Summarised governance report

SDG 16 (peace, justice and strong institutions) seeks to promote peaceful and inclusive societies for sustainable development, to provide access for all, and build effective, accountable and inclusive institutions – from small companies to multinationals and governments. The Exxaro board is committed to contributing positively to achieving this goal, especially through good governance.

The board drives the Exxaro strategy and budget, sets performance and culture expectations as well as the governance framework, including its subsidiary and controlled companies, trusts and joint ventures. The board therefore continues to be the focal point and custodian of corporate governance for the group.

At the core of Exxaro's corporate governance are principles that guide the board in meeting its responsibilities to the company and its stakeholders, to enable the company to achieve the King IV governance outcomes and fulfil its purpose to power better lives in Africa and beyond. The board therefore regards good corporate governance as fundamentally important to create value and achieve the following governance outcomes in its own ethical and effective leadership:

Our board assumes ultimate accountability and responsibility for the company's performance and affairs. In so doing, it effectively represents and promotes its legitimate interests. As a responsible corporate citizen, it also considers its material stakeholders' legitimate interests and expectations to make a positive contribution to society at large.

Climate change response

We intentionally focus on positioning Exxaro for growth, anchored on the just transition principle, which seeks to balance our financial performance, South Africa's economic development needs, ecosystem protection and society's adaptive capacity in the face of climate change.

Exxaro believes that our greatest opportunity is to help steer South Africa towards a sustainable future through an undiluted focus on low-carbon minerals and energy with a goal to be carbon neutral by 2050 through consistently reducing our direct emissions. The board is committed, beyond compliance, to mitigating the impact of climate change.

Specific actions in 2021 to honour this commitment included:

• The disposal of 21.975 million shares in Tronox. The funds from the disposal will be used to invest in renewable energy projects, repay debt and make distributions to shareholders in accordance with Exxaro's capital allocation framework
• The board and executive leadership were presented with the latest climate change assessment report released by the Intergovernmental Panel on Climate Change and the role of the board in responding to climate change
• Due to the direct impact of climate change on the coal business, in 2020, the board identified the need for an experienced non-executive director with environmental, sustainability and climate change knowledge. Following a rigorous process, this appointment was finalised on 7 February 2022
• The board's governance structure was revisited, giving the RBR committee oversight of Exxaro's strategic, financial and operational business resilience, specifically considering our response to the low-carbon transition, building a resilient and future-facing portfolio, and increasing customer diversification and revenue streams
• A group-wide internal employee communication plan has been developed for Exxaro's Climate Change Response strategy, which is being rolled out throughout the organisation into 2022

For details on our Climate Change Response strategy, refer to our ESG perspective in the ESG report.

Governance

Group governance framework

The reporting period was particularly important from a governance perspective with the board focusing on reviewing governance structures in the group, board committees' terms of reference as well as delegations of authority to create and preserve value for agile decision making in the minerals and energy businesses while maintaining decentralised decision making in the more mature coal business.

King IV recommended practices for group governance require the board to assume responsibility for governance across the group. The board exercises this responsibility by adopting a group governance framework that provides direction on how the relationship between the holding company and subsidiaries should be structured and managed.

Board composition

The following outcomes were achieved in 2021 flowing from the board's key focus areas:

• The succession of the board chairperson was addressed with the appointment of Geoffrey Qhena in April as chairperson designate with the retirement of Jeff van Rooyen at the 2021 AGM
• The identification of new directors to take over as chairpersons of committees in future as part of succession planning
• The board adopted a diversity and inclusion policy with new targets in March 2021
• The succession of the CEO, Mxolisi Mgojo, was addressed through the appointment of Nombasa Tsengwa as CEO designate and executive board member on 16 March 2021 (her appointment as CEO will become effective when the CEO retires, being 1 August 2022)
• The board filled four non-executive director vacancies, including the role of the chairperson in terms of the required skills and experience identified by the board as well as its diversity and inclusion policy:

	Chanda Nxumalo		Independent non-executive director	Appointed 1 February 2021
	Mandlesilo Msimang		Non-executive director	Appointed 15 March 2021
	Geoffrey Qhena		Independent non-executive director	Appointed 19 April 2021
	Isaac Malevu		Non-executive director	Appointed 22 June 2021

• The board continued to search for independent non-executive directors to address independence, gender diversity as well as specific skills and experience requirements (which included energy, ESG, remuneration and hard rock mining) in line with the Exxaro strategy and succession planning. The following appointments have been made in 2022:

	Karin Ireton		Independent non-executive director	Appointed 7 February 2022
	Bennetor Magara		Independent non-executive director	Appointed 7 February 2022
	Billy Mawasha		Independent non-executive director	Appointed 7 February 2022
	Phumla Mnganga		Independent non-executive director	Appointed 7 February 2022

For more information on the board's composition, diversity and experience, refer to the ESG report.

Strategy and risk

King IV prescribes that the board should appreciate that an organisation's core purpose, risks and opportunities, strategy, business model, performance and sustainable development are inseparable elements of the value creation process. The review of corporate responses, social justice movements and other material economic and business impacts, analyst reports on megatrends with a view to identifying material business environment developments and data points, is a continuous process.

An updated strategy process was adopted by the board to provide for a continuous cycle in ensuring an integrated strategy across Exxaro businesses, supporting Exxaro's purpose. As risk management is inherently linked to achievement of strategic objectives, an integrated risk management approach is applied in the strategy review process, including the identification of emerging risks.

For more information on the strategy, refer to our strategy and for more information on risk management, refer to our business risks and opportunities.

* Divestment concluded in September 2021.

Driving innovation

For Exxaro, innovation is key to a successful, thriving business. Without actively driving innovation practices, businesses stagnate and ultimately fail.

The board recognises that it is imperative for Exxaro to continue innovating and strive for radical and disruptive solutions, not only to address challenges but to drive and support our strategic goals of carbon neutrality.

In addition to initiatives within the group and to promote board effectiveness, the following was put in place to support our board:

• The board, board committees, executive committee and material subsidiaries use a secure platform for collation of board packs for virtual board meetings, which has greatly contributed to effective and secure meetings for several years. The system allows for secure collaboration, information sharing and electronic voting on written resolutions
• Exxaro held its second hybrid AGM in 2021 with shareholders or their proxies participating via electronic communication or in person, subject to COVID-19 protocols. Participants could vote during the AGM through an electronic participation platform. If participants wanted their votes counted, they could submit information captured in the AGM notice to the platform service provider. Each shareholder who provided requested information was given a unique link to participate in the virtual meeting
• The insider dealing environment has greatly improved with an electronic insider register sending automated notices to any person whose name is captured in the register and, when it is removed, providing a clear auditable trail as well as ensuring regulatory and policy adherence
• Compulsory insider dealing awareness training was made available to the board and prescribed officers, as well as employees generally, on MyNexxt to allow completion at own leisure. MyNexxt is a learning management system that takes digital learning and staying connected to a new level by enabling wider accessibility to the platform.

Divestment of non-core assets and investments

Tronox SA

On 23 February 2021, Tronox Holdings plc exercised its "flip-in" call option over Exxaro's 26% shareholding in Tronox SA, for which Tronox Holdings plc delivered 7 246 035 newly issued Tronox ordinary shares to Exxaro on 24 February 2021. This resulted in the derecognition of the investment in Tronox SA and recognition of an additional investment in Tronox Holdings plc (refer to note 6.1.4 in the 2021 group and company annual financial statements).

Tronox Holdings plc

On 1 March 2021, Exxaro concluded a public offering in the United States of the 21 975 315 Tronox Holdings plc ordinary shares. The shares were sold at a public offering price of US$18.25 per share which was reduced by underwriting discounts and commissions resulting in an achieved price per share of US$17.43. This resulted in the derecognition of the investment in Tronox and the achievement of Exxaro's strategy to monetise our investment in Tronox (refer to note 6.1.4 in the 2021 group and company annual financial statements).

ECC operation

On 8 April 2021, Exxaro signed a sales and purchase agreement with Overlooked Colliery Proprietary Limited disposing of the ECC* operation. All conditions precedent to the sales and purchase agreement were fulfilled and the transaction became effective on 3 September 2021 (refer to note 8.3 in the annual financial statements).

Leeuwpan

The disposal process for Leeuwpan continues with definitive legal agreement envisaged to be signed in the first half of 2022, and regulatory approvals obtained thereafter.

Black Mountain

We continue to evaluate our options to dispose of its 26% shareholding in Black Mountain.

* Divestment concluded in September 2021.