Sustainability website / Reporting & Standards / Sustainable Development Framework

Policy and approach

Policy and approach / Business Principles / SD Policy / SD Standards and Assurance Programme / SD Assurance Audits / Risk and crisis management

During 2007, we undertook a wide-ranging and in-depth external and internal review of Xstrata’s sustainable development governance framework. The review was initiated in response to the significantly changed risk profile of Xstrata’s operations, the continued evolution of the scope and profile of sustainability issues and extensive feedback from internal and external stakeholders since the framework was implemented in 2004. The principal objectives of the review were to improve alignment between Xstrata’s policies and standards and to ensure Xstrata maintains its position at the forefront of leading practice in sustainable development, while retaining a similar overall structure to minimise any additional burden on our operations and projects. Xstrata’s Sustainable Development Framework has been mapped to international standards including the ICMM and UN Global Compact principles, Voluntary Principles on Security and Human Rights, ISO14001 and OHSAS18001.

The revised Sustainable Development Framework was approved by Xstrata’s Executive Committee and Board at the end of 2007. The roll-out of the revised Framework is being supported by regional workshops in 2008 led by the Group General Manager Sustainable Development and involving senior commodity business management, divisional operating officers and the General Manager of each operation, together with operational managers and health, safety, environment, community and communications specialists.

The revised Sustainable Development Framework comprises Xstrata’s Statement of Business Principles, Sustainable Development Policy, Sustainable Development Standards and Assurance Programme. The Group Mission Statement was reviewed but not revised, reflecting our view and that of our stakeholders that it continues to reflect Xstrata’s overall strategy accurately.

Business Principles

Policy and approach / Business Principles / SD Policy / SD Standards and Assurance Programme / SD Assurance Audits / Risk and crisis management

Xstrata’s Statement of Business Principles sets out the ethical framework for our activities globally and applies to every Xstrata managed operation. The Statement of Business Principles was introduced across Xstrata at the time of the initial public offering in 2002. The original document has been revised to reflect more accurately the ethical risks inherent in the Group’s augmented size and scope of operations and to make our commitment to a highly devolved management structure more explicit within our Statement of Business Principles.

An online training system was developed in late 2007 and early 2008 to test employees’ and contractors’ understanding of the revised Business Principles in relevant example scenarios and to ensure employees are aware of how and when to use Xstrata’s confidential ethics line whistleblowing facility in each country. The training programme is being rolled out across the Group during 2008.

SD Policy

Policy and approach / Business Principles / SD Policy / SD Standards and Assurance Programme / SD Assurance Audits / Risk and crisis management

A new Sustainable Development (SD) Policy has been introduced, which aggregates the previous HSEC and Corporate Social Involvement (CSI) Policies and includes our commitments to employees. The revised Policy introduces more specific and challenging environmental, health and safety commitments to reflect Xstrata’s global leadership position. It also further integrates our commitment to communities and the broader societies within which we operate and sets these within a context of sustainable communities. A copy is provided in the pocket on the inside back cover of this report.

SD Standards and Assurance Programme

Policy and approach / Business Principles / SD Policy / SD Standards and Assurance Programme / SD Assurance Audits / Risk and crisis management

Xstrata’s 17 HSEC Standards and associated independent assurance programme were introduced in 2004. Every managed operation was independently audited against the Standards and Xstrata’s HSEC Policy by the end of 2005 to provide a baseline.

Xstrata’s independent Sustainable Development Assurance Programme is the key mechanism through which the Xstrata Board and management gain assurance that the Group’s policies and standards are being met or exceeded by each operation, project and commodity business. It has been refined and enhanced each year since its introduction and differs from most assurance programmes in its extensive scope, involvement of executive and senior management combined with interviews with knowledgeable process owners among the site’s workforce, focus on performance in addition to systems and in the expectation that participation in audits should form an important part of training and education. The Assurance Programme has played an integral role in enabling Xstrata to rapidly assess acquired operations and align acquisitions with Xstrata’s framework and performance expectations.

To minimise site-level disruption, the format and structure of the 17 Standards have remained largely intact. Revisions to the Sustainable Development (SD) Standards and Assurance Programme include:

• Extending the predominantly site focus of the previous framework and SD Assurance Programme to more comprehensively cover expectations at the divisional, commodity business and Group levels;
• Clarifying expectations for development projects as distinct from existing operations;
• Consolidating content on a particular topic or issue under one management standard;
• Enhancing the SD Assurance Programme to introduce annual site self-assessments for qualifying operations or projects, combined with risk and verification SD audits of sites and projects from 2008;
• Introducing six project phase-specific audits, reflecting Xstrata’s significantly enhanced portfolio of major growth projects and the risks inherent in their development; and
• Designing a specific post-acquisition integration audit protocol.

The SD Standards continue to focus on the Group’s expectations and, in line with the Group’s devolved structure and emphasis on encouraging innovation and an entrepreneurial spirit, do not prescribe how these requirements should be met in detail. Comprehensive guidance notes have been prepared for each management standard to provide practical advice or further reference material as necessary. A Good Practices Guide is developed each year to list the leading practices identified through the Sustainable Development Assurance Audits each year.

Under the revised SD Assurance Programme, operations and projects which achieve set SD performance criteria, including previous audit performance, will be selected to move to annual self-assessments in 2008. Operations and projects not meeting this standard will continue to have the audit protocol independently applied. All operations and projects will undergo an independent risk and verification audit at least every three years based on risk. The revised SD audit protocols will be used for all Assurance Audits at managed operations and projects in 2008.

A copy of the revised SD Standards is provided in the pocket on the inside back cover of this report.

Assurance Audits

Policy and approach / Business Principles / SD Policy / SD Standards and Assurance Programme / SD Assurance Audits / Risk and crisis management

In 2007, 33 operations were independently audited under Xstrata’s HSEC Assurance programme, including four audits at Xstrata Nickel’s Kabanga, Koniambo, Araguaia and Nickel Rim South projects, which were used to test the newly developed specific project stage audits. Two-thirds of the operations audited in 2007 achieved the ‘good‘ standard, with an overall score in excess of 80% across Xstrata’s 17 Standards. Two Xstrata Coal Australia operations attained the ‘optimum’ level, (>90%), while five former Falconbridge copper operations were found to be below Xstrata’s minimum ‘satisfactory’ level. These operations will be re-audited in 2008 in line with Xstrata’s commitment for all acquired operations to reach a minimum ‘satisfactory’ level within 24 months of acquisition.

Average scores across the Group are shown for each standard, based on the most recent audit undertaken at each operation and project, compared to the previous audit. These results include the first audits undertaken at acquired operations.

Risk and crisis management

Policy and approach / Business Principles / SD Policy / SD Standards and Assurance Programme / SD Assurance Audits / Risk and crisis management

Xstrata’s Group risk management policy states our aim to manage risk and create an environment where we can “confidently grow shareholder value through developing and protecting our people, our assets, our environment and our reputation.” Xstrata applies the precautionary principle in its approach to environmental management, actively managing identified risks without necessarily requiring a scientific consensus about the potential for the risk to occur before action is taken.

Social, environmental and ethical risks are integrated into risk registers compiled at a site or project, divisional, commodity business and Group level and are annually reviewed, together with the effectiveness of the controls in place to manage identified risks. Principal risks and uncertainties facing the Group, together with our approach to managing each of these, are reported in the 2007 Annual Report.

Xstrata’s SD Standard 17: Emergencies, Crises and Business Continuity sets out the requirement for all sites and commodity businesses to implement emergency response, business continuity and crisis management plans in consultation with external emergency agencies, including training for employees and other stakeholders, annual reviews and the incorporation of lessons learnt from actual emergencies and simulations into plans. The Group crisis management plan is supported by crisis management plans at each commodity business which include clear protocols for when and how to escalate a crisis at the commodity business level to a Group crisis.

The average audit score for operations independently audited through Xstrata’s HSEC Assurance Programme in 2007 was 84% (‘good’). All operations attained scores in the satisfactory, good or optimum ranges (>65%) except for three former Falconbridge operations which did not attain the minimum satisfactory score in this standard. All three sites will be re-audited in 2008.

(SD Management Standard 17: Emergencies, Crises and Business Continuity)