Connected Reporting a Practical Guide With Worked Examples 17th December 2009

7/29/2019 Connected Reporting a Practical Guide With Worked Examples 17th December 2009

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CONNECTEDREPORTING

A practical guide with worked examples


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Contents:

1 Introduction

Practical guide

4 Connecting business strategy

and sustainability

6 Key Perormance Indicators

(KPIs) and actions taken

8 The Connected Perormance

Report

Worked examples

10 Introduction

12 GRO Foods plc

22 GP Ofce Investment

30 BWC plc

36 Acknowledgements


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Introduction

Sustainability issues such as climate change and theover-consumption o the Earths nite natural resources increasingly living o the Earths capital rather thanits income are challenges that are likely to lead to majorchanges in the way we live and work, in our economic

model and in the level and type o government regulation.In the ace o this sustainability revolution, it is increasinglyimportant or organizations to understand how suchissues will impact on their continuity and long-term success,and to be able to communicate clearly both the impactsand the companys response to investors and otherstakeholders. It is only through the integration o environmentaland social actors into business and management reportingthat the undamental connection between strategic

direction, nancial perormance and sustainability impactswill be made clear.

What is connected reporting?

Connected reporting aims to provide a new approach to corporatereporting and to address the growing dissatisaction, amongst bothpreparers and users, with the incompleteness, length and complexityo many organizations Annual Report and Accounts.

A connected report should be ocused on the needs o long-terminvestors and executive management. Reported inormation shouldidentiy and explain the connection between the organizations

strategic objectives, the industry, market and social context withinwhich the business operates, the associated risks and opportunitiesit aces, the key resources and relationships on which it depends,and the governance, reward and remuneration structures in place.Further, it should explain the connection between delivery o thebusinesss strategy and its nancial and non-nancial perormance.

The result is a more concise, rounded and balanced picture o anorganizations overall perormance, which refects the organizationsstrategy and the way it is managed.


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What does this guidance cover?

This guidance is ocused on how environmental and social sustainability actors

can be reported using a connected reporting approach. It is primarily intended or

use within the Annual Report and Accounts, within investor presentations, or as part

o internal reports to management.

Sustainability is considered rom two perspectives: rstly, what environmental

and social impacts are material to the achievement o the organizations strategic

objectives; and secondly, how do those objectives, and actions taken in response

to them, contribute to a more sustainable economy and society. There is a strong

degree o overlap and interrelation between these two perspectives. It is unlikely,

or example, that an organization will be able to pursue a strategy with signicant

harmul impact on a local community, without there being a risk o reputational damage,

a potential or regulatory response and loss o licence to operate.

The aim o this guidance is to provide organizations with a simple approach

to making this connection between strategic direction, nancial perormance and

environmental and social considerations, and is broken down into three key steps,

each o which is presented in more detail on pages 4 to 9.

The guidance is ollowed by three worked examples or a supermarket (ound

on page 12), a property investment company (page 22) and a water and wastewater

company (page 30). These examples highlight dierent ways that connected

reporting can be applied in practice.

In addition, online guidance, including good practice examples

o connected reporting by companies around the world, can be ound at:

www.accountingorsustainability.org/reporting

Connecting business strategy and sustainabilityThe identication o material sustainability issues

and description o how each o these impact on the

organizations strategic objectives.

Key Perormance Indicators (KPIs) and actions taken

The evaluation o action taken to address each

material sustainability issue and the identication o KPIs

to measure perormance.

The Connected Perormance ReportA balanced assessment o progress against agreed targets

and towards intended outcomes.

1.

2.

3.

Since we applied a connected approach to reporting on

The Northern Way in our 2008/9 Annual Report, there has

been a defnite reduction in the number o questions asked

by investors. Not only does the reported inormation pre-empt

many questions, but the act that the data in the annual

report is supported by a consolidation o monthly data adds

urther credibility.

Paula Widdowson, Corporate Responsibility Director,

Northern Foods plc


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Underlying principles

Good corporate reporting derives much o its credibility rom strong underlying

characteristics. The International Accounting Standards Boards Conceptual

Framework Exposure Drat makes reerence to the undamental characteristics

o relevance and aithul representation, and the enhancing qualitative characteristics

o comparability, veriability, timeliness and understandability. Such characteristics

should underpin the inormation presented within a connected report.

In addition, reporting should be balanced, concise, ocused on the material issues

and include orward-looking disclosures which are made in good aith and, like

the rest o the inormation, can be explained.

Who is this guidance or?

This guidance is primarily aimed at Finance Directors, Company Secretaries, Heads

o Investor Relations, Heads o Sustainability and their respective teams within listed

companies and other public interest entities. It provides practical guidance to help

these teams to integrate environmental and social actors, which are material to the

organizations success, into management reporting, investor communications and

the Annual Report and Accounts.

In applying the guidance, a multi-disciplinary approach is needed, with nance,

sustainability and human resources teams working closely together and drawingon the expertise rom a range o individuals within the organization.

How was this guidance developed?

The Connected Reporting Framework was rst set out in a report by The Princes

Accounting or Sustainability Project in 2007. Since then, it has been adopted

by a range o organizations including Aviva, BT, EDF Energy, HSBC, Hammerson

and Northern Foods. In addition, it has been adapted or use by all public sector

organizations in the UK based on Treasury guidance, due or adoption in 2010.

The development o connected reporting refects consultation with over

100 organizations. This guidance builds on the 2007 report to provide practical

implementation guidance. It draws on the work o a range o organizations, as wellas academic research conducted during 2009 into the experience o eight

organizations that have either piloted the Connected Reporting Framework since

2007 or are considered leaders in integrated reporting. This academic research

will be published in May 2010. A list o key organizations that have infuenced

or contributed to the guidance is provided on page 36.

2010 consultation process

A consultation and piloting process will be conducted in 2010 to test this

guidance, with the nal version planned or release in the second hal o 2010.

The consultation process will consider steps to integrate recommendations

made by The Princes Accounting or Sustainability Project with those o other

organizations towards the creation o a common connected and integrated

reporting ramework.



Connecting business strategyand sustainability

What should be reported?

Market context: An analysis o the environmental andsocial trends which have a material impact on the sector,market and regulatory context within which the businessis operating, where possible in quantitative terms andsupported by evidence.

Business model: A description o the implicationsor the way that the business operates and generates valuein response to identied environmental and social trends.

Objectives and strategies, risks, resourcesand relationships: The connection between materialsustainability impacts and issues, the achievement o thecompanys objectives and implications or the strategiesit has adopted. The analysis o material sustainability issuesshould include:

principal risks and opportunities, an explanation as

to why they are important and an estimation o their impactin either nancial or operational terms;

assessment o the sustainability o key resources(natural, human and nancial) and key relationships(e.g. supplier, customer, employee, regulator, community)upon which the strategy is dependent;

reerence to the approach ollowed by management todetermine which sustainability actors are material; and

a description o the actions being taken by managementto eect organizational change, including development,

training and incentives.

1.


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How?

1.1 Identiy the social and environmental issues that are most relevant

to the organization, the sector and markets in which it operates,

ensuring that:

anassessmentismadeofthefullrangeofproducts/services

oered, markets served and site locations;

bothglobalissues(suchasclimatechange,populationgrowthand over-consumption o nite resources) and those which

are more localized (such as the availability o a skilled workorce)

are considered;

issueswithpotentialfutureimpactsareconsidered,aswell

as those aecting the organization at present;

broaderimpactsareassessed,includingthedirectimpacts

o the organization on the communities and the environment

in which it operates, as well as more indirect upstream (supplier)

and downstream (customer) impacts; and

stakeholders,withwhomrelationshipsarecriticaltothesuccess

o the business, are consulted and their views considered.

1.2 Determine which o the identied issues are material to the

organizations perormance, by taking into account:

risks,resourcesandrelationships,thepotentialimpactofissues

on the way that the business operates and on the achievement

o the organizations strategic objectives (which may highlight

the need or objectives to change); and

theextenttowhichissuesthathaveanimpactonexternal

parties, but do not represent a cost to the business

(externalities), are likely to become internalized through

additional regulation or impacts on the organizations reputation.

1.3 Report on each material issue, using both qualitative and quantitative

analysis, to provide an explanation o how it impacts on theorganizations objectives, strategy and operations, including:

Market context, or example, changing patterns in customer

demand towards more sustainable products, as evidenced

by trend data on market share o ethically sourced products

as a percentage o total market.

Business model, or example, within the ood retail sector,

changes to structure o relationships with suppliers to improve

security o supply in the ace o projected scarcity o key

products resulting rom increasing water stress.

Risks and opportunities, or example, the value o property

considered at high risk rom the physical impacts o climate

change as a percentage o the total.

Resource availability, or example, the impact o sustainability

perormance on ability to secure project nance rom banks

which are signatories to the Equator Principles (representing

over 80% o the global project nance market) or the availability

o nite natural resources upon which production growth

objectives are dependent.

Relationships with key stakeholders, or example, the linkage

between employee satisaction, cost o absence and retention rates.

1.4 Make available to users, or example on the organizations website,

an outline o the process ollowed to identiy material issues.

This should, in particular, explain why any measures generallyconsidered signicant at sector, national or international levels are not

considered material or disclosure by the business. This will help to

avoid concern about possible cherry-picking and will provide insight

into management decision-making and risk management processes.



Key Perormance Indicators (KPIs)and actions taken


Theactionstakentoaddresseachmaterialsustainabilityissue, including steps to mitigate key risks or capitalizeon opportunities identied, in support o delivery o thebusiness strategy.

TheKeyPerformanceIndicators(KPIs)selectedtomeasureperormance, including the accounting policy adopted oreach indicator, and the relationship to business perormance,i possible quantied in nancial terms.

Adescriptionofhowmanagementisincentivizedtodeliverintended outcomes, including the link with governance,remuneration and rewards.

2.


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How?

2.1 Identiy the actions taken to address each o the material

environmental and social issues resulting rom Step 1.

2.2 Establish the intended outcome or each action, ensuring there

is an explanation o how it will:

helptheorganizationachieveitsstrategicobjectives;and

helpachieveamoresustainablesocietyandenvironment.

2.3 Set out how progress towards intended outcomes will be measured,

identiying KPIs or each material issue, as relevant. KPIs should:

enablecomparabilityfromyeartoyearandwithother

organizations, and as such should be:

based on generally accepted indicators, where available

at a sector, national or international level (or example, Global

Reporting Initiative indicators), and tagged using XBRL

(eXtensible Business Reporting Language) where relevant

taxonomies exist; and

aligned with national or internationally agreed measures

o sustainable development;

formpartoftheongoingdecision-makingandreporting

processes within the organization, rather than being reported

on an annual basis or external purposes only;

beeithernarrativeorquantitativeinnature;and

beunderpinnedbydisclosureofthefollowingelementsto

acilitate veriability and understandability (either within the report

or made available to users on the companys website):

denition;

calculation methodology;

underlying assumptions; level o uncertainty;

scope and boundaries.

2.4 Identiy the relationship between selected KPIs and nancial or

business perormance, where possible quantiying the relationship

in terms o impact on revenue, expenditure, investment, cash fow

or measures o operational perormance.

2.5 Align management perormance appraisal and incentive structures

with selected KPIs, based on time-horizons over which outcomes

can be measured.

2.6 Describe clearly in the connected report:

theactionstakeninresponsetoeachmaterialissue;

howthesewillachievetheintendedoutcomes;

theKPIswhichdemonstrateperformance,highlightingthe

connection with the strategic direction o the business; and

thegovernancearrangementsinplacetoincentiviseandreward

behaviour contributing to the delivery o intended outcomes.

It is great or me that we can tell people what is happening,

and that we can save money. That is one o the biggest

benefts o the Connected Reporting Framework. I people

ask or a fnancial fgure you can point to one, whereas

a fgure based on technical data oten doesnt have the

same impact. You can show that, or a property company,unsustainable practices can cost more.

Paul Edwards, Head o Sustainability, Hammerson plc



The Connected Perormance Report


CleartargetsforeachKPI,wherefeasible.

Actualperformanceagainstbaselines,prioryears,targetsand industry or other benchmarks.

Financialorbusinessperformancemeasuresalongsideeach sustainability KPI to explain the connection to thebusinesss results.

Commentaryonprogresstowardsbothtargetsand intended broader outcomes.

3.


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How?

3.1 Agree on targets or each KPI and supporting perormance

measures, ensuring that each target:

alignstotheorganizationsnancialtargets/plans;

considerstimehorizonsthatareapplicabletotheissue,

the industry or the organization itsel;

considerslevelssetbypeers,industryandnationalaverages

or other benchmarks;

includesabaselineagainstwhichitwillbemeasured;and

considersthesufciencyoftheresponsetoaddressthe

identied sustainability issue.

For emerging issues, as a rst stage it may be necessary to establish

an approach to measuring the impacts beore specic targets can be set.

3.2 Ensure appropriate inormation collection processes

are established to provide complete, accurate and consistent

inormation. Where possible, integrate and align sustainability-related

data capture systems and processes with nancial systems.

3.3 Report on the actual perormance achieved in the reporting period,

with reerence to:

theagreedtargets;

thereportingbaseline;

performanceinprioryears,wherepossibleprovidingtrends

over the past ve years; and,

peers,industryandnationalaveragesorotherbenchmarks.

Ensure that reported perormance includes absolute as well as

normalized data where relevant (or example, total energy use rather

than just energy eciency measures), enabling investors to conduct

their own analysis o impacts.3.4 Report related nancial or business perormance measures alongside

KPIs, providing a clear indication o the relevance o sustainability

perormance to the businesss results. I quantication o nancial

impact is not possible, report in qualitative terms.

3.5 Provide disclosure o any restatements to historic data, including the

breakdown between changes as a result o acquisitions or disposals

and changes due to improvements in data collection or changes in

accounting policies adopted.

3.6 Create a commentary which provides an explanatory narrative

o perormance and progress against targets and towards intended

broader outcomes, refecting a balanced perspective o: reasonsforsuccessesandfailures;

challengestoprogressandhowmanagementisresponding;and

explanationofplanstodeliverstrategicobjectives,including

how targets will be achieved.

In order to tackle climate change, the depletion o fnite

natural resources and other sustainability challenges,

projections and targets are essential to assess the sufciency

o an organizations response. The use o sae harbour

provisions or similar saeguards to protect companies that

make these statements in good aith will help remove legal

concerns and acilitate meaningul disclosure.

Paul Druckman, Chairman Trucost and Fdration des Experts

Comptables Europens Sustainability Policy Group



Introduction to the worked examples

These examples have been produced as a supplementto the how to guide and demonstrate howconnectedreporting might be applied in practice.

There are three examples, a supermarket group, a property investmentcompany and a water/wastewater service supplier. Each is an extract

rom the organizations Annual Report and Accounts. These sectorswere selected to cover a variety o dierent sustainability impacts,degrees o regulation and levels o maturity in reporting on sustainability.

The examples are designed to demonstrate the relevance osustainability issues to the achievement o strategic objectives.Full connected reporting requires sustainability impacts and relatednancial and non-nancial inormation to be included in the AnnualReport and Accounts as an integral part o the overall picture given,rather than in a separate section or a separate report. The inormationis brought together in the ollowing examples or ease o presentationin this context and also because organizations may, as a rst step,

wish to start with a separate section beore moving on to ullconnected reporting.

Each example varies in length and detail. This refects discussionsduring the consultation process on the level o inormation thatinvestors might require. In addition, some o the inormation includedin the examples is orward-looking, in line with the changes beingsuggested or the management commentary (also known as theManagement Discussion and Analysis or Business Review) in annualreports. This inormation may necessitate the inclusion o a provisionto make it clear that the projections are provided in good aith andon the basis o the best inormation available, but are indications

rather than commitments. This provision (known as a sae harbourprovision) has not been included in these examples.

The examples are not intended to provide a template or organizationsto ollow, nor to represent a model set o issues, impacts and actions.Instead, it is anticipated that organizations which wish to adoptconnected reporting will be able to use both the guidance and theexamples to help them consider how to develop a connected approachin the context o their business.

It is hoped that there will be co-ordination between organizations inthe same industry group to agree a common approach to connected

reporting in their sector. A signicant amount o work is already beingdone in this area by various organizations. Examples include initiativessuch as the European Federation o Financial Analysts Societies,the Global Reporting Initiative and the World Business Council orSustainable Development. It is important that this work is co-ordinatedinternationally to reduce duplication and create the cohesion andconsistency in reporting that is needed, while retaining fexibility or anorganization to adopt the approach that is specic to its business.


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GRO Foods plc 12-21k

The GRO Foods plc example was created by a team rom PricewaterhouseCooperscomprising nance, retail, sustainability and climate change specialists. The examplewas also subject to industry consultation, which included a round-table discussionattended by Finance Directors and other representatives rom a number omajor supermarket groups and the investment sector, as well as industry experts.

The aim o this example is to demonstrate the strategic relevance not only

o a supermarket groups direct impacts, such as energy use and waste, but alsothe more indirect impacts, such as the use o nite natural resources in thesupply-chain, interaction with employees and local communities, and end-userconsumption, where the majority o sustainability impacts in this industry are ound.

Sustainability issues, such as those contained in thisexample, are undamental to our strategy as our customersare demanding that we address these areas. This createsvalue drivers that should be presented as part and parcel othe Annual Report and Accounts. Moving orward, there is aneed or sector comparability, built on inormation that is usedto manage the business, much o which is already collected.Darren Shapland, Chie Financial Ocer, J Sainsbury plc

BWC plc 30-35k

The BWC plc example was developed by a working group o nance andsustainability representatives rom seven o the UKs largest water and wastewatercompanies, and was reviewed and discussed at a meeting o the Water UKCouncil (which mainly comprises the Chie Executives o the member companies).

The water industry is subject to strong regulation in all areas o its core business the quality o drinking and treated wastewater, environmental improvement andprice control. As a result, around 80 billion has been spent in the last 20 yearson capital projects to upgrade inrastructure and meet statutory environmentaland quality requirements. Co-ordination between policy makers, regulators andindividual service suppliers is thereore particularly critical in this industry to helpensure more sustainable outcomes are achieved.

We presented this example to our Council as we couldsee how reporting on the connection between the strategic

direction and fnancial and sustainability perormance couldbe o beneft to our members. The example received a positiveresponse rom Council, and ollowing the meeting, a numbero members expressed an interest in applying this approachin the context o their own business.Pamela Taylor, Chie Executive, Water UK

GP Ofce Investment 22-29k

The GP Oce Investment example was created by Upstream SustainabilityServices, a business unit o Jones Lang LaSalle, with input rom nance, investmentand sustainability proessionals and has been tested through consultation andround-table discussion with a range o representatives rom the property sector.The example is set in the context o typical landlord/tenant arrangements.

Property investors undoubtedly have a large ecological ootprint, particularly throughtheir development activities and the operational management o assets. The UNEnvironment Programme estimates that the built environment accounts or around40% o all energy consumption, 30% o raw material use and 25% o solid wasteproduction. However, complex landlord and tenant arrangements can oten hindereorts towards improved transparency and accountability. This worked example

seeks to explore the causal relationship between sustainability and nancial returnso property including capital values, rental income and risk modelling.

The example represents an important and new lineo inquiry on sustainability and value at the property portolioand corporate level, and has received positive eedbackrom a number o our members.Gareth Lewis, Director o Finance, European Public Real EstateAssociation (EPRA)



Sales growth

Strategy

This objective will be achieved by improving the shopping

experience, expanding the number o retail outlets,

particularly in high growth areas, and continually innovating

to deliver great value products that meet the needs

o our customers.

Sustainability context

Expanding our retail network increases the impact we

have on the environment, mainly through increased carbon

emissions and use o water in both our direct and indirect

operations. It also increases the importance o rising concerns

regarding health issues such as obesity and diabetes.

Risk and opportunities

We have amended our store development model to build

only eco-stores, which use at least 70% less energy

than standard stores, and as a result are experiencing a

22% improvement in the level o planning permission granted.

We are also ocusing on mitigating environmental threats

to our stores to enhance the value o our property stock.

Governments are legislating to reduce the salt and sugar

content o ood products and we ace risks i we are notwell placed to meet changing requirements. We are thereore

developing our own-brand ood lines to ensure they meet

both the appropriate legislation and the consumer demand

or great tasting, aordable ood that meets a growing desire

or more balanced diets.

Staying ahead o legislation and communicating the nutritional

benets o our products has resulted in an increase in the

number o weekly customer visits rom 18 to 18.5 million.

The UKs Food Standards Authority (FSA) is at the oreront

o science in this area and we are applying UK guidelines

across our operations worldwide.

Improving operational efciencyand delivering cost savings

Strategy

We look to deliver ever greater value to our customers and

improve returns to our shareholders by enhancing eciency

and lowering costs. To mitigate the impacts on our business

o volatile and increasing energy costs and emerging carbon

and waste reduction legislation, we are ocusing on reducing

our energy use and minimising waste.


As a retailer, we use signicant amounts o energy, which

in 2009 cost 40 million and equated to carbon emissions

o 360,000 tonnes. While we could buy more green energy,

we eel it is more prudent to seek to reduce our energy

consumption and invest in our own renewable energy capacity.

We are also reducing emissions rom our transport by more

ecient loading and the introduction o electric vehicles.

Waste is another impact with which the retail sector is

increasingly associated, whether rom packaging, ood waste

generated directly by our own stores, or indirectly by our

suppliers and customers. This year we created packaging

waste o 650,000 tonnes, construction waste rom

new stores o 450,000 tonnes and sent 35,000 tonnes

o waste to landll. We have committed to halve the weight

o packaging o our products, reduce our new build

construction waste by 50% and divert all ood waste rom

landll to energy generation and composting by 2014.


Medium-term, energy price volatility poses the greatest

threat to our cost base. More immediately, legislation such

as the UKs Carbon Reduction Commitment (CRC) will take

approximately 5 million rom our 2011 cash fow, while UK

landll tax is set to double by 2013. When similar legislation

is imposed across all our markets, as anticipated, the risk

will be multiplied many times over.

We will reduce our environmental impact and achieve

cost savings by reducing the amount o energy used.

The cumulative benets o our waste reduction programmes

have resulted in 10 million in cost savings in 2009.

GRO Foods plc

Extracts rom the Business Review

(About GRO Foods and Our vision are extracted rom the introduction to the Business Review)

About GRO Foods

GRO Foods is a UK listed supermarket selling a wide range o ood and non-ood products rom stores in six countries.The main markets are in Europe (60%) and the USA (25%). In recent years much o our sales growth has come rom the

emerging Asian economies o India and China, which now account or 15% o total sales. The Group owns 700 storesand employs 150,000 people globally.

Our vision

The Groups vision is to be the leading supermarket in the provision o responsibly sourced, quality ood and non-ood products.

The impact o sustainability issues on our key strategic objectives

The ollowing section describes how sustainability issues impact on the achievement o our our key business objectives.

1. 2.


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Our Key Perormance IndicatorsThe table below outlines our KPIs or each o our our strategic objectives.

Securing a sustainablesupply base

Strategy

Our business depends on the quality and availability

o goods or our customers. Increasingly we seek to ensure

that our purchases promote social and environmental

well-being, while simultaneously protecting our supply base

rom the risks associated with climate change and diminishing

natural resources.


The majority o the businesss environmental and social

impacts are in our supply chain, which is complex and global

in nature. The major impacts include carbon emissions, water

use, land use changes and labour standards.

There is now signicant awareness o the sustainability

impacts that a major company generates as a result o the

goods and products it procures. Customers, in particular,

are ever more attuned to the sources o the ood and products

that they buy. It is both our responsibility and in our interest

to maximize the positive and minimize the negative impacts

o procurement decisions.

At the same time, climate change and water stress threatens

our business, making it increasingly challenging to source

many agricultural products rom traditional locations.


This year 30% o our own-brand ood and beverage

products came rom a certied sustainable source,

supporting increased market share o 2% in these product

categories. We are also using local suppliers in all our

markets where there is a notable environmental benet or

customer preerence.

Since 2007, we have assessed 300 o our top 1,000

own-brand ood and beverage products to ensure that they

are insulated as ar as possible rom the impacts o climate

change and water stress. O the products we have assessed

to date, 170 have been identied as at risk and we have

already put in mitigation plans or 85 o these.

Supporting our employees and thecommunities in which we operate

Strategy

We aim to be welcomed in the communities in which

we currently operate and into which we seek to expand.

We do this by investing in the skills and welare o our

employees and by aligning our community involvement

activities with community and employee interests.


Over 90% o employees in retail outlets come rom the

communities in which stores are located. Perhaps our

most valuable direct social contribution is providing these

employees with a sae place to work, where they can acquire

skills that equip them throughout their careers and enable

them to develop and progress within our company.

These employees become our greatest advocates in

the communities where we operate. Thus, promoting the

welare o our employees and serving our communities

is undamental to our reputation and our licence to operate.

In recent years, we have also realized the benet o linking

employee engagement activities with community involvement.


We ace competition or talent rom all our major competitors.In addition, turnover o sta and absenteeism add signicant

costs to our business at least 50 million in 2009. Managing

these risks requires signicant investment in training,

over 14 million this year. We are seeing a return on this

investment with reduced absenteeism and employee

turnover, down to 3.3% and 10.4% rom a baseline o 3.5%

and 11.0% respectively.

While we contributed directly 13 million globally to

community activities, we are getting a signicantly greater

return to our business through improved employee morale

and relations with communities. This has delivered substantial

benets to local communities and resulted in very positivemedia coverage, equivalent to an estimated 19 million

spent on advertising in local and national press.

3. 4.

Strategic objective KPI targets (by 2014) 2009 Perormance Benchmark

1. Sales growth 5% sales increaseyear-on-year

4% like-for-like salesincrease per year

5% increase

4.1% increase

The grocery sector in our key markets has grown on average by 2.2% year-on-yearin the last ve years and is orecast to grow at 3.3% per annum or the next veyears. Our growth targets are above the average or the sector.

2. Operationalefciency and costsavings

Reduce operatingcosts by 5%

2% reduction Sector average operating margin among grocery retailers in our developed marketswas 4.5% in 2008/09. We will maintain our above average margin position

3. Securing asustainable supplybase

Mitigation plans inplace or all o the top1,000 own-brandproduct lines identiedat risk

Mitigation plans inplace or a urther85 product lines

The Department or Environment, Food and Rural Aairs estimates 37% o Englandsacreage or vegetables grown in the open is at risk rom fooding due to climatechange. The UN Food and Agriculture Organization estimates that agriculturalproductivity in developing countries may decline between 9% and 21% as a resulto climate change. We will remain ahead o the market in developing a secure,sustainable supply chain.

4. Supporting ouremployees and thecommunities inwhich we operate

Less than 10%employee turnoverper annum

3% absenteeismor less

10.4% employeeturnover

3.3% absenteeism

Average sta turnover in the UK retail sector is 17%. We will maintain our marketleading position on this benchmark.



GRO Foods plc continued

Our Connected Perormance Report

The purpose o our Connected Perormance Report is to report on the perormance o specic actions taken to addressthe sustainability issues described and how these can contribute to the achievement o our overall strategic objectives.

Extract rom our Operating and Financial Review The Connected Perormance Report

In order to achieve sales growth we will increase foor space over the next ve years and ensure that both new and existing

stores are eco-ecient and mitigated against the physical and regulatory risks o climate change. We will continue to investin new product innovation, providing healthy, quality oods that our customers expect rom us. We will meet the increasingdemands o our customers or healthy ood products by reducing the salt and sugar content o our own-brand products,ollowing the recommended targets set by the UKs Food Standards Agency.

Target Perormance

New stores Open 160 new stores from 2007 to 2014; 100

will be in Europe and 60 will be in India and China.

All new stores will be eco-stores that require 70%less energy compared to standard stores.

New product innovation

Increase sales of our healthy Balanced food rangeby 200 million by 2014.

Reduce salt and sugar content in our main productlines (bread, cereal, rozen convenience and ready meals)to meet and exceed the FSAs recommended limits.

Sales growth1.

Investment in growthNumber o new stores opened

Total premium to build eco stores ( million)

Total lietime savings in energy costs over a 25 year liespan ( million)

Salt and Sugar per 100g serving

FSA targets (2010) Current GRO content

Main lines Salt Sugar Salt Sugar

Bread 0.8g N/A* 1.1g 4.0g

Cereal 0.8g N/A* 1.0g 3.0g

Frozen convenience (average) 0.8g N/A* 16.0g 1.0g

Ready meal (average) 0.8g N/A* 12.0g 1.5g

Total main product lines

Total other product lines

Total Balanced range

Total

* The FSA does not provide RDA or sugar. They suggest sugar should account or approximately 11%o daily caloric intake. Our calculations are based upon relative contribution that each ood product wouldmake up in an average persons daily diet.


17/4015

Comments

During 2009, GRO obtained planning permission or 45

new stores in Europe and ve stores in India and China.

Compared with standard stores, environmental storeshave a higher planning application acceptance rate,an improvement o 22% in our European markets.

Signicant additional investment is required to build ournew eco-stores, but these require 70% less energy thanstandard stores and will reduce emissions by this amountas well. More ecient rerigeration, lighting, heating andventilation systems in these new stores will signicantly helpto achieve these energy savings.

Sales o our Balanced range reached 200 million in 2009.We invested 8 million in research and development toreduce the salt and sugar content o the our main productlines. We will not meet the FSAs proposed targets or saltcontent in bread and cereals by 2010, but are on track tomeet these targets by 2015. Reductions in the salt contento rozen convenience and ready meal products will not meetthe 2010 targets either, but our research shows that our saltand sugar contents o these products are lower than that oour competitors, and we are targeting signicant reductionsby 2015.

We have seen an increase in the number o weekly customervisits rom 18 million per week to 18.5 million since 2008.

A survey conducted in 2009 indicates that approximately50% o this increase is attributable to our new, healthierproduct ranges, associated advertising and other customerengagement activities to promote healthy living.

2007

(Baseline)

2008

(Actual)

2009

(Actual)

20102014

(Target)10 20 20 110

95 190 190 1,045

79 146 142 718

2009Investment

in R&D( million)

2009Advertising/

Consumerengagement

spend( million)

2009Food sales

( million)

2014Sales target

( million)

GRO target (2015)

Salt Sugar

7g 3.5g 1.0 0.5 500 800

7g 2.5g 1.5 0.5 1,000 1,700

0g 0.1g 3.0 2.0 2,500 3,000

0g 0.2g 2.5 2.0 3,000 4,000

8.0 5.0 7,000 9,500

7,800 9,240

200 400

15,000 19,140





One o our biggest costs is energy use, which accounts or approximately 15% o total operating costs (approximately5% stores and 10% transport) and we are developing energy eciency programmes which will allow us to increase saleswhile reducing greenhouse gas emissions and help us meet the required legislation. Waste is also a signicant costas a result o landll and associated transportation costs and we also have a specic waste reduction programme in placeto reduce these costs.

Target Perormance

Reduce total energy use

Increase investment in renewable energy so that 40%o all energy needs will be generated rom such sourcesby 2014.

Reduce CO2 emissions by 120,000 tonnes (18%)by 2014 against a 2007 baseline.

Reduce our CO2 emissions per square metre by 44%by 2014 against a 2007 baseline or existing stores.

Reduce road miles travelled per pallet of stockby 10% by 2014.

Minimize waste

Divert all food waste from landll by 2014.

Reduce packaging weight in our products by an averageo 50% by 2014.

Reduce construction waste to landll by 50% by 2014.

Improving operational efciency and delivering cost savings2.

2007(Baseline) 2008 2009

2010(Projected)

2014(Target)

Annual energy cost( million)

45 43 40 38 35

GRO kg CO2e /m2o foor space

320 320 300 290 180

Renewable energygenerated on-site(% o total)

18 18 25 30 40

Investment in on-siteenergy generation( million)

8 8.5 10 9 8

Investment in energyeciency measures( million)

20 15 15 10 30

Annual savings1( million)

9 9.5 10 10.5 15

Average paybackperiod (years)1

3 2.5 2.5 1.8 2.5

1 Savings and payback periods in respect o investments in on-site energy generation and eciencymeasures made since 2007

2007(Baseline) 2008 2009

2010(Projected)

2014(Target)

Expenditure toreduce all waste( million)

(5) (10) (20) (20) (30)

Annual savings1( million)

1 5 10 40 100

Average paybackperiod (years)

5 2 2 0.5 0.75

1 Savings generated specically rom the investment made since 2007


19/4017

Comments

In 2009, we invested 15 million in energy eciencyand 10 million in on-site renewable energy technology.Both these investments have reduced total energy costsand resulted in annual savings o 10 million.

25% o our store energy is rom renewable sources whichhas helped us to reduce the risk o exposure to reducedenergy availability and price volatility. This means we are

on track to meet our 2014 target o 40% on-site powergeneration.

We reduced carbon emissions by over 3% in 2009 andare on track to meet the 2014 reduction target o 180kgCO2e/m2, a 44% reduction against a 2007 baseline.The EU target or carbon emissions reduction is 20%by 2020 and we are aiming to maximize our contributiontowards this target.

We are reducing road miles travelled per pallet o stockby increasing use o shipping and rail which has resulted inewer trucks on the road. We are also streamlining transportrom warehouses and have introduced a new logistics

management system to help urther improve eciency.

In 2009 we diverted over 70% o all ood waste rom landllto either anaerobic digestion or composting, resulting insavings in Landll Tax and transportation. We are well ontrack to achieve our 2014 target o zero ood waste to landll.

We conducted trials with all top tier suppliers in 2009on 50% o our top selling product lines to reduce packaging.For all products we successully reduced packagingby 10%. This reduced cost o goods sold by up to 15%in some categories which covered our investment in the trialand enabled any urther savings to be passed onto ourcustomers.

We have signed up to the Waste & Resources ActionProgramme (WRAP) voluntary agreement on halvingconstruction waste to landll by 2014. We are seekingto implement this policy in developing markets by workingwith suppliers to develop recycling capacity.

In 2009 by reducing ood, packaging and constructionwaste we realized savings o 10 million, which means weare on track to achieve our 2014 targets.

680

620 610

560

290

665

270 260240

170

2007(Baseline)

Direct emissions (GHG Scope 1)

Purchased electricity, heat or steam (GHG Scope 2)

2008 2009 2010 2014(Target)

CO2 equivalent emissions (kt)

0

100

200

300

400

600

500

700

Waste to Landll

2007(Baseline)

2008 2010

Food to Landll (000s tonnes)

Packaging waste to landll (000s tonnes)

Construction waste to landll (000s tonnes)

2009 2014(Target)

900

800

700

600

500

400

300

200

100

0





GROs supply chains are complex and global in nature and we create social and environmental impacts along all pointso these chains. Such issues pose risks to the long term sustainability o our business and we are committed to addressingthem in the most responsible way. We also recognize the challenges to security o supply posed by climate change andwe are taking action to mitigate these risks in collaboration with our suppliers.

Target Perormance

Supplier standards

Increase the percentage of own-brand food andbeverage products that are rom certied sustainablesources to 50% by 2014.

Assess and mitigate the risks rom environmentaland social risks to the supply chain

By 2014, assess our top 1,000 own-brand productlines and, in collaboration with our suppliers, implementmitigation plans or all those identied as at risk.

Securing a sustainable supply base3.

Own-brand products rom certifed sustainable sources

Value o sales ( million)

Percentage o total own-brand ood and beverage sales (%)

Increase the number of local suppliers used in allregions where we operate by 3,000 by 2014, againsta 2007 baseline.

Own-brand products rom local sources

Total number o local suppliers

Value o sales rom local suppliers ( million)

Cost o changing to local suppliers ( million)

Annual savings through reduced shipping and transport costs ( million)

Net nancial benet rom changing to local suppliers ( million)

Environmental and social risk top 1,000 own-brand product lines

No. o product lines assessed or risk (total number)

Sales value o product lines assessed or risk ( million)

No. o product lines identied at risk (total number)

Mitigation plans in place or product lines identied at risk (%)


21/4019

Comments

Through our procurement o goods we contribute millionso pounds to armers in low income countries. In order to gainindependent approval o our contribution in these countries,as avoured by our consumers, we are increasing the volumeso own-brand products rom certied sustainable sources.

Additionally, increasing the proportion o certied sustainableproducts in our supply chains mitigates risks, particularly in

security and consistency o supply as well as improving quality.

Customers have shown a sustained interest in purchasingthese products over the economic downturn. They tell us thisdierentiates GRO in the market and this has helped us to increasemarket share by 2% in these product categories this year.

Developing a selection o locally sourced produce is animportant part o our sustainable supply chain strategy.Customers tell us they are concerned about supporting localbusinesses. They have responded extremely well to oureorts in providing locally sourced produce and this has beena key contributor to increasing our market share in 2009.

Increasing use o local suppliers or seasonal produce has alsoled to cost savings through reduced shipping and transportcosts, which has saved the business 8 million this year.

In 2009 we assessed environmental and social risks in thesupply chain or a urther 100 o our top 1,000 own-brandproduct lines, accounting or a urther 600 million in sales.

To date, we have identied 170 product lines at riskand have created mitigation plans or 85 o these.

We will continue to work with our suppliers to completethe assessment o the remaining 700 product lines, applying

the lessons learnt rom our work this year.

2007(Baseline) 2008 2009

2010(Projected)

2014(Target)

200 300 475 800 1,200

10 25 30 35 50

2007(Baseline) 2008 2009

2010(Projected)

2014(Target)

3,000 3,300 3,600 4,000 6,000

100 120 140 180 360

3 4 5 5 8

5 6 8 10 18

2 2 3 5 10

2007(Baseline) 2008 2009

2010(Projected)

2014(Target)

100 200 300 500 1,000

1,000 1,500 2,100 2,500 5,000

50 125 170

40 40 50 60 100


22/40


23/4021

Comments

A undamental aspect o our strategy is to ensure ouremployees well-being. We believe that satised employeeswill recommend our oering to their neighbours and enhanceour reputation in the communities in which we operate.

We are investing in training that will increase the skills o ouremployees. This training not only provides us with moreliterate and skilled employees, which enables us to run our

business better, but it has also been shown to make a hugedierence to employee satisaction and subsequent retention.

We want to be known or the skills that we help people romour communities to develop. We are using opportunitiesto participate in community activities as part o a new retailskills programme, as well as a means to promote employeeengagement. Our research shows that employees whoeel able to express their values through their workplace givean additional 2%3% discretionary eort.

GRO directly invested 13 million in charitable or communityactivities in 2009. We identiy community or charitable

activities where our employees, customers and widercommunity believe there is the greatest need. We align thiswith assessments o where we can achieve the greatestcommunity impact, along with activities that make clearcommercial sense.

The ocus on environment and education is helping toimprove the physical environment in local communities,reducing trac and pollution through GROs Walk to Schoolinitiative and the GRO school bus programme.

We are undertaking work to understand better the impactso our community activities and will report on this in nextyears Operating and Financial Review.

2007(Baseline) 2008 2009

2010(Projected)

2014(Target)

143,541 147,800 149,780 153,700 160,000

2,511 2,600 2,650 2,734 2,910

206 211 220 235 250

11.0 10.7 10.4 10.0 9.2

3.5 3.5 3.3 3.2 3.0

55 53 50 50 4510 12 14 16 24

56 56 60 63 70

5 5 12 13 15

Impacts

(community)

Impacts

(business)

UK-wide CO2e reductiono 0.5 million tonnes

Reduced congestion

Improved local environmentsin key emerging market communities

3.2 million additional salesattributed to GRO Bus programme

Increased brand awarenessequivalent to 19 million o advertising

Recognition among local authoritiesand central government, supportingaccess and planning applications



GP Ofce Investment

Extracts rom the Business Review

About GP Ofce Investment

GP Oce Investment, a wholly-owned subsidiary o ABC Investment plc, is a und manager specialising in commercial

oces in the United Kingdom. It manages our unds, incorporating:

3.75billionofassetsundermanagementasat31stDecember2009

7.4millionsquarefeetofNetLettableArea

160multiandsingle-letpropertiesprovidingofcespaceto382occupiers

anassetallocationof:45%WestEndOfces,35%CityOfcesand20%provincialBusinessParks

Strategic objectives

ABC Investment has set the ollowing strategic objectives to guide its ve year strategy across all areas o investment activity,

includingequitiesandrealestate:

1. Increasevalueofassetsundermanagement

2. Achieveasuperiorrateofreturnoninvestmentforourclients

3. Maintainastrongbrandidentitywithanemphasisonmarketinnovation

4. Maintainstrongrelationshipswithkeystakeholders

Key sustainability impacts on strategic objectives

Wehaveidentiedthreeover-archingsustainabilityissues

that are material to the achievement o the groups strategic

objectivesandwhichtakeintoaccountboththelong-term

drivers o perormance and our role as a responsible und

manager.Eachoftheseissuesandtheircorresponding

impacts are described below.

In order to determine which issues are material, each yearwe assess a broad range o sustainability issues or the

magnitudeofperceivedriskandopportunitytheypresent

to the business (in nancial, reputational, operational and

physical terms) and the level o investor and occupier interest,

gauged through direct consultation.

1. Changing occupier requirements

Meetingtheevolvingrequirementsofoccupiersisessential

i we are to maintain high occupancy rates and protect rental

incomeevenmoresoinchallengingmarketconditions.As

occupier demand patterns change to incorporate a growing

concern or sustainability issues, so too must our response.

ResearchbytheEuropeanCommissionfoundthat84%

o international occupiers believed sustainability would be

criticaltotheirbusinessin2009.Wecontinuetoobserve

a similar trend with increasing demand or green buildings,

particularly rom occupiers who wish to align their real estate

occupation strategies with their corporate responsibility

commitments. As a demonstration o this trend, sustainability

wascitedasanimportantfactorin76%ofleaserenewals

werenegotiatedin2009.

Webelievethereissignicantmarketpotentialforgreen

buildings. These are deemed to be assets which incorporate

a broad range o sustainability actors into their design and

are able to operate with minimal impact on the environment,

whilst enhancing the socio-economic abric o their respective

localities.Notonlyaresustainableassetsmoremarketable,

but also there is emerging evidence to suggest that

sustainablebuildingsmaintainmarketlevelrentsandcapital

values more eectively than less sustainable alternatives.

Tocapitalizeonthisopportunity,wecontinuetoacquire

properties with strong sustainability credentials, including

those with externally veried building ratings.

Whilstbuildingratingsalonedonotdeliversustainable

buildings indeed, evidence suggests that there is notalways a direct correlation between the building rating

attained and actual perormance in relation to energy

and water eciency we recognize their role in ensuring

a more complete approach to sustainable design. It is or

this reason that we participate in other asset specic and

portfolio-widesustainabilitybenchmarkstoprovideamore

rounded perspective on our perormance relative to peers.

Forinstance,over65%ofourassetsscoredabovethe

surveyaverageinJonesLangLaSallesTheThirdDimension

riskprolingsurvey.

The provision o adaptable, fexible and durable buildings

with change in use potential is also an important occupierconcern.Thesebuildingsarelesslikelytosuffer

obsolescence and are more responsive to changing

workpatternsinincreasinglywirelessandvirtualofce

environments.Moreexibleandtechnology-driven

occupationrequirementspresentbothariskandopportunity

to uture rental income. Through targeted capital investment

in adaptability and fexibility we aim to increase the lie

expectancy o assets under ownership. In doing so, we have

maintained steady void rates even in challenging economic

conditions.Wealsorecognizetheimportanceofadiversied

portolio, not only to meet occupier demand but to reduce

exposuretopropertymarketuctuations.Manyofourassets

thereore contain a mix o potential uses.


25/4023

2. Weather vulnerability and climatechange risks

According to the most recent projections, climate change

has the potential to impact materially our ability to deliver

strong investment returns, through increased maintenance

costs and rising building insurance premiums, where we

are wholly or partially responsible or these costs. There are

also potential impacts on net asset values through extreme

weathereventssuchasoodandstormdamage.Since2004,thenumberofextremeweatherrelatedinsurance

claimshasincreasedby40%to14,withtotalclaims

amountingtoover300,000.Toprotectassetvalue,we

recognizethatouracquisitionstrategymustfactorinthe

immediate and longer term physical impacts o climate

changeandtherisktobuildingsthatarenotprotected.

This includes disposal o assets which are considered

ahighoodrisk.Since2004,wehavereducedthenumber

ofourassetsofthistypefrom11to6.

3. Resource availability and useTheinstabilityofcommoditymarketswhichsupply

non-renewable uels (coal, oil and gas) and the prospect

o increasing water shortages may place a strain on the price

andavailabilityoftheseresources.Weneedtotakeaction

nowtoreduceriskexposuretomarketspikeswhichcan

impact on our operating costs and ultimately render buildings

obsolete where the cost o retrotting may not be

commercially viable.

The business case or investing in energy eciency

iscompellingconsideringwespendaround20millionper

yearonenergy.Wherewehaveaninuenceoverenergy

eciency in our assets, we are committed to implementing

alllowandnocostmeasures.Whereinvestmentismore

signicantwerequirepaybackwithinthreeyears.In2009

our investment in energy eciency measures totalled

1millionandprovidedanestimated2.4millionin

energysavings.Weprojectsimilarinvestmentandsavings

over the next three years.

In addition to the need to invest in energy eciency,

thereisalsolikelytobehigherincidenceofobsolescence

or buildings which do not meet local energy regulatory

standards or occupier needs. Taxes and scal penalties

levied on carbon emissions may also reduce asset value.

Wethereforecontinuetoprioritizeenergymonitoringinlight

oftherapidlygrowingcarbonmarketmostimmediately

inpreparationfortheCarbonReductionCommitmentEnergy

EfciencySchemeintheUKwhichweestimatewillrequire

paymentofaround1.6millionin2011.Thispaymentwill

be recouped through increased service charges.

In relation to the production and use o waste arising

rom our asset management activities, we are ocused

on reducing our exposure to rising costs. As the cost o

disposing o waste to landll outstrips the cost o recycling or

reuse, the business case or alternative waste disposal routes

is clear. For the assets where we are responsible or wastemanagement,wesaved540,000in2009bydivertingwaste

fromlandll,andestimatethatsavingswillriseto910,000

by2012.


The Connected Perormance Report provides a orward

lookingperspectiveontheactionstakentomanagerisksand

opportunities associated with the three sustainability issues

identied, and the impacts on both nancial and non-nancial

perormance. In some cases, the direct nancial cost is

not material at present. However, we believe that a ailure

to actor in these issues now has potential to undermine

uture perormance.Whiletheinformationprovidedfocusesonareasinwhich

we have either direct managerial or nancial control,

wecontinuetoworkwithouroccupierstoinuencetheir

behaviour towards more sustainable occupation practices.

Wealsomanageissuesotherthanjustthosedeemed

material and urther detail on these can be ound in our

SustainabilityReport.

Whereappropriatewehavealsomadereferencesto

theGlobalReportingInitiative(GRI)SustainabilityReporting

Guidelines to ensure alignment with good practice

reporting standards.



GP Ofce Investment

Action and outcome Perormance

Occupier satisaction

Oces which meet the needs o occupiers enable them tosustain their productivity, thereby contributing to the economyand society.

Through post occupation evaluations carried out at newlylet premises or ollowing lease renewal, we survey occupiersannuallyonsatisfactionlevelsassociatedwithkeyaspectso property management as well as the perceived value

ofoursustainabilityefforts.Wehavealsobeguntoseekfeedbackfromoccupiersonsustainabilityissuesduringpost occupation evaluations, including the importanceo sustainability actors in new lettings and lease renewals.

OccupiersatisfactionIndexscores(outof5)

2007 2008 2009

Communication 3.71 3.69 h 3.73

Responsiveness 3.74 3.74 h 3.76

Understanding needs 3.81 3.84 h 3.85

Overall satisaction with propertymanagement team

3.72 3.80 h 3.82

Occupied space fexible in use 3.54 3.53 h 3.57

Changing occupier requirements


1.To ensure that we maintain high occupancy rates we must oster strong relations with our occupiers by responding to both their

growingdemandforgreenbuildingsandtheirrequirementsforinnovativet-outswhichareexibletochangingworkpatterns.

Building ratings

Assessingourbuildingsusingratingsandbenchmarksenables us to prioritize and target sustainability improvementsacross the portolio.

Sustainabilityratingsareconsideredintheassetappraisalprocessconductedpriortoacquisition.WebelievethatratingssuchasBREEAM,LEEDandEnergyPerformance

Certicatesprovideausefultooltoassessandbenchmarksustainabilitycredentials.Wealsoutilizethemindesignand construction o reurbishments rather than havingto incur cost later to retrot.

Wecontinuetouseappropriatebenchmarksandriskprolingtools rom other sources to complement sustainability ratings.Thesehelptoinformassetacquisitionanddisposalandsustainability improvements.

ValueofassetsbyBREEAMrating

BREEAM 2008 rating*Value o Assets

BREEAM Ofces (m)

Outstanding 20

Excellent 80

Very Good 80

Good 200

Pass 20

* Including both design-stage and post-completion assessments

Adaptable buildings

Adaptable and fexible buildings that are suitably locatedare more inherently sustainable as they typically have longeruseul lives.

Ourinvestmentstrategyseeksoutassetswhichdemonstratethesecharacteristics,havealowlikelihoodoffunctionalobsolescenceoverthelifeofownershipandconsequentlyhavelowerratesofdepreciation.Weseethisasanimportantuture determinant o asset value, as such buildings typicallyrequirelessinvestmenttocopewithchanginguse.Theyarealsolikelytomaintaintheirrentalvaluemorerobustlyandreduce void time during occupier changeover. Our fexible

approach to building t-out ensures that lighting, heating,cooling and interior space designs are adaptable or wide-rangingoccupierrequirements.

Fitforpurposeassessment(1=low5=high)

3.77 3.79 3.81

2007 2008 2009

5

4

3

2

1

0

Adaptability o abricFlexibility o internal use

Location

3.11 3.13 3.13

4.11 4.16 4.19


27/4025

Commentary

Sustainabilityandnewlettings/leaserenewals

2007 2008 2009

Total value o new lettings and leaserenewals(m)

20 12 x 8

Newlettingsandleaserenewalswheresustainabilitycitedasanimportantfactor(%)

59

63

h

76

Our occupier survey results show that we continue todemonstrate strong perormance across a broad rangeofoccupiersatisfactionmeasures.Inparticular,feedbacksuggests that our oces accommodate changes in useand that we are able to respond to evolving occupierrequirementsquicklyandwithminimaldisruption.

Since2007,thenumberoflettingswheresustainabilityhasbeen cited as an important actor has increased, refectinggrowing concern or issues such as energy and material

specication amongst occupiers.

Around180millionofourmostrecentlyconstructeddevelopments(bycurrentvalue)arecertiedtotheBREEAMstandard at Very Good or higher.

For existing assets, we use alternative assessments suchasJonesLangLaSallesTheThirdDimensionsurveywhichanalysesthesustainabilityriskproleofover2,000properties.For the property types we own and manage, our scorewas higher than the survey average score in all three assetclasses. This suggests that our portolio has an inherentlylowersustainabilityriskprolethanthatofourpeers.

Webelievethatpresentingourperformanceinrespectofbothoftheseassessmentshasmarketingadvantagesthatwill become increasingly important. Indeed, evidence romtheUniversityofCalifornia,Berkeleyhasshownforthersttime with a statistically signicant sample that greenbuildings command higher rental rates and even higher rentalpremiumsthanotherwiseidenticalbuildings.Weaimtopresent evidence to reinorce this important nding in ournext Connected Perormance Report.

Expenditureonassetimprovements To assess whether our assets are t or purpose we havedeveloped a methodology which scores buildings againstthree criteria. By measuring these independently on anannual basis we are able to determine the extent to whichour assets are becoming more or less t or purpose. Inaddition,weareexploringthelinkbetweenthetforpurposescore and both the capital value and the rental income.

Ongoing expenditure to prevent obsolescence o ourexisting assets continues to all, ollowing signicant capitalinvestment which we believe will reduce the rate odepreciation over the lie o the building. However, we alsoacknowledgetheimpactofmarketcyclesonvoidperiodsand will continue to explore the relationship between this and

depreciation so that we understand and are able to articulatethe correlation more robustly.

JonesLangLaSallesThirdDimensionSustainabilityRiskProling

City Oces West EndOfces B usinessParks

100%

80%

60%

40%

20%

0

2009SurveyBenchmarkScore

2009GenericPropertyInvestmentScore

Expenditureonimprovementstopreventobsolescence

Average void period during tenant change over

53%

51%

57%54% 53%

61%

3.6

14

4.0

17

4.3

15

2.8 2.7

2007 2008 2009 2010

projected

2011

projected

0 0

2 6

4 12

6

m

18

Months



GP Ofce Investment The Connected Perormance Report continued

Action and outcome

Action and outcome

Perormance

Perormance

Climate change adaptation

Assets which are protected against climate change enablebusiness continuity during extreme weather events, as wellas saeguarding human comort and health.

WeareimplementingaClimateAdaptationStrategytoensureouracquisitionanddisposalsaccountfortheriskthatextreme weather events might pose to uture asset value.Withthehelpofclimatechangemodellingtechniques,analysing our portolio provides a method or evaluating

theriskassociatedwithowningassetsinlocationswhereextreme weather can physically aect an asset, or example,through fooding, storm damage or subsidence.

Energy efciency

Reducing energy consumption also reduces greenhousegas emissions the cause o climate change.

Monitoringourenergyuseremainsakeypriorityforourbusiness particularly in light o the orthcoming CarbonReductionCommitment(CRC)EnergyEfciencyScheme.For assets where we purchase energy on behal o ourcustomers, our objective is to pass on cost savings romeciencies to occupiers via reductions in service charges.As part o our carbon reduction strategy, we are targeting theinstallation o smart meters across our portolio to improvemeasurementandmonitoringcapabilities.Wealsocontinueour programme o energy audits to ensure that our buildingmanagement systems are being used to their ull potentialand that obsolete plant and machinery is being replaced withmore energy ecient alternatives where appropriate.

Extremeweatherrisk

Weatherrelatedinsuranceclaims*(m)

No.ofextremeweatherrelatedinsuranceclaims

No.ofassetsathighriskofooding**

* In respect o assets where we are responsible or insurance

**Greaterthan1in100chanceofriveroodingeachyearbasedonEnvironmentAgencyassessments

Weather vulnerability and climate change risks

Resource availability and use

2.

3.

Climate change poses a physical threat to assets under ownership through fooding, storm damage and subsidence.Ensuringthatassetsarefuture-proofedforextremeweathereventsmayhelpprotectlong-termassetvalueandreducebothtaxandinsuranceliabilities.Italsodifferentiatesouracquisitionstrategyfromthatofourcompetitors,providinguswithamoretargeted investment pool rom which to select assets.

Energy,waterandwastearesignicantoperationalcostsforourbusiness.Asavailabilitydiminishesandregulatorycontrolsincrease,thecostofprocuringtheseresourcesalsoincreases,whichcanmakeourservicechargelesscompetitive.

Investment in energy eciency [GRIEN30Partial]

Energy efciency investment

Totalspend in

2009 (m)Averagepayback

Nocost 0.00 Immediate

Lowcost* 0.15 11months

Capital expenditure 0.85 36months

*Investmentinindividualprojectsthatarelessthan100,000

CO2esavingsandCarbonReductionCommitmentEnergyEfciencySchemeliability[GRIEN18Partial]

Projected

Energy efciency investment 2009 2010 2011 2012

CO2e saving (tonnes) 6,732 6,500 6,500 6,500

Equivalentenergysaving(m) 2.4 2 2 2

CRCliability(m)* n/a n/a 1.55 1.55

*CRCliabilitywillaffectcashowforoneyearbutwillberecoveredfromoccupiers.Liabilitycostsbasedon12pertonneofCO2andestimatedcarbonemissionsin2011and2012.


29/40



GP Ofce Investment The Connected Perormance Report continued

Action and outcome Perormance

Water efciency

Waterisavaluablenaturalresourcewhichisscarceeveninthe UK. Reducing consumption thereore lessens the strainon resh water supply.

Waterisanemergingconcern,andonethatwebelievewillincrease in importance over time as regulatory controls onsupply and demand become tighter. By tting water savingdevices and closely monitoring consumption levels, wecontinue to target water eciency improvements in thecommon parts o our managed assets. Our investments aretypically low or no cost, and savings are passed on tooccupiers once the initial expenditure has been recouped.Wealsoengagewithoccupierstoencouragewaterefciencypractices within their own demise.

Investment in water eciency [GRIEN30Partial]

Projected

Water efciency investment 2009 2010 2011 2012

Low*/nocost(m) 0.15 0.15 0.15 0.15

Watersavings(m) 0.17 0.20 0.20 0.20

*Investmentthatarelessthan20,000

Waste

Reducing total waste produced and the proportion sent tolandll reduces strain on scarce landll sites and theconsumption o virgin materials.

Wherewehaveresponsibilityforwastemanagement,wasteis becoming a signicant operational cost in light o annuallandlltaxincreases.Weworkactivelywithouroccupiersto improve recycling rates and thereby reduce the servicecharge portion allocated to waste services.

Reuse and resale o building materials such as plasterboardand aggregates is emerging as a new source o revenue.Wearedevelopingawastemanagementstrategywhichcapitalizesonunlockingvaluefromwasteincludingenergyrom incineration o commercial waste.

Savingsfromwastediversionandrevenuefromsaleofwaste[GRIEN30Partial]

Projected

Water efciency investment 2009 2010 2011 2012

Savingsfromdiversionofwastefromlandll(m)*

0.54 0.70 0.86 0.91

Revenue rom sale o waste(m)**

0.01 0.03 0.05 0.06

*Projectionsbasedon8pertonneincreaseinlandlltaxto2011

**Derivingdirectlyfromourassetsthereforeattributabletous


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Commentary

Wholebuilding(landlord+tenant)waterefciency[GRIEN8Partial]litres/worker/day

Investmentinwaterefciencyinitiativeshasarelativelyquickpaybackperiod(typicallylessthan1year).Wearethereforewitnessing improvements in water eciency across theportolio, savings rom which are passed on to our occupiers.Waterefciencyisimprovingatarateofapproximately5%perannumandweareoncoursetoachieveour2012target.

Wastedisposalroutebymass(landlord+tenant)[GRIEN22Partial]%ofwastebydisposalroute

WiththecorrespondingincreaseintheamountofwastewecollectforrecyclingandMaterialRecoveryFacility(MRF)processing, savings associated with diversion o waste romlandllcontinuetoincrease.Wearealsogeneratingasmall,but growing amount o revenue rom the sale o wasteproducts which would have ordinarily been sent to landll,such as plasterboard and cardboard.

23.522.1

20.819.5

Landlordpurchasedwaterefciency

0

10

20

30

2008

2009

2010target

2011target

2012target

Good Practice

Benchmark2008UpstreamSustainabilityBenchmarking

24.5

litres/worker/day

639

5

1

7

35

5

1

8

31

555

1

9

27

558

1

Recycling

Incineration

Directtolandll

Reuse

Compositing

Good PracticeBenchmark2008UpstreamSustainabilityBenchmarking

2009 2010target 2011target 2012target

49 52

%o

fwastebydisposalroute

23

48



BWC plc

BWC is assumed to employ 2,560 staff, serve 2 million customers in 960,000 properties (household and non-household)

and places approximately 545 million litres per day of drinking water into the supply.

Extract rom the Business Review: Key sustainability issues or our business

Introduction

AsourChiefExecutivehasalreadydetailed,thedemands

o modern liestyles, the impact o climate change and theneed to protect the environment and natural resources oruture generations create a complex and demanding setofshortandlong-termchallengesforus.Sustainabilityisatthe very heart o meeting these challenges, not just to ensurethat we remain a sustainable business, but to ensure that weoperateinamannerthattakesaccountofourimpactontheenvironment and the society in which we operate. In orderto do this eectively, we need to have a good understandingo the impact that sustainability issues will have on theachievement o each o our core objectives. An analysiso this is given below.

Provide an efcient, continuous supply o quality waterEnsuringanefcient,continuoussupplyofqualitywateris

thetoppriorityforourcustomers.Wemustensurethatwe

canmeetthisexpectationagainstthebackdropofclimate

change, demographic changes and increasing long-term

demand. Alongside this there are pressures on us to reduce

our use o water rom rivers and groundwater sources,

whilemanaginganageingsupplynetwork.Severalpowerful

trends have combined to aect supply; diuse pollution has

made some o our water sources more dicult to treat and

natural storage o water has been eroded through increased

urbanisation, leading to aster run-o o rainwater and lower

rechargeofgroundwater.Weatherpatternshavealsobecomenoticeablymoreintense,withsimilarconsequences.

Ultimately, this means that we will not have sucient water

available to meet long-term demand unless we invest in

bridging the supply-demand gap. To meet these challenges

we must replace ageing assets, accelerate the installation

ofmetering,reduceleakageandincreasewaterefciency

throughworkwiththedomesticandcommercialsectors.

Wemustchooseexibleoptionstoensurethatshort-term

demographic and economic fuctuations are balanced

by the need to ensure that we use existing supplies

in a sustainable way, using new technologies and a more

integratedsupplynetwork.

Deal eectively with wastewater

It is critical to us that our customers have condence that

wewilltakeawaytheirwastewaterandtreatittothehighest

environmental standards beore returning it to our regions

rivers.Wehavecontinuedtoshowourabilitytodeliverthis

coreservice,asriverwaterqualityinourregionhascontinued

toimproveoverthelast15years,withanincreaseinthe

proportion o rivers o good standard.

There are however signicant challenges which will impact

on our achievement o this business objective. The implications

oftheWaterFrameworkDirectivecouldleadtoincreasedenergy use and GHG emissions, which may outweigh the

waterqualitybenets.We,ourregulatorsandpolicymakers

must consider the whole environment when assessing the

impacts and solutions to meet this challenge.

Wedohoweverrecognizethatdespiteourworktoimprove

riverqualitywestillhavesomewaytogoinaddressingour

impact rom unplanned pollution incidents. Alongside this

we must educate our customers about the issues o disposal

o ats, oils and grease, as well as other non-fushable

products to the sewers.

One o the most serious service ailures that our customers

can experience is sewer fooding. Our customers have told

us that they would pay or signicant reductions in sewer

ooding,particularlyforinternalooding.Wemusttherefore

aim to eliminate fooding o properties rom sewers, except

as a result o exceptionally high rainall that exceeds the

design standards or our system. Our ability to meet this

aimisinextricablylinkedwithmanyoftheissuesdiscussed

in respect o our climate change, provision o water and

regulatory regime business objectives.

Deliver an aordable service

Werecognizethatwhilethemajorityofourcustomerscan

aord to pay their water bill, there are customers who havediculty in settling their accounts, and this proportion has

grown in the current economic climate. Increasing levels

o bad debt and collection costs aect both our ability to

deliver excellent returns to our shareholders and to und the

futureinvestmentrequiredtoachieveasustainablefuture.

Because o this, we must and will pursue those customers

who are able to pay, but choose not to. This is in the interests

o all our customers. For those who are genuinely in nancial

hardship,wemustseektoidentifythemearlierinthe

collection process in order to oer help to enable them to

manage their debt.

Respond to climate change

Climate change and how we respond to it has signicant

implications or all our other business objectives and thereore

is at the very heart o our business planning. The last two

years have seen unprecedented fooding, coupled with the

need in some areas or hosepipe bans to address the issues

o demand exceeding supply. These impacts are only an

indication o the weather to be expected as our climate

changes.Wemustaddressthesechallengesbyensuring

theresilienceofournetworkandassetstotheeffects

ofclimatechangeandworkingwithourcustomersand

regulators to ensure that we can continue to supply waterto meet demand.


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Wemustalsoconsiderourimpactonthecausesofclimate

change.Asacompanyweneedtomakeourcontribution

to reducing carbon dioxide emissions through investing

in renewable energy and achieving signicant eciencies

in energy use. As a part o this we also recognize the role

o water eciency in reducing both our carbon ootprint

and that o our customers. In this respect, we are actively

promoting water conservation and raising awareness o the

linkbetweendomesticwaterheatingandcarbonemissions.

The Carbon Reduction Commitment is due to commence

inApril2010.Giventhatwearealreadysubjecttoregulatory

qualitydriversthatincreaseenergyconsumption,andmuch

workhasbeendoneonenergyefciency,itmaybedifcult

or us to achieve signicant reductions relative to other

participants.Wemustthereforecontinuetoworkwith

government and regulators to understand the implications

o the Carbon Reduction Commitment and communicate

thistoourcustomersandstakeholderstoensurethatthey

are aware o the cost pressures the mechanism will exert.

Provide our people with the right skills to deliver

In order to deliver service improvements and eciencies,

we need to have the right people and resources available

to us now and in the uture. However, we ace a high level

ofdemandandcompetitionfortheskillsthatweneed,

particularly in engineering and sciences. Thereore, i we

donotinvestinattractingandtransferringknowledgeto

newtalent,werisklosingourcorporatememory.Wemust

be able to recruit and retain the right talent through modern

pay structures and training and developing a motivated and

diverseworkforcethatisappropriatelyrewarded.Wemust

alsoprovideourteamswiththetoolsandtechniques

to identiy eciencies themselves.

Fund investment and operating expenditure whilstproviding an acceptable return and capital growth

The scale o improvements since privatisation has meant

that annual income rom customers has been insucient

to nance the capital programme. As a result, borrowing

has increased steadily. To continue to und investment we

need a stable regulatory regime that will provide condence

and an acceptable rate o return.

Alongside this, we are vulnerable to signicant changes

in cost which cannot be nanced in the short term by higher

prices,particularlyenergycosts.Werecognizethatwemust

increase our resilience to fuctuations in global energy prices.

In response, we are ocused on energy eciency and

diversication o supply, through increased renewable energy

generation,andourtargetistogenerate20%ofourown

energyby2020.Thiswillhelptoincreasesecurityofenergy

supply and mitigate uture price increases.

Promote an appropriate regulatory regime

Increasing expectations or good environmental perormance

throughlegislationsuchastheWaterFrameworkDirective

will have signicant impact on treatment processes and the

demand or resources such as chemicals and energy.

Achieving substantive change in the industry over the next

decadeandbeyondwillrequireanewapproachtothe

regulatory regime in which we operate. This should be fexible

in the setting o standards and consider novel treatment

solutions that reduce our resource impact. It should also include

supporting a move towards a regime based on integratedcatchment management ensuring that one environment

is not improved at the expense o another.

Whilstweworkwithourregulatorstopromoteanappropriate

regulatory regime we will continue to consider alternative

Connected Reporting a Practical Guide With Worked Examples 17th December 2009

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