INDEPENDENT EXTERNAL REVIEW

BSD Consulting performed an independent review of the Fauji Fertilizer Company Limited (FFC) Sustainability Report 2016, which was prepared in accordance with Global Reporting Initiative’s (GRI) Standards´ Comprehensive option and was also guided by the Integrated Reporting framework. The objective of the critical review is to provide FFC’s stakeholders with an independent opinion about the quality of the report and the adherence to the AA1000 Accountability Principles of Inclusivity, Materiality and Responsiveness, as well as an evaluation against principles of the Integrated Reporting () framework and the associated capital concepts.

INDEPENDENCE

We work independently and ensure that none of the BSD staff members maintains business ties with FFC. BSD Consulting is licensed by Accountability as an assurance provider (AA1000 Licensed Assurance Provider), registered under No. 000-33.

OUR QUALIFICATION

BSD is a consulting firm specialized in sustainability. The review process was conducted by professionals with long-standing experience in independent assurance and sustainability reporting.

RESPONSIBILITIES

FFC has prepared the Sustainability Report and is responsible for all its content. BSD was responsible for the independent review of the report.

SCOPE AND LIMITS

The scope of our work covers all information included in the FFC 2016 Sustainability Report, full version, referring to the period from January 1st, 2016, through December 31st, 2016 (presented as 2016). The verification of financial figures and sustainability performance data was not object of BSD´s work.

METHODOLOGY

The methodology applied was a desk review of the final draft report, and the following approach and procedures were developed during the review process:

• Critical review of the Sustainability Report 2016 and respective Content Index to check consistency and adherence to GRI´s Universal and Topic-Specific Standards.
• Evaluation of report’s adherence to the in accordance: Comprehensive option
• Analysis against Integrated Reporting principles and the concept of the six capitals
• Elaboration of an adjustment report
• Final review of the report content
• Analysis of the report content against Accountability Principles of Inclusivity, Materiality and Responsiveness
• Elaboration of Independent Review Statement.

GRI STANDARDS IN ACCORDANCE OPTION 

FFC declares the report to be in accordance with the GRI Standard: Comprehensive option. BSD evaluated the quality of the application of the GRI Standards Universal and Topic-Specific Standards. Based on the analysis, a series of recommendations to complete the content or to adjust the disclosure level in the Content Index have been made and accepted by the company. Based on the rectifications, we can confirm that the report is attending the above mentioned in accordance option, giving a complete overview of FFC’s sustainability governance and management systems in place to report on a relevant set of disclosures related to the identified material topics.

ANALYSIS AGAINST FRAMEWORK PRINCIPLES AND CAPITALS

For the second time, BSD has evaluated the application of IIRC Guiding Principles, Content Elements and Capitals in FFC’s report. For this report, the main conclusions of this analysis were the following:

• The report addresses how the organization articulates its efforts to guarantee the availability, quality and accessibility in relation to all capitals, except with regard to natural capital where the problem of decreasing gas pressure is recognized but no specific measure to address it was presented.

• The report demonstrates the existence of connections between FFC’s material topics, the SDGs and Global Compact. The connections between capitals are shown in the chapters “Value Generation” and “Business Model”. But the specific actions of the company are not shown in connection to the SDGs and the Global
Compact Principles, The connectivity principle should be stronger visible and show the connections between actions affecting different
capitals at the same time.
• Stakeholder relationships are clearly presented in the report and are related with all the capitals.
• The “Highlights” section focuses on some social and environmental goals, linked to the organization’s strategy, but goals do not address
all the capitals. In general, when mentioning strategy, the report focuses on Social and Relationship capital, Financial capital and, to a
less extent, on Natural and Human capital.
• The organization performs risk analysis, and in the “Forward Looking”section, the company briefly describes the existence of financial, environmental, human (OSH) and social (community, regulatory, corruption) risks. The report also presents a system, “Enterprise Risk Management” (ERM) for Risk Management, but overall, the report does not detail risks identified by the company and the actions taken in response to the analysis.
• Although initial, it is possible to identify the attendance of the conciseness principle in the reporting of all capitals, except in Manufactured and Intellectual capitals that are not addressed directly in the report. Additionally, the report is separated into sections that facilitate the reading of stakeholders interested in specific issues.

MAIN CONCLUSIONS ON ADHERENCE TO AA1000 ACCOUNTABILITY PRINCIPLES

Inclusivity – addresses the stakeholders’ participation in the process of developing and implementing a transparent and strategic sustainability management process.

• The report addresses how the company engages with different stakeholders, including how their demands are addressed and responded. Nevertheless, the report should recall what FFC has done in relation to previous demands, so that effective progress can be measured.
• The stakeholder consultation process rolled out for the preparation of the sustainability report has similar features to former years’ process. It is reasonable to change the composition of the panel from time to time in order to identify hidden stakeholder concerns and respond to them accordingly.
• The company states that no significant issues have been observed regarding suppliers, but the company still does not disclose with more detail where major risks could be identified.

Materiality – issues required by stakeholders to make decisions on the organization’s economic, social and environmental performance.

• Material issues have been identified by FFC in a Materiality Matrix which considers the influence on stakeholder perceptions and decisions and the significance of environmental, social and economic impacts, using a commonly accepted approach. Parameters such as risks and opportunities were considered in the evaluation undertaken, which makes the process more focused on prioritizing issues related to the company’s value creation.
• With regard to some important material topics such as Farmer Advisory, Procurement Practices and Waste Management, the company does not disclose goals or objective commitments, which would be necessary to manage the topics in an efficient way.
• Some material topics such as Respect for Human Rights, Health & Safety or Employment and Labor Relations are not fully monitored and the company is recurring to the fact that no occurrences have been brought to attention.

Responsiveness – addresses the actions taken by the organization as a result of specific stakeholders’ demands.

• FFC has maintained its externally certified Quality, Environmental, and Health & Safety management systems, which entail a high level of analysis of risks, non-compliances and corrective actions.
• Sustainability management maintains its high level support, attesting FFC’s commitment to address sustainability challenges, stakeholder concerns and expectations, as well as contributing to company’s robust responsiveness in terms of compliance.
• A clear set of goals and targets, as well as specific actions undertaken or planned would be helpful for stakeholders to be able to monitor the company´s commitments and achievements related to major sustainability issues.
• The company identified decrease of gas pressure as a business risk which needs to be monitored. FFC does report in its Forward Looking-statement that alternative fuel solutions are discussed to sustain operations. But in fact, the company does not address if any changes in the production process or business model need to be implemented to maintain the business of the company sustainable in a changing environment.

FINAL CONSIDERATIONS

After careful revision of the FFC Sustainability Report 2016, we can confirm that the company has successfully applied the newly released GRI Standards and reports its material topics in an adequate manner. The company provides a transparent reporting about its sustainability performance and has policies and procedures in place to analyze sustainability related risks, seeking continuous improvement. While FFC is integrating the UN´s Sustainable Development Goals into its sustainability strategy, a more tangible evaluation of its impacts on the six capitals and a stronger reflection about its Business Models is necessary to advance in its roadmap to an Integrated Reporting process.

São Paulo/Lisbon, April 11, 2017