DANONE 2011 SUSTAINABILITY REPORT Strategy and Performance THE STRATEGY IN ACTION: Health, For All, Nature, People PERFORMANCE INDICATORS COMPLETE GRI INDEX PB Danone Sustainability Report 2011 COMMITMENTS AND PROGRESS Danone Sustainability Report 2011 1 STRATEGY 4 6 13 EDITORIAL: KEY SOCIAL THE STRATEGY IN ACTION: FRANCK RIBOUD TOPICS 2011 RESULTS FOCUS ON THE FOUR STRATEGIC PRIORITIES SOCIAL ISSUES 7 HEALTH 14 NUTRITION AND FOR ALL 27 HEALTH ISSUES 9 NATURE 36 ENVIRONMENTAL ISSUES 11 PEOPLE 43 57 74 87 DASHBOARD: MEASURING PROGRESS A SOCIAL INITIATIVE 2011 STAKEHOLDER AND PERFORMANCE BUILT ON DANONE’s COMMITMENTS THROUGHOUT SPECIFIC FEATURES AND OUTLOOK THE VALUE CHAIN CONSUMERS 58 DANONE WAY 75 SOCIAL INTEGRATION COMMUNITIES 64 RESPECT 80 TOOLS IN THE COMPANY'S BUSINESS 88 SUPPLIERS 64 DANONE'S EVALUATION STAKEHOLDERS AT THE ENVIRONMENT 66 BY NON-FINANCIAL RATING AGENCIES 83 HEART OF DIALOGUE 92 EMPLOYEES 68 CORPORATE GOVERNANCE 100 NUTRITION AND HEALTH GOVERNANCE 102 104 HISTORICAL APPROACH AND HIGHLIGHTS REFERENCE DOCUMENTS 105 HIGHLIGHTS AND KEY DATES 1972-2011 106 2 Danone Sustainability Report 2011 Danone Sustainability Report 2011 3 PERFORMANCE 110 120 124 GRI INDEX IMPACTS AND COMPANY PROFILE (*) Self-evaluation RESPONSIBILITIES AND REPORT of the application of GRI according IN BUSINESS, PARAMETERS to version 3.0 guidelines for the FROM END TO END GRI with approval COMPANY PROFILE 125 by KPMG Audit. REPORT PARAMETERS 126 VALIDATION OF THE REPORT BY AN EXTERNAL THIRD PARTY 131 134 230 PERFORMANCE CONTACTS INDICATORS GOVERNANCE, COMMITMENTS AND ENGAGEMENT 134 ECONOMIC 142 ENVIRONMENTAL 154 SOCIAL 182 HUMAN RIGHTS 200 SOCIETY 206 PRODUCT RESPONSIBILITY 216 2 Danone Sustainability Report 2011 Danone Sustainability Report 2011 3 SUSTAINABILITY REPORT 2011 EDITORIAL: FRANCK RIBOUD People often ask me why Danone’s sustainable "IN SUSTAINABLE development action places such importance on social innovation projects. For example, why did we include DEVELOPMENT this focus in the individual targets of the company’s 1,400 managers? Why have we set up investment funds MORE THAN ANY like the Danone Ecosystem Fund and, more recently, the Livelihoods Fund? What economic benefit can a major OTHER AREA, corporation like Danone expect in return? And should we continue in this way despite the difficult and uncertain WE CAN ONLY global context? RISE TO THE My answer to those who might be tempted to turn back CHALLENGES is simple: in sustainable development more than any other area, we can only rise to the challenges if we are able to IF WE ARE ABLE develop radically different approaches. This requires the ability to explore and try out new ways. It is therefore more TO DEVELOP vital than ever that Danone’s eyes and ears be wide open to the world, to meet current expectations and make RADICALLY the necessary changes to prepare the company for those of tomorrow. Our approach of being an open-minded DIFFERENT company seeking to co-design new solutions with our stakeholders is firmly rooted in Danone’s culture and model APPROACHES" and contributes to our overall long-term performance. The credibility of a global food company like Danone hinges on our capacity to be consistent in our mission and to adjust to local conditions. In 2011, Danone continued efforts on the strategic priorities(1) defined in 2008 and I would like to mention a few examples here: • in inventing new models to bring health through food "to as many people as possible," 2011 was marked by the creation of a production and R&D unit in India dedicated to low-income populations. We also launched Fundooz, a first nutrition product for children. The experience in India will enhance action we have been taking for five years in Bangladesh to develop products and distribution channels that meet the needs of a greater number of consumers. These new approaches prompt us to question ourselves and they drive innovation in countries where the group has long been established; 4 Danone Sustainability Report 2011 Danone Sustainability Report 2011 5 • on the "Nature" priority, we share the conviction • the quality of the raw materials Danone uses for its that production methods and consumption patterns products, such as water, milk, cereal and fruit, is a key seen in the past fifty years cannot be generalized across focus for the group. The Danone Ecosystem Fund the planet; we must bring about profound changes. established in 2009 progressed tremendously in 2011, From this perspective, the ambitious goal of reducing supporting 35 projects in total, primarily in agriculture the group’s carbon emissions by 30% between 2008 and water resource preservation. From Ukraine to and end-2012 is on target, since we achieved a 27.5% Indonesia, via France and Mexico, these programs reduction by the end of 2011. This goal demanded a lot provide a testing ground to foster farming models of the teams but it also accelerated the move towards a that meet our economic, social and environmental low-carbon "circular economy" in which materials will be requirements; recycled infinitely. This revolution also leads to significant cost reductions; • for Danone employees working in countries with no welfare system, the highlight of the year will be • in 2011, Danone created the Livelihoods Fund, the introduction of the Dan'Cares program for basic establishing a link between food security and climate healthcare coverage. The program benefitted 28,000 change. After testing the concept in Senegal where, employees in 2011 and will be rolled out to the entire since 2008, 10,000 hectares of mangrove forest have workforce in 2012. been restored to provide fish resources, protect rice fields, and store significant amounts of carbon, we asked other Despite the global economic upheaval that prevailed in companies to join us in creating Livelihoods. This shared 2011, Danone continued to forge ahead with the double platform has already invested in other major projects objective of delivering annual financial performance while in Africa and Asia and contributes to the carbon offset developing our capacity to shape the future. programs of these companies; Franck Riboud Danone’s CEO (1) Health, For All, Nature, and People 4 Danone Sustainability Report 2011 Danone Sustainability Report 2011 5 STRATEGY KEY SOCIAL TOPICS SOCIAL ISSUES 7 NUTRITION AND HealtH issues 9 ENVIRONMENTAL ISSUES 11 6 Danone Sustainability Report 2011 Danone Sustainability Report 2011 7 SOCIAL ISSUES Employment and skills are crucial issues for companies and the regions where they do business, whether in emerging countries or mature areas of the world. The primary risk for companies in emerging countries is the scarcity of local talents which can prevent them from fulfilling their growth ambitions, in particular due to: • very strong competition between Western companies to attract the same talents; • the inadequacy of talents produced by the local education system with regard to needs; • a growing preference on the part of local students to work for local companies with an international profile; • the large number of talents in emerging countries who are educated in Western universities and do not wish to return to their home country. These days, multinational groups need to devote a significant share of their resources to develop talent pools of their own in each country, creating where necessary specific training courses in partnership with local agents (universities, training centers, etc.). In the mature countries, looking past the immediate impact of the economic crisis, in particular on employment for young people and older employees, the major issues are the aging of the active workforce and the risk that the skills of older employees will not correspond to those needed by companies. Today , notwithstanding the fact that the age of retirement continues to be put off, most investment in skills development stops when employees have reached their forties, according to the OECD. Companies need to start investing far more in the mid-career age group of 40-to-45-year-olds and, together with the public authorities, create a true lifelong learning strategy for increasing and constantly adapting these populations’ skills. In addition, despite very significant training efforts carried out over the past 30 years (on average, in the OECD countries, 35% of 25-to-34-year-olds have completed university studies, compared with 20% of the 55-to-64 age group), diploma degree is not a protection against unemployment, particularly when supply and demand are not well matched, leading to a lack of workers in certain sectors, and to hiring overqualified staff in others. This should be done in order to get better at matching the skills needed with available training and courses, through strong cooperation between businesses, educational institutions and the public authorities. Companies also need to address the issue of social cohesion in today’s society, specificallyhow to maintain social cohesion within the society in the face of growing inequalities and societal demands. 6 Danone Sustainability Report 2011 Danone Sustainability Report 2011 7 KEY SOCIAL TOPICS SOCIAL ISSUES While households’ real available income has increased by 1.7% per year on average in all OECD countries over the past 20 years, the average income of the richest 10% has grown much faster, and today measures some nine times that of the poorest 10%, with large variations between countries (relatively small gaps in the Scandinavian countries, a difference of 14 to 1 in countries such as the United