The group has significantly
enhanced its sustainability endeavours.
Chair of the social and ethics committee
The SEC is a statutory committee of the board that provides oversight of social, ethical and environmental matters relating to the group.
Ethical and responsible business practices underpin the values of Pepkor and its purpose of creating and protecting customer and stakeholder value. The group is committed to social, governance and environmental (UNGC) principles and has aligned its Building Better Business sustainability framework to the UN SDGs.
Mainstreaming of ESG
While large organisations have historically internalised profits and externalised costs, this paradigm has been successfully challenged. With the recognition of the centrality of sustainability, investors, communities, advocates and other stakeholders expect companies to incorporate sustainability/ESG principles into their business strategies. The emphasis is on considering the entire ecosystem in which companies operate, promoting a more responsible and holistic approach to business practices. This includes broadening participation and leaving no one behind as the world transitions to a low carbon economy.
In the South African context, this includes broadening participation to promote inclusivity and equality.
In recent years, the group has significantly enhanced its sustainability endeavours, with a particular emphasis on actively prioritising environmental sustainability, all the while upholding a steadfast commitment to social concerns.
The group aligns to the following primary SDGs, which the committee monitored:
No poverty. End poverty in all its forms everywhere
Pepkor contributes to the SDG goal of ending poverty by providing quality products and services at affordable prices. This includes our range of essential items, and lay-by and responsible credit options helping households manage their finances effectively. It aligns with the group’s strategy to make necessary items affordable, enabling people to live with dignity and pride. The Flash business understands the need for consumer accessibility and, through technology and their extensive interconnected network of partners, connects the informal and formal market sectors. In terms of making customers’ lives easier, Flash traders are now able to facilitate SASSA grants distribution to beneficiaries.
Quality education. Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all
The group prioritises quality education as essential for sustainable development, enhancing employability and overall quality of life. Our philanthropic focus includes ECD and learnerships, which anecdotally exceeds the number of learnerships provided by any other retailer in South Africa (based on publicly available information), targeting youth and people with disabilities, addressing both independence for disabled individuals and youth unemployment. We support social investment initiatives through contributions of time, expertise and products.
Decent work and economic growth. Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all
The group offers diverse employment opportunities, employing over 50 000 individuals, and prioritises employee development through in-house training programmes. We uphold labour standards throughout our operations and value chains, focusing on productive, inclusive and freely associated employment. PepClo, the group’s manufacturing facility that produces affordable schoolwear sold in PEP and Ackermans stores, provides jobs to 1 800 people. The group also adheres to government regulations, emphasising non-discrimination and aligning policies with the Employment Equity Act and Broad-Based Black Economic Empowerment Act. We assess compliance using the B-BBEE generic scorecard, setting targets for individual operating businesses. Key performance indicators (KPIs) are integrated to drive change, participation and improvement.
Ensure responsible consumption and production patterns. Minimising the natural resources and toxic materials used, and the waste and pollutants generated, throughout the entire production and consumption process.
We use our extensive network to enhance resource efficiencies, minimise costs and ensure affordable prices. Our environmental commitment focuses on responsible consumption and production in our operating businesses and supply chain, driving efficiency in energy, transport, water and waste. We also strive to procure environmentally friendly supplies, preferring local, where commercially feasible, to reduce carbon emissions. The group’s supplier code of conduct encourages the suppliers to consider the effects of their operations on the environment and to use natural resources (e.g. water, sources of energy and raw materials) in a responsible way while promoting awareness of environmental management and impact reduction.
Leading with governance
Composition of the committee and responsibilities
The group’s governance framework includes principles for ethical leadership, responsible citizenship, adherence to organisational values, strategic guidance, enhanced reporting, environmental awareness and sustainable business practices. The SEC monitors these principles, ensuring compliance, strategic alignment and continuous improvement. The SEC operates within a board-approved terms of reference, focusing on governance and sustainability responsibilities.
The SEC members
The committee, chaired by independent non-executive director Fagmeedah Petersen-Cook, consists of the CEO and independent non-executive directors Paula Disberry and Zola Malinga. The CEO holds responsibility for managing group sustainability, particularly in relation to sustainability risks. In line with the King IV Report on Corporate Governance™ for South Africa, 2016 (King IV™)* compliance, the committee is primarily composed of independent non-executive directors. Executives from HR, internal audit, compliance, investor relations and risk management are invited to committee meetings. During FY23, these committee members and executives were present at all meetings of the committee. The chair also serves as a member of the audit and risk committee, ensuring efficient information flow and alignment of sustainability risks. The human resources and remuneration committee (Remcom) and the board jointly (with recommendations made by the SEC) oversee sustainability incentives for senior executives and operational managers.
Statutory responsibilities
The committee operates in terms of defined terms of reference aligned with statutory regulations. It ensures ethical governance, responsible corporate citizenship and stakeholder inclusivity as per the principles contained in King IV™. The committee’s responsibilities cover various areas such as health, safety, consumer relations, labour, environment, B-BBEE compliance, and anti-bribery and corruption. Operational management is responsible for ensuring compliance with regulations. The SEC working group and ESG champions in our operational businesses drive strategic ESG priorities, fostering a decentralised approach in the group’s implementation process.
Policies and structure
The group maintains a strict stance on regulatory compliance, with the committee overseeing ethics, fraud and corruption and human rights. In FY24, a centralised ethics and fraud hotline will enhance monitoring and reporting. The group remains vigilant about legal and regulatory changes, including bills such as the Employment Equity Act Amendment Bill and the Climate Change Bill and Extended Producer Responsibility Act. It also engages with international sustainability reporting regulation such as the ISSB and JSE Sustainability and Climate Change reporting guidelines to ensure the group works towards alignment with best practice disclosure frameworks. We are monitoring the proposed guidance notice on climate-related risk practices and disclosures for insurers and the requirements on our Abacus business.
Social
The group is committed to enhancing the employability of South African youth through learnerships, graduate recruitment and internships. The graduate and internship initiative emphasises IT skills and accounting, aiming to nurture black talent in South Africa. In FY23, the group extended support to 4 100 learners through learnerships and 700 learners with disabilities.
B-BBEE
The group acknowledges that building an inclusive and diverse workforce is essential to the sustainable performance of the business. As a responsible corporate citizen, the group acknowledges our responsibility to ensure a more inclusive economy. During the year, R78 million was invested in various enterprise and supplier development (ESD) initiatives to support local manufacturing. Another notable investment was in the Flash business, providing support for local Flash traders. Since the inception of the SEC, the committee has focused on the implementation and performance of B-BBEE requirements, which has consistently improved over the past six years.
The committee has liaised with the Remcom to ensure that B-BBEE continues to be a specific KPI to encourage behaviour that will serve to further improve the transformation of the group.
The SEC maintains its oversight of using targeted talent development programmes that were previously introduced with support from the relevant Sector Education and Training Authorities (SETAs). These programmes serve as a specific avenue for nurturing black talent, with the ultimate goal of achieving demographic representation across all business levels. As part of our talent development strategy, Pepkor provides middle management and operating business executives with opportunities to enrol in business programmes. Additionally, the group has rolled out various entry-level and junior management initiatives.
The SEC continues to monitor the group’s focus on procurement and enterprise development activities in order to advance job creation in, and the growth of, the South African economy.
Responsible sourcing
The Pepkor supplier code of conduct was enhanced to include environmental matters and successfully rolled out and signed off by clothing, footwear and homeware (CFH) trade suppliers. The revised code has committed the group to collaborate with suppliers to enhance social and environmental standards. This includes upholding health and safety standards and procuring sustainable products and materials. Compliance with the supplier code of conduct is mandatory for all Pepkor suppliers, and a significant portion, 94% of the CFH trade supplier base, has already entered into a Memorandum of Acceptance (MoA) in this regard.
Within its own operations, the group is dedicated to optimising the use of natural resources, procuring eco-friendly supplies and prioritising local sourcing whenever possible to minimise the environmental impact of transportation. In FY23, 246 million units were sourced locally and R2 billion was spent on local small, medium and micro enterprises (SMMEs).
Environmental
The board has adopted an environmental policy for the group, which was revised in FY23 in order to be more reflective of the group’s current environmental ambitions.
Our ‘road to green’, which is a strategic goal in the Building Better Business framework, further focuses on advancing energy efficiencies and reducing carbon emissions in our own operations and in the supply chain.
Work on sustainability risks and opportunities continued this year, with further integration into existing risk management processes of operating businesses. Scenario analysis will help to quantify some of these risks and opportunities in the future.
Addressing energy security during recurring load shedding was a major challenge in the past year and will continue to be so in the near future. To manage this issue, the group introduced back-up power generation, allocating R62 million to renewable energy sources, and initiating energy-efficiency projects, such as replacing conventional lights with LED lighting.
While there was a trade-off involving increased diesel consumption for generators installed in the PepClo business this year, resulting in increased Scope 1 emissions, this allowed manufacturing operations to continue and employees to earn a full wage.
In the coming year, the group aims to further increase its investment in solar PV projects by 2.5 MWp, taking the total installed capacity to 8.5 MWp. It also targets to use 2 000 tonnes of second-hand boxes in operations and further optimise packaging to reduce waste. Low carbon practices make business sense as it leads to lower cost of doing business to serve our customers better.
Metrics and targets
With a more robust data management process, a carbon emissions baseline was established in FY22 and work commenced on setting targets that will be incorporated into three-year budgets and strategic plans from FY24 onwards. With better visibility of current and planned initiatives, the group is in a better position to set measurable and realistic targets that will in turn be incorporated in incentives.
The group’s internal audit team is responsible for the verification of non-financial indicators to ensure the data used for target-setting and reporting is reliable. An external expert reviews the accuracy and completeness of the group’s Scopes 1, 2 and 3 carbon emissions.
Progress
In order to better understand our stakeholder priorities and measure our efforts against broader market environments, we undertook to investigate all ESG ratings and understand those that matter the most to our stakeholders. The process helped us to identify gaps and deepen our policy and strategy. The visible result of these efforts are seen in our ESG rating improvements with all major rating agencies and against our peers. The SEC commends the team for their outstanding performance and for being featured in the FTSE/JSE RI Index for the second consecutive year. We also applaud the group’s first submission on climate change to the CDP.
In the 2021 financial year (FY21), we committed to align our climate change initiatives with the TCFD recommendations and released our inaugural TCFD report in FY22. During the year, we incorporated sustainability risks and opportunities in the risk management process, which involved board members, the SEC working group and operating businesses to analyse current sustainability risks and the potential of new ones. The group risk manager offered guidance on identifying, measuring, assessing and disclosing these sustainability risks and opportunities. These insights were then integrated into the risk registers of the respective businesses.
Fagmeedah Petersen-Cook
Chair of the social and ethics committee
