Our operating context

The Russia-Ukraine conflict and renewed COVID-19 lockdowns in China are among the series of economic shocks that disrupted supply chains, fuelled inflation, increased energy costs and slowed global economic growth. After a strong finish to 2021 at 6.1%, global economic expansion lost momentum in 2022, with a slower growth rate of 3.0%.

Financial market conditions deteriorated during the second half of 2022, and the global economic outlook for 2023 has weakened to fall short of potential growth levels. The end of 2022 experienced the weakest growth and the global economy remained at its highest vulnerability in early 2023, when any major economic shock could have tipped the world economy into recession.

ESG is an integral part of our Sustainable Growth and Impact strategy. To this end, the executive committee established an ESG steering committee to coordinate the integration of the ESG risks and opportunities and ensure outcomes-based measurements and assurance. These include decarbonisation and social impact.

Global responses to climate change are driving economic reforms, commitments and regulations to steer decarbonisation efforts. The 2022 UN Climate Change Conference (COP27) finalised the details of a work programme to urgently scale up mitigation, ambition and implementation in this critical decade. During this conference, issues impacting developing countries and businesses operating in these countries were highlighted and included:

• The submission of ambitious nationally determined contributions (NDCs) by countries: South Africa submitted ambitious NDC targets for 2025 and 2030. It is envisaged that these targets will impact Exxaro and other businesses through stringent climate change policies, carbon prices and carbon budgets
• Low-carbon technologies such as hydrogen and carbon capture storage are associated with high costs and not commercially available
• Energy storage: Challenges associated with storing renewable energy will impact decarbonisation efforts of businesses like Exxaro, which are targeting 100% consumption of renewable energy and reduction of scope 2 emissions
• Carbon pricing: The EU's Carbon Border Adjustment Mechanism and its potential impact on developing countries and businesses operating in these countries. There might be future financial implications for Exxaro associated with carbon-intensive products for export to the EU

Social impact is an outcome our Sustainable Growth and Impact strategy and addresses material social and compliance matters that concern stakeholders.

Cause ESG is a priority for all stakeholders Integration of ESG into corporate strategies, decision making and stakeholder reporting Countries pledged to scale up carbon mitigation, ambition and implementation South Africa aims to access significantly higher levels of climate finance during the implementation of NDCs An increasingly distressed socio-political and strained economic operating environment characterised by inequality, unemployment and poverty

Implications for Exxaro It is imperative for us to demonstrate our ESG commitments as this impacts shareholders' assessments of our company and our social licence to operate Stringent climate policy and carbon prices Increase decarbonisation efforts Global energy demand and transition Social impact should result in a harmonious co-existence between Exxaro and local communities, creating a thriving environment

Our strategic response Established an ESG steering committee Separate annual ESG report Invest in and expand a diversified minerals and renewable energy business Energy efficiency and scope 1 emission reduction Renewable energy installation (scope 2 emission reduction) The Social Impact strategy aims for a market-driven, multidimensional and scaled approach to improve the lives of communities. It aims to shift from inequality, unemployment and poverty to empowered communities with skills and capabilities Upskilling will enable employment and entrepreneurial opportunities, which creates economic wellbeing, social progress and dignified livelihoods Creating value through stakeholder engagement Our environment Social licence to operate

Global geopolitical tensions continued to impact supply-demand dynamics for key Exxaro commodities. The Russia-Ukraine conflict and subsequent sanctions, and continuing US-China and China-Australia tensions were evident during 2022. The European Union's ban on coal imports from Russia and the restart of thermal power plants significantly impacted supply-demand balance, trade flows and seaborne thermal coal pricing.

Economic turmoil usually brings about two key dynamics of the US dollar:

• The US dollar's continued role as the dominant global reserve currency and the corresponding role played by the Federal Reserve as the world's central bank
• The view that US dollar assets, especially US treasury bills and bonds, are regarded as safe havens

This was no different during 2022. As central banks significantly increased interest rates with recessionary risks on the horizon, the US dollar's exchange value soared in response to rising US dollar bond yields and investor flight to safety. This added to inflation and financial stress in developing and emerging countries.

In South Africa, the rand weakened by 10.7% during 2022 on the back of the strong US dollar, declining commodity prices (with the exception of the energy complex), flight to safety and recessionary risks. The US$/R exchange rate is expected to remain volatile in 2023, mainly dependent on whether the surge in inflation is brought under control by the major central banks and recessionary risks.

Persistent high inflation led to the world's major central banks tightening their monetary policies. In 2022 we saw high interest rate increases and a resolve to restrain actual and expected inflation. Policy trade-offs are challenging as inflation extends beyond food and energy, with risks that over-tightening could tip the global economy into a severe recession and under-tightening could further entrench inflation.

In 2022, South Africa's headline inflation averaged 6.9%, and is expected to remain above the mid-point of the South African Reserve Bank's inflation target range of 3% to 6% during 2023. The repurchase rate increased by a cumulative 300 basis points during 2022. Further normalisation into 2023 may be needed to raise rates to levels consistent with a stable and lower inflation rate.