2014

Associated British Foods

British Airways

Coop Genossenschaft

Danone

Grupo André Maggi

Finland

Australia

United Kingdom

USA

Sweden

1

2

3

5

4

Timber

Palm Oil

Soy

Cattle Products

Biofuels

Yes

Risk assessment based on materiality, likelihood and consequence to the business.

We assess thanks to a 3 level assessment too : - supplier reputation and supply chain complexity - country of harvest risk (thanks to the Coface and Transparency International ratings) - species risk thanks to the CITES convention and the IUCN Red List

demand for certifications and transparency documents for wood origin

Based on FSC® Controlled Wood standard and/or PEFC™ Due Diligence System (DDS) which have classified all forestry based fibre as being low risk, including physical operations, regulatory and reputational risk. Procurement areas are relatively close to manufacturing facilities with identifiable sourcing. All fibre can be traced back to its origin. We operate in a cyclical industry. Global economic conditions may cause substantial fluctuations in our results. Our products are significantly affected by cyclical changes in industry capacity and output levels as well as by the impact on demand from changes in the world economy. Because of supply and demand imbalances in the industry, these markets historically have been cyclical, with volatile prices. In addition, recent turmoil in the world economy has led to sharp reductions in volume and pressure on prices in many of our markets. We took actions to improve efficiencies and reduce costs in all aspects of our business. We continue to benefit from a high level of economic pulp integration on a group-wide basis, which reduces the impact of pulp price fluctuations on our consolidated group results. We will continue to monitor the supply/demand balance, which might require us to impair operating assets and/or implement further capacity closures. The cost of complying with environmental, health and safety laws may be significant to our business. Our aim is to minimise our impact on the environment. The principles of ISO 14000, (FSC®), SFI®, PEFC™ and other recognised programmes are well entrenched across the group. We have also made significant investments in operational and maintenance activities related to reductions in air emissions, wastewater discharges and waste generation.

The SCA Environmental Committee and SCA Public Affairs Fiber Network are responsible for the assessment of risks relating to sustainable forest management and its potential business and physical effects on SCA and its stakeholders. The Committee includes environmental managers from all business areas and the Senior Vice President Sustainability. The tools for identifying business risk including regulatory risk (e.g. impacts of EU Timber regulations, the US Lacey Act, Australian Timber Regulations), operational risk (e.g. securing supply of sustainable wood material) and reputational risk (e.g. reliance on certification) primarily comprise of getting continuous reporting from the business units and the annual strategy process, which includes risk management. Much time and resources are dedicated to interact both vertically and horizontally in the organisation so that risks associated with sourcing of wood based products are identified and escalated to the Group. Most operational risks are managed by SCA’s business units at a local level, but are coordinated centrally when necessary and to inform SCA’s overall business strategy. SCA regularly carries out materiality analysis to understand what issues are most important and relevant to SCA to inform SCA’s strategy and operations. The 2013 analysis was based on a survey of 1,500 internal and external stakeholders in combination with SCA’s own assessment of the strategic importance of the areas. To mitigate the risks with sourcing of wood based products, SCA has a Group target to achieve and maintain zero fresh fiber-based material, including pulp, from controversial sources. This involves considerable control efforts along the supply chain. SCA requires pulp suppliers to demonstrate reliable systems and have documented procedures in place to enable control of the supply chain and traceability of the origin of wood raw materials. The company performs assessments and supplier visits to ensure suppliers meet the requirements in SCA’s Global Supplier Standard. Nine supplier mills were audited in 2013 and this work will continue in 2014. All SCA's pulp suppliers to mills and factories, with 100% SCA ownership, are FSC and/or PEFC Chain of Custody certified.

Non-material risk

No risk

Material risk

Where deforestation occurs in contravention of international, national or local legislation, or in contravention of concession provisions. For example on land ownership, specific forest law provisions, human rights

Currently no relevant regulation regarding the use of soy and therefore no regulatory risk.

We are in compliance.

No regulatory risk in Japan.

As we directly import some timber based products in the EU we are subject to the EU Timber Regulations. There is then a risk of both product seizure and prosecution if our due diligence against the importation of illegal timber is not adequate. We have chosen to only import timber and timber fibre products covered by the regulation that are credibly certified to either FSC or PEFC.

Non-material risk

Material risk

No risk

Marfrig must monitor the situation of its suppliers periodically to guarantee that they continue in compliance with all legal and internal sustainability requirements, so that the purchasing of this commodity does not impact the company’s reputation

In addition to the above (ie regulatory risks), where deforestation occurs within the law but outwith our policy or the expectations of society. All of these occurrences can lead to NGO campaigns, press commentary, customer and consumer boycotts

Buying forest products from controversial sources could create major concerns on Sofidel stakeholders giving rise to NGO’s negative campaigns and public boycotts of our products creating major damages to Sofidel’s public reputation. A good reputation is a fundamental resource that can significantly help Sofidel to create added value for its products and to develop long term loyal relationship with its customer. Please consider Sofidel doesn’t have “business to business” relation but its customer is the consumer: that means a bad reputation will have an immediate bad impact on the consumer loyalty. A bad reputation could also decrease the possibility to get access to financial markets (reducing dramatically the negotiation power with banks and financial institutions preventing Sofidel from doing future investments) and to get access to the labour market since, for an equal pay, talent people will prefer a sustainable company than a company with a bad reputation.

Stora Enso is observed by different NGOs (MST, World Rainforest Movement, Friends of the Earth, Greenpeace, Swedish Society for Nature Conservation etc.) - especially our operations in emerging markets (e.g. Veracel in Brazil and Stora Enso Guangxi in China) have received media attention. The criticism was not related to deforestation but to land ownership and land use rights. We see a reputational risk coming from the fact that the pulp and paper industry is the target for criticism, as it is often involved in using large areas of land and other natural resources.

In the event of a supplier of the Sumitomo Forestry Group failing to comply with laws and regulations concerning logging such as the EUTR, it could negatively affect Sumitomo Forestry and its brand image and as a result cause sales in the timber distribution business to decrease. Accordingly, the Group considers a reputational risk as an important risk. As stated in F10.1, laws and regulations aimed at eliminating timber that has been logged illegally are being strengthened in countries around the world, such as the EU Timber Regulation in the EU and the Revised Lacey Act in the US. In the event of a supplier of the Sumitomo Forestry Group failing to comply with laws and regulations concerning logging, it could negatively affect Sumitomo Forestry as a trading company that handles their products, impair its brand image and as a result cause sales in the timber distribution business to decrease. If the timber procurement conducted by the Sumitomo Forestry Group is viewed by an environmental NGO as not giving sufficient consideration to environmental issues or social issues such as occupational safety and health or human rights, this could lead to a negative campaign on a global level, which in turn could negatively affect its brand image and cause sales to decrease not only in the timber distribution business, but in the housing business as well. As a means of risk management for these issues, the Sumitomo Forestry Group established the Timber Procurement Philosophy and Policy and the Timber Procurement Action Plan in 2007, and conducts legality verification on all overseas suppliers of timber that it imports directly from. The Group’s legality verification procedures are described in the [“Futher Information”].Legality verification was completed for all suppliers of directly imported timber in FY 2009 based on these procedures, and subsequently the Group has continued to implement these initiatives. The Group formulated the Third Timber Procurement Action Plan in FY 2012 that stipulates targets for FY 2013 to FY 2015. It stipulates that legality checks shall be continued for not only directly imported timber, but all suppliers of timber and timber products handled by the Sumitomo Forestry Group. Initiatives will be continued to clarify the traceability of all timber handled and further improve the accuracy of legality verification.

No risk

Non-material risk

Material risk

Operational supply issues may arise for a number of reasons such as price volatility, security of supply or issues associated with the commodity’s heritage. Individual businesses monitor these potential operational impacts as part of their risk assessments.

A catastrophic event reducing or eliminating a crop or commodity.could drive operational risk, as well as social awareness of these issues that may not be catastrophic in nature.

Supply interruptions because of regulatory or civil society action in the UK could mean we would be temporally unable to supply some products. Government action in producer countries could mean that certain products need to be resourced, re specified or no longer traded.

Whilst supply interruptions would be frustrating; leather goods are incidental in our companies product ranges and we could manage an exit of the market without material loss.

• Lack of sufficient, available certified sources. Also, continued NGO criticism and concerns around deforestation even if sources are certified.