Sustainability, risk and compliance committee report

Dear shareholders,

I am pleased to present the sustainability, risk and compliance committee report for the year ended 31 December 2019

Role and purpose

The sustainability, risk and compliance committee assists the board in its oversight of three important aspects influencing the company's strategy and long-term viability, being sustainability, risk and compliance, which is done within the context of the remit of other board committees. The sustainability, risk and compliance committee also coordinates all risk and compliance activities for the company and group, and leads (on behalf of the board) a coordinated approach to the company's long-term sustainable development philosophy, policies and performance management.

The committee is responsible for:

• Sustainability: The review of the company's performance on sustainability by reviewing significant sustainability incidents and KPIs as well as other relevant data trends, considering actions to address areas of concern, and the consequences of decisions and management actions on the environment, community, health and safety of employees. It reviews the six capital model to support the Exxaro strategy and ensure that performance indicators are determined for every capital, and receives and reviews integrated reports to track the company's progress against performance indicators and advise the board on progress in achieving targets for sustainability issues.
• Risk management: In doing this, the committee exercises ongoing oversight of enterprise risk management on behalf of the board and, in particular, oversees that it results in an assessment of enterprise risks and opportunities emanating from the triple context in which the company operates and the capitals that the company uses and affects, as well as assessment of the potential upside, or opportunity, presented by risks with potentially negative effects on achieving the company's objectives.
• Compliance: The committee reviews policies and activities designed to promote a compliance culture in the company while, at the same time, ensuring that compliance is understood not only for the obligations it creates but also for the rights and protections it affords. It also ensures that compliance is continually monitored and reported by management, external or internal audit, and reviews and monitors such reports indicating material compliance breaches and corrective measures to prevent such breaches from recurring.

Composition

The committee consisted of a majority of independent directors throughout the period. The chairman of the board is invited to attend committee meetings. Other standing attendees include the chief executive officer, finance director, members of the executive committee, the general manager: risk, compliance and assurance as well as the internal auditors. Other invitees include individuals with the necessary technical experience to assist members in technical deliberations invited as required.

Management supports the committee through the following regular management committees: risk meetings at the business units, sustainability forums, safety and health forums, and the combined assurance forum.

Meetings

Four meetings were held by the committee during 2019. The following table provides an overview of member designations and attendance by our members since appointment.

Name	Designation		Attendance (%)
Mr PCCH Snyders	Independent non-executive director and chairman		100
Ms MW Hlahla	Independent non-executive director		50
Mr MJ Moffett	Independent non-executive director		100
Mr EJ Myburgh	Independent non-executive director		100
Ms A Sing	Independent non-executive director		50

2019 in overview

Supporting value creation through the following strategic focus areas

•	Safety
	The safety, health and wellbeing of our employees and our host communities is a priority. The committee supported the safety and health targets for 2019, which again included a fatality target of zero as well as high potential incidents target of zero.
	All our operational business units have international health and safety accreditation of either OHSAS 18001 or have already transitioned to 45001.
•	Health
	The committee considered and recommended the establishment of a health strategy, which proposed the repositioning of the health and wellness management offering from a curative employer-driven occupational health management paradigm, to a preventative, integrated, health and wellness management paradigm driven by employees, which includes healthy lifestyle coaching, therefore focusing on physical and mind health management.
•	Sustainability
	The company’s sustainability is founded on creative, mutually constructive relationships and common values with our stakeholders. The results of the carbon disclosure project of 2018 were released and Exxaro consistently attained B-management score for climate change and water management By reducing the company’s carbon emission footprint, Exxaro is ranked #1 in ESG performance on selected metrics for resource companies in 2019 The committee also tracked progress made by the task force that was created to focus on climate-related financial disclosure as well as the formulation of the company’s climate change position statement.
•	Risk management
	The enterprise risk management implemented within the Exxaro group has reached a level of maturity that enables the committee to focus on material issues within the group that could substantively influence the group’s ability to create value over the short, medium and long term. Throughout the year, discussions were held with executive management on the status of the top strategic risks within their respective areas of responsibility on an enterprise-wide basis to ensure adequate deliberation and understanding. Please refer to the integrated report for detail on the company’s approach to risk and opportunity management at https://www.exxaro.com/investor/integrated-reports2019/index.php.
•	Compliance
	For Exxaro, our licence to operate is key to a sustainable business and our operations are subject to continued assessment due to the ever-changing regulatory environment. Exxaro is a responsible corporate citizen and plays an active role in protecting and preserving the environment which is affected by our mining operations.

Other key issues that received attention during the year

•	Crisis management policy and plan
	Exxaro recognises the value that has been created over a period and that crises can destroy or erode within no time. It is therefore critical that the company ensures that there is crisis management capability to deal with any major event threatening to damage the organisation, stakeholders or the public. The sustainability, risk and compliance committee considered and recommended for approval to the board a crisis management policy and implementation plan in 2019. The purpose of this policy is to establish the requirements that Exxaro will implement in response to a critical situation that would negatively affect its value and standing. The policy defines the requirements and capabilities that will endure and continue with the operations following major disruptions and challenges including adapting to a changing environment. The purpose of the crisis management plan is to provide the group with a structure and high-level processes to identify, respond to and manage any crisis affecting the group, and is aimed at protecting the: Interests of Exxaro staff Environment within which the organisation operates Reputation, assets, mission and survivability of the organisation.
•	SLP performance
	The committee had oversight of the progress of SLP implementation through regular reporting from executive management.
•	Terms of reference
	The committee’s terms of reference were reviewed by external assurance providers due to the many corporate failures globally and locally. The recommendation to closer align the terms of reference of the board committees was executed and submitted to the board for approval.

Key performance indicators

KPIs in 2019	Evaluation		KPIs in 2020
Review sustainability, risk and compliance KPIs quarterly and understand management plans for out of appetite KPIs and periodically review management plans	Achieved		Review whether the current sustainability, risk and compliance KPIs are still relevant and in line with the new approved strategy
Review the risk appetite for Exxaro	Achieved		Once approved, review sustainability, risk and compliance committee KPIs quarterly and understand management plans for out of appetite KPIs and periodically review management plans with enhancements requested in 2019
Ensure that a link exists between strategy, risk management and performance	Achieved		Recommend the revised risk appetite after approval of the Exxaro strategy including the growth strategy
Periodically review the top risks pertaining to the group, key operations and mega operations	Achieved		Periodically review the top risks pertaining to the group, key operations and mega operations
Review the compliance universe for Exxaro	Achieved		Review the climate change strategy in light of the recent changes to the Exxaro strategy
Review the material sustainability KPIs for Exxaro and understand the international developments with regards to sustainability report	Achieved		Review the top compliance risks for Exxaro
Review the climate change strategy of Exxaro	Achieved		Recommend the integrated report for approval to the board

Performance assessment

The effectiveness and performance of the committee was independently evaluated during the reporting period. The overall rating achieved suggested that the committee members were generally satisfied with the functioning of the committee although there is room for strengthening specific aspects of its functioning and that the members had no material concerns.

Herewith the themes that formed part of the assessment (four being the highest rating representing "In line with best practice" and one "needs significant improvement") and the ratings achieved.

Highlights of the assessment were that the committee:

• Improved its focus on compliance, focus on climate change and improved focus on the health and wellbeing of employees
• Fulfilled its mandate, notwithstanding some challenges around individual participation and commitment, and also played its part in ensuring the organisation's responsiveness to the emerging risk landscape including that of climate change and the changing energy landscape in South Africa
• Refocused the drive for safety improvement
• Effectively dealt with the business as usual.

The recommendations made as well as points to ponder will be included in the annual work plan for 2020.

Conclusion

The committee, in carrying out its duties, has due regard to the principles and recommended practices of King IV™ and discharged its responsibilities in accordance with its terms of reference. The committee is furthermore satisfied that it has fulfilled its mandate in terms of the Regulations to the Companies Act and that there are no material instances of non-compliance to disclose and, if any material non-compliance existed, that it was duly considered.

On behalf of the committee

Mr PCCH Snyders
Chairperson

Pretoria

20 April 2020