Scope and boundary

The group is committed to continuously evaluating and improving its long-term sustainability in terms of the environment, social commitment and corporate governance to the benefit of all shareholders, customers, suppliers, employees and communities.

The sustainability report forms part of the group’s integrated report and includes all the operating divisions for the financial period 1 July 2017 to 30 June 2018.

The audited financial statements were approved for distribution on 14 August 2018 and the integrated report was approved for distribution on 5 October 2018.

The group regularly reviews and adapts its policies and processes to reinforce its ability to be economically viable, socially responsible and environmentally sound, while still remaining competitive.

The group provides policies and guidance to each of the operating divisions. Divisional management teams are responsible for managing their own sustainability efforts and are accountable to the board of directors and their stakeholders.

As part of the group’s sustainability strategy, KAP was a constituent of the JSE Limited’s Socially Responsible Investment (SRI) Index. KAP subscribes to the guiding principles and reporting requirements of the FTSE4Good Index across all the ESG themes of Environment, Social and Governance and uses this as framework to monitor compliance and progress. KAP was first included in the FTSE4Good Index in June 2017.

Materiality

The principle of materiality has been applied in determining the extent of disclosure with regard to reporting on sustainability aspects. The diversity of the group’s businesses influences how the materiality of sustainability aspects is determined and how such issues are addressed, with varying levels of materiality applicable at group level and at divisional level.

Decisions around materiality takes into account the potential impact of risks and opportunities and the effect thereof on the divisions and all stakeholders.
This has resulted in more prominence of certain matters over others.

Assurance

The board, assisted by the audit and risk committee, is ultimately responsible for overseeing the integrity of the integrated report. This is achieved through appropriate teams and structures that manage the reporting process.

Where appropriate, independent external assurance for specific application purposes is done to comply with, or retain certain levels of compliance, with regard to quality management systems like ISO, etc.

Sustainability approach and strategy

Management and reporting

The group demands high standards of corporate responsibility at divisional and corporate level. Reporting lines are defined from divisional level to the board of KAP Industrial, ensuring that all the divisions approach sustainability and corporate governance in line with group policies. Senior divisional management are measured on key aspects of sustainability. However, the ultimate responsibility for retaining full and effective control rests with the board of directors. Day-to-day management responsibility is placed with divisional management and their executive teams to best align with the group strategy and to act with urgency.

Divisional management is charged with the responsibility of reporting on risks and opportunities and on social, ethical and environmental concerns. The divisional boards/management boards/executive committees review risk reports, and all major risks are brought to the attention of the main board.

Any significant social, ethical, environmental or governance concerns will be brought to the attention of the KAP social and ethics committee and all material risks are reviewed by the KAP board.

Each division is responsible for developing its own sustainability strategy within the framework set out by the group, while considering stakeholders’ needs and social and environmental obligations. Group committees and resources support the divisions with regard to risk management, environmental, social and ethical aspects, as well as management systems that systematically address safety, health, environment and quality (SHEQ) risks.

During the 2017/2018 reporting period, no material risks were reported that required additional or specific attention.

Social and ethics committee report

Good governance in all aspects of KAP’s businesses is non-negotiable. Systems and structures have been embedded across the group to ensure that the group conducts its operations in an ethical, responsible and sustainable manner.

The long history and recognition of the group’s brands are testament to the high standards set by KAP and its commitment to be, and to be seen as being, a good corporate citizen.

The board is assisted by the social and ethics committee (“the committee”) with its oversight of social and ethical matters across the group. The composition and duties of the committee are detailed in the corporate governance report, which is available on the Company’s website at www.kap.co.za, and are guided by formal terms of reference, which are aligned with the Companies Act, No. 71 of 2008, and the Companies Regulations 2001 (collectively ‘the Act”), as well as the Listing Requirements of the JSE Limited(“the JSE LRs”) and the recommendations of the King IV Report on Corporate Governance for South Africa 2016 (“King IV”).

The committee enjoys the support and co-operation of the KAP audit and risk committee, the KAP human resources and remuneration committee, the KAP executive committee (“Exco”) and the KAP BEE forum in exercising certain overlapping duties.

The role of the committee is to assist the board with the oversight of social and ethical matters relating to the group.

The overall objectives of the committee include the following:

To monitor KAP’s activities with regard to the duties that are attributed to it by the Act, the JSE LRs and King IV, with a specific focus on those duties stated in regulation 43(5) of the Act and under King IV.

To draw matters within its mandate to the board as occasion requires.

The role of the board, assisted by the committee, is to ensure that policies, reporting and monitoring systems are in place across the group to allow for the timeous and accurate reporting of environmental, social and ethical concerns and, where required, the appropriate implementation of corrective action; all of such being fundamental to the sustainability of the group.

KAP’s commitment to maintaining its good corporate standing includes the following:

The establishment of dedicated teams at operational levels to ensure compliance with all rules, laws and other requirements relevant to the group’s operations.

The establishment of a code of ethics and supporting policies. The code of ethics can be viewed on the company’s website at www.kap.co.za.

An ethics hotline has been put in place to provide employees and/or suppliers with a protected, anonymous facility to report unlawful or unethical behaviour. KAP follows a consistent approach in actively pursuing and prosecuting perpetrators of fraud or other illegal activities that may occur across its business operations.

A group communications policy prescribes responsible behaviour from employees on all digital platforms. The use of inappropriate language or hate speech will not be tolerated.

The adoption of policies on insider trading, pricesensitive information, the environment, corporate social investment and gender diversity at board level.

The formation of a KAP BEE forum to monitor KAP’s transformation progress.

Particular emphasis on the development of black female employees identified as having potential for progress within the group.

The group supports and implements international best practice from applying the UN Global Compact’s best principles on human rights to managing health and safety aspects.

The initiation of specific projects at operational level to add value to its businesses and stakeholders by working with the community.

In recognition of its approach to corporate governance, KAP has now been included in the FTSE4Good Index. (This index replaces the JSE Socially Responsible Investment (SRI) Index, on which KAP was previously included.) Ratings comprise an overall score based on underlying environmental, social and governance (ESG) exposure measures and performance scores built on individual indicator assessments. Only companies demonstrating good management of ESG issues are eligible for inclusion in the FTSE4Good Index.

Policies, targets and performance

Responsibility for the implementation and compliance with policies lies with the chief executive officer or managing director of each division. Key policies, set by KAP Industrial, that cover important social, environmental and business aspects, are in place. These are either addressed or used to guide divisional management with establishing their own policies. Policies are communicated periodically, as part of induction processes, are available on divisional intranets and are available on request.

At a minimum, compliance with the legislation of each country where the group is represented, need to be respected and adhered to. Additional industry-specific policies further direct divisional behaviour and management towards social and environmental issues where these are relevant.

Directives to set and achieve targets are endorsed at group level and mostly form part of management’s key performance areas (KPAs). These are managed within each division.

Great strides have been made within divisions and specifically within certain areas, where achieving and maintaining targets are a business imperative and not only a reporting requirement.

Due to the diversity of the group and the specific challenges of each division, the group cannot establish specific group targets but will assist and guide the divisions with regard to their specific sustainability targets. Targets are set and managed at divisional level where applicable.

The ultimate responsibility for ensuring full and effective control of the group’s businesses rests with the KAP board.

The company has adopted a decentralised approach to the management of its day-to-day divisional operations, subject to compliance by the divisions with the group control and approvals framework and the systems and governance policies set by the board.

There are defined reporting lines from divisional management level to the board, to facilitate effective monitoring by the board of the divisions’ compliance with group and divisional policies.

Save where pre-approved materiality levels apply, decisions on material matters are reserved for the board, including, but not limited to, decisions on the allocation of capital resources, the authorisation of capital expenditure, property transactions, borrowings and investments. Decisions made by the board take into account the legitimate interests and expectations of stakeholders and the sustainability of the group’s operations.

The detailed responsibilities and powers of the board are contained in a formal charter, which is available on the group’s website, together with the corporate governance report.

The board committees that support the board of directors include the audit and risk, human resources and remuneration, nomination, social and ethics and the investment committees. The robust committee and reporting structures in place across the group underpin the group’s commitment to sound corporate governance and afford stakeholders the assurance that the group’s businesses are managed responsibly.

The group applies King IV™, which operates on an ‘apply and explain’ basis. Explanations as to how the group has applied the 16 King IV™ principles are contained within the corporate governance report and the King IV™ application schedule, which are available on the group’s website.

KAP has met its reporting requirements relating to King IV™, the Listings Requirements of the JSE and the 2008 Companies Act (as amended) together with the Companies Regulations (jointly ‘the Act’).

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