Perspective on corporate responsibility in the coal supply chain

Perspective on corporate responsibility in the coal supply chain The view of the utility companies participating in the Dutch Coal Dialogue Several issues are at stake in the supply chain from coal mines to end-users. These range from environmental issues to social issues. As end-users of coal, the Dutch utility companies E.ON Benelux, EPZ, Essent/RWE, GDF SUEZ Energie Nederland and Nuon/Vattenfall, want to take responsibility within the coal supply chain. In this document we will therefore elaborate on our vision in terms of our responsibility, the actions taken and the actions we will take. - 1 -

Table of Contents 1 Our corporate responsibilities 3 2 Actions taken 4 Codes of conduct implemented 5 Dialogue on responsible coal mining started 5 Transparency 6 3 Bettercoal the European perspective 9 The need for more leverage 9 Shaping Bettercoal with input from stakeholders 9 Aim of Bettercoal 10 Member Obligations 11 Grievance Mechanism 12 Reporting on improvements 12 Handover of DCD learnings to Bettercoal 13 Schedule 14 4 Relationship between Bettercoal and company policy 15 Actions 16 5 Our commitments 16 The pilot grievance mechanism 17 To summarise 19 6 Our action plan 19-2 -

1 Our corporate responsibilities We envision a coal supply chain that protects the environment, respects human rights and contributes positively to the livelihoods of workers and communities. Our mission is then to advance the continuous improvement of the ethical, social and environmental performance of coal mines by improving business practices through engagement with stakeholders, based on a set of shared principles. We believe taking responsibility in the coal supply chain in an international setting to be the most effective way of generating improvements in the coal supply chain. A joint effort will allow us to increase our leverage towards mining companies delivering coal and to align our expectations and ambitions with responsibility in the coal supply chain. The utility companies active on the Dutch market, which are subsidiaries of international energy companies, have sought cooperation with three other European utility companies (Enel, EDF, Dong Energy) and founded Bettercoal, as a global, notfor-profit initiative to promote the continuous improvement of corporate responsibility in the coal supply chain, with a specific focus on the mines themselves. Since then Gas Natural Fenosa, Fortum, and Port of Rotterdam (associate member) joined Bettercoal as members. We see Bettercoal as the main platform to fulfil our mission. By the structured and long-term approach with our international partners in Bettercoal, we can raise the standard in current mining operations, promote best practices and improve situations on the ground. Transparency, in our view, is a means to an end; the ultimate goal and main driver is to contribute to improvements on the ground. Transparency should reflect our actions. Transparency is a means of showing society how we as companies source our raw materials and what we expect from our suppliers and other stakeholders in the supply chain. This enables society to address us, as companies, about how we take responsibility in the supply chain. To reach our mission, we as utility companies cannot work alone. On the one hand, we need and expect NGOs, Labour Unions, and Civil - 3 -

Society to help us to address issues at mining level and to advise us on how we can develop the Bettercoal initiative to deliver actual improvement on the ground. On the other hand, we need and expect the mining companies to be willing to work towards continuous improvements and take responsibility for their operations at mining level. Only through collaboration and cooperation will we be able to make the changes we are setting out to accomplish. We also believe there is a role for the Government to play in improving the supply chain. The Minister can hold discussions with Governments of importing countries to encourage their coal importers to work on responsible practices in their coal supply chain. This would create more leverage towards mining companies and enable Bettercoal to assess more exporting mines and make improvements on the ground. Also, the Minister could work through the Dutch Embassy in the coal-producing countries to support the implementation of best practices relating to responsible sourcing within those countries, again, for example through Bettercoal. Lastly, the Government can play a role within the OECD in discussing supply chain responsibility. For example, the Government can express its interest in having a brochure for due diligence in mining, including best practises in mining. - 4 -

2 Actions taken Codes of conduct implemented For several years now, we have been working on our due diligence processes to promote responsible practices. As a starting point, we have individual Codes of Conduct for Suppliers in place, to inform and guide our suppliers on the way we expect them to operate in terms of human rights, labour, environment and ethical behaviour. To underpin our Codes of Conduct, all Dutch utility companies have signed the voluntary principles of the UN Global Compact. More directly linked to the coal supply chain, we have measures in place or currently in development to screen our coal suppliers on responsible practices, such as counterparty risk assessments and UN International Trade Boycott lists. To check compliance with these policies, on-site assessments have been conducted. Dialogue on responsible coal mining started After broadcasts by the Dutch television programme Netwerk in 2010, we started a multi-stakeholder initiative. Together with NGOs, trade unions, Tata Steel and mining companies, we took part in the Dutch Coal Dialogue (DCD). The DCD delivered its final report in August 2013. We believe that the DCD has delivered a number of key learning points and results, which need proper follow-up and can help future efforts in improving conditions in and around coal mines. This applies in particular to the two tangible results the DCD has delivered: firstly, the identification of Material Issues which are relevant to the performance of coal-mining companies and, secondly, the DCD Assessment Protocol which provides a tool to measure this performance. To ensure this follow-up of DCD results we are committed to making serious efforts to integrate the DCD results and learnings into Bettercoal tools. - 5 -

Origin by country of coal used for electricity generation in the Netherlands between 1996 and 2012. Fluctuating shares are the result of price movements on the world coal market and transport costs Transparency Many discussions within and outside the DCD have been focusing on transparency. Within Corporate Social Responsibility reporting, three types of transparency can be identified: 1. Product transparency: a company provides details of the products it sells 2. Sourcing transparency: a company publishes the origin of the raw materials used by country 3. Transparency of the supplier processes: a company provides insight in its due diligence processes We provide varying levels of transparency in all three areas. For some aspects (such as our fuel mix disclosure to customers) this is a long-standing practice. For other areas, this is work in development. - 6 -

The DCD process has contributed to improving transparency in the coal supply chain. Two separate initiatives have been developed from the DCD. EPZ, E.ON Benelux, GDF SUEZ Energie Nederland and Essent/RWE publish in an aggregated form the names of the five largest mines from which coal has been sourced, including market share percentages. Nuon/Vattenfall publishes an overview of coal exporting mines in the countries most relevant for the Dutch market (Colombia, Russia and South Africa), which are or could be exporting to the Netherlands. The following table provides an overview of transparency initiatives currently in place and under development by Dutch utility companies or their parent companies on their coal use in the Netherlands: Level Frequency How What Product Yearly Disclosure to all customers Disclosure of fuel mix for the electricity products sold and for all products of the entire operating company in the Netherlands as a comparison ( stroometiket ) Sourcing Yearly CSR report Specification of country of origin of coal used by a specific utility at consolidated group level Sourcing Yearly Website participating companies Aggregated list of mines supplying coal to participating utility companies (including market shares) Sourcing Yearly Website participating List of mines exporting coal available for use in the Netherlands. companies Due diligence Yearly CSR report General explanation of CSR standards, purchasing policies and due diligence process Due diligence Yearly Bettercoal: through annual reporting Aggregated statistics and summary of 1) assessments which have been performed 2) results of follow-up and 3) actions. - 7 -

Improving transparency involves a stepwise approach of learning and actions. The following table shows an overview of the steps we have taken so far. Since 1990 Mid 90s Collecting and reporting data on the origin of coal on a country by country basis (including market shares) for the energy sector in the Netherlands, published by KEMA Start CSR reporting (with continuous improvement and expansion) 2005 Disclosure of fuel mix to customers 2005-2008 Reporting on the origin of coal used (on a country by country basis) by individual utility companies 2010 Start of Dutch Coal Dialogue 2011 Start of Bettercoal 2012 Publication list of mines supplying coal by participating utility companies (including market shares of those mines) 2012 Publication of list of mines exporting coal available for use in the Netherlands. 2013 Bettercoal Code adopted 2013 Final report of the Dutch Coal Dialogue 2013 Publication of the first Assessment Tool in the world to validate the ethical, social and environmental performance of coal mines - 8 -

3 Bettercoal the European perspective The need for more leverage As individual companies, the Dutch utility companies have a limited impact on mining companies delivering coal to the global coal market. To illustrate this, only app. 0.1% of the coal that is available on the global coal market is consumed in the Netherlands. For the Dutch utility companies, it is therefore crucial to increase their leverage in order to realize continuous improvement in the coal supply chain. To do this, the Dutch utility companies in the DCD have sought cooperation with their parent companies and three other European utility companies and founded Bettercoal. Through the Bettercoal membership of our parent companies, the Dutch utility companies have increased our leverage fivefold at least 1. The set-up of Bettercoal was directly inspired by the DCD and is ultimately looking to continuously improve on the ground performance through engagement with stakeholders based on a shared set of principles. The intention is to grow the membership base for greater and broader impact and to include other coal-consuming sectors, e.g. steel, cement. Shaping Bettercoal with input from stakeholders Through Bettercoal we have worked with a variety of global stakeholders on the development of a Code of Practice which outlines the aspirational principles and provisions that members expect coal mining companies and other stakeholders in their coal supply chain to comply with. This Code of Practice forms the basis for self-assessments by mine operators and independent third party site assessments in the mines themselves. Results from these assessments will serve as input for our individual due diligence processes and form a standardised part of our purchasing decisions. Bettercoal is a business-led initiative and was officially established in February 2012, after 1.5 years of preparation and development. An important lesson from the Dutch Coal Dialogue was the direct 1 Excluding the other members of Bettercoal, which would increase this factor even more. - 9 -

involvement of relevant stakeholders in order to gain more knowledge from the ground. Also, stakeholders can provide a different perspective on the issues at stake. Therefore, the founding utility companies sought active advice from a stakeholder advisory group during the development of Bettercoal. This group is composed of representatives from civil society (non-governmental organisations, trade unions and academic experts) and the private sector (mining companies). More specifically, the stakeholder advisory group includes a member of the UN Working Group on Business and Human Rights (Dr Alexandra Guáqueta) and shares an overlap with the Dutch Coal Dialogue through the NGOs specialised in human rights and the environment (IKV Pax Christi and Fauna & Flora International). The global union, IndustriALL, has given insights and advice on labour law and working conditions. The stakeholder advisory group has not only given expert advice on the standard developed by Bettercoal, but also given guidance on the overall direction of the initiative and contributed in detail to other work flows including the guidelines for assessments, the operating principles, and performance measurements over time. The stakeholder advisory group will continue to be involved in the further development of the initiative, through specialised stakeholder panels. Aim of Bettercoal To achieve its mission to advance the continuous improvement of the ethical, social and environmental performance of coal mines, Bettercoal first aims to generate improvements at mine level. To set the expected performance level, Bettercoal has developed the Bettercoal Code. This code sets out the principles and provisions that members expect coal-mining companies and other stakeholders to align with. The ambition is that the code becomes a globally accepted standard for ethically, socially and environmentally responsible practices within the coal supply chain. The code was finalised in July 2013 after two rounds of public consultations whereby comments were received through a dedicated website and around 125 stakeholders attended four in-country consultations (Colombia, South Africa, Russia and Indonesia). These in-country meetings in coal-producing countries were deemed a critical part of the process, hearing feedback from stakeholders including government, coal producers and buyers, NGOs, technical experts and - 10 -

audit companies. Several stakeholders expressed an interest in collaborating with Bettercoal on programmes to effect improvements on the ground. The Code will now form the basis for assessments of coal-mining sites, including self-assessments, and site assessments conducted by independent third party auditors qualified by Bettercoal, which are planned to start in the second half of 2013. The goal of these assessments is continuous improvement through engagement with the mining company. Secondly, Bettercoal aims to generate improvements of performance beyond the mine level. Once Bettercoal has conducted a sufficient number of self- and site assessments it will be able to identify systemic issues in the coal-mining sector, nationally and internationally. To address these issues and work towards continuous improvement, Bettercoal will facilitate best practices in the coalmining sector and put together focused country plans for traction and impact. The plans will include activities where Bettercoal can leverage its work to support stakeholders - for example increase institutional capacity. Another practical example might be where several mines are co-located and yet operating individually, there could be synergies and opportunities to view regional development or environmental protection in a more holistic manner. These plans will, of course, depend upon the findings at mine level, but will ultimately have a more holistic approach on the possible improvements. Member Obligations Members of Bettercoal have an obligation to help Bettercoal to achieve the aforementioned goals. One of these obligations is the implementation of the Bettercoal Tools into their due diligence processes and to use the results of self- and site assessments in their coal purchasing decisions. Key performance indicators on member compliance are being developed and will be implemented progressively. The first set of key performance indicators will be more qualitative in nature and will be implemented by the first quarter of 2014. These are under discussion but can include, for example, the public endorsement of Bettercoal, training for compliance and risk officers involved in procurement and trading and - 11 -

the introduction of Bettercoal into contractual agreements. Quantitative performance indicators will become more important as the initiative matures and will include the number of suppliers that have undergone a self- or site assessment. The assurance mechanism to validate members compliance is being developed with progressive performance indicators in mind that will enable the public to check the actions taken. Bettercoal will publish a report with these indicators annually. Grievance Mechanism Within the Bettercoal Code and in Bettercoal processes there are and will be mechanisms by which grievances and disputes can be settled. In the Code itself, section 2.2, Whistle-blowing and Grievance Mechanisms, details the expectations Members have of their suppliers regarding both internal and external grievance mechanisms and references the UN Guiding Principles on Business and Human Rights. As part of the assessment process, there will be a Dispute Resolution process whereby a disagreement between the auditor and the mining company over certain audit findings can be documented and reported. Bettercoal itself will have a Grievance Mechanism should a stakeholder have a specific issue with a particular mine, Member Company or Bettercoal itself. This Grievance Mechanism will be developed in consultation with the Stakeholder Advisory Group. Reporting on improvements Bettercoal will publicly report on an annual basis. The first edition will be published in the second quarter of 2014. The content of the reporting will be the aggregated information of the self- and site assessments and will aim to illustrate the progress of the initiative, the types of issues found and how these were addressed. Bettercoal members will also communicate their progress towards the implementation of Bettercoal tools in their organisation. Detailed communication on the key performance indicators related to this progress will be communicated to Bettercoal and used for assurance on compliance by member companies. Member companies will also - 12 -

communicate on their progress, through their Annual Reports or through their website. Handover of DCD learnings to Bettercoal We believe that the DCD has delivered a number of key learnings and results which need proper follow-up and can help to increase transparency and enhance the performance by mining companies in relation to human rights, environment, labour conditions and ethical behaviour. This applies in particular to the two tangible results the DCD has delivered: firstly, the identification of Material Issues which are required to assess the performance of coal mining 2 and, secondly, the DCD Assessment Protocol which provides a tool to measure this performance. With regard to the Material Issues, we consider it important for Bettercoal to use the learnings of the DCD. Utility companies in the DCD will address the Material Issues in Bettercoal. The Code itself reflects the Material Issues within a broader document. The Material Issues also offer a mechanism for Bettercoal and third-party assessors to engage mines at the outset of the assessment process, so that mines are empowered to consider their own issues/risks. Bettercoal will set up its own programmes to improve conditions on the ground. The Material Issues can be used as guidance for these programmes. Using a country-based approach, it can be determined per country whether there are Material Issues which need special attention. We believe the DCD has created an important tool and it should be incorporated into Bettercoal, by addressing the learnings and outcomes of the DCD with the Managing Director of Bettercoal and with members of Bettercoal who are not involved in the DCD. We will 2 The five Material Issues identified in the DCD form the basis for the Assessment Protocol. They address the main areas of concern. 1. Open and transparent engagement 2. Community Development and Social Impact 3. Human Rights and Security 4. Labour Practices and Labour Rights 5. Environmental Performance The existence of Grievance Mechanisms crosses each of the identified material issues. - 13 -

make every effort to ensure that the DCD learnings are incorporated into Bettercoal. Schedule July 2013 Bettercoal Code adopted September 2013 onwards Distribution of self-assessment questionnaires to suppliers in batches to ensure engagement of the mine in submitting good quality data Second half 2013/ first quarter 2014 Between 3 and 5 site assessments are planned and will be conducted by independent third party auditors. Creating a pipeline of site assessments for 2014 based on feedback from the self-assessments and the risk profile of the individual mines End 2013 Handover of DCD results to Bettercoal First quarter 2014 Key Performance Indicators and assurance mechanism on member compliance will be set up Second quarter 2014 First Annual Report of Bettercoal will be published End 2014 Integration of Material Issues and Assessment Protocol within Bettercoal tools - 14 -

4 Relationship between Bettercoal and company policy Member companies of Bettercoal have the obligation, under the Articles of Association (AoA) of Bettercoal: To recognise and promote the Bettercoal Code as a standard for social, environmental and ethical performance in the coal supply chain; To implement the Bettercoal Code and Bettercoal tools in its due diligence processes in the coal supply chain; To implement the Bettercoal Code in its coal supply chain through engagement and collaboration with coal suppliers and the use of Bettercoal tools. In the Guiding Principles on Business and Human Rights endorsed by the UN Human Rights Council it is stated: the factors that will enter into the determination of the appropriate action ( ) are the enterprise s leverage over the entity concerned, how crucial the relationship is to the enterprise, the severity of the abuse, and whether terminating the relationship with the entity itself would have adverse human rights consequences 3. Logically, these factors will also be taken into account by the utility companies in the coal supply chain. Each individual company decides its own policy on how to translate results from Bettercoal assessments at mining sites into its business relationship with the mining company concerned. Bettercoal results and tool provide an instrument for each company to undertake the due diligence process as described in the Ruggie Framework. Member companies have to develop experience over the coming years to improve their due diligence processes and fulfil their obligations. The logical second question to be asked is how society can check compliance of the Members with the Articles of Association. This will be done through an Annual Report of Bettercoal. Members will report 3 United Nations Human Rights, Guiding Principles on Business and Human Rights: Implementing the United Nations Protect, Respect and Remedy Framework, p. 22. - 15 -

individually to the secretariat of Bettercoal. The aggregated results, as well as the results of the Bettercoal activities, will be published annually as from spring 2014. If a member of Bettercoal does not comply with the Articles of Association, measures can be taken. In the worst case scenario, this can ultimately lead to termination of the Bettercoal membership. Actions Spring 2014 Report by Member to Bettercoal on implementation of the due diligence process 2014 onwards Incorporate Bettercoal results and tools within European corporate due diligence process and purchase policy. Learn and improve current practices - 16 -

5 Our commitments Our commitments to work towards having a responsible coal supply chain started a few years ago and will continue into the future. We have established Bettercoal as the organisation that is here to stay. We are committed to ensuring that Bettercoal is successful. Through Bettercoal, we have increased leverage towards coal mines. Also, it enables us to perform our due diligence processes in a more effective way. After all, instead of all utility companies performing separate audits at mines, with one audit, the mine can deliver the audit results to multiple customers at once, and utility companies can have quicker access to a database of audits. As Dutch utility companies, having started the DCD and giving transparency at a level quite unique in the commodities world, we will continue our transparency initiative with publication of data on an annual basis. Finally, the Dutch utility companies plan to start a pilot study with a grievance mechanism at Dutch level. As said before, we believe NGOs and labour unions have a role to play in addressing issues. Through the grievance mechanism, we enable them to reach the utility companies directly. The pilot grievance mechanism We plan to put in place a process to allow society to address concerns about the performance of relevant coal suppliers on social and labour issues, human rights or the environment. Currently, a national procedure is in place for complaints in respect of potential non-adherence to OECD Guidelines for multinationals. Each OECD country has appointed a National Contact Point (NCP) for the OECD Guidelines. Through these National Contact Points, NGOs and labour unions, for example, can file complaints and request mediation by independent parties. As utility companies, we will initiate a pilot for a grievance mechanism specifically at Dutch level for issues concerning the coal supply chain. We take this step as part of our due diligence responsibility. If there are serious concerns about the coal supply chain, we believe it is our responsibility to investigate these concerns and provide mediation or start a process of improvement when - 17 -

necessary, instead of using the current OECD channel for such matters. This procedure will be designed for issues related to human and labour rights, social, environmental and/or ethical performance of mines which export coal to the global market and which are relevant for the Dutch utility companies. Our plan is to start a pilot at Dutch level to gain experience and ensure a quick start. However, we aim for international embedment of the mechanism, through Bettercoal, for which we would use the learnings from the Dutch pilot. With international embedment of the mechanism, it will be possible to reach more than solely Dutch utility companies and the scope of the grievance mechanism can be broadened. We will develop the plan for this grievance mechanism in the second half of 2013, the aim being to put the plan into operation early next year. The plan to be delivered should describe the exact shape and form of the grievance mechanism for the Dutch market. In order to develop this plan, we seek alignment with NGOs, labour unions and mining companies. For the development of the plan itself we will reach out to experts, such as David Kovick (Shift Project), SOMO, MVO Nederland and IDH. Colombia Cerrejon & Drummond Although the goal of the DCD has never been to focus on one country or one mine, two of the mining companies that have been mentioned in the public domain regarding ethical, social and environmental performance in Colombia are Cerrejon and Drummond. Both mines responded positively to having a pilot assessment conducted at their facilities. When responding to the DCD members, Drummond committed to having an assessment conducted through Bettercoal and to sharing the results of this assessment with the members of the DCD. Through Bettercoal, the utility companies will ensure that Drummond adheres to this promise and will push for a site assessment at their facilities. Bettercoal recognises the importance of Colombia as a coal exporting country and is actively engaging the major mines and other stakeholders regarding the Bettercoal initiative, including the - 18 -

Dutch Embassy in Bogota. To summarise 1. The utility companies commit to a yearly update of their transparency proposal, in line with the earlier format of the transparency. 2. The utility companies will develop a pilot grievance mechanism concerning the coal supply chain at a national level. This procedure is designed to allow civil society stakeholders to address issues relating to social, environmental and/or ethical performance by any particular mine relevant to the Dutch market. The utility companies will put this mechanism in place as soon as possible. 3. We will work with Bettercoal to provide details on the progress of the programme through the future reporting of Bettercoal, such as statistics and a summary of assessment results, and of results of follow-up. 4. We will make every effort to incorporate the learnings of the DCD (1. the Material Issues and 2. the Assessment Protocol) within the tools of Bettercoal. 6 Our action plan DCD Actions Timeline Start of the 1 st phase of the Dutch Coal May 2010 Dialogue Start of the 2 nd phase of the Dutch Coal June 2011 Dialogue Dutch utility companies publish transparency document on their corporate From July 2012 annually websites Publication of Final Report (including August 2013 Assessment Protocol) Finalisation of the DCD August 2013 Handover of DCD results to Bettercoal End 2013 Integration of Material Issues and End 2014-19 -

Assessment Protocol within Bettercoal tools Bettercoal Actions Timeline Start of setting up Bettercoal November 2010 Registration of Bettercoal as a separate February 2012 not-for-profit organisation Public consultation of the Bettercoal Code September 2012 May 2013 Adoption of the Bettercoal Code July 2013 Utility companies start engaging with their From suppliers on self-assessment questionnaires September 2013 onwards Bettercoal starts engaging with mining From companies to perform third party September 2013 assessments onwards Bettercoal has set up the first KPIs for December 2013 member companies on how to implement the Bettercoal tools into their due diligence processes Stakeholder Panels are in place January 2014 Improvement programmes for on the From January ground performance are developed 2014 onwards Publication of the first Bettercoal Annual Q2 2014 Report - 20 -