Wesfarmers commissioned Net Balance Management Group Pty Ltd (Net Balance) to provide independent assurance of this Sustainability Report 2008 (the ‘Report’). The Report presents Wesfarmers’ sustainability performance over the period 1st July 2007 to 30th June 2008. Wesfarmers was responsible for the preparation of the Report and this statement represents the assurance provider’s independent opinion. Net Balance’s responsibility in performing our assurance activities is to the Board and Management of Wesfarmers alone and in accordance with the terms of reference agreed with them. Other stakeholders should perform their own due diligence before taking any action as a result of this statement.

Assurance Standard

The assurance was undertaken in accordance with the AA1000 Assurance Standard (AA1000 AS), which is based on the following principles:

• Materiality: Does the organisation have in place a process to determine material issues, including an evaluation of relevance and importance? Does the report provide information about the organisation’s sustainability management and performance required by its stakeholder for them to be able to make informed judgements, decisions and actions?
• Completeness: To what extent can the organisation identify and understand the material aspects of its sustainability performance? Is this done in a fair manner (giving consideration to reliability, comparability and understandability of information), and in a balanced manner (including both favourable and unfavourable information)?
• Responsiveness: Does the organisation have in place a process to prioritise issue for response? Has the organisation responded appropriately to the concerns and expectations of its stakeholders and adequately communicated those responses within the report? Is this information being provided in a timely manner? Does the organisation allocate adequate resources to enable it to meets its policy and standards commitments?

Assurance Objective

The objective of the assurance process is to provide stakeholders of Wesfarmers with an independent opinion on the quality of the report. This is confirmed through a review of claims made, underlying systems, processes and competencies that support the report with respect to the principles of materiality, completeness and responsiveness. Ensuring continuous improvement in data management systems and associated reporting processes is also a complementary objective.

Assurance Process & Limitations

The assurance engagement was undertaken between May and September 2008, and the process involved:

• An interview with key management personnel to ascertain how Wesfarmers addresses the three principles of the AA1000 AS;
• A review of Wesfarmers’ key sustainability strategies, policies issued or revised during the reporting period, objectives, targets, management systems, measurement/data collection and reporting procedures and background documentation;
• A review of the report for any significant anomalies, particularly in relation to significant claims as well as trends in data;
• A calculated assessment of the materiality and risk of misstatement of all verifiable data points contained in the report, as directed by the Net Balance Assurance Framework;
• A series of interviews with key personnel responsible for collating and writing various parts of the report in order to ensure selected claims were discussed and substantiated;
• An examination of the aggregation and/or derivation of, and underlying evidence for, over 250 selected data points and statements made in the report; and
• An independent materiality check, including a comparison of Wesfarmers against its industry peers and a review of selected external media coverage.

Assurance Level and Limitations

The level of assurance provided is reasonable as defined by the scope and methodology described in this assurance statement. The assurance covered the whole report and focussed on systems and activities of Wesfarmers during the reporting period, with the following exceptions:

• The scope of work did not involve verification of financial data, other than that relating to environmental, social or broader economic performance.
• Each of the wholly-owned business units were visited or interviewed by members of the assurance team. These were Australian Vinyls, Bunnings, Coles, Coregas, CSBP, Curragh, Energy Generation, Insurance, Kleenheat Gas, Kmart, Officeworks, Premier Coal, Resources, Target, Industrial and Safety and Wesfarmers LPG. The Corporate office was also visited for data review and furthermore, data was examined from the 40 per cent-owned Air Liquide WA.

Our Independence

• During the reporting period, Net Balance was commissioned by Wesfarmers to undertake the following engagements:
• Assistance with the Report re-design. This project involved re-thinking the design of the Wesfarmers Report and presenting options for a reporting framework.
• Develop data control procedures for Group level reporting. This project involved developing procedures for Wesfarmers thirteen core sustainability indicators to help ensure the completeness of data in the report.

These projects were determined by Wesfarmers and Net Balance to be complementary to the assurance role, which is clearly not a conflict-of-interest according to Net Balance’s assurance conflict-of-interest policy. The assurance team has not undertaken any other work for Wesfarmers during the reporting period. Net Balance undertook the independent assurance of the Wesfarmers Report with the utmost integrity and objectivity. Our independence has not been compromised through the provision of the above mentioned commissioned services to Wesfarmers.

Our Capacity

The assurance project was carried out by a multi-disciplinary team of sustainability specialists, comprising individuals with expertise in environmental, social and economic performance measurement; and in reporting in various industry sectors including the manufacturing, energy, finance, chemical and retail sectors. Net Balance is a global leader in the use of the AA1000 Assurance Standard. The assurance team has collectively undertaken over 80 assurance engagements in Australia over the past 10 years and is led by a Lead Sustainability Assurance Practitioner (Lead CSAP), accredited by the International Register of Certified Auditors UK (IRCA UK).

Our Opinion

Based on the scope of the assurance process, the following represents the assurance provider’s opinion:

• The findings of the assurance engagement provide confidence in the reporting processes and systems established. The level of data accuracy was found to be within acceptable limits, but additional improvements to data management, including the reduction of manual aggregation and transcription processes are recommended to reduce potential for minor anomalies and inaccurate statements. Data trails selected were easily identifiable and traceable, and the majority of personnel responsible were able to reliably demonstrate the origin(s) of data but we still identified several misinterpretations of data.
• The statements made in the report appropriately reflect environmental, social and economic performance achieved during the period.
• All errors noted by the assurance provider were satisfactorily addressed by Wesfarmers prior to finalising the report.

Overall, the assurance provider is satisfied that the report is an appropriate representation of Wesfarmers’ sustainability performance during the reporting period.

Conclusions and Recommendations

• Materiality: Environmental, social and broader economic aspects and issues that are considered material to peers have been addressed and communicated within the Report. With regards to key sustainability opportunities for the Divisions, findings from the peer review indicates that some Divisions, in order to be considered industry best practice, can report more extensively on environmental performance, initiatives undertaken to reduce the environmental footprint of the Division’s supply chain and details of products that provide innovative climate change and sustainability solutions.
• Completeness: Wesfarmers has implemented a system to help measure, monitor and manage sustainability issues. The Group Reporting Methodology goes a long way in ensuring key sustainability data is captured at the Divisions level. However, due to the largely diversified nature of Wesfarmers, sufficient flexibility needs to be built into the methodology as each Division will be exposed to different issues. Wesfarmers should apply the AA1000 5 Part materiality assessment to determine the material issues for each business unit. As such, the results of the materiality assessment will supplement the Group Reporting Methodology resulting in a more complete Report.
• Responsiveness: Net Balance tested the responsiveness of the organisation through a review of management systems and policies prepared by the organisation relating to the way it responds to stakeholder concerns and interests. Responsiveness was also tested by assessing the resources allocated to implement the aforementioned policies and commitments; by assessing the timeliness and accessibility of reported information; and by undertaking a review of key policies, targets and indicators and assessing the extent to which these are implemented by Wesfarmers. Net Balance also engaged with nine external stakeholders using a structured-survey process to gain an appreciation of their perception of the sustainability performance and reporting thereof of the Wesfarmers-owned Chemicals and Fertilisers and Insurance Divisions. Stakeholders felt that the organisation’s responsiveness is in general ‘average’ to ‘good’ and that it was performing well in economic, social and environmental areas. Results of stakeholder engagement are presented in a clear and concise manner within the Assurance Report. It is recommended that Wesfarmers continue to engage and consult with its internal and external stakeholders through the established processes, and expand its stakeholder engagement with particular focus on stakeholder-requirements from the Report. The information gathered from the stakeholder engagement processes and Wesfarmers’ responses could also be reported.

The Way Forward

The structure and content of the Sustainability Report is now directed by the Group Reporting Methodology; this provides consistency for the reader as all reporting units are required to disclose comparable information in an identical format. Despite the implementation of the Group Reporting Methodology, the assurance process uncovered several errors ranging from the use of different measurement units to different calculation inputs across the Group. Before Wesfarmers begins developing the 2009 Sustainability Report, the organisation needs to internally engage with Report preparers to ensure all business units understand the requirements of the Group Reporting Methodology. This will ensure that information is calculated based on consistent and relevant methodologies across the Group. Information, when consolidated, will be in a comparable format thus the Report itself will be more useful to stakeholders. The Group Reporting Methodology should provide a rigid framework whilst allowing Divisions some flexibility in the way they identify and report upon what they (and their stakeholders) consider material sustainability issues for their business. Business units are encouraged to undertake the AA1000 5 Part Materiality Test of which the results of which will supplement the Group Reporting Methodology.

Wesfarmers would now be considered an organisation with substantial expertise in preparing public Sustainability Reports. The organisation produces a good quality Report that addresses its environmental, social and broader economic issues. To be seen as an industry leader, the next step for Wesfarmers is to look beyond its own sustainability performance and look to use its large market capitalisation and exposure to diverse industries to influence the operations and behaviours of its stakeholders (largely retail and wholesale customers and to a degree its suppliers) to make positive sustainable impacts. Wesfarmers can achieve this through various means. Two immediately available options for the organisation are to increase the focus on supply chain management and to develop innovative products to tackle climate change through its products and services. The organisation is encouraged to develop a Sustainable Procurement Policy (either at the Group level or tailored policies at the Division level). This will serve as guidance for all procurement decisions and will encourage suppliers to offer more sustainable goods and services. The Insurance Division was highlighted through the stakeholder survey as having the potential to develop a range of innovative climate change and sustainability solutions through its products. These include climate change insurance protection, catastrophe bonds, earthquake cover, weather derivatives and discounts in insurance premiums for fuel efficient vehicles.

Stakeholder engagement needs to continue, and in particular engagement with employees and highly interested and influential external stakeholders needs to be raised. Net Balance recommends conducting a comprehensive stakeholder mapping exercise to determine the key stakeholders at Division level. The engagement needs to be undertaken earlier in the reporting period to gauge stakeholder opinion on reporting performance in particular focusing on what stakeholders may want from the Report. The information gathered from the stakeholder engagement processes and Wesfarmers’ responses could also be reported in future years.

As part of the organisation’s extensive training suit, specific sustainability related training programmes need to be developed to help raise awareness amongst staff as to the importance and benefits of conducting business in sustainable manner. This would demonstrate to stakeholders that Wesfarmers is continuing to integrate sustainability as a core corporate objective and that the organisation ranks this topic as highly as other measures of performance, such as economic or health and safety.

The Report itself continues to be a significant effort for Wesfarmers, particularly given some of the challenges highlighted above. We found that comments and input had been sought from several levels within Wesfarmers. The Report also continues to be internally verified prior to external assurance. As report sizes continue to shrink globally, Wesfarmers needs to continue to look to manage the size of the Report, despite diversity and growth. Development of some systems and quality controls for data (i.e. the Group Reporting Methodology) would further assist in reporting efficiency and in reducing potential for human error or loss of intellectual property through natural staff turn-over. These are key risks in performance measurement and reporting for an organisation such as Wesfarmers. Wesfarmers would benefit from conducting a training session for staff involved in developing the report on verifiability of claims, and accuracy of data, as well as development of appropriate procedures for measurement and reporting of key performance indicators.

Net Balance has provided additional suggestions for reporting improvement in the Assurance Report presented to the Wesfarmers management team.

On behalf of the assurance team, 9th October 2008, Melbourne, Australia

Terence Jeyaretnam
Director, NET BALANCE & Lead CSAP (IRCA UK)