Independent assurance of non‐ financial reporting

For the attention of EuroChem Mineral and Chemical Company OJSC and its stakeholders

Introduction

This audit assurance relates to the 2013 Sustainability Report of EuroChem Mineral and Chemical Company OJSC (hereinafter the “Report”). The Report was prepared by EuroChem Mineral and Chemical Company OJSC (hereinafter the “Company”) responsible for collecting, summarising and presenting the information included in the Report. Bureau Veritas Certification Rus is responsible for the work undertaken to provide assurance for this Report only to the Company, and is not responsible for any assurance-related decisions made, delayed or revoked by any third party.

Assurance scope

The assurance process is based on the methodology formalised in the AA1000 Assurance Standard (AS).

During the assurance process the Bureau has set and successfully resolved the following tasks:

  1. Assessment of the 2013 Report’s compliance with the principles of inclusivity, materiality and responsiveness set forth in the AA1000 Accountability Principles Standard (APS) 2008.
  2. Assessment of the quality and extent to which the Company’s stakeholders were engaged in the Report preparation in accordance with the AA1000 Stakeholder Engagement Standard (SES) 2011.
  3. Assessment of the extent to which the Company progressed in introducing the principles of the Global Reporting Initiative Sustainability Reporting Guidelines (GRI), Rev. G4-2013, in defining the Report’s contents and ensuring its quality, including sustainability context, completeness of coverage of material topics and indicators, balance, comparability, accuracy, etc.
  4. Assessment of the adequacy and reliability of systems and processes employed by the Company to collect, summarise, handle, analyse and record the data included in the Report.
  5. Assessment of the extent to which the Report meets the A+ application level (the Company’s self-declaration) in accordance with the GRI.
  6. Provision of guidance on the preparation of corporate public non-financial reporting in the future.
Assurance type and level

The Report assurance is based on the following provisions of the AA1000AS (2008):

  • Assurance type: 2 (Type 2 – Accountability Principles and Performance Information), intended to assess a company’s compliance with all of the above-mentioned reporting principles and to evaluate the credibility of the performance indicators (data, statements) included in the Report.
  • Assurance level: moderate.
Assurance methodology and coverage
  • We interviewed the Company’s top executives and employees to identify how the Company accounts for key aspects of its corporate social responsibility when building a long-term business strategy, and how these aspects are integrated into the Company’s business processes.
  • We confirmed the achievement of the 2013 objectives in corporate social responsibility set by the Company in its reports for preceding periods.
  • We assessed the Company’s internal regulatory documents (corporate policies, procedures, standards, guidelines, regulations, etc.) and data arrays (including primary sources of information) defining the effectiveness of the Company’s responsible business practices in corporate social responsibility.
  • We assessed the effectiveness of the Company’s management approach with regard to economic, environmental and social performance.
  • We assessed the processes of the Company’s interaction with its stakeholders during the reporting period, with a view to evaluating the criteria and procedures for the selection of material economic, social, and environmental aspects to be included in the Report.
  • We took into account the results of the external audit undertaken in respect of the integrated quality management system, the environmental management system, and the occupational health and safety management system, certified for ISO 9001, ISO 14001, and OHSAS 18001 international standards.
  • We reviewed a selection of media and internet data referring to the Company’s assurance activities, and third-party statements describing the Company’s commitment to its values of corporate social responsibility, as evidence to verify the validity of the statements made in the Report.
  • We reviewed the draft version of the Report to identify potential inaccuracies, inconsistencies and unsubstantiated statements.
  • We verified the information published on the Company’s corporate website against the AA1000APS (2008), AA1000SES (2011) and the GRI recommendations.
  • We evaluated the availability of the Report to all stakeholders, and the effectiveness of the existing feedback mechanisms.

We verified the adequacy of a number of representations, statements and data included in the Report by applying the social reporting assurance procedures and guidelines of Bureau Veritas Certification Rus, including:

  • A visit to the Company’s head office in May 2014 to interview top executives and specialists on significant economic, social and environmental issues included in the Report;
  • An on-site visit made in May 2014 to review the production and social infrastructure facilities of Phosphorit Industrial Group LLC, a subsidiary of the Company located in Kingisepp, Leningrad Region. During the visit we held meetings with the Administrative Director and management of the HSE Department, HR Department and Public Relations Department. We inspected the defluorinated feed phosphate production unit, observed manufacturing processes, spoke with the personnel on site, and inspected amenity rooms in the production unit. We had a meeting with the municipal authorities, including the Chairman of Kingisepp’s Committee for Culture, Sports and Youth Policy, Head of General and Administrative Department of the Municipal Administration and the senior coach of the children’s hockey team. We also visited a construction site of residential housing for young employees of the Company. In addition, we visited the Ice Palace sports centre and the war memorial erected and maintained by the Company.

In the preparation of our assurance, in addition to the information contained in the Report, we also relied on the information published on the Company’s corporate website at www.eurochem.ru/, in the federal, local and regional press (EuroChem’s corporate newspaper, Vedomosti, Vesti (Saint Petersburg) and Vostochniy Bereg (Kingisepp), by cross-industry analytical media and press agencies (Energetika I Promyshlennost Rossii, AK&M, Ekologicheskaya Pravda and Ekologicheskiy Dozor), on information web portals (Kingisepp Segodnya and Gorod-Kingisepp.rf), and official web sites of municipal administrations in the regions of the Company’s operations (www.nevinsk.ru/, www.nmosk.ru/ and www.kingisepp-mo.ru/).

We began our assurance procedures before the full version of the Report was officially published on the corporate website of the Company.

Basis of our opinion

In the preparation of our assurance we analysed the initial and aggregated information provided by the management company’s top executives, its divisions and Phosphorit Industrial Group LLC, the statutory statistical data, and other public data using analytical methods of verification. We took into account issues specific to the Company’s industry and existing confidentiality limitations. The verification of selected information in the Report carried out as part of the moderate level assurance gives a lower level of guarantee than a complete verification of all data (high level). Regarding quantitative indicators contained in the Report, the assurance work performed by us cannot be considered exhaustive for the purposes of identification of all possible misrepresentations. Nevertheless, the data collected by the assurer provides a sufficient basis for a conclusion to be made under the moderate assurance level as to the Company’s adherence to the principles of inclusivity, materiality and responsiveness of AA1000APS (2008) Accountability Principles Standard, principles of defining contents and quality of the Report, and the quality of its disclosure of sustainability performance indicators in accordance with AA1000AS (2008) Sustainability Assurance Standard and the GR Guidelines.

General opinion on the report

Following the adopted assurance methodology and taking into account the scope of our work, we are in a position to express our general opinion on the Report:

  • The Report accurately reflects the Company’s key events and performance indicators in the reporting period, and its development trends for the purposes of corporate non-financial public reporting.
  • The Report reflects interdependencies between the Company’s strategy, corporate governance, demonstrated performance and the social, environmental and economic conditions in which the Company operates.
  • The Company continues to strive for higher information transparency of its corporate social responsibility activities. Qualitative statements are consistent with quantitative disclosures in the Report and other public data.
  • The Company has continued to improve and strengthen its corporate social responsibility strategy in the reporting period. Corporate social responsibility is continuously viewed by the Company as a tool to implement the sustainable development strategy aiming at mitigation of non-financial risks.
  • The structure of the Report is consistent with its previous issues. The Report has two sections – a sustainability report and a GRI G4 report. Both sections of the Report are written in simple language and are adequately accurate, informative and balanced. The Report offers stakeholders sufficient information, without going into unnecessary details. It contains explanations for acronyms and technical terms. Graphs and diagrams supporting the text ensure a better understanding of the Report.
  • The Company has adopted effective management systems that enable it to identify key economic, social and environmental aspects of operations; to plan, manage and improve related processes; to identify stakeholder expectations in respect of material aspects and promptly respond to them part of its operations.
  • Processes and controls for preparation of public non-financial reporting by the management are fully supported by the Company’s mission, policies, procedures and resources.
  • The Company’s top executives are committed to the principles of corporate social responsibility and directly involved in preparing the Report.
  • The Report demonstrates how the key aspects of sustainable development, including supply chain management, influence the Company’s long-term strategy, risks and opportunities.
  • While randomly assessing the preliminary draft of the Report, we identified minor inaccuracies and discrepancies in quantitative disclosures. These inaccuracies and discrepancies are inessential, neither distort the information in the Report nor affect the stakeholders’ ability to make conclusions about the Company’s performance, and were rectified by the Company in the final draft of the Report.

Report compliance with principles of AA1000APS (2008)

Principle 1: Inclusivity
  • The information presented in the Report and the direct and indirect data we obtained demonstrate that the interests of key stakeholders were taken into account when preparing information for inclusion in the Report.
  • The Company has identified 13 stakeholder groups, appointed persons responsible for engagement with these groups, and defined stakeholders’ key interest areas and optimal engagement methods. It employs an integrated, consistent and aligned approach in addressing all material aspects identified in the engagement process, and in searching for the required solutions.
  • The principal means of communicating and interacting with stakeholders are reports, including this Report, meetings of the Company’s and its subsidiaries’ top executives with the management and operating personnel, news reports, press releases, interviews, negotiations, trade fairs, the Company’s newspaper and website, media publications, audits and verifications, written requests and claims handling, and other open interaction formats.
  • The Company has many years’ track record of preparing sustainability reports with direct involvement of stakeholders, and ensures year-by-year consistency and transparency of the reporting process.
  • Stakeholder engagement processes used to make decisions when preparing the Report are in line with its scope and limits.
Principle 2: Materiality
  • The Company continues to apply consistent methods and procedures to identify material aspects related to its operations, products, services, regions of operations and subsidiaries. In addition, the Company continuously updates all material aspects throughout the reporting period.
  • The Report offers a balanced and well-grounded presentation of material economic, social and environmental aspects of the Company’s operations from the stakeholders’ point of view. The Report presents a list of 2013 key events in the sustainability context.
  • When identifying material aspects, the Company relied on its external and internal operating conditions, risks, key success factors, laws and other regulations having strategic importance for the Company and its stakeholders.
  • The Report focuses on the Company’s youth policy as a priority area and an essential driver of the Company’s long-term strategic development.
  • The emphasis in the Report on certain subjects reflects their relative importance (materiality) for the Company.
  • The Company displays an understanding of the concepts of corporate social responsibility and sustainability, using objective information in covering various subjects in its Report.
  • Information and data are displayed in the Report in a format that helps users to identify existing trends in the Company’s performance, its achievements and, in part, unresolved economic, environmental, and social issues.
  • The information provided on the material aspects of the Company’s sustainable development can be easily traced back to the processes of its selection, processing, transmission, and presentation. Inaccuracies of the initial data used by the Company to prepare the Report are within tolerable limits.
  • The Report reflects important events occurred in the reporting period and capable of influencing the decision-making process and behaviour of stakeholders towards the Company as well as notable impacts on the economy, environment and society.
  • Based on the analysis of the data contained in the Report and our interviews, we cannot point to any material aspect of corporate social responsibility relevant for the Company’s stakeholders that was overlooked or wrongly excluded from the Report.
Principle 3: Responsiveness
  • We are currently unaware of any areas that could have been, but were not, disclosed in the Report and where the Company would not be able to respond to stakeholders’ reasonable requests.
  • The cornerstone of the Company’s operations is its focus on consumers. A strategic priority of its marketing and distribution policies is to ensure guaranteed domestic and international supplies of mineral fertilizers of the required quality. The Company is committed to improvement of its quality management system in accordance with ISO 9001 and innovation-based construction and technical upgrades of its production facilities.
  • The views and expectations of the Company’s shareholders are taken into account by incorporation into the corporate governance framework. The Company views the improvement of its corporate governance and operating transparency as one of the key focuses of its long-term development strategy.
  • The interests of the Company’s employees are taken into account in the collective agreements entered into between the management and the trade union committees (working committees) of the Company and its subsidiaries and affiliates.
  • The Company responds to the needs of the regions where it operates through a wide range of social initiatives and projects. The Company’s enterprises are major contributors to the development of the regions of their operations, both as major taxpayers and employers. The key efforts of the Company in the reporting period were focused on activities to develop the creative potential of children and teenagers and support junior sports, health, environment, culture and vocational training projects.
  • The public right to enjoy a favourable environment is ensured by the Company’s planned environmental activities and ongoing environmental risk management. The Company has introduced a system of environmental management in line with the ISO 14001:2004. Environmental aspects have always been a part of the Company’s managerial and investment decision-making processes. Production sites have ongoing environmental controls in place. The Company continues to support air monitoring programmes in its regional locations.
  • We are currently unaware of any areas that could have been, but were not, disclosed in the Report and where the Company would not be able to respond to stakeholders’ reasonable requests.
Report compliance with the GRI guidelines

The Report takes into account the recommendations of the GRI G4 (the fourth generation of the GRI’s Sustainability Reporting Guidelines). The Report covers all standard GRI reporting elements and the required number of key GRI performance indicators to meet the A+ application level. The table of GRI Guidelines indicators presented in the Report accurately reflects the actual disclosure level. The principles of defining contents and quality of the Report, including the sustainability context, timeliness, balance, comparability, accuracy, reliability, clarity, etc., have been duly followed. Absence of detailed information on certain GRI performance indicators in the Report is explained by the Company’s current effort to accumulate statistics to support them. Besides, the Company believes that certain performance indicators are immaterial for stakeholders and can therefore be omitted in the Report.

Extent and quality of stakeholder engagement in accordance with AA1000SES (2011)

The process of public accountability in general corresponds to the requirements of AA1000SES (2011). The Company continues to maintain the stakeholder identification methodology relying on a multi-criteria approach based on dependence, responsibility, influence, etc. The Company develops and constantly updates a stakeholder map. Stakeholders are engaged to take part in the preparation of corporate reports well in advance. Responsibilities and areas of authority of the Company’s top executives and employees in engaging with stakeholders are clearly defined and receive the resources needed. The Company regularly monitors and updates the key interests, needs and expectations of its stakeholders, using them to identify priorities and the best methods of stakeholder engagement. The engagement efficiency is regularly measured and assessed.

Assurance limitations
  • The assurance does not apply to the performance indicators beyond the 2013 reporting cycle.
  • The assurance does not apply to financial indicators verified by other independent auditors.
  • The assurance does not cover statements expressing the Company’s opinions, assumptions, beliefs, or intentions to take any actions in the future.
  • The assurance does not take into account performance indicators of the GRI’s Sustainability Reporting Guidelines if they are deemed immaterial by the Company as of the reporting date.
  • The verification of the Company’s interaction with stakeholders did not involve attendance by the assurer of public events (dialogue meetings, public hearings) held during the preparation of the Report.
Recommendations for corporate public non-financial reporting in accordance with the best global practices
  • Report information in the following sequence: tasks completed – plans for the next year – plans for the next few years.
  • Increase the disclosure level in respect of key subjects raised by stakeholders when interacting with the Company in the reporting period, the Company’s actions to address these raised subjects, and its performance against plans and commitments set out in previous reports.
  • Expand the list of disclosed indicators reflecting the Company’s economic, environmental and social performance or impacts related to the identified material aspects.
  • Provide balanced disclosure of both positive and negative trends in meeting sustainable development targets.
  • Increase attention towards key impacts and risks influencing the Company’s performance in sustainable development.
  • Continue developing infographic practices of disclosing material aspects of the Company’s  operations.
  • Expand the practice of holding public discussions with stakeholders over the most significant aspects of sustainable development, including discussions in the regions where the Company operates.
  • Develop, jointly with stakeholders, a list of industry-specific performance indicators relevant for the mineral and chemical industry.
Statement by Bureau Veritas Certification Rus on independence, impartiality and competence
  • Bureau Veritas is an international independent professional company with an 180-year history of providing services on accredited certification of various management systems (such as management systems for quality, occupational health and safety, environmental stewardship, social responsibility, etc.).
  • Bureau Veritas Certification Rus CJSC officially declares that this Assurance is an independent assessment of a third-party auditor. Bureau Veritas Certification Rus CJSC has no commercial interest in the business of the Company, except for the assurance services provided.
  • Auditors engaged by Bureau Veritas Certification Rus CJSC are duly qualified and have many years’ track record in independent assurance of public non-financial reporting along with the knowledge of economic, environmental and social aspects of companies’ operations in different industries and apply our internal procedures and the best global practices in their work.
Assurer

Bureau Veritas Certification Rus CJSC
31 May 2014

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Vladimir Mityashin, Leading Auditor
Ph.D. In Economics
IRCA No. 01191213
Moscow

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