THE NEW FORESTS COMPANY SUSTAINABILITY REPORT FY13

Transcription

1 THE NEW FORESTS COMPANY SUSTAINABILITY REPORT FY13 1

2 INDEX PART I. G4 STANDARD DISCLOSURES: Section 1: STRATEGY AND ANALYSIS (G4-1 and G4-2) 4 1 Section 2: ORGANIZATION PROFILE (G4-3 through G4-16) 18 Section 3: REPORT PROFILE (G4-28 through G4-31) 26 Section 4: IDENTIFIED MATERIAL ASPECTS & BOUNDARIES 28 (G4-18 through G4-23) Section 5: REPORT PROFILE: GRI CONTENT INDEX (G4-32) 30 Section 6: REPORT PROFILE: ASSURANCE (G4-33) 32 Section 7: GOVERNANCE (G4-34) 33 Section 8: ORGANISATIONAL PROFILE: COMMITMENTS TO EXTERNAL INITIATIVES 34 (G14 through G4-16) Section 9: STAKEHOLDER ENGAGEMENT (G4-24 through G4-27) 36 Section 10: ETHICS & INTEGRITY (G4-56) ENVIRONMENTAL INDICATORS 38 PART II. G4 SPECIFIC STANDARD DISCLOSURES: Section 11: SOCIAL INDICATORS 40 Section 12: ENVIRONMENTAL INDICATORS 50 Section 13: ECONOMIC INDICATORS 58

3 NEW FORESTS CURRENTLY HAS A FIVE-STAR RATING ON THE GLOBAL IMPACT INVESTING RATING SYSTEM (GIIRS), ASSESSING THE SOCIAL AND ENVIRONMENTAL IMPACT AND PRACTICES OF COMPANIES AND FUNDS. 3

4 Fiscal year 2013 was a critical year in the growth and development narrative of the New Forests Company. We began formal operations in Rwanda, grew our Uganda and Tanzania pole businesses, settled an important dispute and planted 1329 hectares of plantation forests. This year, we successfully settled the Compliance Advisor/ Ombudsman (CAO)-led mediation with our neighbouring Mubende affected community, considerable vision and patience of our remarkable shareholders who have shown an enormous appetite for risk, have stuck with the company 5 bringing one of the two complaints against the through its many start-up challenges and have SECTION 1: STRATEGY & ANALYSIS company to a close. There are strong reasons to believe we will close the second complaint early in FY14. This achievement is representative not only of our commitment to our neighbours and to addressing any perceived wrongs, but also to doing our best to live up to international standards, such deployed considerable patient capital to grow the buisiness. If NFC becomes the success we all now think it will be, it will be in large part due to this unique group of long-term visionary investors. The growth and maturing of New Forests also has a great deal to do with the effort and contribution JULIAN OZANNE, GROUP CEO as IFC Performance Standards. As a multinational company working in a decentralised way across of our experienced and professional management team. To lead our Uganda and Rwanda businesses the better part of East Africa, we understand both and to take our regional footprint a step further, During the year, we commenced harvesting opera- our obligation and our benefit in adopting criti- we welcomed Dave Hardy during FY13 as the CEO tions of our own grown timber at the Namwasa cal and relevant international standards of social, of these two territories. Dave is proving himself to plantation crossing a historic milestone on the environmental and economic conduct. be not only a capable and steadfast manager of road to a fully integrated upstream and downsteam our teams and operations, but also a visionary and business model and value chain and moving clos- Also in Uganda, FY13 saw an expansion of our unifying leader of change within our business. er to a position of full self reliance for raw material Forest Stewardship Council TM (FSC TM ) certificate and an ability to guarantee that our supply chain to include our Luwunga plantation, resulting in all While attending the Global Reporting Initiative comes from a sustainable and ethical source. three New Forests plantations in Uganda achiev- (GRI) annual conference in Amsterdam last May ing and maintaining FSC certification. The FSC a forum which promotes sustainability report- Another landmark was reached when we signed a membership consensus (NGO s and businesses ing and good corporate governance and glbal critical contract with Cimerwa, the South African etc.) sets the FSC Principles and Criteria - the citizenship - I heard a thought provoking speech owned cement company in Rwanda, which will highest standards of forest management which by Georg Kell, Executive Director of the UN Global diversify our revenues and allow us to move into are environmentally appropriate, socially benefi- Compact, the world s largest voluntary corporate green renewable energy as we substitute domesti- cial and economically viable. NFC has a clear road sustainability initiative. While speaking on inter- cally produced charcoal for imported fossil fuels map to FSC certification for all of our current six connectedness, he questioned why consumers such as Heavy Fuel Oil (HFO) contributing not plantations with Tanzania next. were not calling for more responsible and ethical just to less carbon emissions and depletion of lim- business practises of the companies from which ited fossil fuels but also contributing to reduction Whilst the company maintains an absolute com- they consume. Sustainability thus becomes a of nitreous oxide and sulphur dioxide (nox and mitment to continuing to plant green field forests delicate balance between the human race s intrin- sox) with a corresponding improvement in pollu- and expanding our asset base, we are neverthe- sic values and its desire to consume. Sustainabil- tion and respiratory diseases caused by burning less now poised within the next 2-3 years to reach ity ultimately needs a constant conscience and a fossil fuels. cash break even. This has been achieved with the forward looking perspective.

5 Left: The nursery at Namwasa plantation in Uganda. At our nurseries we grow improved seed sourced internationally to ensure the most robust tree seedlings with the highest likelihood of survival We have also begun the process of looking at 7 integrated reporting where the company s annual financial results are integrated into the company s social and environmental impacts. Financial accounts by their nature are backward looking into historical performance but integrated reporting forces us to look forward to the impacts we create. No decision has been made on this yet by the board of directors and integrated reporting is not a fix all panacea but just discussing this creates interesting debate within the company about our mission. Ultimately these moves, and the discussions around them, lead to better thinking, better From the birth of our business, this idea un- corporate consciousness about the value of sus- So this year, in this report, we have adopted the brand awareness and should promote employee derscored how we developed our corporate tainability reporting and transparent information new G4 GRI guidelines which are designed to satisfaction and therefore value responsibility philosophy and still forms the thrust giving to our shareholders and the wider commu- elicit the core and material social and environ- of our strategy. And beyond this simple equation, nity of stakeholders who have an interest in what mental impacts that individual companies create Historically we have not made any profits to date we understand that sustainable business practises our company is doing. NFC was an early adopter and leave behind. and all of our CSR investment has been subsidized dovetail nicely with the most prudent risk mitiga- of the Global Reporting initiavive and this is our by shareholder funds. And last year about 5-6% of tion efforts for a company like ours in which our fifth year using GRI reporting guidelines. At NFC In addition we realised that reporting to stakehold- our entire Group spending was devoted to CSR. dependence on the sale of poles, charcoal and we believe we should be accountable for what ers what we think these impacts are is not enough As we move towards profitability, we are beginning sawn timber is matched only by our dependence we are doing to the fragile planet and we should and we must seek some credible independent to think about what percentage of profits should upon the earth, the land and the soil, the people report this accurately. This is not an obligation for third party assurance of the voracity and credibil- be allocated to social and environmental invest- who neighbour us, the governments that host us NFC but a voluntary product of the DNA of our ity of our claims. This report, therefore, is the first ment. There is the one per cent club those that and the individuals who drive this business forward. company. time this company has exposed our sustainability allocate one per cent of PAT on these programmes. In the interest of protecting our business and ulti- reporting to external review undertaken by De- This might not be enough for a company like ours mately achieving economic rewards, it only makes At the same time we cannot rest on our laurels loitte. This year we have limited this external audit which is surrounded by so much poverty. sense to invest thoughtfully and efficiently in the and we must constantly raise the bar in how we to four core indicators largely due to cost. But as land and the people and care about their futures. report as part of our commitment to continuous the company grows we want to move towards full And apart from the amount spent we also need to That is what we have done since planting our first improvement, excellence and leadership in sus- external assurance and we have put in place a road think creatively about how to integrate the com- tree in 2005 and it continues to drive our sustain- tainability reporting. As we develop higher qual- map to do this over the next 3 years. We hope you munity into the decision making process at NFC on ability strategy. ity reporting tools and drive thinking about this appreciate this attempt by us to create more cred- this social investment programme and allow them through our staff we, at the same time, provoke ibility in you, the reader and stakeholder, that we to sit at the table as equals. In the coming years At the GRI Conference I was also impressed to thought and debate about what we are doing and are on the right path. this will be a fascinating debate which will further see the beginings of the emergence of a global its legacy on the planet.

6 High Sustainability firms appear to be more longterm oriented: they have an investor base with a larger proportion of long-term oriented investors and they communicate more long term information 9 SECTION 1: STRATEGY & ANALYSIS DAVE HARDY, CEO UGANDA/ RWANDA Simply put, our commercial goal as a business is to grow exotic timber species and transform them into various value-added wood products for the local East African market. At the very core, this requires intrinsic sustainability tree growing is a long term endeavour, with efficiency in silviculture disciplines compounding over time. With fertile soils and a growth promoting climate, both Uganda and Rwanda are exciting geographies to grow trees the focus is to ensure our management disciplines are kept in check to take maximum advantage of this naturally supportive environment and provide a commensurate return to our long term shareholders. We continue to invest in our management teams, often incongruent to the market. Aside from our commercial angle to the business, our broader value proposition includes contributing to eradicating indigenous forest exploitation and illegal harvesting via providing an alternative source of sustainably managed timber populations and related processing for consumer consumption. In addition, dedicated indigenous conservation areas, a total of 32% of our Ugandan land footprint, is intended to stimulate biodiversity, linking and enhancing natural vegetation corridors to support fauna and flora health and indigenous reforestation. Content neighbours offer us a committed workforce and a protective barrier within which we house our incrementally growing asset base. The current 66 active community projects we have implemented to date through a dedicated team of Community Development Officers across our various plantations represent a fundamental cog in our stakeholder engagement process. We have a demand driven and consultative approach in project identification, with a clear drive to ensure project sustainability post implementation, an often forgotten element in typical African aid programs. We have in FY13 taken our community relations approach one step further by registering the New Forests Foundation, an entity with NGO status, an independent board and non-executive chairman. The foundation will house our community activity moving forward, assisting the pace of fund raising for continued community investment. We are enormously proud of the impact we continue to have on the communities within which we work. In-house control of raw material supply improving both our immunity to input price shocks as well as access to a rapidly diminishing resource offers a commercial edge over many of our competi- tors and a model of true sustainability. We look forward to FY14 when we will begin harvesting timber from our own plantations for the first time after 9 years of growing. The various products that we create are by design aimed to move in tandem with the social and economic journeys of the territories in which we operate. Our long term view is that the East African Community will for a number of years display a large appetite for energy, infrastructure, and construction materials we are in turn feeding the sustainability of the countries in which we operate through supply of renewable solutions to satiate this market demand. By definition, every renewable product we supply reduces the likelihood of demand for non-renewable products. We are a team of people with sustainability at heart and an outward looking perspective. We have become quite mechanistic in our incessant quest for quality, sustainability, and shareholder value our operations in Uganda are now all either ISO or Forestry Stewardship Council certified (bar one which will achieve certification in FY14). This allows us to measure ourselves against an external set of global best practice prescriptions and practices to guide our behaviour. We believe this to be a meaningful milestone for an African forestry business, representing a demonstrable commitment to sustainability. Our operation in Rwanda in FY13 is at an early stage, with enumeration activity and project planning representing the initial

7 11 At New Forests, we have implemented a community firewood agreement allowing our neighbours to fetch firewood from designated areas of the forest. This is wood that is deemed unsuitable for our charcoal and transmission pole businesses, but which is perfect for household firewood. steps in replicating our successful approach in Uganda. We are extremely excited to have access to a 49 year concession agreement with the Government of Rwanda for use of a mature hectare timber population containing 1.7m tons energy and construction in particular. Equal focus is being placed on securing a robust sales pipeline. This is necessary to create optimal commercial result from our vertically integrated value chain, especially given the dynamics surrounding the 6 Our present weighting toward key expatriate management and forestry skills represents the beginning of a formal internal growth and development program aimed at marginalising our reliance on this artificially imported (yet critically of Eucalyptus and Pine timber. We look forward month lead time between raw material availability necessary) skill. Our business will enhance its sus- to FY14 where we will implement Rwanda s first and raw material processing readiness in our main tainability and competitiveness through this long transmission pole treatment plant. We have in product line of electricity transmission poles. A term program. FY13 signed a long term renewable charcoal robust order book reduces the requirement of supply agreement with CIMERWA, Rwanda s forward raw material purchase and investment All in all, we are privileged to have the opportunity largest cement manufacturer. This will reduce in working capital. We continue to engage in to work as guests in East Africa. We continue to CIMERWA s reliance on imported heavy fuel oil discussion with transmission pole users across strive toward an organisational culture of learn- another demonstration of our deeply ingrained the region with the intent of standardising pole ing that will assist us in contributing to the rapidly intent on maximising sustainability for ourselves specifications across the EAC this reduces emanating success story that is The New Forests and the customers we serve. speculative activity of pole producers, with a Company. corresponding reduction in the volume of timber Our overarching strategy is to continue being harvested and improving sustainability of growing our asset base against the backdrop the industry. Dave Hardy, CEO Uganda/ Rwanda of overwhelming and accelerating demand for timber products in East Africa infrastructure,

8 Description of the Key Impacts, risks and opportunities to our business: 13 Mobilising Finance and Remaining Ethical The nature of NFC s business is that it has a long term production cycle requiring significant upfront investment over an extended period of time before positive cash flow can be generated. Without the continued support of NFC s financiers the business model would not be sustainable. Risks of raising finance primarily relate to the difficulty of securing loan finance through traditional commercial banking sources due largely to the long term cash-flow cycle of immature forestry businesses. To mitigate this risk, NFC has developed a trusted relationship with a network of development finance institutions in addition to traditional equity finance as providers of long-term finance suited to the Group s cash-flow cycle. The markets within which NFC operates remain challenging in terms of business practice; however NFC through its well established governance infrastructure adopts a zero tolerance for corrupt practices and has been successful in securing significant levels of business based on the principles of competitive pricing, superior quality and excellent customer service. Forest Stewardship Council NFC is not obligated to secure FSC certification, since our business strategy is not to export timber products to Europe, Asia or the Americas. The main motivation for NFC to secure certification is the belief that the FSC represents the gold seal of approval for responsible and professional forest management, stakeholder involvement/ consultation and conservation. The FSC Principles strongly support NFC s vision to become the premier pan-african vertically integrated, socially responsible, sustainable timber company providing high returns for its shareholders, employees, customers and community. It aims to lead in the fields of plantation management, profitability, employment, conservation and community development. It has developed a unique triple bottom line business model based on commercial profitability, community development and conservation to enable it to achieve these goals. NFC s forest management, conservation and community development policies and procedures are supported by its Integrated Management System (IMS). FSC principles and criteria are woven into the IMS prescriptions and best operating practices in such a way as to ensure FSC compliance by simple adherence to NFC s own intra-company system. Of NFC s six plantations in four countries, three are certified under the current certificate. (Certification number C001823, covering the Namwasa, Luwunga and Kirinya plantations in Uganda). The other three plantations FSC certification is phased over the next three to four years as shown in the table below. NFC s phased approach to certification is as a result of the costs associated with Country Plantation Certification year Uganda Namwasa (FSC certified) 2009 certified Uganda Kirinya (FSC certified) 2009 certified Uganda Luwunga (FSC certified) 2013 certified Tanzania Lukosi 2014 Rwanda Nyungwe 2016 Mozambique Chiconono 2017 FSC-C FSC-C FSC-C achieving FSC standards; and this includes building and road infrastructure, construction of stores, forestry issues is planned for October of A follow up meeting with regard to East African fuel tanks, labour transport, conservation area FSC has improved the conservation status and rehabilitation, etc. The average cost of getting a enhanced biodiversity levels of forests. Certification is a catalyst for often substantial changes to plantation to certification readiness is approximately $ $ diverse aspects of forest management, rather than a means of rewarding operations that are already NFC believes itself to be an active stakeholder conducting excellent practices prior to certification. The majority of improvements in certified in the FSC family. NFC initiated an FSC Mission to Africa in August of 2012, when it hosted the forests management areas are identified in forest FSC board of directors on a 10-day tour through management planning inventories, improved monitoring and evaluation, reduced impact logging and Uganda and Tanzania forestry operations, together with three other East African commercial forestry improved silvicultural techniques, the adoption companies. The other companies on the mission of scientific methods (for example in establishing were Green Resources, Global Woods and KVTC permanent sample plots) and biodiversity conservation measures. (Kilombero Valley Teak Company). The aim of the mission was to expose the FSC to the challenges facing commercial forestry companies in FSC certification brings improvements to aquatic East Africa challenges which were observed to and riparian areas and identification and protection of HCVFs and threatened and endangered be dramatically different from Asia, Brazil and even the Congo basin. One result of this mission was the species. NFC for example has set aside HCVF pledge that FSC would establish a regional FSC office in East Africa. This mission was hugely successmercial tree species have been allowed to regener- areas as conservation corridors in which non-comful, with establishment of offices and recruitment of ate. Quite obviously you will find less deforestation FSC representatives underway. To ensure that the and incidence of wildfires within a FSC certified focus and momentum of FSC is maintained in East concessions. Africa, the senior leadership of NFC frequently engages with FSC director general, Mr. Kim Cartensen.

9 The good news is that the new G4 guidelines are more flexible than previous iterations, focusing on what matters and where it matters. I m sure we ll now see more reports that capture the sentiment of their organisation s sustainability story, performance and achievements, and fewer cookie cutter reports that have been all too prevalent of late. 15 Source: GRI G4: A step forward for sustainability or just too daunting? By Jason Perks There have been important social benefits to local communities and forest workers, favouring employment of local people and raising health and safety standards. FSC forest management standards are often higher than those demanded by national legislation and regulations, and their implementation is monitored by FSC accredited certification bodies The impact of FSC certification on workers is both direct and indirect. It promotes new attitudes in relation to workers: increasing the involvement of workers in decisions; improving health and safety; and addressing issues over migrant labor. each of its territories to adequately look after the implementation of all employment related legislation. These HR Practitioners report operationally directly to the Country Manager but they are supervised on a technical basis by the Group Head of Human Resources. The HR Manual for each territory is customised for legal compliance and best practice in each of the Countries. The HR Practitioner in each Country conducts an Audit on each Labour Contractor on a quarterly basis to ensure that the contractor complies with all national employment legislation. Human Resources: NFC strives to comply with all ILO international labour standards via the implementation of all National Employment and Labour Law in all the countries of operation. The Company established a Human Resources function in Commercial Markets in the region: With transmission pole treatment plants active in Ugandan and Tanzania, and with a Rwandan plant going live at the back end of calendar 2013, we believe we are well positioned to take advantage of an estimated market demand of 1m poles

10 ...High sustainability firms outperform the control firms in terms of both Stock market and accounting performance. 17 representing $220m worth of sales. With a The sentiment toward improving access to capability. These demographic trends, plus a 5-6% transfer these skills locally to ensure sustainability. current average EAC electrification rate of circa electricity (and thus the demand for treated economic growth rate through the EAC, will create The Africa slippage factor things taking 10% vs an EAC target of 35%, and an anticipated wood poles) is underlined by president Obama s cascading market opportunities around energy longer to manifest than originally anticipated population growth rate of 40% over the next 10 recent African visit where he has pledged $7B and construction in particular. These represent as and a meaningful degree of inefficiency create years to 200m residents, we believe the existing over five year to doubling access to electricity in yet untapped opportunity for us. challenges that our senior territory teams need overwhelming demand and shortage of local sub-saharan Africa in tandem with market reform. to deal with on an ongoing basis. Fortunately the supply situation will continue to compound. This places anyone with both commercially Risks include a local skills gap. We have chosen to enormity of the favorable macro climate means These market dynamics leave us well placed and sustainably managed plantations and pole bolster our senior teams across the territories with the slippage factor is diluted over the medium to outperform those with long lead time and treatment facilities in a commanding competitive expat related placements to drive the requisite term but does consume an enormous amount of expensive logistical supply lines from outside of position in control of raw material price shocks, operational excellence and performance from the management time and attention in the short term. the EAC. guaranteed supply, and sound processing business, and have a formal program in place to

11 SECTION 2: ORGANIZATION PROFILE New Forests Company Holdings Ltd (Reg. In the UK) 19 Economic Value Generated and Distributed (G4-9) 95% 62% 96% 100% 97% $ 000 s $ 000 s Revenue (including BAV Growth) New Forests Company Rwanda Ltd (Reg. In Mauritius) New Forests Company Uganda UK Ltd Reg. In the UK) New Forests Company Tanzania Ltd (Reg. In Mauritius) New Forests Company Mozambique Ltd (Reg. In Mauritius) Operating costs Employee compensation Community investments Payments to capital providers Payments to government (Excluding VAT) 80% 99% 100% 87% New Forests (Rwanda) Ltd (Reg. In Rwanda) New Forests Company Ltd (Reg. In Uganda) New Forests Company (Tanzania) Ltd (Reg. In Tanzania) New Forests SA (Reg. In Mozambique ) Retained earnings This amount includes both the total spent on community development programmes as well as the amount committed in a mediation settlement with the Mubende community, which was committed in FY13 but will only be spent in FY14. This also accounts for why this figure in the financials will be different from the total $ reported under SO1 as having been spent during FY13 on community development. New Forests Company Management Services (Reg. In South Africa) The total capitalisation, broken down was: Equity $ Debt $ The Quantity of products or services sold amounts to: Uganda treated poles Human Resources (G4-10) (G4-7) New Forests major operations take place in Uganda, Rwanda, Mozambique and Tanzania, with six plantations and two pole plants: Mozamique Tanzania Uganda Tanzania 5020 treated poles END FY 12 PLANTED IN END FY13 ACTUAL AFTER FY13 PLANNING VERIFICATION Workplace Johannesburg Mozambique Rwanda Tanzania Contractors Male Female Seasonal Employees Male Female Permanent Employees Male Female To tals Rwanda Uganda Total Totals

12 SECTION 2: ORGANIZATION PROFILE 21 MALE FEMALE MALE FEMALE MALE FEMALE MALE FEMALE MALE FEMALE 64% FULL TIME 36% FULL TIME 56% FULL TIME 4% SEASONAL 37% FULL TIME 3% SEASONAL 23% FULL TIME 75 % CONTRACTOR 0% FULL TIME 2% CONTRACTOR 9% FULL TIME 84 % CONTRACTOR 1% SEASONAL 1% FULL TIME 5% CONTRACTOR 0% SEASONAL 9% FULL TIME 2 % CONTRACTOR 76% SEASONAL 2% FULL TIME 76% CONTRACTOR 13% SEASONAL Report the percentage of total employees covered by collective bargaining agreements (G4-11) None of our employees are covered South Africa - The Johannesburg Mozambique Due to legislator Rwanda The aim is to employ all key Uganda The bulk of the workforce Tanzania Historically, the Com- by a collective bargaining agree- office employs staff on a perma- restrictions, all plantation labour is personnel on a permanent basis. Due is composed of the staff of self- pany employed a number of self- ment. The Mozambican Government nent basis to fill the strategic senior employed on a permanent basis. to the high expectations of all the employed contractors. The produc- employed contractors to provide regulates the minimum wage of all leadership of the company, offering The Company does employ seasonal neighbouring communities in terms tivity of the contractors is sufficient labour for the normal plantation agricultural sectors. The regulation specialised skills and experience in labour on a fixed term contract for of employment, all seasonal labour and gives these local, self-employed functions. The labour contractors of the minimum wage is promulgat- Forestry, Finance, Corporate Re- a specific task such as additional would be employed from the commu- contractors an opportunity to run could not provide a sustainable ed in April each year for implemen- sponsibility, Human Resources and labour for the preparation of fire nities which are in the closest proxim- their own businesses and provide number of workers throughout the tation. The Tanzanian Government Planning. breaks. The seasonal labour is also ity to where the Company operates. employment for a number of people. last year and the Company resolved promulgated the first minimum recruited from the neighbouring The mountainous terrain in Rwanda The people employed by the con- to employ more employees directly wages for the agricultural sector this communities. would make it fairly difficult to trans- tractors must be from the local com- in order to remain on target with the year. These had no effect on the port staff from one side of Nyungwe munities, as per the requirements of execution of the annual plan of op- Tanzanian operational budget as the to the other. The policy to employ the contracts between the company erations. These seasonal workers are Company already pays more than local people is thus, not merely a and the contractors. employed on fixed term contracts as fifty percent above minimum wage. preference, but a far more economi- per the need of the business during cally and socially prudent option. the year. The Company also found that the level of supervision by the contractors was very low, which KEY: resulted in a decrease in the quality of the Silviculture operations. MALE : FULL TIME SEASONAL CONTRACTOR FEMALE: FULL TIME SEASONAL CONTRACTOR

13 INTERNAL & EXTERNAL 3RD PARTY IMPROVED SEED NEW FORESTS NURSERY SEEDLINGS SITE SPECIFIC SILVICULTURAL PROCESS NEW FORESTS HARVESTING POLE PLANT/SAW MILL SUPPLY CHAIN 23 EMPLOYEE MANAGEMENT PHILOSOPHY DELIVERY, QUALITY, PEOPLE, COST, INNOVATION AND RISK. RECRUIT EXPERIENCE IN FORESTRY ADHERENCE TO HEALTH & SAFETY STANDARDS ADHERENCE TO BEST PRACTICE OPTIMAL HARVEST SCHEDULE TRAIN STAFF & LABOUR AND ADHERE TO LABOUR LAWS THE SLA MEASURES ADHERENCE TO COST, PAYLOAD, LANE RATE, TIMELINES, STANDING TIME, HEALTH AND SAFETY TARGETS We at The New Forests Company believe that contractor management; inbound, outbound, and reviews have a punitive impact, but more often Report any significant changes during the report- effective supply chain management is the glue inter-facility transportation management; on site than not the founding premise is to identify risks ing period (G4-13) that holds our value chain together. On this basis activities at processing facilities: so the list of before they manifest in tangible consequence to The key developments during the period ended 30 we follow a stringent supply chain, supplier, and supply chain management activity goes on. allow a change in approach. June 2013 were as follows: compliance management program as an intrinsic The commencement of trading at the Pole part of our operational process. This can be divid- Whether internal or external centric, we manage To make practical the ethos described above, our Plant business in Tanzania in January 2013 ed into two components internal and external. the principles of supply chain management in a transporters are managed via a service level agree- The establishment of the Rwandan business Internal involves those aspects of the supply chain similar fashion. Each custodian at every step in ment mechanism. The SLA measures adherence to operations including the ordering of harvesting, that are conducted by our own staff, with external the process has a scorecard a set of deliverables cost, payload, lane rate, timelines, standing time, pole treatment plant and charcoal production fa- focusing on 3rd party providers. that have been distilled into a mutually agreed set health and safety targets, etc. Our employees have cilities due for completion in Q2 of FY 14 of key performance indicators leading and retro- scorecards (group and individual based) which The commencement of harvesting operations Sourcing the appropriately cloned seed that liter- spective. This permits a forward view of any likely delineate measurement criteria per each of the 6 at Namwasa, Uganda in July 2013 ally forms the foundation of our raw material stra- changes in trends, so activities can be corrected pillars of our employee management philosophy Concluded favourable supply agreements for tegic supply line; broadening raw material sources prior to the performance consequences becoming delivery, quality, people, cost, innovation and risk. treatment agent used in the pole business to include 3rd party growers and the speed of irretrievable. It also permits management against Our 3rd party pole suppliers are measured against Off-take agreement concluded in Rwanda for material readiness; nursery management; the global benchmarks, customized to local dynam- requirements aligned to our customers expecta- sustainable industrial charcoal supply perpetual process of in-field plantation manage- ics. Depending on the nature of the activity and tions, and represent the front end of an ISO certi- ment customized across both the age and species its position in the value chain, performance re- fied production process. We at The New Forests of the timber in question; 3rd party equipment views are conducted on a continuum ranging from Company believe supply chain management to be and material supplier management; harvesting monthly to bi-annually. In some instances these the cornerstone of our business sustainability.

14 25 NFC has invested USD 66.7 million over seven years in the long-term establishment of new forests, with the majority of finance flowing to Uganda. NFC Holdings currently represents USD 100 million in biological asset value (BAV). The New Forests Company s focus has been on the establishment and management of green fields commercial forestry operations, building a base from which a sustainable and regular flow of timber can be delivered to upstream processing facilities. The company plants genetically robust, high quality hard-wood species - eucalyptus and pine trees. Eucalyptus can be ready for commercial sales as early as year eight of growth, pine year twelve, with opportunities available earlier on to add value to the biomass waste generated from thinning and stand maintenance. The UK-based New Forests Company Holdings represents its companies in East and Southern Africa. Each active country of operation is a business subsidiary, with a country manager, plantation team(s) and necessary support structures in finance, human resources, planning and corporate responsibility. The Holdings company -itself, through support from New Forests Management Services Pty Ltd, based in Johannesburg, South Africa, is responsible for effective brand development and explores new business opportunities in the commercial forestry sector and its related products. It offers oversight services in financial management, human resources, planning and corporate citizenship. The group s Executive Committee sits in the South African office, meeting quarterly to review and advise on developments across all territories. Each subsidiary is represented by its own local board of directors, and is privately owned by various shareholders.

15 SECTION 3: REPORT PROFILE 27 New Forests publishes an annual sustainability report, which captures the company s activities each fiscal year. The reporting period for this publication is July 1st 2012 through June 30th 2013, representing the company s fiscal year NFC s last report was published in October, 2012, detailing FY12. We are enormously proud of the impact we continue to have on the communities within which we work. -Dave Hardy, NFC Uganda & Rwanda CEO All queries and comments regarding this report and its contents can be forwarded to the attention of the Group s Head of Corporate Responsibility, Kate Sharum: Kate.sharum@newforests.net 177 Jan Smuts Avenue Lumley House, ground floor Rosebank, Johannesburg

16 SECTION 4 : IDENTIFIED MATERIAL ASPECTS & BOUNDARIES (G4-18 through G4-23) Below: The Health Unit on Namwasa Plantation, Uganda. The Namwasa Health Unit is managed by the Church of Uganda, Mityana Diocese and serves both New Forests labour and the wider community. Materiality With the introduction of the GRI G4 reporting guidelines in 2013, companies reporting according to the GRI standards are met with a new and thought provoking task: instead of feverishly collecting data at the end of the year to satisfy a targeted number of indicators in order to earn one s company an A or B or C grade, the shift has been toward reporting according to values of materiality and relevance. What is material to one company in a specific industry or sector may not be material for another. The process of assessing which indicators and which pieces of information are material to New Forests was both challenging and valuable. With each year of sustainability reporting, we have aimed to report on additional indicators while still reporting on those from years past. The desire to add more pieces of information to an already information-heavy report produces the undesired outcome of reader fatigue, wandering scope and ambiguous priorities. Stakeholders want to hear about information relevant to this business information that reflects that which is important to us, that which will help or hinder our growth and that which will contribute to or detract from achieving our goals. What is within and what is outside the boundaries of our materiality? That which is material to New Forests is that which mitigates risk to ourselves and our neighbours, adds value to our business and ensures a sound ecological and investment climate for sustainable forestry in Africa. These are the guiding priorities we use to formulate our annual plans of action and to select our reporting indicators for this GRI G4 report. We will provide a focused account of our risks as a private investor working in rural Africa. We will articulate and analyse our commitment to achieving Forest Stewardship Council (FSC) certification on all plantations, including our plans and timelines for full group FSC certification. We will narrate our commercial footprint thus far and discuss that which will pave the way to expanded commercial activity. And we will report on our social and environmental impacts, as a responsible and intentional investor in commercial forestry. 29 Stakeholder Group Neighbouring communities Staff and labour NFC Board and Shareholders Material Priority area Mitigating Risk Adding value to the business & ensuring longevity Ensuring a sound ecological and investment climate for forestry in East Africa Indicators EC6, HR1, EC7, HR9, HR11, SO1, SO2, SO10 EC1, EC2, SO4, EC6, EN11, HR6, HR7, HR10, LA4, LA1, LA12, HR11 EC1, EC2, SO4, EN11, EN12, EN13, EN14, EN23, HR11, SO10

17 SECTION 5: GRI CONTENT INDEX 31 (G4-32 ) GRI Content Index for In accordance Core GRI Content Index for In accordance -Core Report General Standard Disclosures STRATEGY & ANALYSIS G4 1, 2 Page(s) External Assurance No ORGANISATIONAL PROFILE G4-3 TO 16 No IDENTIFIED MATERIAL ASPECTS & No BOUNDARIES G4-17 TO 23 STAKEHOLDER ENGAGEMENT G4-24 TO 27 No REPORT PROFILE G4-28 TO 33 No GOVERNANCE G4-34 ETHICS & INTEGRITY G4-56 No SPECIFIC STANDARD DISCLOSURES Material Aspects DMA & OMISSIONS External Indicators Assurance Mitigating Risk Adding value to the business & ensuring longevity G4-SO1 Percentage of operations with implemented local community engagement, impact assessments and development programmes. None Yes Mitigating Risk Adding value to the business & ensuring longevity G4-SO2 Operations with significant potential or actual negative impacts on local communities. None Yes Mitigating Risk Adding value to the business & ensuring longevity G4-SO10 Prevention and mitigation measures implemented in operations with significant potential or actual negative impacts on local communities. None Yes Ensuring a sound ecological & invesment climate for forestry in East Africa G4-EN11 Location and size of land owned, leased, managed in, or adjacent to, protected areas and areas of high biodiversity value outside protected areas. Nyungwe Buffer Zone maps -33% estimation None Yes

18 We are a team of people with sustainability at heart and an outward looking perspective. -Dave Hardy, NFC Uganda and Rwanda CEO 33 SECTION 6 : REPORT PROFILE: ASSURANCE (G4-33) land management. As the company grows we want to move towards full external assurance and SECTION 7: GOVERNANCE (G4-34) which have individual responsibilities for managing priorities in the risk register. Updates to and It is the policy of New Forests to expose all we have put in place a road map to do this over The highest governance body at New Forests is amendments of the risk register are reported to facets of the company to external review and the next three years. We hope you appreciate this the Board, at the level of the New Forests Com- the Board s audit committee for a semi-annual interrogation. This includes financial, forestry attempt by us to create more credibility in you, pany Holdings Ltd. It is comprised of five individu- review. The Board is comprised 100% of males; in and sustainability auditing as well as community the reader and stakeholder, that we are on the als who represent a rich fusion of business acumen FY13, the Executive Committee, comprised of sen- development evaluations. For the first time, we right path. The CEO, CFO and Head of Corporate and field-based Africa experience in agri-business, ior management, had one female. sought independent assurance on the accuracy Responsibility were involved in both the decision politics and community engagement. The board of four key performance indicators contained in to seek external assurance and the selection of members hold shares in the company, and for this The Executive Committee plays an important role this report from a credible external assurance an assurance provider. The FY13 external assur- reason aren t independent, though three members, in ensuring that employee concerns and recom- provider. Deloitte undertook a limited assurance ance is in line with the Global Reporting Initiative including the Chair, are non-executive. The CEO mendations can be heard at the level of the Board. review of four agreed upon performance indica- (GRI) Sustainability Reporting Guidelines and is a and CFO hold board positions. Exco is made up of senior management staff, each tors and their independent assurance opinion Public, Limited Assurance. of whom oversees the work for field-based teams can be viewed on the last page of this report. Environmental, social, and economic concerns are in each country of operation. Through regular The key indicators we have submitted for ex- not devolved down to individual board members visits to each territory and weekly calls with team ternal assurance this year pertain to community as core responsibilities, but instead are deliberated members, Exco members have the opportunity to engagement and social impact, mitigation of and analyzed on a quarterly basis during meetings. hear first-hand accounts of challenges, complaints, potential and actual negative impacts on local The board receives important feedback from the or recommendations to include in the risk register communities and environmentally sustainable five person Executive Committee, the members of and deliver to the Board.

19 SECTION 8: ORGANISATIONAL PROFILE: COMMITMENTS TO EXTERNAL INITIATIVES b) socially beneficial forest management helps both local people and society at large to enjoy in Uganda a socio-economic, profitable and environmentally sound industry. In FY13 our Ugandan Forestry Association Niassa: The Forestry Association Niassa (FAN) was cre- 35 (G14 through G4-16) long term benefits and also provides strong incen- Forestry Manager held the seat of Vice Chairman. ated by the 5 forestry companies (New forests, tives to local people to sustain the forest resources Chikweti, Floresta de Niassa, UPM & Green Re- and adhere to long-term management plans; and Federation of Ugandan Employers (FUE) We are sources) in Niassa province of Mozambique. The The precautionary approach to our operations is employed by conducting EIAs and Biodiversity studies at all plantations and value added timber processing sites to record environmental implications of our business. In addition, we conduct Social baselines and PRAs to assess the extent to which any social harm may be caused by the presence of our company. These reports then lead to our devising mitigation action plans, which are overseen by Exco and implemented in the territories to avoid causing environmental, economic or social harm. Externally developed economic, environmental and social charters, principles or other initiatives to which NFC subscribes would include the Forest Stewardship Council (FSC), the ILO, ISO standards and the IFC performance standards for investors. c) economically viable forest management means that forest operations are structured and managed so as to be sufficiently profitable, without generating financial profit at the expense of the forest resource, the ecosystem, or affected communities. The above 3 goals are synonymous with our approach as a forestry and diversified timber products business, and thus we subscribe to the internationally recognized certification as a standard operating practice and are playing an instrumental role in supporting the crafting of how FSC caters for African idiosyncrasies. Norfund Technical Assistance Fund / AgriVie training initiatives focused on forestry technical skills. This is a privately driven process that we are delighted to be part of providing professional training expertise and matched funding into our Ugandan members of the Federation of Uganda Employers (FUE) which is a body that brings together employers in Uganda. It deals with issues related to employment legislation, trade union activity and advocacy for employers. We are members due to: FUE works closely with the government, and the National Organisation of Trade Unions to strengthen tripartism that brings the social partners together to promote industrial peace, enhance employment support social security, develop vocational and managerial skills. FUE serves on various tripartite bodies namely; the National Social Security Fund, Labour Advisory Board, Minimum Wages Advisory Board, Uganda Industrial Court among others. It is affiliated to the East African Business Council, East, Central, and Southern African Employers Conference, Pan-African Employers Confederation, International Labour aim is to create a platform where the forestry companies can communicate with each other, share ideas and address common problems as a collective. It also allows for an easier way for government, NGO s and third parties (Technoserve, goods and services providers) to engage and communicate with the forestry companies as one group. FAN exists to allow for the following: 1) Gather information on the footprint of forestry in Niassa 2) Discuss Land and Land acquisition issues 3) Improve relations with government and other parties 4) Set up standards, rules and parameters on how forestry should operate to the benefit of all stake holders 5) Provide a forum that is easily accessible for suppliers of goods and services to address the forestry industry 6) Create a Newsletter to promote forestry to List memberships of associations (industry) and national or international advocacy organisations in which the organisation is involved. (G4 16) business. Uganda Timber Growers Association formed in 2007, the association brings together commercial Organisation where it represents Uganda employers. FUE advocates for employers on policy issues and represents employers interests on different National, Regional and International bodies which the surrounding communities and to teach and educate the general public about forestry and its value add to the environment, the economy and to community development Forestry Stewardship Council all three NFC plantations in Uganda are officially FSC certified. FSC aims at achieving 3 fundamental aspects tree growers in Uganda for purposes of promoting public awareness, advocacy and lobbying for the commercial forestry sector in the country. To promote training, research and development in the have a bearing on Labour, Employment, Business and Social issues. Through our Community Development Officers, 7) Formulate plans on addressing broad, intentional community development and preferred implementation mechanisms 8) Identify training needs and collectively raise a) environmentally appropriate forest manage- commercial forestry sector, and to promote stra- the company also participates in planning and the standard of training offered and training re- ment, meaning ensuring that the harvest of timber tegic partnerships through an actively networking information sharing events organised by the Local quirements set in order to improve labour force. and non-timber products maintains the forest s community. The overarching aim of the UTGA is to Government Councils. biodiversity, productivity, and ecological processes; ensure a sustainable commercial forestry industry

20 SECTION 9: STAKEHOLDER ENGAGEMENT 37 (G4-24 through G4-27) Stakeholder engagement and consultation have, since New Forests beginning, formed a critical part of its constructive risk mitigation strategy. Rather than invest in high walls, electric fencing and armed guards, New Forests has chosen to proactively engage with communities, communicate company plans and targets, work collaboratively to erect and improve development infrastructure and invest in establishing microenterprises that grow in harmony with and are strengthened by the presence of the forest. Above: Community consultation meetings conducted with the Sub-County Chairman at Kirinya Plantation, Uganda. As a large scale investor working exclusively in rural Africa, with a long-term investment horizon, New Forests invests a great deal of time and thought into risk mitigation. Many identified risks are addressed by the company corporate responsibility strategy and three of the largest of which are fires, access to land and FSC certification. Through active and involved community partnerships; constant communication; concerted investment in health, education and livelihoods enhancement strategies; and shared ownership of projects and problems with local leadership, New Forests has managed to lose comparatively less assets to fire, secure more land and remained certified, despite considerable challenges in reconciling international standards with local law. By keeping our stakeholders near, remaining on top of community issues and investing in the upliftment of our neighbours rather than in their exclusion, New Forests has managed to mitigate these risks effectively. We believe that when the interests of communities are merged with the interests of the company, what results is a robust and highly effective development partnership, through which, all parties benefit. We are proud of the strength of these partnerships and the scale of success they have achieved. Above: Community consultation meetings at Namwasa Plantation, Uganda.

21 SECTION 10 : ETHICS & INTEGRITY (G4-56) VISION STATEMENT: NFC s vision is to be Eastern Africa s most successful and self-sustained integrated timber business. MISSION STATEMENT: New Forests Company s ambition is to become the premier pan-african vertically integrated, socially responsible, sustainable timber company providing high returns for its shareholders, employees, customers and community. It aims to lead in the fields of forestry, profitability, employment, conservation and community development. NFC VALUES: INTEGRITY, INSPIRATION, INNOVATION INTEGRITY: Honesty Openness Accountability - no acceptance of poor performances Doing the right thing - always We are ethical and trustworthy Walking the talk Fully committed to the organisation and its efforts INSPIRATION: Lead by example We are always looking for reasons to be optimistic Investing in the growth of people Mentorship is always top of mind each one teach one Making a positive difference in other people s lives Always striving to live the vision Connecting with our planet and doing whatever we can to protect it Enabling economic growth in Africa INNOVATION: Implement new ideas in a measured way but with urgency We are open to new ideas We share best practices with our colleagues We encourage people to make decisions with accountability Always challenging assumptions Always striving for excellence and looking for better ways to do things 39

22 PART II. G4 SPECIFIC STANDARD DISCLOSURES: SECTION 11: SOCIAL INDICATORS: 41 Bilton Forest High School is the third complete secondary school that New Forests has constructed with our neighbouring communities. It is located in Bugiri District, just outside the Kirinya plantation and close to the Kenyan border. BFHS is the only secondary school in this sub-county. During FY13, the Corporate Responsibility department achieved significant match funding in Tanzania, expanded its reach of social baselines in Rwanda and mitigated risk to the company through the settlement of the complaint by the the settlement negotiations with the Kiboga community. We will be implementing and monitoring the settlement terms of the Mubende agreement for the coming four years Completion of Bilton Forest High School, Bu- tracking the most significant change brought about by the bee keeping and honey production programme-a highly participatory and positive opportunity for reflection by both the company and our bee keepers. Overwhelmingly the interviews Mubende affected community in Uganda. lidha; the largest and best-resourced second- and video snap shots reveal stories of community ary school in the area, which lies just outside the members who were initially very resistant to NFC A country-by-country account of the FY13 activity Kirinya plantation boundary and which boasted 89 and who felt displaced; but who now feel grateful, is given below: students during its first term in operation. Total empowered, and who are economically benefitting Uganda: project cost: $400,000 funded by an independent from their partnership with the company. Settlement of the CAO mediation with the donor Mubende Affected Community and beginning of Completed the InsightShare Participatory video,

23 Rwanda: Continued working with the Ministry of Natural Resources to methodically document all claims to land or trees currently within the mapped buffer zone. The Ministry has vowed to take one of several courses of action to settle this matter and appease the communities among these options are compensation, allocation of alternative land and redrawing of the buffer zone boundaries. In this last instance, NFC could quickly begin forming positive relationships with the claimants by buying timber directly from them. Finalised partnership agreement with SNV to support bee keepers currently operating in the buffer zone, an important interest group/stakeholder for NFC as there has been great fear and anxiety about what NFC s arrival on the scene will mean for locals and how it will disrupt illegal practises that have been taking place within the buffer. While cultivation and charcoal burning are activi- Tanzania: Raised $70,000 in external funding for the CR department sources included Lyra in Africa (UK charity), the Infinity Founation (Swedish charity) and the Tanzania Forest Fund, a national grant making entity under the Ministry of Natural Resources and Tourism. Completed two projects in Lundamatwe village (across the road from our Pole Plant)- the Lundamatwe Primary School Teachers accommodation (responding to the rising absenteeism of teachers) and the Lundamatwe Secondary School Girls dormitory, kitchen and latrine block a project aimed at reducing risk to young girls who walk long distances to attend school and who are vulnerable to various nefarious predators and other threats. This ladder project was implemented in partnership and in joint funding with Lyra in Africa, an NGO established by our long time donor and friend, Maria Spink. Mozambique: Continuing conversations with both the Cadastral office and the Regulos/Kings in two different areas of Muembe District to acquire additional land The green revolution agricultural project saw great success with the soya bean pilot producing both high yields of soya and also a hungry market for the product amongst the chicken companies in the Province. This has been a profitable pilot for our farmers and will be expanded next season. This project is of strategic interest to NFC as the farmers commit themselves to land that is off the plantation, using conservation agriculture techniques, reducing pressure on forestry land. In addition, the increased income for the farmers has allowed for expanded investment in local businesses and a proliferation of commodities now available to our staff, labour and communities Annual spending on corporate social responsibility, across the group. Percentage of operations with implemented local community engagement, impact assessments and development programmes. (G4-SO1) In FY13, New Forests invested $ in the community development and stakeholder engagement work of the company, through the corporate responsibility department. This represented 5.6 % of the group total FY13 operating costs and 1.9% of the total revenues. New Forests has invested $ in community development and stakeholder engagement from 2005 through fiscal year And in FY14, the company plans to increase its annual investment by almost 8% above the FY13 allocation, which will be $ ties we will work against, bee keeping is an activity which we plan to allow and support in the buffer. Finalising a partnership agreement to support bee keepers in the buffer zone, under Wildlife Conservation Society (WCS), who have been effectively managing the indigenous Nyungwe National Park since the 70s.

24 New Forests has established a highly organised, participatory, proactive community development programme, with a presence and plan of action at each plantation and value added timber products site. Below is a breakdown: Community development staff in Uganda, Tanzania, Rwanda and Mozambique have completed PRAs or social baseline exercises at all plantations and subsequently developed detailed community the impact of our community development investment. In FY13, our Corporate Responsibility Programme Manager in Rwanda conducted a participatory rural appraisal within the communi- by the Rwandan Development Board (RDB). We have identified one are of improvement within our community development and stakeholder engagement process to be the formalisation of development investment plans with local leader- ties surrounding our initial area of investment, the community consultation. We aim to improve the 100% of NFC operations have conducted Environ- ship and implemented said programmes. Last Kitabli area of the Nyungwe National Forest buffer formality with which we record community meet- 45 mental Impact Assessments (EIAs) and 88% have year, the Uganda CSR Department underwent a zone. Based on the results of this first Rwandan ings and the thoroughness of community meet- completed either Participatory Rural Appraisals large-scale impact assessment, which revealed PRA, we will introduce our ninth community en- ing records by keeping detailed meeting minutes, (PRAs) or social baselines. 100% of NFC opera- critical and useful feedback on the department, gagement and development programme in FY14. having participants sign off on meeting minutes tional sites have active local engagement sched- our work and the impact of projects delivered thus In addition, in FY13, the company underwent an and attempting to record in written form, more of ules and have received community development far. In FY13, our CR department began implement- environmental impact assessment of the proposed what is currently conducted verbally. investment. ing relevant findings of the evaluation to improve pole treatment plant, which has been accepted Country Operation Community Engagement Impact Assesments Developement Programmes Country Operation Community Engagement Impact Assesments Developement Programmes Uganda Namwasa Plantation Est 2005, active CDO; Weekly community meetings, biannual District meetings EIA Biodiversity Study PRA CSR Evaluation The largest and most established site of initial apiculture programme Rwanda Nyunge Buffer Zone Plantation Est 2013, weekly meetings with District government; quarterly meetings with Nat Gov EIA PRA Youngest programme; planning advanced assistance to bee keepers; coordinating with gov Kirinya Plantation Est 2006, active CDO; Weekly community meetings, biannual District meetings EIA PRA CSR Evaluation The second eldest and most established; site of largest out grower programme Tanzania Lukosi Plantation Est 2010; biweekly meetings with District gov; weekly meetings in communities EIA PRA Social Baseline study Established health and education infrastructure projects; out growers and planning apiculture Luwunga Plantation Est 2009, active CDO; Weekly EIA PRA Partnerships with Church of Uganda; out Lundamatwe Pole Plant Est 2011; biweekly meetings with District gov; EIA PRA Focus on Educational infrastructure thus far community CSR Evaluation growers, apiculture quarterly community meetings, biannual meetings District meetings Mityana Pole Plant Est 2010, recieves CDO support from Luwunga; biannual Community meetings EIA Out growers programme; support for public road Mozambique Chiconono Plantation Est 2008; weekly meetings with local Regulos/ Kings; quarterly meetings with District Gov; annual meetings with EIA Social Baseline First forestry private sector led community developement fund / commitee in the Province; microfinance; education; agriculture Provincial Gov

25 Prevention and mitigation measures implemented in operations with significant potential or actual negative impacts on local communities. (G4-SO10) The prevention and mitigation measures implemented in response to negative impacts on local communities are: POTENTIAL NEGATIVE IMPACT MITIGATION MEASURE POTENTIAL NEGATIVE IMPACT MITIGATION MEASURE 47 FIRE Fire breaks, water tenders, watch towers. HEALTH & SAFETY RISKS Always use protective clothing and equipment (PPE s). Implement safety regulations, prevent unauthorized access to the plant site. WATERSHED DAMAGE Responsible forestry practises, observance of 50 metre planting distance from all streams and rivers. Keep the plant clean; prevent all fire sources, health and safety refresher trainings. NOISE POLLUTION Transporting poles during peak hours when people are still working or at school. LOST INCOME FROM THE USE OF LAND NOW USED FOR PLANTATION FORESTRY OR VALUE ADDED TIMBER PRODUCTS PROCESSING Proactive and participatory community development programme: Livelihoods support in tree out growers farming, apiculture/ honey production and agriculture DUST Control waste collection and transporting timing, do not exceed working hours. Control waste collection and transporting timing, do not exceed working hours. Maintaining slow pace Wetting the roads during dry season or when necessary Upgrading and addition of social infrastructure Job creation in areas and for communities most affected by New Forests work It is a fact that New Forests plantation operations are conducted on large areas of land and that much of that land was previously used by our neighbours. Physical displacement is a process that is conducted in a slow, fair, consultative, participatory, informed manner and is guided by International Finance Corporation (IFC) performance standard five. In Tanzania, for example, New Forests has paid over $1 million in compensation to communities that volunteered areas of land, upon which they had once cultivated crops and/or grazed cattle. Nonetheless, the condition of physical displacement is an actual negative impact, which must be mitigated by the company. CHEMICAL SPILLS As part of it s Integrated Management System, NFC has developed a procedure for the responsible placement, control and ACTUAL NEGATIVE IMPACTS MITIGATION MEASURES use of its fuel tanks, notably the use of bund walls. NFC uses only FSC approved herbicides at its Uganda plantations and is working toward full FSC herbicide compliance across the remaining plantations. All treatments and washing of plastic containers take place within a prespecified zone. This area falls within a banded area, protected by concrete to prevent the leakage of Physical Displacement of persons, their crops, livestock and temporary housing Conducting a comprehensive, thorough analysis of the area through social baseline and participatory rural appraisals to establish the size and scope of land use before plantation establishment Engaging in dialogue with community leadership and land users to establish whether there is willingness to volunteer the land for plantation use and the costs of compensation chemicals into the soil. Chemicals are collected in the band Carry out compensation and/or assist to locate alternative land for use and re -used; anything that can t be-reused is buried in a concrete-lined pit to check seeping effects. Follow up with former land users during community meetings in order to assess whether alternative land is satisfactory and whether all former land users are content with New Forests use of the land

26 settled in the Mubende and Kiboga Districts of Uganda, about perceived rights to constitutionally protected land within the Namwasa and Luwunga Central Forest Reserves (CFRs). While land rights in Uganda is a matter of heated debate and some controversy, there are very clear laws and policies about land rights within government-delineated CFRs areas of land protected by the government for the people of Uganda, on which specific activities may take places, such as conservation of indigenous forests, wildlife conservation and tourism or forestry. In the National Forestry and Tree Planting Act of 2003, the government clearly outlined those activities that are allowed and those that are prohibited within CFRs. 49 Operations with significant potential or actual negative impacts on local communities. (G4-SO2) When approaching this indicator, it is worthwhile to describe how we define and understand significant. We understand that as a large land holding investor in rural Africa, it is especially incumbent upon us to reflect on what our presence will change with regard to activities and micro-enterprises at work on the land, before our arrival. To us, significance has as much to do with the person being impacted as it does to the entity doing the impacting. As a result, we think through and list all potential negative impacts of our investment, regardless of how seemingly harmless or insignificant. We realise that what may be deemed relatively non-invasive to one neighbour may be a significant disturbance to another; and beyond that, significant negative impacts are not always about magnitude or volume of people affected, but also by the influences those people will have to undermine reputation, question integrity and The operations with significant potential or actual negative impacts on local communities are the forestry operations in Uganda, Tanzania, Mozambique and Rwanda and the commercial pole treatment plants in Uganda and Tanzania. The potential negative impacts of the forestry operation are: fire, watershed damage, noise pollution, physical displacement and displacement of grazing & crop cultivation activities. The potential negative impacts of the pole plant are: potential spill of pole treatment chemicals, dust created by pole Lorries and noise pollution caused by pole Lorries as they move poles to market. The actual negative impact of the plantation operation is physical displacement. In terms of actual negative impacts on two local communities, this matter is covered in more depth under indicator G4-HR9. Operations and significant suppliers identified as having significant risk for incidents of child labour, and measures taken to contribute to the effective abolition of child labour (G4-HR 6) We require that the labour provides reference/clearance from their local councils and District Security Officers who confirm that labour are above the age of 18 and do not have security records this is a contractual requirement. This is checked via our quarterly audits done on the contractors. In addition to quarterly audits, our Plantation Managers conduct spot checks on the labour and when under age labour is found, the contractor is warned once with a second occurrence leading to termination of contract (one such contract termination was carried out at Luwunga in February of 2013). Total number of incidents of violations involving rights of indigenous people and actions taken. (HR 9) During FY13, there were no new incidents in which the rights of local people were in question. In It is clearly a risk to NFC for any community member to feel aggrieved by our management of the CFRs; therefore, NFC voluntarily entered into mediation with the affected communities, led by the office of the Compliance Advisor/ Ombudsman (CAO). The Compliance Advisor Ombudsman (CAO) is the independent recourse mechanism for the International Finance Corporation (IFC) and Multilateral Investment Guarantee Agency (MIGA). The CAO responds to complaints from project-affected communities with the goal of enhancing social and environmental outcomes on the ground. (source: ) In July of 2013, the mediation with the Mubende affected community was successfully settled, marking a mutually agreeable resolution that will both respect the losses of affected communities as well as the laws of Uganda. The mediation between New Forests and the second affected community has begun and we hope for it to be settled during FY14. otherwise hold the company accountable. FY12, complaints were raised by communities

27 51 SECTION 12: ENVIRONMENTAL INDICATORS: Above left to right: Namwasa Plantation, Uganda Luwunga Plantation, Uganda Kirinya Plantation, Uganda Left to right: Lukosi Plantation, Tanzania. Chiconono Plantation, Mozambique. Nyungwe Buffer Zone, Rwanda New Forests recognizes that as a business dependent on land, it has a vested interest in ensuring that the areas in which it works, and the land its neighbors rely on for their livelihoods, maintains its biodiversity richness and the quality of its ecosystem services. Climate change and attendant extreme weather events, in particular, can impact watersheds, tree growth rates, biodiversity denseness and local food security. With a long-term view on its presence in East Africa, NFC has a proactive approach to managing its land assets, from the use of responsible forestry practices and helping neighbors build resilience to climate change to actively conserving indigenous forests, wetlands and woodlands. Location and size of land owned, leased, managed in, or adjacent to, protected areas and areas of high biodiversity value outside protected areas. (G4-EN 11) For this indicator, we will display the maps of our plantations, which border or include conservation areas or areas of high biodiversity value. For New Forests, the conservation zones we speak of are those contained within the Forest Management Unit or land concession and thus, are surrounded by our plantation forests. The table below provides areas in hectares with the final row converting the totals into kilometers squared. New Forests counts as conservation area, any area within the forest concession that is being protected and preserved based on it s pristine, natural or cultural value. The location and size of land being reported under Conservation Area is only that which is within the licensed or leased forest. No land being protected or considered to have high biodiversity value, which lies outside the forest concession or borders the concession is included in the Conservation Area. This is because New Forests assumes full financial, operational and logistical responsibility for the land both plantable and non-plantable within it s formal boundaries, and cannot assume responsibility for land outside it s boundaries which may have conservation value but which is managed by another entity. For example, our Nyungwe Buffer Zone concession is adjacent to the Nyungwe National Forest, a pristine, protected, highly valuable national asset which we will help to protect and promot, but which we will not consider company conservation area. SEE CORRESPONDING MAPS OF PLANTATIONS ABOVE Country Uganda Total UG Tanzania Total TZ Mozambique Total MOZ Rwanda Total RW Total NFC Converted to square kilometers Plantation Namwasa Luwunga Kirinya Lukosi Chiconono Nyungwe NFC Total Area Total Plantable Planted end FY Plant area left Conservation area The total area mapped for Rwanda up to date equals Ha. This is however not the total area of the estate, and some gaps still exist in the map, awaiting final GPS verification. We conducted a sample test to determine the relation between commercial and conservation areas on Nyungwe, from which we determined the total area figure of Ha. This will however only be undisputedly confirmed once the GPS process has been fully concluded, within the coming two years.

28 Description of significant impacts of activities, products, and services on biodiversity in protected areas and areas of high biodiversity value outside protected areas (EN12) 53 SUMMARY OF CHEMICALS/HERBICIDES/PESTICIDES USE IN NFC OPERATIONS - FY13 Commercial Name of Pesticide/Chemical Active Ingredient Volume Uganda Mozambique Tanzania Volcano (L) Glyphosate (360) 120 DAP Fertilizer (Kg) Double Ammonium Sanoplant (Kg) Anionic Polacrymide Vondozeb 800 (L) Mancozeb (80% WP) 31 Volcano Demeter (L) Benomyl (50% WP) 29 Censor Fipronil 200 G/L 1 Chlorpirofos (L) Chlorpirofos 7.7 Volcano Cypermethrin (L) Cypermethrin 20% EC 9.67 DAP Fertilizer (Kg) Double Ammonium NPK Fertilizer (Kg) 20: 7 : Aquafix (Kg) Anionic Polacrymide Glycel Glyphostate Weedex (L) Glyphostate Cooperstate (L) Glyphostate 681 Hang Triclopyr (L) Triclopyr 439 Weedall (L) Glyphostate 10 Imaxi (L) Nimrod (L) Imidachloprid bupirimate, triforine Folpan (L) Folpan 4 Agrolaxyl (L) Agrolaxyl 4 Rocket (L) Rocket 4 Hydrogen peroxide (L) Hydrogen peroxide 2 Goldazim (L) carbendazim 17 On our Uganda plantations we have between 300ha and 400ha of plantations frequently under threat of damage by illegal cattle grazing activities. Recent calculations of crop value and cost of replants estimated a loss of more than $ to date in this regard.

29 Invasive Species Management: Open area and nox weed hectares treated in Uganda: INVASIVE SPECIES MANAGEMENT - OPEN AREAS AND COMPARTMENTS PLANTATION NAMWASA LUWUNGA KIRINYA Area (ha) treated Within compartments Conservation areas Area(ha) treated within compartments Area(ha) treated convservation areas INVASIVE SPECIES MANAGEMENT - UGANDA NAMWASA LUWUNGA KIRINYA FY14 planned spend on noxious weeding in Tanzania and Mozambique for the first time TANZANIA INCREASE IN Ha TREATED > Y2 > Y2-100 FY12 F13 FY MOZAMBIQUE INCREASE IN Ha TREATED > Y2 > Y FY12 F13 FY14

30 Habitats protected or restored. Strategies, current actions and future plans for managing impacts on biodiversity. (G4-EN13, 14) Regarding the identification, monitoring and management of biodiversity, New Forests conducts a biodiversity study through the local University or other expert body to ascertain the habitats present and to be impacted by our operations. After the biodiversity study is conducted, local plantation management are tasked with monitoring the findings and recording any changes annually. At five year intervals, an external biodiversity study is conducted again to track long term, impact-level changes. Based on recommendations from Makerere University in Uganda The New Forests Company is using three indicator taxa (mammals, Butterflies, birds) to track biodiversity on the forest plantations. Baseline figures are based on a Government report for Namwasa and Luwunga done in 1996, and a company initiated report for Namwasa done in Kirinya baseline is based on a company initiated report commissioned in 2009 that will be reviewed and updated in Mammals Butterflies Birds Namwasa baseline Kirinya baseline Luwunga baseline While there were a number of butterflies identified in the Namwasa and Luwunga Biodiversity reports, none of the botanical names listed appear in the IUCN list. Further to this butterflies were not assessed on Kirinya in the initial report. While the increases in number of species in two of the taxa in the 2013 Luwunga report are reassuring it is still early to determine whether this is as a result of improved management or improved monitoring and recording of species. However, visual observation on the ground would suggest that improved management is seeing a return of some red data species. NFC s conservation management plans and procedures apply to all forest land not currently planted to commercial species, and include: Natural habitats Special Conservation Sites Maintained areas Riparian zones and Wetlands Wildlife Cultural, Historical, Archaeological, Paleontological sites Ecological processes, Escapee weeds on adjacent land Luwunga 2013 The objective of our conservation management prescription is to optimise land dedicated to Special Management Zones (SMZ s) through effective planning in such a way that operations are done safely, promoting land preservation, having no negative impact on land management and mitigating the impacts of these operations on the environment. Total number and volume of significant spills (G4-EN 23) We haven t had any spillages on site outside the bund area, and zero spillages within the bund area above 20 litres. Should a 20 litre spill transpire within a bund area, all spilt chemical is drained via a sump and recycled into the process. Initiatives to mitigate environmental impacts of products and services, and extent of impact mitigation (G4-EN26) Copper chrome arsenic is the main chemical used at our pole plant, considered the leading environmental solution to pole treatment. The chemical is kept in customized storage tanks erected within an impervious bund wall thus preventing leaching. Our onsite diesel tank is also surrounded by a bund wall. Concrete drains are strategically located to channel water appropriately and to avoid soil erosion. In the unlikely event that a spillage takes place outside a bund wall, we have a spill kit on site comprising certain active ingredients (lime, etc) which is sprinkled on the spill to neutralize the situation with the soil then being taken and buried in an impervious and specifically demarcated pit until such time as the outsourced removal crew have taken this away for industrial disposal. There has not been an instance of spillage outside a bund area to date. 57

31 SECTION 13 : ECONOMIC INDICATORS: 59 Actions taken in response to incidents of corruption. (G4-SO4) No incidents of corruption were noted during the reporting period and it should be noted that NFC adopts a zero tolerance policy toward corruption by employees, suppliers, customers or other stakeholders as laid out in its Code of Conduct. Policies, practices and proportion of spending on locally-based suppliers at significant locations of operation. (G4-EC 6) New Forests Poles (NFP) is rapidly emerging as East Africa s premier supplier of treated poles with a reputation for high quality, reliability and consistency of supply. The company maintains strict adherence to international best practice. With a view to contributing to Africa s sustainable economic growth, the company delivers locally treated, durable and weather-resistant transmission poles to African markets for rural electrification purposes. Based in Uganda and Tanzania, NFP is cost competitive into western Kenya, Rwanda, Burundi and southern Sudan. best practices as defined by the European Committee for Standardisation, the South African National Standard, and the standards and treatment requirements mandated by members of the East African Community. The Uganda plant achieved ISO 9001:2008 certification in Major developments: won a tender to supply Kenya Power and Lighting Company with poles into western Kenya, of which have been delivered; the Ugandan pole plant was announced as the most competitive bidder at a public bid opening for poles into Tanzania and a pole tender into Rwanda, and surveillance audit without the aid of a consultant; the pole plant received Uganda National Bureau of Standards (UNBS) certification and further demonstrates our commitment to quality and sustainable best practice. Major challenge: In FY13 our ability to secure sufficient pole quantities and consistent supply was limited to third party suppliers. We are excited about FY14 where we begin harvesting poles from our own plantations for the first time which significantly dilutes our reliance on 3rd party suppliers and improves our profitability. It is company policy to exhaust all local suppliers in terms of the procurement of business related operational needs, before external suppliers are contacted. Typical procurement needs are: Road maintenance and construction equipment Building supplies Vehicles, machines, tractors Tools, pumps and spares Electrical equipment Personal protective equipment Herbicides, chemicals Fertilizer Quality: With first class processing sites, outstanding quality control and experienced management, New Forests Poles has distinguished itself as one of East Africa s premier pole producers. Qualitycontrol teams operating NFP s in-house laboratory oversee the consistency and superior treatment of the company s wood products. International external experts regularly vet quality. NFP has adopted continues to provide the lion s share of supply to the electricity distribution company of Uganda Umeme. The Ugandan pole plant is thus competitive across the EAC Uganda, Rwanda, Tanzania and western Kenya which poses significant opportunities into the future. Total sales from the pole plant increased 51% year on year from FY12 to FY13; the pole plant passed the ISO 9001:2008 Direct economic value generated and distributed, including revenues, operating costs, employee compensation, donations and other community investments, retained earnings and payments to capital providers and governments. (G4-EC1) The consolidated financial statements are in the throes of being prepared this section will be completed when the AFS are complete. Most importantly NFC strives to make use of labour originating from in and around its area of operations and neighbouring communities, first. Where labour is not available or interest is not high, only then does plantation management allow for labour to be sought from communities in other districts or regions.

32 Assurance Report Summary of work performed Assurance report of the independent auditor, Deloitte & Touche to New Forests Company on their sustainability Considering the risk of material error, our multi-disciplinary team of sustainability assurance specialists planned NEW FORESTS COMPANY OFFICE LOCATIONS indicator disclosures as contained in their Sustainability Report for the year ended 30 June 2013 ( the Report ) Scope of our work New Forests Company engaged Deloitte & Touche and performed our work to obtain all the information and explanations we considered necessary to provide sufficient appropriate evidence. Our work was planned to mirror New Forests Company s own compilation info@newforests.net (Deloitte) to perform limited assurance procedures over selected key performance indicators included in their Sustainability Report for the year ended 30 June The following key performance indicators were included in the scope: Percentage of operations with implemented local processes. Key procedures we conducted included: Gaining an understanding of the New Forests Company systems through interviews with management responsible for reporting systems at corporate head office and site level; and South Africa PO Box 3524 Parklands, 2121 South Africa 61 community engagement, impact assessments and development programs; Operations with significant potential or actual negative impacts on local communities; Prevention and mitigation measures implemented in operations with significant potential or actual nega- Reviewing the systems and procedures to capture, collate, aggregate, validate and process source data for the assured performance data included in the Report. Our conclusion Based on our examination of the evidence obtained, United Kingdom 108 Godolphin Road London W12 8JW United Kingdom tive impacts on local communities; and Location and size of land owned, leased, managed in, or adjacent to, protected areas and areas of high biodiversity value outside protected areas, excluding the Nyugwe plantation in Rwanda. nothing has come to our attention which causes us to believe that the selected sustainability performance indicators are not fairly presented. This report is made solely to New Forests Company in accordance with our engagement letter. Our work has Rwanda PO Box 5590 Kigali Rwanda Directors responsibility been undertaken so that we might state to the com- The directors are responsible for the preparation of the Sustainability Report for the year ended 30 June 2013, including the implementation and execution of systems to collect required sustainability data. Auditor s responsibility Our responsibility is to express our limited assurance pany those matters we are required to state to them in a limited assurance report and for no other purpose. Thus, we do not accept or assume responsibility to anyone other than New Forests Company for our work, for this report, or for the conclusions we have formed. Tanzania The New Forests Company PO Box 2610 Iringa Tanzania conclusion on selected sustainability performance disclosures for the year ended 30 June We con- Deloitte & Touche Registered Auditor Mozambique ducted our limited assurance engagement in accordance with the International Standard on Assurance Engagements 3000, Assurance Engagements Other Than Audits or Reviews of Historical Financial Information (ISAE 3000). This standard requires us to comply Per AN le Riche Partner 14 October st Floor, The Square, Cape Quarter, 27 Somerset Road, Greenpoint, Cape Town, 8005 New Forests SA PO Box 260 Lichinga, Niassa Province Mozambique with ethical requirements and to plan and perform our assurance engagement to obtain sufficient appropriate evidence on which to base our limited assurance conclusion. The evaluation criteria used for our assurance is the New Forests Company indicator definitions and basis of reporting and the Global Reporting Initiative Sustainability Reporting Guidelines.. National Executive: LL Bam Chief Executive, AE Swiegers Chief Operating Officer, GM Pinnock Audit, DL Kennedy Risk Advisory, NB Kader Tax, TP Pillay Consulting, K Black Clients &Industries, JK Mazzocco Talent & Transformation, CR Beukman Finance, M Jordan Strategy, S Gwala Special Projects, TJ Brown Chairman of the Board, MJ Comber Deputy Chairman of the Board, Regional Leader MN Alberts A full list of partners is available on request Uganda The New Forests Company PO Box Kampala Uganda

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