To the Directors of Wesfarmers Limited:

Wesfarmers Limited (Wesfarmers) commissioned Net Balance Management Group Pty Ltd (Net Balance) to provide independent assurance of its 2012 Sustainability Report (the Report). The Report presents Wesfarmers’ sustainability performance during the period 1 July 2011 to 30 June 2012. Wesfarmers Group and Wesfarmers’ business divisions were responsible for the preparation of the Report, and this statement represents the assurance provider’s independent opinion. Net Balance’s responsibility in performing its assurance activities is to the Board of Directors 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 and objectives

The assurance process was undertaken in accordance with AccountAbility’s AA1000 2008 Assurance Standard (AA1000AS). The standard provides a comprehensive way of ensuring that an organisation is responsible for the management, performance and reporting of its sustainability issues. This is achieved through evaluation of the organisation’s adherence to the AA1000 AccountAbility Principles (2008) and by reviewing the reliability and quality of disclosed sustainability performance information.

The AA1000 AccountAbility Principles (2008) used to assess Wesfarmers’ processes include:

Inclusivity: An assessment is made as to whether the organisation has included stakeholders in developing and achieving an accountable and strategic response to sustainability.

Materiality: An assessment is made as to whether the organisation has included in its report the material information and data required by its stakeholders to make informed judgements, decisions and actions.

Responsiveness: An assessment is made as to whether the organisation has responded to stakeholder concerns, policies and relevant standards and adequately communicated these in its report.

Assurance type and scope

Net Balance provided Type 2 assurance in accordance with the AA1000AS (2008). This involved assessing the organisation’s adherence to the AA1000 AccountAbility Principles (2008) and assessing the accuracy and quality of the sustainability information contained within the Report.

The review of adherence to the principles was undertaken using the criteria outlined in the AA1000 Assurance Principles Standard (2008), while assessment of the accuracy and quality of sustainability performance information was undertaken using Wesfarmers’ indicator protocols and the Global Reporting Initiative’s (GRI) G3 Reporting Principles for Defining Quality.

Assurance level and limitations

The level of assurance provided was moderate, as defined by the scope and methodology described in this assurance statement. The assurance covered the whole of the Report and focused 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 those relating to environmental, social or broader economic performance.
• Assurance of Scope 1 and 2 greenhouse gas emissions reportable under the National Greenhouse and Energy Reporting Act 2007 (NGER legislation) in Australia was undertaken by another external auditor. This work was not replicated and Net Balance’s opinion in the area of greenhouse gas emissions relies in part on the assurance opinion issued by the external auditor. Net Balance’s assurance of greenhouse gas emissions covered all other data not reported under the NGER Legislation (Scope 3 emissions, non-Australian operations, and operations outside of Wesfarmers’ operational control for the purposes of the legislation).
• Assurance of Bunnings’ waste, water and Scope 3 greenhouse gas emissions was undertaken by another external auditor. This work was not replicated and Net Balance’s opinion in relation to waste, water and Scope 3 greenhouse gas emissions relies in part on the assurance opinion issued by the external auditor.
• Assurance of detailed community contributions data for all divisions was undertaken by the London Benchmarking Group, with the exception of community contributions data for Home Improvement and Office Supplies, which was reviewed as part of Net Balance’s assurance process.

Assurance methodology

The assurance engagement was undertaken between May and October 2012, and involved:

• a materiality review of key sustainability issues using AccountAbility’s five-part materiality test, this included a comparison of Wesfarmers and its business divisions against their peers, a risk review, an industry review, a review of selected Australian media reports and a policy review
• review of management representations to better understand how Wesfarmers Limited and one of its divisions, Coles, are addressing key sustainability challenges and how sustainability is integrated within the organisation
• independent engagement with stakeholders of Wesfarmers Limited at a corporate level
• a review of the key sustainability strategies, policies, objectives, management systems, measurement and reporting procedures used by Wesfarmers Group and each of the business divisions
• communication with key personnel responsible for the Report to ascertain their views, understanding and response to material sustainability issues faced by the Wesfarmers Group
• interviews with key personnel responsible for collating and writing various parts of the Report to substantiate the reliability of selected claims. Representatives of each of the wholly owned business divisions were interviewed by members of the assurance team as part of a series of site visits. Interviews were conducted with representatives of Bunnings, Coles, Curragh Coal, Industrial and Safety, Insurance, Kmart, Officeworks, Target, and Wesfarmers Chemicals, Energy & Fertilisers. In addition, interviews were also conducted with representatives of Wesfarmers Group
• a review of the Report for any significant anomalies, particularly in relation to claims as well as trends in data
• verification of more than 240 data points and statements selected from the Report and examination of the systems and processes that support the claims
• collecting and evaluating evidence to support the assurance work undertaken
• a Global Reporting Initiative (GRI) G3 Application Level Assessment

Our independence

In conducting this assurance engagement, Net Balance has met the requirements of our Independence Policy, available at www.netbalance.com/services/assurance Net Balance confirms that we are not aware of any issue that could impair our objectivity in relation to this assurance engagement. Net Balance has not had any part in collecting and calculating data, or in preparing Report content covered by the scope of the engagement.

During the reporting period, Net Balance team members that were not involved in the assurance engagement undertook work for some of Wesfarmers’ divisions. Net Balance assisted Bunnings with data collection relating to waste, water and Scope 3 greenhouse gas emissions. Where this occurred, the relevant disclosures have been excluded from the scope of this engagement and assured separately by a third party, Clear Environment. Their assurance statement is on the Wesfarmers website. Based on a review of the other unrelated work conducted for Wesfarmers’ divisions against the requirements of our Independence Policy, Net Balance and Wesfarmers do not believe that our independence has been impaired.

Net Balance’s Independence Policy also identifies that a threat to our independence may arise if in the reporting period non-audit work fees exceed 200% of audit work fees for a client, or if the value of a client’s fees is greater than 15% of total Net Balance revenue for the financial year. In this reporting period, non-audit work undertaken for the Wesfarmers divisions totalled 163% of our audit fee, and the value of fees received from Wesfarmers was less than 15% of total revenue.

Our competency

The Wesfarmers assurance engagement was carried out by an experienced team of professionals led by a Lead Sustainability Assurance Practitioner (Lead CSAP). The project included personnel with expertise in environmental, social and economic performance measurement across a range of industry sectors. Net Balance is a global leader in the use of the AA1000AS, having undertaken more than 150 assurance engagements in Australia over the past six years.

Findings and conclusions

Adherence to AA1000 Principles
Inclusivity
Responsibility for engaging with stakeholders rests primarily at the business division level. As a consequence, there is variation across Wesfarmers in the extent and quality of engagement undertaken. There are examples of innovative and proactive engagement in the business such as Target and Industrial and Safety’s ethical sourcing audits of suppliers, as well as continuing initiatives at Coles (‘Tell Coles’) and Bunnings’ engagement with timber suppliers. In general, stakeholder engagement mechanisms were found to exist at Group and divisional levels; however, the processes of communicating the outcomes of stakeholder engagement could be improved. Examples of reactive engagement were also noted to be present within the business. This kind of engagement may result in the business missing out on opportunities to genuinely engage directly with stakeholders. This could be overcome by ensuring that the Group and each division maps its key stakeholders to ensure that engagement practices are more systematic.

Wesfarmers, as a large and diversified group, has supported each division to become operationally autonomous. While this brings many benefits, it should also be recognised that, particularly in the sustainability sphere, efficiencies and best practice can result from knowledge sharing. Wesfarmers is commended for encouraging this inclusive approach, for example, information exchange between retail divisions on best practice for ethical sourcing. Net Balance notes that there are many more opportunities for divisions to collaborate and learn from each other.

Materiality
The Report was found to have appropriately addressed Wesfarmers’ key environmental, social and economic material issues in a balanced way. Wesfarmers has this year again reported in line with five key themes which were developed in consultation with the business divisions to reflect the range of impacts that apply to Wesfarmers’ businesses. We also understand that the issues covered in the Report partly reflect those identified through the corporate planning process.

In the future, it is recommended that Wesfarmers align the decisions relating to the Report content at both a Group and a divisional level to the corporate planning process. Prioritisation of material topics for reporting should be carried out at the business division level in a consistent manner. To ensure that the key themes used to structure the Report reflect the organisation’s material risks and stakeholder information needs, these themes should be reviewed and updated on a regular basis. As an example, themes identified by stakeholders as important (e.g. customer feedback) are not always adequately covered by the current report structure.

Responsiveness
In general, Wesfarmers appears to address the needs, concerns and expectations of its stakeholders in a timely way. This was demonstrated through a range of formal and informal communication mechanisms across the business. Responsibility for developing responses was found to be spread across the Group and business divisions. In several instances it was clear that material issues are considered as part of the regular business planning processes.

The business should also use stakeholder feedback to better inform strategic planning and decision-making processes at both the Group and business division levels. With some aspects of retail operations increasingly being portrayed negatively in the media, clear communication of stakeholder engagement outcomes is particularly important. For example, how Coles deals with its suppliers has been an area receiving significant internal focus partially in response to stakeholder concern. Net Balance notes that there are a number of examples in the Report where divisions have engaged directly with stakeholders on issues of concern.

Reliability of performance information
Based on the scope of the assurance process, the following was observed with regard to performance information:

• The findings of the assurance engagement provide confidence in the underlying systems and processes used for managing and reporting sustainability performance information.
• The level of accuracy of sustainability performance information was found to be acceptable.
• Data trails selected were identifiable and traceable, and the personnel responsible were able to reliably demonstrate the origin(s) and interpretation of data.
• The sustainability performance disclosures presented within the Report appropriately reflect environmental, social and economic performance achieved during the period.
• The GRI application level check classified the Report as Level B+.

Overall, it is Net Balance’s opinion that the information presented within the Report is fair in all material respects. The Report was found to present a reliable account of Wesfarmers’ sustainability performance during the reporting period.

The way forward

Wesfarmers continues to deliver a consolidated view of Group performance within the Sustainability Report. As recognised best practice continues to evolve, it is important for Wesfarmers to consider these changes when preparing for future reporting periods. For example, GRI, (G4) which is currently under development includes consideration of value chain and reporting boundary, which will impact the way that Wesfarmers frames its sustainability report in the future.

Given Wesfarmers’ diverse operations, a challenge still exists to foster a Group-wide approach to the holistic integration of sustainability considerations into strategy development and execution. To support the developing approach to sustainability, Wesfarmers should also consider developing implementation and reporting guidelines. These documents could provide guidance to divisions on principles and processes for stakeholder engagement, including how to use stakeholder feedback to inform the corporate planning process; as well as a process for materiality assessment which links to the risk assessment and corporate planning process. Currently, the materiality processes undertaken by the divisions is separate from their sustainability programs. Ideally, this risk and prioritisation process should shape the sustainability actions and initiatives at each division. The guidelines should also outline clear criteria for reporting consistent metrics which are then aggregated at the Group level.

In the current reporting period, Wesfarmers made good progress towards assurance against the AA1000 principles with selected business divisions and at the Group level. Net Balance undertook interviews and reviewed management representations for Coles and Bunnings as part of this process. This process provided further insight into how sustainability is embedded into divisions’ systems and processes. It is recommended that Wesfarmers builds upon this approach in future years to encompass all business divisions.

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

On behalf of the assurance team

10 October 2012

Melbourne, Australia

Kim Farrant
Associate Director, Net Balance
Lead CSAP