structural in the new building is made of reclaimed materials a brick and wood floor, joists, exterior masonry, and cast iron columns and steel beams. Our Dumpster Dive Once a year, at every store, we literally climb into our garbage dumpsters to look at our solid waste generation. We examine the garbage, recycling, composting, and re-use systems to ensure staff are using systems well and contamination isn t occurring (such as putting recyclables in the garbage can). Calculating diversion rates (aka recycling) Every year we contact our hauling companies to estimate the volumes of waste and recyclables hauled, as well as the costs per tonne. 1 GHG Intensity Definition: GHG emission intensity is calculated to normalize absolute emissions against square footage and sales so we can compare facilities on a common scale. 2 No data available for our Quebec City store. Diversion rate Recycled 83.3% Disposed 16.7%% MEC Accountability Report

28 Our overall average diversion rate (materials diverted to recycling or re-use from landfill) is 83%. This is up 7% from 2004 and 14% from 2000 (we first started measuring our diversion rates in 2000). Based on the performance we ve seen at several facilities, we believe a 90% diversion Who gets the Nickel? rate is possible. The final 10% Our staff identify local environmental groups focused on represents food packaging and multimaterial composites not accepted by urban sustainability issues recycling facilities. and store staff vote on the The one exception to reaching our goal recipient. The group is may be Winnipeg, where the tipping allocated all the nickels for fees at the regional landfill are one of a given period of time. the lowest in Canada, resulting in a lack For example, Éco-quartier of incentive to recycle. The Winnipeg Saint Sulpice (a project store is our only facility in Canada committed to reducing plastic where the costs of recycling are greater shopping bags in Montreal) than the costs of disposal. Regardless, received $3,500. we pay the premium to ensure we have a recycling program in all our stores. We are committed to increasing our diversion rates in our Winnipeg store. In calculating our diversion rates, we also assess the costs of disposal and the cost of recycling (including the revenue we receive from commodities like cardboard). Depending on commodity values in a given year, our recycling programs have always proven to be cost effective. In 2005 our average cost to landfill a tonne was $213, while the average cost to recycle was only $73 per tonne. This resulted in a $90,236 savings to MEC. Shopping bag reduction program In late 2005, MEC launched a new shopping bag strategy. The aim was to reduce the number of shopping bags our members use, and to reduce the impact of the bags themselves. At the point of sale, members have a choice to accept a shopping bag. If they choose not to use a bag, we contribute five cents to a local environmental group. In the last few weeks of 2005, close to 15% of our members took us up on the offer to support local groups. (By mid-2006 that number exceeded 50%). We also promoted sales of our reusable organic cotton bags and introduced the BioBag. This bag, which is currently being phased into our retail stores, is made of a new generation of eco-plastic. (Unfortunately, due to municipal regulations, the Halifax store cannot use the BioBag.) Unlike older biodegradable plastic bags, BioBags are 100% compostable and biodegradable, and will disintegrate in compost in 12 weeks, depending on conditions. They can also be reused. Primarily made from non-gmo corn, BioBags also consist of Novamont resin and fully biodegradable polymers or polylactic acid. Production of BioBags use less energy and produce two-thirds less greenhouse gases than the manufacture of plastic bags. THE WAY AHEAD Achieve a 90% average recycling rate for our facilities by Decrease shopping bag use by 60% in 2006 (over 2005 numbers). PAPER USAGE AND PURCHASING As an early signatory to the Markets Initiative, 1 MEC made a commitment to use ancient forest friendly fibres 2 and to reduce the amount of paper/fibre we use in our day-to-day operations by 30% from Signing on to the Initiative helped us articulate our goals and commitment, but measuring our progress has been more difficult. We don t have a baseline for paper purchasing from 1999 and have not been able to measure with certainty our Ancient Forest Friendly status in this first report. Over the past two years, we ve improved our paper procurement systems. For example, our forms and product fact sheets are now supplied, where possible, by a print-on-demand provider who is better situated to measure and report on annual volumes. This creates a benchmark for 2005 from which we can measure reduction more readily. For this report we have been able to measure the volume and type of paper we ve used for photocopies, catalogues, forms and fact sheets, our election booklet, and continuous form feed paper (used to print inventory reports). This totalled 389,907kg of paper. In the past five years, we have made efforts to increase the recycled content and environmental features of hang tags and product packaging. However, for 2005, we were not able to measure the fibre used in hang tags, product packaging, in-store signage, and general office supplies such as notebooks and sticky notes, etc. Paper use Catalogue 88% Election booklet 1.7% Forms/fact sheets 0.9% Photocopy paper 1.8% Continuous form feed 7.6% 26 Greening our operations

29 Overall, our catalogues, at 88% of our paper usage, represent our greatest consumption of paper fibre, followed by continuous form feed paper (7.6%), then our election booklet, photocopy paper, and forms/fact sheets at less than 2% each. We have been strategic in our efforts to procure paper, focusing our attention on our most significant volume print piece, the catalogue. Traditionally, it has been difficult to source cataloguegrade paper with high recycled content. Our primary goal is to source paper that is either 100% postconsumer recycled content (PCR) and/or Forest Stewardship Council 3 (FSC) certified, depending on the application. Our bottom line goal is to never purchase paper with less than 30% PCR content. FSC certification FSC certified 85% Non-FSC certified 15% waypoint CREATING A BETTER PAPER In 2003, MEC embarked on a two-year collaboration with New Leaf Paper and Domtar to develop a catalogue paper that met MEC s exacting environmental needs. The result, Domtar s EarthCote, was used to print more than 670,000 copies of MEC s 2005 Fall & Winter Catalogue. EarthCote contained 35% post-consumer waste content certified by the FSC as sourced from wellmanaged forests. The EarthCote paper later spawned a complete line of EarthChoice papers. Earthcote is the most environmentally friendly glossy paper made in Canada to date, and MEC and Markets Initiative will continue to work with Domtar to make it Ancient Forest Friendly. Less than 1% of the paper we used in 2005 was 100% virgin fibre, over 4% was 100% recycled (and technically Ancient Forest Friendly), approximately 3% contained less than 30% recycled content, and the remainder (91.4%) contained greater than 30% recycled content. A full 85% of our overall paper purchases in 2005 contained FSC-certified paper. Paper reduction PCR content 30% or greater PCR 91.4% 100% PCR 4.5% Less than 30% PCR 3.5% 0% PCR 0.6% Regarding paper usage itself, continuous form feed paper has dropped 62%, from 1.6 million sheets in 2001 to 600,000 sheets in both 2004 and As a result of a more refined distribution strategy, catalogue paper has also dropped a full 22% from In 2007, we will implement a paper reduction strategy to reduce the volume of photocopy paper we use. SUSTAINABLE PURCHASING AND PROCUREMENT We have yet to develop a comprehensive Sustainable Purchasing Strategy at MEC that outlines formal protocols, policies, and evaluation criteria for green and ethical purchasing of non-inventory items (anything that isn t gear). Developing a formal policy and implementation guide is a goal for Much of our purchasing includes environmental criteria (e.g., office furniture for new stores) but there is no single resource or policy to guide efforts. THE WAY AHEAD 90% of all paper will be FSC-certified by Reduce photocopy paper use by 15% in Print our 2007 catalogue on 40% recycled content paper The Forest Stewardship Council is a non-profit organization that sets internationally recognized standards for environmentally appropriate, socially beneficial, and economically viable forest management practices. MEC Accountability Report

30 transporting OUR PRODUCTS Transporting our products from overseas factories presents unique challenges. The production of GHG emissions resulting from our logistics and transportation efforts is one of the most pressing. One of our key goals for 2006 is a 5% reduction of GHG emissions related to transportation and logistics.

31 the mec/bcit emissions study When measuring logistics and facilities, transporting our products represents close to 80% of our overall emissions (running our facilities produces 20%). The majority of these emissions are produced by truck transport. In 2005, we supported an eight-week project by two British Columbia Institute of Technology (BCIT) final-year students to research best practice in environmentally responsible logistics and green transportation. The BCIT project identified the relative impacts of the various modes of transportation and created a measurement tool by which we could estimate the GHG emissions of our supply chain logistics. To calculate the GHG emissions we produced getting gear into members hands, the students gathered data on both the distance travelled by mode of transport, and the weight and volume of MEC s portion of a given load. They calculated the impacts of getting products from factories and other distributions centres to our Distribution Centre (DC) in Richmond, as well as getting products from Richmond to stores. For this report, we were not able to calculate the emissions from small package courier deliveries, direct-to-member shipments, or local deliveries from vendors in the Vancouver region. In future reports, we will be looking to our vendors to provide better data by which to measure these shipments. As a check on the methodology/calculation developed by the BCIT team to measure our GHG emissions, we also used the World Resources Institute (WRI) Protocol, a third-party GHG emissions calculator. The MEC/BCIT Calculator produced an emissions number that was 21% below the WRI calculator, likely the result of our ability to estimate the weight and volume of the MEC portion of loads (and we usually utilize only part of a container), something the WRI calculator does not do. This year we will report findings using both methods and continue to refine our internal systems to produce more reliable data. GHG transportation emissions Truck 75.7% Sea 12.1% Air 11.2% Train 1.0% In total, MEC emitted an estimated 4,375 to 5,517 tonnes of CO 2 e as the result of getting products into our stores. TRANSPORTATION initiatives Other transportation-based sources of GHGs include employee commuting, corporate travel, and the impact of our members traveling to MEC stores to shop. We have several programs in place to mitigate these impacts, but haven t prioritized measuring them. In the case of corporate travel, we do not yet have the systems to track distance travelled for business purposes by our employees. However, we do have several initiatives in place to reduce the footprint of our transportationrelated impact. Location of facilities We select store sites close to bike routes and transit lines. All our facilities, barring the existing DC, are on public transit routes. The planned re-location of the DC will place it on a major transit route. The one anomaly is our Montreal store, located on the outskirts of the city. The Montreal siting was the result of our difficulty in securing a suitable site in the city proper. The lack of access, by bike in particular, has been frustrating to both staff and members. In response, the Montreal store has begun lobbying local government officials to build better bicycle network access to the area. They have also set up petitions for members to sign in support of the effort. Bike storage facilities and showers for staff To encourage bike commuting for staff, we have showers and secure bike storage facilities. There is also no car parking for employees at our stores. The Commuter Challenge All MEC employees at our Head Office, and at our stores across Canada, participate in Bike Week and the Clean Air Day Commuter Challenge. In 2005, we achieved a 93% participation rate, up from 89% in Bike maintenance clinics for members Many of our stores offer bike maintenance sessions for members. These clinics teach members how to keep their bikes on the road and running smoothly. THE WAY AHEAD Calculating MEC s logistics GHG emissions footprint was a critical first step for our Logistics team. Having a baseline from which to work will enable us to track improvements in our supply chain. Our goals: Reduce GHG emissions of logistics activity by 5% in Track corporate travel and measure employee commuting impacts in MEC Accountability Report

32 STAFF SATISFACTION MEC is unique because our employees hold us to a very high standard especially with regards to our human resources practices and benefits packages. We work hard to meet their expectations. Through a series of employee engagement surveys, we ve learned a lot about what it really means to be a socially responsible and progressive employer. More importantly, we ve learned what s important to the people who work at MEC.

33 MAKING MEC A GREAT PLACE TO WORK MEC s goal is to provide great opportunities for staff who want to stay with us, and great experience (and experiences) for those who are with us en route to other careers. Many of our staff don t consider MEC a retailer, but a place to share a passion for outdoor adventure, and a social and environmental change agent. Staff room chats revolve around what trip they did on the weekend and not what TV show they watched. It is a workplace where they can count on one hand the number of times the CEO has worn a tie. These are some of the things that make MEC a great place to work, but they are also difficult to measure. Even more challenging is maintaining the best aspects of MEC s culture while we grow and develop the sophisticated management systems needed to run a business with revenues in the hundreds of millions. We know our sustainability efforts are integral to creating a positive workplace. In recent employee engagement surveys the measure of corporate citizenship ( I am certain that our business creates something that adds value to our community ) was among the highest scores of any question. Employment status Full-time 41.5% Casual 29.6% Part-time 13.4% Contract 15.5% waypoint responding to the seasonality of retail As a retailer, we are subject to sales fluctuations in summer, the winter holiday season, and in-between seasons. This creates a business landscape that can t be insulated by our co-operative model or sustainability commitments. Of our 1,120 staff, nearly half are part time, contract, and casual. These employees give us the flexibility to respond to the seasonal nature of our industry, manage the sales curves, and ensure we re being financially responsible to our members. When there are fewer hours available, some staff members enjoy the flexibility to plan adventures or return to school or other jobs. For others, the lack of continuity in hours during seasonal lows can be challenging. Typical retail sales activity Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec EMPLOYEE ENGAGEMENT In 2004 and 2005, MEC undertook comprehensive employee engagement surveys with Hewitt Associates, a leading human resources consulting group. 1 Employee engagement is based on three key behaviours: 1. Say Speak positively about the organization to coworkers, potential employees, and customers. 2. Stay Have an intense desire to be a member of the organization. 3. Strive Exert extra effort and dedication to doing the very best job possible to contribute to the organization s business success. Our 2004 engagement score of 48% was unexpectedly low and received significant attention from the senior leadership team. Hewitt Top 50 companies average engagement scores of 80%, The challenge for MEC is navigating the retail reality in a responsible and respectful manner. This includes being clear and upfront with work expectations, and providing relevant benefit programs that include components like Health Care Spending Accounts for casual employees. As a result of this seasonality, turnover rates in retail (the percentage of workforce that leave and are replaced in a given year) are traditionally high. MEC s turnover rates are consistent with Canadian Retail benchmarks. 1 The 2004 Hewitt Engagement Survey, a 123-question survey, was given to every MEC employee to fill out anonymously. The response rate was 65%. In 2005, a follow-up survey with 48 questions was also adminis tered by Hewitt, and received a 69% response rate. The follow-up survey measured changes over the 2004 findings, in response to management action to rectify key issues. MEC Accountability Report

34 Key Hewitt Findings SMT Priorities 1 (% of staff who agreed with these statements) Hewitt Top 50 Year over year trend Hewitt overall engagement score 48% 63% 80% È Corporate citizenship I am certain that our business creates something that adds value to our community. Work-life balance The balance between my work and personal commitments is right for me. People practices Our people practices create a positive work environment for me. Career opportunities My future career opportunities here look good. Performance reviews The performance review process helps me focus my work effort to help MEC achieve its goals. Senior leadership I see strong evidence of effective leadership from the Senior Management Team. 84% 89% 86% È 66% 67% 70% Ë 51% 66% 72% È 25% 28% 64% Ë 38% 44% 68% È 40% 59% 72% È Employee selected measures 2 Uncategorized MEC inspires me to do my best work every day. Inclusivity My co-workers respect my thoughts and feelings. Intrinsic motivation For the most part I look forward to coming to work each day. 42% 54% n/a È 78% 83% n/a È 67% 71% n/a È so we recognized there was a gap between our stated values and practices and how our staff thought we were living up to them. In response to the original 2004 survey, we asked Hewitt to conduct 17 employee focus groups to complement the knowledge gained from the survey. The Senior Management Team (SMT) and Human Resources Department reviewed the results and collectively took action in a number of areas. Outlined below are the key findings and areas prioritized for follow-up action by the SMT. As part of writing this report, we also conducted a Vancouverbased focus group with store staff about the survey. They encouraged us to revisit the original Hewitt survey questions to find a few that better measured the culture or spirit of MEC and why our staff like to work here. In response we added the findings of three Hewitt questions. The group also came up with a new survey question suggestion: have you recreated with a co-worker in the past month? Key findings Four key issues emerged as priority areas for our SMT: career/ development opportunities, people practices, performance reviews, and senior leadership. Outlined below are some of the initiatives we took in response. Career/development opportunities In 2005, we instituted a Tuition/Continuing Education Reimbursement Program, enhanced our Training and Development Program, implemented a New Managers Orientation for new store senior staff, increased funding for training, and sought store input on product training materials. Of the 67 new hires in 2005, 3 69% (or 46) were recruited through existing MEC employees. MEC spent an average of $345 per person for training or professional development, excluding staff time. (The time cost of front-line staff attending training was about $300,000.) However, MEC spent only 62% of the budget allocation for training and development for the year. Our goal is to maximize our training budget in future years. 32 Staff satisfaction

35 People practices In 2005, we launched our Bike and Boat Loan Program, enhanced the HR Policy Manual to ensure privacy for all MEC staff, completed a French version of our HR Policy Manual, upgraded the Maternity Leave Policy to reflect the highest provincial standards in Canada, created a Referral Bonus Program, completed a Health and Safety Assessment, and extended the Employee Assistance Program to casual staff. In 2007, we will also be formalizing our approach to employee volunteerism. All our stores support our employees to work in the community, but the process has never been formalized. Performance reviews To ensure all staff receive timely, relevant, and constructive feedback, we have increased the awareness and profile of performance reviews. We have also increased our senior staff accountability for reviews, and embedded performance management into manager training. We will continue to monitor reviews and support stores with reports that will help them deliver reviews in a more timely fashion. We are also reviewing and updating all management review forms to include staff performance reviews as a key performance measure. Senior leadership In the first quarter of the year, senior management put significant effort into developing a revised Strategic Plan, and travelled across the country to all stores, Head Office, and the Distribution Centre to present that plan. We are also increasing store visits by senior management and product managers, to ensure a better flow of communications between store staff and Head Office. Additional initiatives Feedback also resulted in a review of our RRSP benefits and hourly pay structure, including bonus options. In late 2004, all hourly staff received an additional $0.50/hour pay increase. Learning from our Employee Engagement Survey The Hewitt survey served to identify critical areas that needed improvement, many of which are outlined above. A second survey in late 2005 showed significant employee engagement improvements to overall and specific performance. Most notably, our overall engagement score increased from 48% to 63%. When we next survey in 2007, our goal is to continue to improve our employee engagement and increase our overall Hewitt survey score to 65%-70%. BENEFITS MEC offers a benefits plan that meets or exceeds Canadian retail benchmark standards. In 2005 we averaged 1,120 staff: 41% were full time, 13% part time, 15% contract, and 30% casual. Our full-time and part-time staff receive a complement of benefits that include extended health and dental coverage, life and accident insurance, provincial medical coverage, vision care, an employee and family assistance program (for counselling in times of need), paid care days, employee-matching RRSPs, and tuition assistance/development courses (including support for courses and training in non-work-related fields). In addition, fulltime workers receive long- and short-term disability coverage. In 2005, we placed in the top 50 percentile of Canadian retailers in terms of full- and part-time benefits. 4 Our contract and casual benefits, however, are above industry average. Casual and contract workers have access to the Employee Assistance Program. Full-time contracts (of over one year) receive medical and dental coverage, and casual workers have a Health Care Spending account through which they can earn up to $250 a year towards health-related costs. In addition to these more traditional benefits, all staff members can take advantage of perks such as a generous leave of absence program, a 25% discount at our stores, pro-deals from our vendors, and, based on MEC s success, prosperity bonuses for all staff. Fair Compensation On average, an MEC entry level retail position pays 130% of minimum wage in Canada. A 3rd party company annually reviews our retail wage rates to ensure we re apprised of current market rates. In cities where labour costs are very high, we ve instituted a regional premium of $1/hour above our regular pay scale. The ratio of our CEO s salary (excluding bonuses) to all staff salaries (including executives and CEO) is 11:1. A recent 2004 US-based study pegs the average top executive s salary at a big company at more than 170 times the average worker s earnings. 1 MEC does have an incentive compensation, or bonus program, for managers. The program enables managers to earn 1 Selected based on Senior Management prioritization and employee focus group feedback. 2 Selected based on Vancouver store focus groups reviewing this report. 3 Based on new hire processes managed by Head Office; does not include front-line staff hires that are coordinated by store managers. 4 Mercer Consulting s 2005 Canadian Retailer Compensation and Benefits Benchmark Study of 62 Canadian Retailers. MEC Accountability Report

36 up to 18% of their annual salary 50% of the bonus is based on overall organizational performance, and 50% is based on individual and departmental performance. UNION REPRESENTATION The Canadian Retail Workers Union represents 4% of our staff (all at our Distribution Centre). They have negotiated terms of employment and benefits within a collective agreement. The most recent collective agreement was negotiated in 2004 and has a four-year term. There has never been a formal union grievance filed against MEC. We pursue a collaborative approach with our union representatives and strive to ensure excellent management practices. HEALTH AND SAFETY Every MEC facility has a Health and Safety (H&S) committee that has a mandate to meet monthly. However, seven of the twelve MEC H&S committees only met ten times over the course of Last year, 46% of available care days were used (1.6% of all hours worked were attributed to care days). Twenty-eight workplace injuries were recorded last year, and four time-lost days resulted from injuries sustained at work. We recognize the importance of being proactive in regard to Health and Safety, and our Operations Department has made H&S meetings a priority in We will be working with committees, Human Resources, and store managers to ensure objectives are met. PRIVACY At MEC, we are committed to respecting individual privacy, and recognize our members and employees needs for appropriate protection and management of any personally identifiable information (personal information) provided to and/or shared with MEC. MEC is committed to providing policies consistent with the federal Personal Information Protection and Electronic Document Act (or other provincial or territorial privacy act). These policies cover MEC s access to general information and the protection of personal information about MEC members and employees whose personal information is administered by MEC. TURNOVER Several factors influence our turnover rate, including the competitive employment marketplace, our need for seasonal contracts to address high and low retail periods, and staff taking long-term leaves for trips to advance their education or pursue new careers. Actually, we view some turnover as a good thing. Turnover MEC Industry benchmark 2 Head Office 19.8% 15.1% Stores (Full- and part-time) We have exceptionally talented and well-educated staff in our ranks and support them to pursue their careers and dreams even if that doesn t include a place at MEC in the long term. Many employees come back to MEC, but our management systems count them as terminations and separate re-hires. We re not able to measure the number of staff who leave and return this way, something we ll be looking to rectify in the future. THE WAY AHEAD MEC s reputation is built on the expertise of our employees and their ability to serve our members. We will be working to further ensure MEC is an outstanding place to work. If we want some of the best employees, we recognize we have to be one of the best employers. We will also begin to look at the issue of diversity, to better understand our own staff and an increasingly diverse Canada and MEC membership. Score between 65-70% on overall employee engagement in the next Hewitt survey in September Evaluate the RRSP program, and increase the matching program by 1% in Ensure all H&S Committees meet 12 times a year in Develop MEC s Diversity Policy and better understand employee diversity at MEC. Formalize an Employee Volunteerism Policy and Program in % 64.15% 3 Distribution Centre 12.24% n/a Overall 46.6% 50% 1 New York Times-cited report by Carola Frydman, a doctoral candidate at Harvard University, and Raven E. Saks, an economist at the United States Federal Reserve, April 9, Mercer Consulting, 2005 Canadian Retail Compensation and Benefits Benchmark Study. 3 Average of full- and part-time, temporary, and seasonal combined. 34 Staff satisfaction

37 A great idea with no interest Some people say you can tell a lot about a person by the car they drive. That was pretty clear to Mike Barnes, a team leader in our Edmonton store, who noted that some of our staff spend more money on bikes and boats than on cars. Mike knew we offered our staff interest-free computer loans, but noted, We re an outdoor store, so why not help our staff buy big-ticket outdoor gear like mountain bikes or kayaks? Why not indeed? And, with that pointed observation Mike got the ball rolling on the interest-free Bike and Boat Loan Program here at MEC. This program offers eligible full- and part-time staff the opportunity to borrow up to $3,000 (without interest) to buy a new bike or kayak. The creation of this program illuminated two very important issues for MEC. One, as an outdoor retail co-operative, we have a responsibility to enable our staff to get outside, try new things, and realize the benefits of self-propelled outdoor activity. It also reinforced the importance of fostering an open and inviting environment for our staff to share their ideas and more importantly, taking the time to really listen. Mike ponders his next bike purchase.

38 member satisfaction More than one in 10 adult Canadians is a member of MEC. 1 And these folks are well educated (89% have post-secondary education), and wired (91% have Internet access). But what these simple demographics don t illuminate is the fact that they share a passion for adventure and the outdoors. With over two million members, our challenge is to find a way to meet the unique needs of each from the hard-core ice climber to the family of four on their first paddling trip. We accomplish this by ensuring we have the right type of products at the right time of year and by having knowledgeable, service-oriented staff who can help our members get what they need to get outside.

39 MEMBER SATISFACTION We have three ways of assessing member satisfaction: regular store surveys, market research, and in-store comment cards. We also receive feedback via and through our website. In 2005, we received over 4,500 member suggestions through in-store comment forms. 54% of the comments were related to products, 44% to store operations and service, and 2% to our Board of Directors. These comment forms are used to improve products and services and to spot trends. An average of 70% of our member comments, related to our store operations, were positive. Market research, conducted by phone in 2005, found that 94% of MEC members either agree or strongly agree that they would recommend MEC to a friend. In-store surveys, conducted in 2005, found that 80% of respondents were satisfied overall with the level of service they received at MEC. In 2006, our goal is to increase the overall score of respondents who were satisfied with the level of service they received at MEC to 83%. ENSURING PRODUCT IS IN STOCK In the past, we have had challenges keeping products in stock. Over the past two years, we have made significant investments in our supply chain management to ensure we have stock at the right levels in the right seasons. To do this, we developed a Service Level Indicator, a new measure to track inventory, better allocate products to stores, and measure if we have stock in the right season. Every product we sell is given a rating of A to F. A represents musthave items such as water bottles, whereas F represents more obscure items, such as replacement parts for ski bindings we no longer sell. In 2005, our target was to achieve a weighted average of 95.9%, meaning that approximately 95 out of 100 members would be able to purchase the product they want in the right season. RESPONSIBLE CONSUMPTION The irony of selling stuff while striving for a sustainable future doesn t escape us. Nor does it paralyze us from aiming to create a more sustainable approach to business. For example, our staff don t work on commission. They are there to serve members, not harass them into making unnecessary or unwanted purchases. Our Pricing Policy sets the stage for a transparent relationship with members. We buy in small quantities, to avoid overstock. That means we don t have sales. We also don t reduce prices on selected items for a while, then jack them back up. We do offer clearances on discontinued products, sizes, or colours. The difference between this and a sale is that an MEC clearance is a one-way street: once we ve reduced the price, that price applies until all the stock is gone, and we will never again sell the item at a higher price. Our Pricing Policy also states that we will match any price a member may find for the identical item in the regular local retail market. We sold over 8.5 million units of gear last year. That s a lot of stuff. That said, our Communications and Marketing Department is driven by a goal to provide information and not marketing hype. We spend just 1.6% of our annual sales on marketing (advertising, catalogue, and sponsorship expenditures). According to the Retail Council of Canada, the sporting goods sector spends an average of 2.5% of sales on marketing. It s worth noting that 70% of our marketing budget is allocated to producing the MEC catalogue, that is, to providing product information to existing members and not marketing messages to potential members. MEC provides in-store fact sheets, product knowledge sessions, and online resources to help our members make decisions on how to buy and take care of gear. All this is driven by our core purpose which isn t simply to sell things but to meet our members needs and inspire them to get outdoors and play. Member service is important at MEC and service can mean setting someone up with a new boat, telling them how to fix an old tent, or sending them out with rental skis before they make the commitment to buy. In 2005, our rental program accounted for less than one-half percent of our sales. That may be insignificant to some, but not to those who had access to great adventures as a result. 1 A conservative estimate based on the 2001 Census of Canada. MEC Accountability Report

40 MEMBER EDUCATION AND AWARENESS Outdoor recreation is not without risks. For example, every year hundreds of people get into trouble in Canada s wilderness because they are unprepared, wander off the trail, or injure themselves. While we accept the fact that our members need to take responsibility for their own outdoor conduct, we believe that proper planning and equipment choices can lead to better outcomes. We train our store employees to ascertain needs and encourage them to try out our gear so they can help members choose the right kind of equipment for their level of activity and experience. We offer skills workshops in our stores, and online backcountry safety information. We fund avalanche awareness training (see page 42) and have an online listing of outdoor courses where members can both increase their skills and learn backcountry safety. PRODUCT SAFETY A unique benefit of being a co-operative is being well positioned to respond to product recall and safety issues. In the case of a product recall or notification (there were 9 in 2005), we are able to track the transactions of the product, and the members who bought it. This enables us to directly contact members with product information. CONNECTING MEMBERS WITH THE COMMUNITY Being a member of our Co-operative goes beyond great service standards and having products in stock. It s about belonging to an organization made up of people who love the outdoors. In 2005, to encourage that sense of community, we launched the Outdoor Resource Centre (ORC). Through this online resource, members (as well as anyone in the community), can find used gear, courses, trail information, events, clubs, and trip partners all in one place. Besides helping members connect with one another, the ORC helps people gain the skills they need to be confident, competent, and safer in the outdoors. We ll be looking to measure the success of this initiative in future reports. THE WAY AHEAD Increase overall member satisfaction to 83% in Measure use of the ORC by members benchmark in Achieve target of 95% weighted average service level (against 92.5% actual for 2005) in For example, we once had a product safety recall of an ice-axe leash that was failing. It was literally a life-and-death safety issue. We tracked every member who had purchased the product, and our Quality and Assurance Manager phoned each one to alert them to the issue. 38 Member satisfaction

41 Not-so-standard procedures In Spring 2005, 75-year-old MEC member Aldene Snider travelled over 500km from Dawson City to Whitehorse to vigil with a dying friend. All the palliative care visitors were asked to leave their coats on a hallway rack. While Aldene was there, someone stole her MEC down parka, a 70 th birthday present her family had pitched in to buy. Somewhat distraught by the loss of this jacket, Aldene s daughter Grace contacted our Service Centre to see if there was any way we could help. Andrew Secord, a Service Centre representative, received Grace s and brought it to the attention of Harry Henderson, our Service Centre Manager. Together they came up with a creative solution to Aldene s problem. We happened to have a women s size medium MEC Cygnus Parka in our employee gear box, and it had only been used a handful of times, says Harry. Andrew made arrangements to have the coat cleaned and shipped to Whitehorse for free. As you can imagine, Aldene was thrilled to get new a red down jacket. Upon reflection, Andrew notes, We occasionally get to do something a bit out of the ordinary for our members, and this situation sounded like the right time to do so. Andrew and Harry love it when a plan comes together.

42 supporting our community In 2005, we reviewed our Community Involvement programs to see how effective we d been at meeting the needs of the environmental and outdoor recreational communities. The result was a bold new Vision: Canada will be home to the world s most comprehensive network of parks and protected areas, and will sustain the world s most outstanding outdoor playground. Self-propelled outdoor activity will be a defining feature of Canadian culture and lifestyle. We know it s a big goal, but we believe in it. Our Vision will allow us to focus our resources on areas that significantly impact Canadian conservation and access issues. 1 It also sets the stage for MEC to support and celebrate individual projects, while maintaining a sense of what long-term progress should look like.

43 our COMMUNITY grants At the 1986 AGM, one of our members crafted a resolution to commit 0.2% of MEC s sales to environmental grants each year (most companies set contribution targets based on profit, rather than actual sales). This figure was later doubled to 0.4% at the 1992 AGM. As of 2005, this commitment has translated into total contributions of more than $8 million to environmental organizations. 2 In 1993, a permanent fund was created to serve our members conservation interests, even if MEC ceased to operate. Through contributions from MEC revenue and donations from individual members and vendors, the MEC Endowment Fund for the Environment has grown to $1.3 million. Along with 0.4% of our sales, the income earned on the capital, which is held by the Vancouver Foundation in perpetuity, is distributed through the MEC grant program. Our grant programs are designed to help organizations conserve our rapidly diminishing wild spaces, educate Canadians about areas of significant ecological or outdoor recreational value, and inspire Canadians to become active participants in responsible, self-propelled outdoor activity. COnTRIBUTIONS in 2005 In 2005, contributions totalled over $1 million representing 0.6% of the previous year s sales. This marks the first year that MEC has exceeded $1 million in annual community contributions. The above figures include cash and product contributions, but do not include other forms of in-kind support, such as paid staff time. We are putting new systems in place to help us capture the value of these. Contributions by program category 3 Land acquisition $250,000 Research $60,173 Studentships $48,478 Community Partnerships $60,173 Environment fund grants $60,173 Access $91,239 Advocacy/education $160,210 ACCESS INITIATIVES A number of well-established conservation programs and environmental organizations come to us for support, making it easy for us to support conservation initiatives. It is more difficult for us, however, to find and support the informal, somewhat fragmented recreation community that provides access to recreation. Through our strategic review process, we established a target ratio of conservation to recreational access funding of 70/30. In 2005, we spent approximately 62% on conservation and 26% on access. REPORTING OUR RESULTS FOR 2005 AND BEYOND Up to and including 2005, our reporting on Community Involvement activity has been focused on the allocation of funds by grant category. Reporting on actual outcomes and benefits of our contributions to the community has been, at best, anecdotal. In 2006, we are building new reporting frameworks to reveal outcomes of our programs and help us evaluate how effectively we are moving toward our Community Involvement Vision. In 2005 we began to prepare for another significant evolution: MEC is increasing community contributions to the equivalent to 1% of sales in To help ensure we can meet these ambitious Community Involvement commitments, even in a difficult year, MEC made a one-time capital contribution of $3 million into a new fund through the Vancouver Foundation 5 that we can draw on for grants. Funding by priority Conservation 61.8% Other % Access 26.4% 1 Access initiatives protect the public right-of-way to recreational places as well as inspire and enable people to participate in outdoor activities. 2 Administrative costs (not greater than 14%) are included in that amount. 3 For a list of grants awarded in 2005 through the Environment Fund and changes to the MEC grant categories and priorities for 2006, visit 4 Our other contributions include those to disaster relief % of MEC Endowment Fund and Annual Fund investments are held in the Vancouver Foundation s Socially Responsible Investment stream. MEC Accountability Report

44 connecting with the COMMUNITY At MEC, Community Involvement initiatives include grants and inkind contributions to, and ongoing partnerships with, conservation and outdoor recreation organizations. However, as an organization, we do much more than grant. We share offices with environmental groups, provide products for fundraising, and even paid staffing for events. Through our store network, we also support local conservation and access groups with space for meetings, in-store displays, and slide shows. In many cases, our staff members also volunteer their time to support community initiatives such as film festivals, trail maintenance days, and outdoor leadership camps. As mentioned earlier, our approach to community service and volunteerism has differed store by store and has never been formalized. Like many things, it has developed as a result of individuals inspired by our mission. Moving forward, we will develop an employee volunteerism policy and program in 2007 to show our support of staff efforts and to encourage them to work toward the mutual vision of MEC and our community partners. COMMUNITY PARTNERSHIPS As a co-operative closely aligned with our community, we have tremendous opportunities to provide core support to organizations that share our conservation and access goals. In 2005, through our national partnership program, we deepened some existing relationships and forged some exciting new ones. MEC has partnered with the Canadian Avalanche Centre 1 for more that 10 years. We continue to be the presenting sponsor of the Recreational Avalanche Course (RAC) Program and a sponsor of the Public Avalanche Bulletin. We took on some new initiatives in 2005, including the introduction of Learn and Live hangtags on MEC snowsports backpacks, and award-winning avalanche safety information at mec.ca. Through our partnership with the Canadian Parks and Wilderness Society (CPAWS), 2 we helped promote a national tour of the True North Wild and Free events to build support for expansion of the Nahanni National Park boundary and stop proposed mining development in Prairie Creek. In 2005, CPAWS crafted a new national conservation vision for Canada s public lands will be an exciting year for this partnership as we examine ways to help CPAWS engage Canadians in this vision. In 2005, a significant new partnership emerged for MEC with Leave No Trace Canada. 3 We have been committed to helping this new organization become established in Canada because we recognize we have a responsibility to help minimize the waypoint the big review In 2005, we reviewed our Community Involvement programs. We reached out to staff, members and community groups for input. Three key findings emerged: 1. Staff knew little about our granting program, and members even less. 2. Our Community Involvement programs should not be used as a back door marketing strategy designed to deliver sales. 3. We needed to do a better job of supporting the outdoor community in protecting access to recreational areas, but not at the expense of our commitment to environmental protection. In response to our findings, we redesigned programs to: Increase the number of staff in grant decisions. Capture and transparently report on community and business benefits of our community programs. Ensure at least 70% of our grants are allocated to conservation programs (and 30% to access). impact that all of us have on the places we play. As a founding partner, MEC provided seed funding and in-kind support. As well, MEC staff participated in the first Canadian Master Educator instructor course. THE WAY AHEAD In 2006 MEC will increase its contributions to 0.5% of our sales to conservation and access issues in Canada. In 2007, MEC will contribute the equivalent of 1% of sales to conservation and access issues in Canada. In 2007, MEC will develop a national campaign with CPAWS Supporting our community

45 A real space saver Colleen Mooney, Manager of our MEC Ottawa store, has a big office. So big that a few years ago she decided it should be put to better use. At the time a small ENGO, Ottawa Riverkeeper, was looking for inexpensive office space in the city. They struck a simple deal that enabled the Riverkeeper to share Colleen s office space for free. Meredith Brown, Executive Director of Ottawa Riverkeeper, is thrilled with the arrangement. Having access to Colleen s office saves us somewhere between $750 and $1,000 a month, she comments. This allows us to focus our limited financial resources on much more influential projects. Our members also love coming into the MEC store for meetings. Colleen is equally happy with the partnership, and proud to be involved with the Riverkeeper organization. They are amazing, hard-working people who have made an incredible impact on the Ottawa/Gatineau community. I feel privileged to work alongside them. Colleen and Meredith get cornered in their office.

46 maximizing product Life What happens to a product when its useful life is over? This is primarily a function of design. The individual components of a product, and how easy they are to dismantle, recycle, or re-use, determine whether that product can truly reflect a cradle to cradle life cycle. In a traditional retail paradigm, the ownership cycle usually ends once a product is sold and leaves the store. A future challenge for MEC will be to take more responsibility for the entire life cycle of products. Our existing complement of programs sets the stage.

47 RETURN POLICY Our warranty supports our commitment to ensure members get the right products for their needs. In 2005, MEC processed about 52,000 warranty returns, representing a mere 0.6% of all units sold. COMMITMENT TO REPAIR If a product breaks or falls into disrepair, our stores provide repair services. Some products are fixed on the spot and others are sent out to be repaired. Our store employees don t like to see good products go to landfills, so whenever possible, they fix them. In 2005, MEC performed more than 5,000 repairs. Of those repairs, an incredible 2,000 were done by our Calgary store. FACILITATING RE-USE Just because gear has run its course with one user, doesn t mean its useful life is over. MEC has a long-standing tradition of helping members find pre-loved gear. MEC s Rock Solid In fact, our Sustainability Policy states Guarantee that MEC will always enable members Like many retailers, we guarantee our products; if an item to access gear without having to purchase new products. It s part of hasn t met your expectations, our roots: a dirt bag culture that has you can bring it back. Unlike spawned many an adventure on the most retailers, we also guarantee the product selection cheap. In 2005, we ran gear swaps in communities across Canada to help members advice offered through our catalogue, website, and staff. sell and buy used gear. (We ve been If an item you ve purchased holding our gear swaps since 1984.) based on this advice turns out Building on the success of our gear to be unsuitable, you can bring swaps, where members literally line up it back. In either case, simply in the wee hours to be first through the return the item for exchange, doors, we created a virtual version for refund, repair, or credit. our online community. OutdoorGear- Swap.com is our free web-based gear swap service, and listed 21,000 postings for used gear in waypoint DISCONTINUED FLEECE FINDS A HIGHER PURPOSE On October 8, 2005, a 7.6 magnitude earthquake struck Pakistan-administered Kashmir, northeast of the capital city of Islamabad. The Red Cross estimated the death toll above 80,000. An estimated 42,000 individuals were injured, and approximately 4 million people were left without shelter. Before the disaster hit, we had an excess of a discontinued polar fleece we were looking to re-use. (Finding uses for discontinued fabric is always a challenge.) In this case, we had already decided to turn the fleece into blankets for sale in our stores and for staff holiday gifts. Shortly after the disaster, we decided to donate all those fleece blankets to the relief effort. MEC provided all the fabric and trims, as well as handling coordination and logistics of the blanket production and shipping preparations. Two of our factories, KP Collections/New Dimensions and Ardent Sportswear Inc., donated their time and labour to cut and sew all the blankets. KP Collections/New Dimensions also donated time, labour, and warehouse space to consolidate and pack the blankets in preparation for handover to the Red Cross for shipping. The Great Little Box Company donated all of the packing materials necessary for shipping. A total of 3,270 blankets were produced and shipped, with a total estimated value of $94,830. The value of time, labour, and shipping materials donated by companies involved is estimated between $15,000 and $20,000. Each of our stores also has a permanent Community Board where members can post ads to buy and sell products. In addition, all of our stores have some version of a product discard donation program, in which returned products, that still have life left in them, can be donated to local outdoor schools, clubs, and shelters. MEC Accountability Report

48 PRODUCT TAKE-BACK MEC operates one formal take-back program at our stores, which collects the rechargeable and disposable batteries we sell. The program was launched by our Operations Department in 2001 as a service to members concerned about disposing of batteries in the municipal waste stream. In 2005, we collected and recycled over 900kg of batteries through this program. In 2007, we plan to collect data on the volume of batteries we sell in a year. This will help us determine the proportion of our battery sales being returned. We expect the number to be small, but it will provide a good benchmark to measure program effectiveness and awareness. Besides battery recycling, some stores participate in printer toner and mobile phone return take-back programs. This provides a convenient service to our members, even though MEC does not sell these products. A few stores also run a gas canister collection program, which we will be reviewing in The everincreasing array of gas canister sizes means we must review worker safety issues around discharging and recycling canisters. UNDERSTANDING THE FULL LIFE CYCLE OF OUR PRODUCTS On page 13, we discussed the development of a product sustainability strategy that would identify best practice in maximizing eco-efficiency (minimizing waste, pollution, and natural resource depletion) and eco-effectiveness (designing products and processes so they do not generate toxic pollution and waste in the first place) in our raw material supply chain. This is a critical next step if we are to consider end-of-life options for products. To put it simply, when products are designed, consideration will need to be given to our ability to recycle or dismantle them. The feasibility of wide-scale take-back of core product is getting closer to reality. Nike takes back shoes to re-grind into a playground surface material. Patagonia recently launched a takeback program for their Capilene underwear that leads to closedloop true recycling; used garments provide post-consumer content polyester for more Capilene underwear. The latter program is a very promising development, and one of the few closed loop initiatives we ve seen in the industry, a process in which products are actually being reformulated into the same products. In 2007, MEC will be rolling out a new fleece fabric for our Trek Program. This fabric is 100% post-consumer recycled polyester. We will go on to assess these and other programs to determine if the economics and net environmental savings create a case for a polyester take-back program in our own stores. THE WAY AHEAD Increase number of OutdoorGearSwap.com postings by 10% in Roll out new Trek fleece fabric in Maximizing product life

49 the fix is on Buckles burst and zippers snap. It s inevitable. Just ask folks Like Rhonda Mastin, Chris Adshade, and Mike Cormier from the Member Service Desk in our Calgary store. Collectively they ve logged more than 25 years with MEC and they love to bring busted stuff back to its former glory. Mike has been helping our members keep their gear going for more than 13 years. Most of the broken gear we receive from members can be fixed right on the spot, he says. For the most part our members are pretty excited to have their gear repaired, and trust that we have the skills and knowledge to do it right. Chris notes that nearly half of all the repairs done at MEC are completed in the Calgary store. We have the space, the time, and the tools we need to do the repairs. It s a pretty inviting place to roll up you sleeves, get your hands dirty, and see what you can fix. Worst-case scenario is that we can t fix it, but at least we tried. Rhonda, Calgary s resident seamstress, shares Chris enthusiasm for repair. I get a lot of satisfaction from fixing what most members think is not fixable. But for Rhonda, her handy work is only half the story. We do what we can to ensure our members are happy. But sometimes things just can t be fixed, and the managers here trust us to do whatever it takes to make our members happy in the end. Mike and Chris repair a stove on the fritz.

50 Governing the co-operative Good governance is critical to ensuring the long-term well-being of MEC. Our Board of Directors provides this vital governance role. Through an annual election process, our members select their peers to represent their interests on the Board. Needless to say, being a member of the Board is a big job. Our Board reaches beyond the fundamental duties of responsible and effective financial management of the Co-op. They also ensure we re living up to the co-operative principles and are accountable to members, both old and new.

51 WHAT THE BOARD DOES AND HOW THEY DO IT MEC s Board is made up of nine directors who serve staggered three-year terms. 1 Three directors from across Canada are elected each year to represent members at large (they don t just represent their specific region). Direction is provided by the Board to the rest of the organization through a policy framework that is implemented by staff. The Board s main responsibilities include: Hiring, evaluating, and remunerating the CEO. Overseeing MEC s financial performance and audit process. Strategic planning and risk management. Engaging and communicating with members. Providing and enabling vision and culture. Maintaining an effective policy and governance framework. Ensuring an ethical and accountable organization. To carry out its responsibilities, the entire Board meets six times per year. Additionally, work is done between meetings through a committee structure. The Board delegates work to the following standing committees made up of Directors and staff: Finance and Audit Committee Governance and Member Relations Committee Community Involvement Committee Human Resources and Compensation Committee Nominations and Elections Committee Futures Committee (ad-hoc committee) In 2005, the Board did not have clearly identified Board-level oversight for identifying risks and opportunities related to sustainability. As discussed on page 21, a Sustainability Committee will be formalized in 2006 to broaden the Community Involvement Committee s responsibilites. The our current board goal is to ensure oversight of policies and of directors issues relating to sustainability, ethical Back row, left to right: sourcing, community involvement, and Colin K. Campbell green operations. Marc Elrick Reflecting best practice in governance, Denise Lawson all Board members are independent in that Sara Golling they are not members of management nor Karen Miner closely related to employees or to each Michael Wearing other. Accordingly, the CEO is not a Front row, left to right: member of our Board, but maintains a high Esther Speck, Vice-Chair level of engagement with the Board. Linda Bartlett, Chair Bill Gibson, Treasurer MEC s Board recognizes the importance of diversity in our organization. It is the director s role to ensure MEC remains relevant in the face of changing demographics in Canada. In , four (44%) of our Board s nine members were female, including the Chair, compared to an average of 30% in the Canadian co-operative sector and 12% on corporate boards. 2 Moving forward, the Board will look at mechanisms to encourage greater diversity among candidates. MEC s members have typically elected directors with a wide range of skills and experience. In any given year there is a crosssection of skills including finance, law, education, information technology, and business management, as well as retail sector, public sector, and co-operative sector experience. In recent years, expertise in the area of environmental and social responsibility has emerged as important to the membership, resulting in related experience being present in the make-up of the Board. All our Board members share a passion for the outdoors and the activities we support. MeC SUPPORTS THE DEMOCRATIC PROCESS We hold democratic elections to ensure that directors represent the interests, spirit, and values of the membership (we don t endorse or recommend candidates). This is a grassroots approach to selecting the leaders of our business, and a powerful democratic mechanism that ensures our members have a say in the destiny of the organization. As a co-operative, we must ensure that the Board upholds member interests. Likewise, we must ensure our directors have the expertise required to govern the organization. The Board uses three mechanisms to ensure directors are effective and have the skills to deliver value to the organization: Nominations and elections Every year, the Nominations and Elections Committee profiles skill areas that are important for the upcoming year. Candidates running for election are directed to address these in their statements for election materials so that voters can see how their skills and experience meet identified Board needs. Training Effective training is important in cases where certain skills may need to be developed once an individual is elected. Finance and Audit Committee members must be, or become, financially literate (at least one member must have expertise in financial matters). The Board holds an annual financial workshop for all directors. Co-operative principles, rules, and other elements of governance are also reviewed when new directors are elected. 1 To align with the Board cycle, some of the indicators in this section cover the period April March Towards Excellence: National Report on Co-operative Governance Practices, MEC Accountability Report

52 Individual directors have access to a training budget during their term. Directors conduct a self-assessment and peer review, and the Board is developing ways to better use this information to identify individual and Board training and development priorities. External advice The Board may, and does as the need arises, access paid external advice in areas where specific skills or expertise are needed. PLanning for the FUTURE A fundamental role of the Board is to both worry and dream about the future, to ensure the long-term well-being of MEC in an ever-changing world. In 2005, the Board launched the MEC Futures Project, a long-range planning RULES OF INCORPORATION project that looks ten years into the MEC is incorporated under the future -- see page 51. The Board also BC Co-operative Act. 1 The plans to review and update MEC s Memorandum of Association governance statements and develop and the Rules of Co-operation 2 lasting, memorable principles to are the official rules by which ensure future actions align with our MEC conducts its affairs. They values and character. establish the legal foundation for our governance process ENGAGing OUR MEMBERS and outline the fundamental Member engagement is critical to role of the Directors in supervising the management of MEC s success: we are the sum of our members. Increasingly, we need to the business. keep in touch with our diverse member The annual highlight of our needs while our organization continues governance cycle the Annual to grow. General Meeting takes place The first point of contact with our in April every year and incoming members begins when they walk in our Directors are announced at doors, click on our website, or call our this time. Service Centre. They almost always have a simple pursuit getting great gear. Some members come back, and some don t (41% of our members have not shopped at MEC in the past 3 years). We have many members who engage with MEC beyond buying gear. They rent from us, use our gear swaps, come to slide shows and clinics, or receive our newsletter. Some, though not many, vote for our Board of Directors, and even fewer vote on resolutions. Our challenge is to understand the continuum of member engagement and how we can inspire members to become active in their organization and its direction. Our annual election MEC is the 6th largest politically organized unit in Canada, after national and provincial elections. Being such a large democratic institution is good news, except that only 1.2% of our members actually voted in the last election. Voter turnout is an important indicator for co-ops since they are structured to represent the interests of their members. Many co-operatives (including our own) turn to it to gauge member engagement. The reality is that voter turnout decreased slightly over the past year (from 1.4% in 2004), even while our membership grew by 8.5%. In 2005, only 26,091 votes were cast in our election. As our membership grows, our voter turnout risks continual decline. Over the past decade, voter participation rates have dropped from 5% to just over 1%. Interestingly, of the 200,778 members who were sent election packages, 12.9% voted. Clearly the prompt worked. However, the cost of delivering election materials is high over $10 per member in The Board has a genuine interest in increasing member engagement in the voting process. Democratic member control is a co-operative principle that is not taken lightly. To make voting easier and more accessible, we provide opportunities for online as well as paper voting. In keeping with our members high level of Internet access, 82% voted online, 17% via phone, and the remainder (less than 2%) by paper. Those statistics suggest we may be able to connect with members online to encourage voting more cost effectively. Our AGM MEC has always hosted our AGMs in British Columbia. Currently, only AGM participants vote on resolutions. As such, only a small number of members are providing input on key decisions driving our future. In 2005, 100 members attended our AGM and were eligible to vote on resolutions. This is a challenge for us, as we want to ensure a diversity of views and member representation in resolution voting. To address this, we are actively seeking out opportunities to enable online voting on resolutions. For the past two years, MEC has tried to broaden participation by hosting conference call access to the AGM. This has been successful, though still garners limited numbers. Moving forward, the Board is committed to enhancing this service as well as enabling AGM participation for members at physical locations outside of BC to ensure sufficient and diverse participation in our democratic processes. In 2007, the Board plans to create at least one additional location outside of BC where members can meet and be linked by phone or web technology to our AGM Governing the Co-operative

53 exploring the future of mec Ensuring the long-term health and vitality of a company is the primary responsibility of any Board of Directors. But at their first base camp with the MEC Board in 2004, Colin Campbell and Esther Speck, the two newbies at the time, were soon engaged in discussions not only about MEC s plans for the immediate future, but how the Co-op will fare in the long run. This planted the seed for the MEC Futures Project. Colin presented a proposal to the Board and soon the MEC Futures Committee was up and running. Colin and Esther worked with their colleagues, Chair Linda Bartlett and Senior Manager David Labistour, to turn the idea into a reality. Key to the success of the project was detailed futures research, including discussions and counsel with past directors, long-term members, and other experts. An MEC Futures Dialogue Process, involving 31 visioning sessions with members and staff across Canada, has now been completed. The Board and Senior Management are analyzing the feedback from the very successful sessions, beginning to explore long-term options, and sharpening up the Co-op s future readiness. From our discussions with staff and members, it is clear that people recognize the need to embrace change, emphasizes Esther, but only change that respects our core purpose and principles and strengthens our ability to serve members. At this time fewer than 3% of companies in Canada effectively plan for the long-term future. We want to be part of that group, says Colin. Developing a long-term plan that fulfills the vision of our Co-operative, including our longterm business viability, will now be part of our future. It will help us provide the leadership necessary to ensure the long-term well-being of MEC. It is clear that Colin, Esther, and others have immensely enjoyed this project, and agree that one of the true benefits of being on the volunteer MEC Board is the opportunity to contribute to the future of this great organization. Esther and MEC staffer Lawrence Thor consider possible scenarios.

54 Other avenues of engagement The Board engages with members through other avenues. For example, the Governance and Member Relations Committee responds to member correspondence and provides material for catalogues and signage informing members of Board activities. In 2005, the Board led an extensive member and staff engagement process, holding 31 MEC Futures Dialogue sessions across the country, and inviting member input through . By the end of 2005, over 175,000 members were signed up to receive our monthly newsletter. That s almost eight times the number of members who voted. The Board is interested in how this venue could be used to engage members more fully in the direction of the Co-op. Moving forward, the Board s goal is to better understand the many ways we engage our members and to identify the opportunities for new ways to connect. Perhaps by engaging members in other aspects of our organization first, such as in-store slide shows, we can nurture their interest in our organizational health and, over time, add them to our list of voting members. In 2007, we will also hold a review of MEC s co-operative strategy: how we engage with the co-operative sector, how we train and educate our staff and members about our co-operative difference, as well as how we approach member engagement. THE WAY AHEAD Develop a broad-based strategy to improve member engagement in our co-operative and democratic processes, including increased AGM participation and voter turnout. Roll out the findings of the Futures Dialogue sessions and develop an ongoing long-range planning process and implementation plan to help prepare the organization for the coming decade and beyond. Create at least one additional location outside of BC where members can meet and be linked by phone or web technology to our 2007 AGM. MANAGING GROWTH AT MEC We believe in a sustainable future, one in which the current generation s needs are met without compromising the needs of the future. We also realize that MEC needs a viable business model to be an effective participant in achieving that future. We are a co-operative that exists to inspire people to experience the benefits of outdoor self-propelled wilderness recreation. Our co-operative nature empowers us to define our future and manage our growth. For traditional corporations, growth has a single driver profit and is measured in simple terms increased revenue. At MEC, growth has many drivers from growing our abilities to meet member needs, innovate and develop products, create social and environmental change, and respond to external factors such as inflation and increased fuel costs. The concept of growth is an important issue for our members. As our presence has grown in Canada, more members are asking why we grow and how we grow. Over the last 35 years, over 2 million members have bought shares in MEC, encompassing 3 generations, with stores in 5 regions of the country, and operations in 2 languages. In the last year alone, the Co-op grew by almost 10% in sales. All stores experienced positive growth, a critical benchmark of financial health in the retail sector. In 2005, the Co-op also grew by 182,000 members, or 8.5%. This means that 3,500 new members, on average, joined MEC every week. Not surprisingly, one of the common comments we receive from members and staff relates to the perception that MEC has embarked on a high-growth strategy. In some cases, these comments are simply observations that the Co-op now has considerable influence in the Canadian marketplace. However, there are also comments that clearly reflect a fear that MEC might be becoming too big, that it will lose its community based roots, that success might make it arrogant and out of touch, that growth is neither sustainable nor healthy, or that MEC is changing into a conventional big box retailer that is addicted to expansion for growth s sake. The founding members conceived of MEC as a way to get quality gear at affordable prices. They adopted the co-op model because it resonated with their sense of how to do this fairly, and without a profit motive that would add to the cost of goods. We have been incredibly successful in getting new members (predominantly through word of mouth). Someone buys something that works well, they tell a friend, and the demand keeps growing. It s pretty organic and a sign that folks are being active in the outdoors as per our core purpose. As more members join, and more members buy gear, the more gear the Co-op has to buy and the more sales and service channels the Co-op needs to create. The Co-op did not set out to grow bigger. It grew to meet the needs of its members. We always have, and always will, take a member pull approach to growth. This means that we respond to member needs, rather than push our product and service to create a need. 52 Governing the Co-operative

55 APPENDIX: STAKEHOLDER PANEL REVIEW the accountability report panel As noted earlier, this Accountability Report is written primarily for our staff and managers to inform us and help us improve our performance. It is also written for our members and our extended community, including our supply chain, wilderness and outdoor recreation advocates, and the business peers and NGOs we work with. We want to ensure this first report is on the right track, so we invited knowledgeable individuals, who are stakeholders, to review a draft of this report and provide feedback. The panel included the following people who shared their expertise and perspectives: We learned a great deal from our panel members. Their comments ranged from basic oversights ( You haven t said what your definition of sustainability is ) to critical gaps in information ( What was your factory audit methodology and how are you improving it? ) to strategic advice ( Don t just give us a laundry list of future targets link them to your Vision ). You won t find those gaps in this report because we have addressed them, as well as most of the other feedback. The panel indicated that some improvements could be put off to a future report. Detailed below are the suggestions we have not incorporated. We appreciate the many positive comments from the panel and the overall message that we are moving in the right direction. We thank all the panel members for giving us the benefit of their experience and helping us make this a better report. The responsibility for acting on their advice, and for any remaining gaps, is ours alone. HOW WE DID IT Standing, back row left to right Bob Willard, The Sustainability Advantage John Restakis, BC Co-operative Association Betsy Blaisdell, Timberland (supplier to MEC) Jane Wolverton, MEC member Bob Jeffcott, Maquiladora Solidarity Network (MSN) Mark Lai, KP Collection (manufacturer of MEC-brand apparel) Greig Gjerdalen, Capilano College Outdoor Recreation Program Duncan Lai, KP Collection (manufacturer of MEC-brand apparel) Front row left to right Jacques Gerin, Canadian Parks and Wilderness Society Rebecca Hovey, MEC Vancouver store employee The panel met for a day and a half in Vancouver. The first afternoon s session was conducted by MEC Sustainability and Community Manager Denise Taschereau. She reviewed the process for preparing the report and fielded panelists questions. She also explained how the AA1000 principles of materiality, completeness, and responsiveness had guided our reporting, and asked panelists to scrutinize the draft report with these in mind. Panelists identified and prioritized their expectations on the most significant issues to be addressed. The key message received from the panelists was go big on the Product Design and Product Manufacturing chapters, arguably the parts of the report covering our most significant social and environmental impacts. The second day was devoted to detailed chapter-by-chapter feedback. This session was conducted without MEC management present, and was facilitated by an independent consultant from Solstice Sustainability Works Inc. Panel members worked in teams on the chapters that best corresponded to their area of expertise, and presented their findings to the group for discussion. MEC managers returned at the end of the session to hear and respond to a summary of the day s feedback. Before it was finalized, a draft of that summary was circulated to all panel members for feedback. MEC Accountability Report

56 REPORT STYLE, TONE, AND FORMAT Here s what our panel suggested to make this report engaging, credible, and understandable: Transparency works. The panelists appreciated the fact that we shared both good and bad news, and said the forthright, conversational tone of the report contributed to its credibility. They noted the report was not externally audited and suggested we outline our plans for future assurance. Stories and different voices add interest. The panel suggested we add more case studies, photos, stakeholder profiles, and quotes to add interest and show how sustainability can work. We agreed with them and have added where we can. Our next report will have more. There were a number of detailed suggestions for format improvements we have acted on, so they are not listed here. REPORT CONTENT As we hoped, the panel members focused on content. Here are their major suggestions and how we are addressing them: Show us your goals and path. Panelists wanted to know our bold goals for sustainability. They advised us to put our Vision, Mission, and Values upfront, show how they informed our broad goals, and more clearly link these to our performance indicators and targets. We can go part of the way with this, but our Board of Directors is in the midst of a significant Futures Project (see previous chapter) to help us chart our growth, so we don t want to pre-empt that process. Stay tuned! Define MEC s leadership role. Panelists accepted our explanation that we are a relatively small player in the world of retail, but they didn t let us off the hook. They encouraged us to use what influence we have to be an agent of change. Specifically, they suggested we include more information about the ways we are collaborating with industry peers and NGOs on product design and supply chain issues, and how we influence members and employees to act more sustainably. We agreed. Explain the MEC difference. Our panelists wanted us to more clearly show how being a cooperative affects our performance throughout the product and governance cycle. We think being a co-operative is a defining feature of MEC, so we were happy to act on that suggestion. Provide detail in key areas. Panelists wanted more detail in two areas: Product Design and Manufacturing MEC-brand Products. Regarding Product Design, the panel liked our discussion of our work with PVC and organic cotton. However, they wanted to see how it fit into an overall strategy to reduce toxins in products. They asked for details of chemicals in our products that would be considered Restricted Substances in some jurisdictions. We acknowledge the importance of this issue. Many of our products contain petrochemicals and other raw materials that cause us concern. We simply don t have the detailed data we would like. Now that our new Materials Development and Sourcing Manager is in place, this work will be a high priority. We expect to provide a more thorough analysis in our next report. In regard to Manufacturing, the panel wanted us to better explain: How audit methods will be changing and how this will address current under-reporting of certain worker rights violations. How MEC s buycott approach regarding sourcing from China promotes improved labour practices in that country. What our audits found regarding overtime work violations. Where to access audit results by workplace and the corrective actions that resulted from audits. We ve responded to the first two issues in this report. Our administrative tracking made it difficult to break out overtime violations or easily summarize specific remediation actions. This is something we ll address in future data collection. We will repost pre-2005 audit reports on our website and work toward posting audit results by workplace in future reporting cycles. Based on panel suggestions, we have also revised the report to provide more detail and clearer analysis in relation to employees, facility based GHGs, and community contributions. We have chosen to focus on how we can overall improve member engagement at MEC, rather than address specific risks, flagged by the panel, of low voting rates among members. We have not expanded on our discussions of rental and take-back programs as these are not priorities at this time. The panel asked for other information we don t have, and we will more closely consider these areas in the future. Their suggestions are listed below; those that will likely be addressed first are indicated by the year in parentheses. They include: MEC s definition of unacceptable impact on the environment in relation to our Product Selection Policy (2007). Assessment of the awareness and success of our Outdoor Resource Centre (2007). Investigation of the low reporting of violations in India and Vietnam (low in relation to findings in China) (2007). 54 Stakeholder panel review

57 Details of MEC s packaging initiatives and measurement of the environmental savings ( ). Quantification of the business benefits (possibly in dollar terms) of sustainability initiatives. Analysis of the positive impacts to developing countries of offshore production. Case study on employee turnover to understand the pros and cons for MEC and its employees. Consider designing products so their individual components are easier to take apart and recycle. Ensure that members see MEC as more than a store. Help them connect with MEC as a co-operative and vital part of their community. We think the external panel has made this a better report and look forward to hearing your feedback. FUTURE TARGETS Each chapter of this report includes a section called The Way Ahead, which explains how we are responding to the findings of our reporting process. We asked the panel to consider our future plans and targets. On the whole, they found them to be reasonable. In one case, they advised us to drop a target that seemed unrealistic. They suggested some additional ways they would like to see MEC move forward. We agree with almost all their suggestions. (The exception is the recommendation to reduce the size of our print catalogues, the single largest use of paper for MEC.) Our catalogues are our most important print communications tools, and space in their pages is already at a premium. Reducing the catalogue size could adversely impact our ability to communicate effectively with members, particularly those in remote communities with no access to our stores or the Internet. We will consider all the recommendations as we move forward. The initiatives we will address as priorities are indicated by a check mark: Develop bold goals, and a supporting strategy, for GHG reduction. Act as a change agent for members: educate MEC s member base about co-operatives, and sustainable consumption and recreation practices. Encourage or facilitate member involvement in community service. Research how much more MEC members are willing to pay for products to achieve human rights and environmental improvements in supply chains. Collaborate with other brand-name retailers to understand the purchasing practices that contribute to violations of wage and overtime standards. Explore incentives and rewards for factories that consistently meet code requirements. Expand rental and gear sharing activities as an alternative to purchasing new gear. Find ways to reduce catalogue size. MEC Accountability Report

58 Appendix: GRI TABLE This report has been prepared with guidance from the 2002 GRI indicators. We have provided an index to our report based on the GRI reporting elements and core performance indicators as defined in the GRI Sustainability Reporting Guidelines The index shows how and where we assessed ourselves to be. Key I Included P Partially included ND No data available NR Not relevant GRI Indicator Key Page 1 Vision and strategy 1.1 Statement of the organization s vision and strategy regarding its contribution to sustainable development I 1, Statement from the CEO describing key elements of the report I 1 2 Profile Organizational profile 2.1 Name of the reporting organization I Major products and/or services, including brands if appropriate I Operational structure of the organization I Description of major divisions, operating companies, subsidiaries, and joint ventures NR 2.5 Countries in which the organization s operations are located I Nature of ownership and legal form I Nature of markets served (including geographic breakdown, sectors served, types of customers/beneficiaries) I Scale of the reporting organization, including: 9, 11, 45 number of employees I products produced/services offered (quantity or volume) I net sales (for private sector organizations) or net revenues (for public sector organizations) I total capitalization broken down in terms of debt and equity (for private sector organizations) I 2.9 List of stakeholders, key attributes and relationships P 5, 53 Report scope 2.10 Contact person for report, , web address I Reporting period I Date of most recent report I Boundaries of report I Significant changes in size, structure, ownership NR 2.15 Basis for reporting on joint ventures, partially owned subsidiaries, outsourced operations NR 2.16 Explanation of the nature and effect of any re-statements of information in earlier reports NR Report profile 2.17 Decisions not to apply GRI principles or protocols I Criteria/definitions used in any accounting for economic, environmental, and social costs and benefits I 11, 23, Significant changes from previous years in the measurement methods NR 2.20 Policies and internal practices to enhance and provide assurance about the accuracy, completeness, I 4 and reliability that can be placed on the sustainability report 2.21 Policy and current practice with regard to providing independent assurance for the full report I Means by which report users can obtain additional information I 60 3 Structure and governance 3.1 Governance structure of the organization I Percentage of the Board of Directors that are independent, non executive I GRI table

59 GRI Indicator Key Page 3.3 Process for determining what Board members need to guide the strategic direction of the organization I Board-level processes for overseeing the organization s identification and management of economic, environmental and social risks P Linkage between executive compensation and achievement of the organization s financial and non-financial goals I Organizational structure and key individuals responsible for oversight, implementation, and audit of economic, environmental, social, and related policies I Mission and values statements, internally developed codes of conduct, and policies I 1, Mechanisms for shareholders to provide recommendations or direction to the Board of Directors I 50 Stakeholder engagement 3.9 Basis for identification and selection of major stakeholders I Approaches to stakeholder consultation reported in terms of frequency of consultations by type and by stakeholder group I 4, Type of information generated by stakeholder consultations I Use of information resulting from stakeholder engagements I 5 Overarching policies and management systems 3.13 Explanation of whether and how the precautionary approach or principle is addressed ND 3.14 Externally developed, voluntary economic, environmental, and social charters, sets of principles, or other initiatives to which the organization subscribes or which it endorses I 4, Principal memberships in industry and business associations and/or national/international advocacy organizations P Policies and/or systems for managing upstream and downstream impacts I Reporting organization s approach to managing indirect impacts resulting from its activities P 23, Major decisions during the reporting period regarding the location of or changes in operations I 8, Programs and procedures pertaining to economic, environmental, and social performance P Status of certification pertaining to management systems NR EC Economic performance indicators Aspect: economic performance EC1 Net sales I 11, 17 EC2 Geographic breakdown of markets I 11 EC3 Cost of all goods, materials, and services purchased I 11 EC4 Percentage of contracts that were paid in accordance with agreed terms ND EC5 Total payroll and benefits I 11 EC6 Distributions to providers of capital, broken down by interest and dividends I 11 EC7 Increase/decrease in retained earnings I 11 EC8 Total sum of taxes of all types I 11 EC9 Subsidies received NR EC10 Donations to community, civil society, and other groups, broken down in terms of case, and in-kind I 41 EC11 Supplier breakdown by organization and country P 17 EC12 Total spent on non-core business infrastructure development NR EC13 The organization s indirect economic impacts I 9 EN Environmental performance indicators EN1 Total material use other than water by type P 13, 26 EN2 Percentage of materials used that are wastes from sources external to the organization P 13, 27 EN3 Direct energy use segmented by primary energy source I 23, 24, 25 EN4 Indirect energy use I 23 EN5 Total water use ND EN6 Location and size of land owned, leased, or managed in biodiversity rich habitats NR EN7 Description of the major impacts on biodiversity associated with activities and/or products and services in terrestrial, freshwater, and marine environments EN8 Greenhouse gas emissions I 23 ND MEC Accountability Report

60 GRI Indicator Key Page EN9 Emissions of ozone-depleting substances (core) ND EN10 NOx, SOx, and other significant air emissions by type ND EN11 Total amount of waste by type and destination I 25 EN12 Significant discharges to water by type ND EN13 Significant spills of chemicals, oils, and fuels in terms of total number and volume NR EN14 Significant environmental impacts of principal products and services P 13 EN15 EN16 Percentage of the weight of products sold that is reclaimable at the end of the products useful life and percentage that is actually reclaimed Incidents of and fines for non-compliance with all applicable international declarations and national, sub-national, regional and local regulations EN17 Initiatives to use renewable energy sources and to increase energy efficiency I 24 EN18 Energy consumption footprint of major products ND EN19 Other indirect energy use and implications, such as travel I 23, 29 EN20 Water sources and related ecosystems/habitats significantly affected by use of water NR EN21 Annual withdrawals of ground and surface water ND EN22 Total recycling and reuse of water ND EN23 Total amount of land owned, leased, or managed for production activities or extractive use NR EN24 Amount of impermeable surface as a percentage of land purchased or leased ND EN25 Impacts of activities and operations on protected and sensitive areas NR EN26 Changes to natural habitats resulting from activities and operations and percentage of habitat protected or restored NR EN27 Objectives, programs, and targets for protecting and restoring native ecosystems I 41, 42 EN28 Number of IUCN Red List species with habitats in areas affected by operations ND EN29 Business units currently operating in or around protected or sensitive areas NR EN30 Other relevant indirect greenhouse gas emissions P 29 EN31 All production, transport, import, or export of any waste deemed hazardous under the Basel convention NR EN32 Water sources and related ecosystems/habitats significantly affected by discharges of water and runoff NR EN33 Performance of suppliers relative to environmental components of programs and procedures described ND EN34 Significant environmental impacts transportation used for logistics I 29 EN35 Total environmental expenditures by type ND LA Social performance: labour practices and decent work performance indicators Aspect: employment LA1 Breakdown of total workforce by employment type and region (core) P 33 LA2 Net employment creation and average turnover broken down by country and region P 31, 34 LA3 LA4 Percentage of employees represented by independent trade union organizations or covered by collective bargaining agreements (core) Policies and procedures involving information, consultation, and negotiation with employees over changes in operations (e.g., restructuring) LA5 Practices on recording and notification of occupational accidents and diseases and how they relate to ILO code NR LA6 Description of health and safety committees that help monitor and advise on occupational health and safety programs and proportion of workers they represent (core) ND NR I 34 ND I 34 LA7 Standard injury, lost day, and absentee rates and number of work-related activities P 34 LA8 Education, training, counselling, prevention, and risk-control programs in place for assisting workforce members, their families or community members affected by HIV/AIDS or other serious communicable diseases (core) P 33 LA9 Average hours of training per year per employee broken down by employee category (core) P 32 LA10 Description of equal opportunity policies or programs ND LA11 Composition of SMT and BOD on diversity P 49 LA12 Employee benefits beyond those legally mandated I 33 LA13 Provision for formal worker representation in decision making or management including governance P 31, 34, 50 LA14 Evidence of substantial compliance with ILO OHMS standards ND 58 GRI table

61 GRI Indicator Key Page LA15 Description of formal agreements with trade unions P 34 LA16 Description of programs to support continued employability and manage career endings P 10 LA17 Specific policies and programs for skills management or lifelong learning P 32, 33 HR HR1 Social performance: human rights performance indicators Description of policies, guidelines, corporate structure, and proceedures to deal with all aspects of human rights relevant to operations P 17 HR2 Evidence of consideration of human rights impacts as part of investment and procurement decisions P 18 HR3 Description of policies and procedures to address human rights performance in supply chains I 17, 18 HR4 Description of policies and procedures preventing all forms of discrimination in operations, including monitoring P 17, 19 HR5 Description of freedom of association policy and extent to which this policy is universally applied. P 19 HR6 Description of policy excluding child labour as defined by ILO P 19 HR7 Description of policy to prevent forced and compulsory labour and extent to which the policy is visibly stated and applied P 19 HR8 Employee training on policies and practices concerning all aspects of human rights relevant operations ND HR9 Description of appeal practices, including but not limited to human rights. ND HR10 Description of non-retaliation policy and effective, confidential employee grievance system (including human rights) ND HR11 Percentage of security personnel trained in organization s policies or procedures regarding human rights (additional) NR Aspect: indigenous rights HR12 Description of policies and guidelines and procedures to address the needs of indigineous people NR HR13 Description of jointly managed community grievance mechanisms NR HR14 Share of operating revenues from area of operations that are redistributed to local communities NR SO Social performance: society performance indicators Aspect: community SO1 Description of policies to manage impacts of operations on communities, in areas affected by activities (core) P 42 SO2 Aspect: corruption Description of policies and management systems and compliance mechanisms for organizations and employees addressing bribery and corruption SO3 Description of policies and procedures for managing political lobbying and contributions ND Aspect: public policy SO4 Awards received relevant to social, ethical and enviromental performance I 8 SO5 Total value of contributions to political parties or related institutions NR Aspect: anti-competitive behaviour SO6 Description of policy and procedures for preventing anti-competitive behaviour ND PR Social performance: product responsibility performance indicators Aspect: customer health and safety PR1 Description of policy and procedures for preserving customer health and safety during the use of the products P 38 PR2 Description of policy and procedures for product and service information and labeling (core) P 37 PR3 Description of policy, procedures/management systems, and compliance mechanisms for consumer privacy and area covered by privacy policy PR4 Number and type of instances of non-compliance with regulations concerning product and service information and labeling ND PR5 Number of complaints upheld by regulatory of similar official bodies to oversee or regulate health and safety of products ND PR6 PR7 PR8 Voluntary Code compliance, product labels, or awards with respect to social and environmental responsibility that the reporter is qualified to use or has received Number and type of instances of non-compliance with regulations concerning product information and labelling, including any penalties or fines Number and type of instances of non-compliance with regulations concerning customer satisfaction, including results of surveys measuring customer satisfaction PR9 Description of policies, etc., for adherence to standards and voluntary codes related to advertising ND PR10 Number and types of breaches of advertising and marketing regulations ND PR11 Number of substantiated complaints regarding breach of privacy ND ND P 34 P 8 ND I 37 MEC Accountability Report

62 Contact Details Publications Additional copies of this report can be downloaded from A limited number of print copies are available. Please contact info@mec.ca or call International members please call Feedback Your feedback is important to us. Please comments to: accountability@mec.ca or write to: Accountability Report c/o Sustainability and Community Manager Mountain Equipment Co-operative 149 West 4th Avenue Vancouver, BC Canada V5Y 4A6 Acknowledgements Photography Cover Alastair Bird 36 Ryan Creary 6 Bruce Kirkby 39 David Bishop 12 Jeremy Koreski 40 Nova Scotia 15 David Bishop Nature Trust 16 David Bishop 42 Bruce Kirkby 22 David Bishop 43 Harry Nowell 28 Getty Images 44 Rich Wheater 30 David Bishop 47 Tracy Elliott 35 Rod Barnes Paper and printing This report is printed on Forest Stewardship Council (FSC) certified Domtar EarthChoice Sandpiper paper. It contains 100% post-consumer content recycled fibre. The FSC logo identifies products that contain wood from well-managed forests independently certified in accordance with the rules of the FSC. This report was printed by Hemlock Printers Ltd. In May 2004, Hemlock became the first printer in the Pacific Northwest to receive FSC Chain-of-Custody certification. Hemlock guarantees that the paper this report is printed on is certified according to FSC standards. MEC supports Hemlock s commitment to produce the highest quality results with the lowest environmental impact.

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