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AAK’s progress report on sustainable palm oil – February 2017 The Co-Development Company AAK’s progress on sustainable palm oil Responsible sourcing of raw materials is fundamental to AAK and reflected in our strategy. We want to make a clear difference to the environment and to the local communities where our raw materials are grown and harvested. Palm oil being the highest volume as well as the most productive vegetable oil in the world is a crucial raw material in feeding an ever-growing global population. Therefore, producing palm oil sustainably is of utmost importance. In this progress report, we share with you AAK’s part in the development towards a fully sustainable palm oil industry. Palm oil achievements Traceability Processes and tools Traced 97 percent of palm oil, all palm kernel oil and Developed an internal dashboard for detailed monitoring derivatives back to mill origin; of progress and an external dashboard for communicating Updated all mills traceability data; our achievements Finalized implementation of palm oil grievance procedure; Risk assessment Strengthened palm oil competencies among our global Completed a qualitative risk assessment of all suppliers; sales force through training and supportive materials; Completed geospatial risk assessment of 100% supplier mills; Customer support Identified mills for our on-site verification program and High level of support to our customers and the retailers. completed five verifications in 2016, twelve in total; Smallholders Supplier engagement Identified different options for smallholder project. Engaged in a dialogue with all our suppliers as regards progress of policy implementation, including the signing of AAK Palm Oil Policy, Completed two palm oil supplier engagement workshops engaging 40 mills in total; 2 Palm Oil DASHBOARD Traceability RSPO status % % 100 100 It is our policy to source 95 97 99 98 97 palm oil only from RSPO 80 Volumes 80 92 To mill 88 members. We are progres- 78 60 from RSPO 60 75 sing towards that target, but members some challenges remain 40 40 in some parts of the world 20 20 where we have factories and certifi cation is not always a 0 0 priority for growers. Aug Feb Aug Feb Aug Feb 2014 2015 2016 2014 2015 2015 2016 2016 2017 % % 100 CSPO 100 Traceability to mill remains All our palm oil is under high despite new AAK Demand our Palm Oil Policy, risk To plantation 80 80 29 33 factories in the USA, India, 27 assessed by Proforest. 1 60 China and Brazil that require 60 2 2 9 time to implement AAK’s 6 6 23 40 Palm Oil Policy and high 40 19 21 20 standard of traceability. 20 Book&Claim 26 19 22 0 0 Mass Balance 2014 2015 2016 2014 2015 2016 Segregated Risk Management Suppliers Engagement % Desktop risk Percentage of 100 Volume covered by AAK’s Palm Supplier assessment Code of 80 92 signed supplier suppliers risk 85 86 100% Conduct Code of Conduct. assessed 60 by Proforest: 40 % 20 100 Volume covered 0 100 2014 2015 2016 Geospatial risk 80 by geospatial risk assessment assessment. 60 % 100 40 Palm Oil Policy 80 20 Suppliers informed 1 27 77 0 60 about AAK’s Palm 2014 2015 2016 Oil Policy 40 Signed AAK’s 20 Palm Oil Policy 5 0 Has aligned Policy 2014 2015 2016 (verifi ed by Proforest) Other Higher priority suppliers invited to workshops facilitated Number of Number of AAK by Proforest. progress employees trained Mill 50 6 reports 394 in AAK’s Palm Oil engagement 45 Policy and Actions 40 40 30 Number of mills who AAK’s progress report on sustainable palm oil – August 2016 20 AAK’s progress report attended a Proforest/ on sustainable palm oil The Co-Development Company – February 2016 The Co-Development Company AAK workshop 10 4 3 5 0 Number of on-site audits 2014 2015 2016 3 Traceability progress – through cooperation with our suppliers Traceability to mill remains a prerequisite for how AAK However we continue to see challenges on traceability of assesses compliance of its palm and palm kernel oil supply palm kernel oil and derivatives, and we welcome initiatives to chain with its sustainable palm oil policy. We are delighted improve traceability. that we have maintained a high level of traceability through- With acquisitions made by AAK in 2015 and 2016, and out 2016, despite additional challenges from expansion of new greenfield developments, our work on traceability has the AAK group into new geographies which traditionally have spread to new parts of the world. These new supply chains not embraced traceable or sustainable palm oil, such as are being aligned with AAK standards, including California India and China. Oils, the most recent acquisition. In 2016 our factories in The focus on traceable supply chains continues to be Brazil and China commenced operations, with particular strong. More suppliers are openly sharing or joining pro- challenges due to the relatively high level of traded products grams to facilitate that traceability is well defined and well in these areas. reported. Traceability to Traceability to mill mill status – February 2017 Overall progress 97% Refi nery 4% 3% 50 km 93% > 1000 Mills Palm oil from origin 97% Palm kernel oils 99% Palm oil – others Derivatives 96% 1% 3% 4% 1% 2% 0% 4% 47% 96% 95% 51% 96% Indirectly traceable Traceable to known source Our suppliers of the oil have an own policy with traceability AAK has a list of mills the oil can come from that has been verified by Proforest and that we trust which relates to a specific refinery 4 Traceability to plantation For AAK, traceability to plantation is defined as follows: Taken together with the large number of mills in AAK’s extended supply chain (more than 1,000) and difficulties Palm oil and palm oil by-products in AAK products are trace- in identifying unique names for mills, the identification and able via the upstream supply chain to the supply base of the recording of names, parent company names and GPS coor- identified crude palm oil mill, including: dinates for every grower supplying those mills is a Herculean task which AAK judges to have far less impact than tracing to Estate information (> 50ha): estate names, parent mill and the subsequent risk-based approach adopted. company names, certification status, % of overall FFB However, AAK does expect mills in its supply chain to tonnage to mill and a GPS point coordinate maintain such records to provide basic traceability to plan- Dealers: dealer names and % of overall FFB tonnage tation, and on-site mill assessments seek to verify this is in to mill place. Such traceability to plantation is important since there Smallholders (< 50ha): number of smallholders, are – as recent reports on the Leuser ecosystem in the Aceh certification status and % of overall FFB tonnage to mill province of Indonesia show – non-compliant third-party grow- ers which may find ways (for instance through intermediary AAK has focused most palm sustainability efforts on estab- dealers) to have their production enter the supply chain. lishing traceability to mill, followed by Proforest’s risk assess- AAK has made significant progress on traceability to mill, ment of suppliers and mills, engagement with suppliers, and subsequent risk assessment and policy implementation. But on-site mill assessments for those identified as the highest we are not yet satisfied. Traceability to plantation by the end priority. It is generally agreed that more than 90 percent of of 2017 was a challenging target. AAK has made a positive fresh fruit bunches delivered to a mill derive from growers decision to maintain traceability to plantation as an objective, located within 50 kilometers of that mill. Hence, focus on mill but to defer the target date for 100 percent traceability from traceability and assessment provides very good coverage of 2017 to an ambition of 2018/19. AAK will undeterred pursue growers too. full traceability to plantation and continue to report regularly on progress. Traceability to Plantation Mill 50 km Refi nery Smallholders <50 ha Dealers % % Estates >50 ha 5 Update of AAK’s Sustainable Palm Oil Policy In June 2014 we saw the need to launch a policy specifi- New commitment to support smallholders: during our cally focusing on our commitment towards obtaining a fully journey towards a fully sustainable supply chain, we have sustainable palm oil supply chain. During our move towards recognized that the many smallholders that constitute a fully sustainable palm oil supply chain we have overcome a significant proportion of the palm oil production need many challenges and achieved significant progress towards special focus. our objectives. In January 2017 we updated our palm oil policy. The main Small holder inclusion in the supply chain is a key issue changes are: which is why we in our revised policy have included a new commitment to support smallholders. Traceability to plantation: AAK will achieve full traceability to plantation as soon as practically feasible with an See our updated palm oil policy page 18–19. ambition of achieving this goal in 2018/19 while still regularly communicating on progress. 6 Updated geospatial risk assessment methodology Proforest has undertaken supplier risk assessments on be- radius ring remains the accepted method for calculating a half of clients for several years. This experience has helped mill supply base, but this is likely to change as better data us to develop more sophisticated methodologies; in fact, becomes available. it is a constantly evolving process, as new data, tools, and Within the radius ring four indicators are assessed: (1) thinking become available. general deforestation, (2) deforestation on peat, (3) de- With AAK, Proforest currently performs two kinds of risk forestation in protected areas, and (4) number of fires.

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