Social and ethics committee report

Dear shareholders, I am pleased to present the social and ethics committee report for the year ended 31 December 2018.

Purpose

The committee is constituted as a statutory committee of the company for those statutory duties assigned to it in terms of section 72(4) of the Companies Act of 2008 (read in conjunction with regulation 43 of the Companies Regulations, 2011) (the Act), and as a committee of the board for all other duties assigned by the board.

In addition, as emphasised in the King IV Report on Corporate Governance for South Africa, 2016 (King IV™), this committee's role is to have oversight of and report on organisational ethics, responsible corporate citizenship, sustainable development and stakeholder relationships. This will help to ensure sustainability while serving the interests of stakeholders on whom the business depends.

The role of the committee is to:

• Fulfil statutory duties set out in regulation 43 to the Act
• Oversee and report on organisational ethics, responsible corporate citizenship, sustainable development and stakeholder relationships
• Assist the board in facilitating and supporting the development of transformation objectives, ensuring the corporate culture is supportive of the approach and monitoring and reporting actual performance against transformation objectives.

The committee has an independent role, with accountability to the board. It does not assume the functions of management, which remain the responsibility of executive directors, prescribed officers and other members of senior management, nor does it assume accountability for functions performed by other committees of the board.

Composition

The committee comprised a majority of independent directors throughout the period as per the recommendations of King IV to ensure that independent judgement is brought to bear. Standing invitees include the chairman of the board, chief executive officer, finance director, executive head: stakeholder affairs and general manager: risk, compliance and assurance. Other individuals with specific skills and expertise are invited to assist members in their deliberations.

Meetings

Four meetings were held in 2018, and one special meeting.

Ethics programme

As responsibility for governance of ethics is one of the principles of King IV, the committee plays a key role in setting the direction for how ethics should be approached and addressed by Exxaro.

In giving direction on organisational ethics, the committee considered and approved for adoption by the board:

• A new code of ethics policy for the company
• Anti-bribery and corruption policy
• Anti-corruption and fraud-prevention training content.

It also has oversight of implementation initiatives for Exxaro's anti-bribery and anti-corruption (ABAC) programme to ensure management remains on track with the strategic objectives of the programme and is actively addressing any shortcomings. Initiatives in 2018 included:

• An updated anti-fraud and anti-corruption philosophy statement confirming the group's zero-tolerance approach was distributed through all relevant channels
• Updated ABAC and whistleblowing awareness through poster and media campaigns
• ABAC awareness training for over 5 000 employees and contractors across the group through compulsory attendance of video animation addressing relevant ethics-related policies, tender fraud, conflict of interest, and whistleblowing
• Data analytics between the employee and vendor database where data matches were checked against conflict-of-interest declarations
• Identification of vendors for a detailed due-diligence based on internally developed risk criteria
• An independent ABAC risk assessment to identify areas requiring additional focus in 2018 and 2019 to strengthen the overall programme
• Independent assessment of the programme's robustness in terms of ISO 37001.

The committee ensures that the board is sufficiently equipped to achieve its goal of having a sustainable ethical culture. Although this responsibility has been delegated, the board remains accountable for the way in which this is discharged.

Management supports the committee through its ethics committee that considers and addresses matters of ethics (including all hotline reports and forensic investigations) in detail, and reports to this committee.

Comparable statistics for January to December over a five-year period:

Other key issues that received attention during the year:

• Considering the outcome of an audit of social and labour plans in the group, specifically on local economic development programmes that meaningfully contribute to mine community development
• Highlighting the importance of enterprise supplier development (ESD) in achieving the approved BBBEE strategy, and monitoring progress in implementing ESD strategy
• Monitor and report on the company's performance against BEE targets
• Monitor and report on progress in implementing the anti-fraud and anti-bribery and corruption programme, including adoption of a new code of ethics policy, anti-bribery and corruption policy as well as anti-corruption and fraud-prevention training content
• Issuing holding statements against a number of companies following adverse media releases in 2017 and 2018, as well as considering their lifting
• Approval and amendment to Exxaro's political donations policy
• Review and measure management actions against KPIs on the strategic performance dashboard to ensure the company is on track to achieve its strategic objectives
• Monitor the four categories of disciplinary offences in the company, namely:
  • Absence without permission
  • Negligent work performance
  • Alcohol or drug-related offences
  • Non-compliance with company rules.

Key performance indicators 2018

Key performance indicators 2019

In 2019, the company will implement the following:

• Compulsory online ABAC training to some 650 employees at top, senior and middle-management level
• Continuous electronic monitoring of potential conflicts between the employee and vendor database
• Completion of an ethics survey to determine any additional focus areas to improve the ABAC programme.

Conclusion

The committee, in carrying out its duties, has due regard to the principles and recommended practices of King IV. It is satisfied it has considered and discharged its responsibilities in line with its terms of reference.

On behalf of the committee

Ms A Sing

Chairman

Pretoria

24 April 2019