To the Board of Directors, Executive and Stakeholders of Wesfarmers Limited:

Wesfarmers Limited (Wesfarmers) commissioned Net Balance Management Group Pty Ltd (Net Balance) to provide independent assurance of this Sustainability Report 2007 (the ‘report’), the organisation’s tenth such report. The report presents Wesfarmers’ sustainability performance over the period 1st July 2006 to 30th June 2007. Wesfarmers was responsible for the preparation of the report and this statement represents the assurance provider’s independent opinion. Net Balance’s responsibility in performing our assurance activities is to the Board and Executive of Wesfarmers alone and in accordance with the terms of reference agreed with them. Any reliance a third-party may place on the report is entirely at that party’s own risk.

Assurance Objectives

The objective of the assurance process is to provide stakeholders of Wesfarmers with an independent opinion on the materiality, completeness and accuracy of the information presented in the report, and whether Wesfarmers has responded to stakeholder concerns and adequately communicated those responses within the report. This is confirmed through a verification process of the claims made, underlying systems, processes and competencies that support the report, as well as the embeddedness of policies and strategies on sustainability. Ensuring continuous improvement in data management systems and associated reporting processes is also a complementary objective.

Wesfarmers moved from a data verification process to a broader level of assurance last year using the AA1000 Assurance Standard and has continued this in 2007. The scope of this assurance process is described below.

Assurance Process

Our approach to assurance provision is undertaken using the AA1000 Assurance Standard, to which the lead assurance provider is accredited by the International Register of Certified Auditors UK (IRCA UK). The assurance engagement was undertaken between May and September 2007. The process involved the following activities:

• Interviewing management and internal stakeholders of Wesfarmers Premier Coal and Bunnings Business Units as part of a four-year plan to cover stakeholder engagement for all business units (subsequent to undertaking consultation of all business units last year) to ascertain their views on, and responses to, the material sustainability issues faced by these business units, and the communication of these issues. A total of 12 interviews were conducted.
• Interviewing selected external stakeholders to ascertain their perception of the material sustainability issues faced by Wesfarmers Premier Coal and Bunnings Business Units, and the appropriateness of Wesfarmers’ response to these issues in terms of their performance as well as external reporting. A total of 15 interviews were conducted with government, industry peers, suppliers, non-government and government organisations, clients, partners and industry associations.
• A review of the key sustainability strategies, policies, objectives, management systems, measurement and reporting procedures, background documentation and data collection and reporting procedures for Wesfarmers and each of its business units.
• A review of the report for any significant anomalies, particularly in relation to significant claims as well as trends in data.
• An overview of the embeddedness of the key economic, environmental and social policies for Wesfarmers and each of its business units.
• A series of interviews with key personnel responsible for collating and writing various parts of the report in order to substantiate the veracity of selected claims.
• The examination of the aggregation and/or derivation of, and underlying evidence for, over 200 selected data points and statements made in the report. The verified items were broadly selected to not only satisfy the principles of materiality, completeness and responsiveness, but also as supporting evidence for conclusions reached.
• A review of selected external media sources relating to the sustainability performance of Wesfarmers and each of its business units, so as to further substantiate reported claims and, more importantly, to ensure that no significant omissions were made in the report.

Assurance Limitations

Our scope of work did not involve verification of the accuracy and robustness of financial data, other than that relating to environmental, social or broader economic performance. Each of the wholly-owned business units were visited or interviewed by members of the assurance team. These were Bunnings, Curragh, Premier Coal, Kleenheat Gas, Wesfarmers LPG, CSBP, Industrial and Safety, Insurance and Energy Generation. The Corporate office was also visited and data was examined from the 40 per cent-owned Air Liquide WA. Our observation of stakeholder engagement activities was based on reviewing external stakeholder engagement processes and outcomes, and the 27 interviews with internal and external stakeholders, as well as from the more comprehensive stakeholder engagement program undertaken last year.

Our Independence

Net Balance was not responsible for preparation of any part of this report. Net Balance has not undertaken any commissions for Wesfarmers in the reporting period concerning reporting or data collection. However, Net Balance has assisted the Bunnings business unit on a technical project concerning energy efficiency and carbon. Our team’s independence was ensured by selecting an assurance team that had no other involvement with Wesfarmers during the reporting period that could impair the team’s independence or objectivity.

Our Capacity

The assurance team comprised of individuals with expertise in sustainability and in environmental and social performance measurement and reporting in various industry sectors including the manufacturing, energy, finance and chemical sectors. The assurance team has collectively undertaken over 60 assurance engagements in Australia over the past 10 years and is also led by a Lead Sustainability Assurance Practitioner (Lead CSAP) accredited by the IRCA UK. The team is also a global leader in the use of the AA1000 Assurance Standard in assurance provision.

Our Opinion

Based on the scope of the assurance process, the following represents the assurance provider’s opinion:

• The findings of the assurance engagement provide confidence in the information reported within the report. The level of data accuracy was found to be within acceptable limits, but additional improvements to data management, including the reduction of manual aggregation and transcription processes are recommended to reduce potential for minor anomalies and inaccurate statements. Data trails selected were easily identifiable and traceable, and the personnel responsible were able to reliably demonstrate the origin(s) and interpretation of data.
• Three of the business unit audit scopes were expanded to ensure that any systemic errors were found and corrected.
• The statements made in the report appropriately reflect environmental, social and economic performance achieved during the period.
• All suggested changes were satisfactorily addressed by Wesfarmers prior to finalising the report.

Overall, the assurance provider is satisfied that the report addresses an appropriate representation of the sustainability performance of Wesfarmers during the reporting period.

Conclusions and Recommendations

• Materiality: Materiality was determined by assessing compliance performance, issues material to stakeholders, policy-related performance and peer-based norms.
  With regard to key sustainability opportunities for business units, the most common responses from internal and external stakeholders during stakeholder engagement related to product development and quality, occupational health and safety, resource use (e.g. water, energy and waste), supply chain management, procurement, climate change risk management and incidents management. It is the assurance provider’s opinion that whilst initiatives and commitments are in place to address the majority of issues raised by stakeholders there is room for improvement in the reporting of Wesfarmers’ performance in some of the above areas.
  Review of peer-based norms and policy development noted that most areas are comparable to peers, and well-addressed, but some areas, particularly around issues raised by stakeholders (above) are yet to be fully enunciated and policy positions established.
• Completeness: The report was found to be mostly complete in addressing key environmental, social and economic performance as well as all wholly-owned operations of Wesfarmers, using the Global Reporting Initiative’s (GRI) G3 Sustainability Reporting Guidelines (October 2006) as a guide. As noted by stakeholders, the assurance provider agrees that the diversity of the Wesfarmers’ business remains one of the more significant challenges to the organisation in collating and presenting consistent group-level environmental and social performance data. Whilst improvements have been made in the way this data was collected and reported over the years, there are several recommendations made below for further improvements to improve the quality and consistency of information presented.
  Data for businesses that are not wholly-owned/controlled by Wesfarmers is presented in a concise form, but not covering the complete breadth of information presented by wholly-owned business units. This is considered appropriate. Following a recommendation last year, an organisational ownership structure diagram has been included in the front section of the report which may improve clarity for the reader.
  The data was also reviewed for whether or not reporting boundaries and reporting periods were being appropriately considered. It was found that this was the case with the majority of data except for some data sets where there was a time lag in data entry, and except for some sites and regional operations, which were considered non-material, where disclaimers capture such omissions and inconsistencies. Recommendations have also been provided around increasing the consistency of information received from business units by better defining data requirements.
• Responsiveness: Net Balance tested the responsiveness of the organisation through a review of management systems, documents and policies prepared by the organisation relating to the way it responds to stakeholder concerns and interests. Responsiveness was also tested by assessing the resources allocated to implement the aforementioned policies and commitments; by assessing the timeliness and accessibility of reported information; and by undertaking a review of key policies, targets and indicators and assessing the extent to which these are implemented by Wesfarmers. Net Balance also engaged with 27 internal and external stakeholders using a structured-survey process to gain an appreciation of their perception of the sustainability performance and reporting thereof of the Wesfarmers-owned Bunnings and Premier Coal business units. Stakeholders felt that the organisation’s responsiveness is in general ‘average’ to ‘good’ and that it was performing well in economic, social and environmental areas.

The Way Forward

Based on discussions last year, Wesfarmers has re-named its Social Responsibility Report this year to Sustainability Report, recognising the growing awareness of the term and what it broadly means. However, the report structure and content has not altered from last year providing consistency for the reader. The internal stakeholder engagement process (particularly for Bunnings) reflects a growing awareness of the need to, and an interest in, taking a lead in addressing environmental and social aspects of operations.

The diversity of the business presents continuing challenges to Wesfarmers in terms of how it integrates sustainability into its operations. Growth of the business has also brought with it similar challenges of integrating environmental and social performance objectives that are consistent across business units. These challenges are not likely to disappear, and indeed are more likely to increase with time. Accordingly, the assurance provider has carried over last year’s recommendation for additional quality controls in data to increase consistency, whilst allowing business units some flexibility in the way they identify and report upon what they (and their stakeholders) consider material sustainability issues for their business.

The assurance provider’s recommendation last year for annual executive level meetings on material sustainability issues to the business and in setting sustainability goals has been taken on board and formalised at each business unit. This also needs to be embedded at the corporate level for whole-of-business. Commitments made in 2006 were reviewed, concluding that appropriate progress had been made. Focus on broader business-level challenges such as climate change, supply chain management and community engagement need to be better articulated, and Wesfarmers’ level of response and performance management reported. Stakeholder engagement needs to continue, and in particular awareness amongst employees and highly interested and influential external stakeholders needs to be raised.

In terms of direct impact, the organisation’s characterisation of its environmental footprint is advanced, and comprehensive. The development of the social footprint is less advanced, and requires more work, but is not inconsistent with peer norms.

The report itself continues to be a significant effort for Wesfarmers, particularly given some of the challenges highlighted above. We found that comments and input had been sought from several levels within Wesfarmers. The report also continues to be internally verified prior to external assurance. One of our concerns is that the amount of text that may limit the readability of the document, and this will continue to present a challenge as the organisation grows. Report sizes are starting to shrink globally, and Wesfarmers needs to continue to look to manage the size of the report, despite diversity and growth. Development of some systems and quality controls for data would further assist in reporting efficiency and in reducing potential for human error or loss of intellectual property through natural staff turn-over. These are key risks in performance measurement and reporting for an organisation such as Wesfarmers.

The assurance provider has provided additional suggestions for reporting improvement in some areas, including a System Diagnostic Audit in early 2008 in preparation for next year’s reporting cycle. The assurance provider has also suggested a training session for staff involved in developing the report on verifiability of claims, and accuracy of data, as well as development of appropriate procedures for measurement and reporting of key performance indicators. These have been outlined in a more detailed report presented to Wesfarmers.

On behalf of the assurance team, 28th September 2007, Melbourne, Australia

Terence Jeyaretnam
Director, Net Balance & Lead CSAP (IRCA UK)