The Kesko Group has operated in line with the Group’s value, quality, and environmental management systems since the mid- 1990s. The management system was updated in 2002 to further highlight the importance of values in underpinning all our operations. As part of closer chain cooperation, Kesko and K-retailers have agreed to follow the same values and ethical principles, and as Kesko’s international expansion proceeds this practice will be introduced in subsidiaries outside Finland.
Kesko’s present values were introduced in 2002. Their importance and role in planning operations and day-to-day activities have been discussed throughout the Group at employee and training events.
A survey of employees’ views of the importance of Kesko’s values and how they are reflected in operations was conducted in the Group’s Finnish units in late 2003. This indicated that Kesko employees feel that all four values are important and have been well implemented. A good working environment was seen as the most important single value, and employees said that is was also the one in respect of which there is still the most improvement to be made. Corporate responsibility is considered the value best refl ected in operations, but is seen as the least important of the four. The plan is to repeat the survey in Finland in autumn 2006, and conduct a corresponding survey for the first time in subsidiaries outside Finland and in K-stores.
A number of corporate responsibility indicators can also be used to measure how well a company implements its values. The illustration below gives some examples of these indicators.
Kesko’s ethical principles covering its personnel – ‘Our Working Practices’ – have been in use since 1999, and were revised in 2002 to reflect the Group’s new values. An ‘Our Working Practices’ booklet provides detailed guidance on practical matters related to working in accordance with our values. The guide has been translated into Swedish, Estonian, Latvian, Lithuanian, Russian, and English. Separate training material has been developed to support the adoption of the Group’s ethical principles and values. K-retailers have also adopted the same values and principles. We plan to conduct an assessment of how well these principles are recognised in connection with the above value survey in autumn 2006.
‘Our Working Practices’ can be consulted at Kesko’s web site: www.kesko.fi (Responsibility).
The Group’s goals guide how the goals and objectives for its divisions and chains are set and how strategies are implemented. Corporate responsibility forms part of excellent practices, and other goals supporting responsible activities include exceeding customers’ expectations, developing best practices in the sector, and management by values.
Information about Kesko’s strategy can be found in the company’s Annual Report, which can be consulted online at www.kesko.fi (Investors).
Corporate responsibility is reflected in the development of leadership, competencies, the store network, business operating systems, chain concepts, and brands. Kesko aims at controlled growth and offering investors a steadily growing return. A systematic approach to risk management and diversified operations provide a good foundation for a stable cash flow and solid earnings- and dividendgenerating capacity. Good financial management has also contributed to responsible operations in environmental and social issues. Kesko has been, and intends to continue to be, a pioneer in the trading sector in corporate responsibility, something that has been reflected in ‘the best in the sector’ rating received in the Dow Jones Sustainability Indexes.
Kesko’s Corporate Governance Statement is updated regularly, and can be consulted at www.kesko.fi (Investors) and in the Annual Report for 2005. The most recent update was made on the basis of the Corporate Governance Recommendation for Listed Companies issued in summer 2004.
Since the 2005 Annual General Meeting, Kesko Corporation’s Board of Directors has consisted of seven members, elected for three-year terms rather than the recommended one-year term of office. Four members were independent of the company. The term of all present members will expire at the close of the 2006 Annual General Meeting.
The Board of Directors established an Audit Committee made up of three members in April 2004. No Board members with specific responsibility for corporate responsibility matters have been appointed. The Board of Directors will review the Corporate Responsibility Report in the spring after it has been completed and any other related issues as necessary.
The Kesko Group has a Corporate Management Board, the Chairman of which is Kesko’s President and CEO. Its members comprise the Corporate Executive Vice President, Deputy to the President and CEO; the Presidents of the major division parent companies; and the Senior Vice Presidents responsible for Finance, Human Resources and Corporate Communications. The Corporate Management Board has no authority based on legislation or the company’s Articles of Association. It acts as an advisory body appointed by Kesko’s President and CEO, which is responsible for dealing with Group-wide development projects and Group-level principles and practices. The Corporate Management Board also participates in the preparation of matters that are considered by Kesko Corporation’s Board of Directors.
The Corporate Responsibility Unit, responsible for the development and coordination of corporate responsibility at Group level, was organised under Corporate Development, headed by the Corporate Executive Vice President, Deputy to the President and CEO from 1 April 2005. In January 2006, the Corporate Management Board established a Corporate Responsibility Steering Group, comprising seven members drawn from Kesko’s management, representing different areas of corporate responsibility (representatives of Kesko Food, Rautakesko, Kesko Agro, Keswell, Human Resources, Real Estate Services, and Corporate Communications). The responsibilities of the group, chaired by the Corporate Executive Vice President, include outlining stakeholders’ expectations concerning Kesko’s corporate responsibility, defining the strategy for responsibility, agreeing on the operating principles and systems required for their implementation, and monitoring the implementation of decisions in the Group’s various unit. The group’s work will start in spring 2006, with the discussion and implementation of Kesko’s corporate responsibility development programme for 2006–2008.
Some corporate responsibility indicators have been included in units’ bonus systems, covering areas such as job satisfaction, customer satisfaction, and recycling performance.
Kesko’s management system is used to plan and manage the Group’s operations to ensure that its goals are attained. The system highlights the importance of prioritising customer orientation, people management, promoting participation and cooperation, greater efficiency, and developing competitiveness and economic value added. Corporate responsibility is not treated as a separate issue in management terms, rather all plans and activities related to it are included in the different stages of the management system in the same way as all other operations.
Kesko’s management system includes quality evaluation, which is carried out by units in the form of annual self-assessment, based on the criteria of the Finnish Quality Award. A competition for the Group’s internal quality prize is arranged every second year, and the ‘Quality Action of the Year’ competition annually. The quality actions recognised in 2005 were Anttila Oy’s ‘Best Service’ concept, Keswell Ltd’s IT news flash campaign, and Kesko Food Ltd’s Logistics’ H.Y.M.Y. programme. K-supermarket Länsitori in Tampere was the winner in the small enterprises and business units category in the 2005 Finnish Quality Award competition.
Kesko Food is gradually adopting a quality system based on the EFQM / ISO 9000 standard. It was expected that the system, documented in Kesko Food’s intranet, would have been largely completed in 2005, but updating resulting from organisational changes in Kesko Food has slowed down progress. The quality control of groceries and some home and speciality goods for which Kesko Food’s Product Research Unit is responsible is based on an ISO 9000 quality system and a self-control system approved by the authorities. Kespro Ltd has a certified ISO quality system.
An environmental management system complying with the ISO 14001 standard has been adopted in all Kesko units that impact the environment to a significant extent. Environmental management in K-stores is based on the K-environmental store concept. Compliance with the latter is monitored through independent audits. Kesko’s environmental policy can be consulted at www.kesko.fi (Responsibility). In its environmental policy, Kesko has committed itself to the Business Charter for Sustainable Development published by the International Chamber of Commerce ICC.
Quality control in respect of purchasing, particularly that with a risk component, such as imports from developing countries, is carried out in compliance with the principles of the European Business Social Compliance Initiative and the international Social Accountability SA 8000 standard. Information on the principles followed in imports from developing countries can be found at www.kesko.fi (Responsibility/ Purchasing principles).
Corporate responsibility reporting affects performance in the same way as financial reporting affects financial performance. Where performance can be measured, clear targets can be set and management improved. The reporting recommendations of the Global Reporting Initiative have provided Kesko with a good basis for analysing its corporate responsibility, developing responsibility indicators, and reporting progress in this area to the public at large. Kesko joined the Organisational Stakeholders, a network established by GRI, at the beginning of 2005, and a Kesko representative was invited to join the GRI working group on indicators, which is aiming to publish a revised reporting recommendation in autumn 2006.
Progress made in the areas of environmental and social responsibility also has a financial impact. Successful environmental activities usually mean cost savings in a company like Kesko. However, Kesko considers that recommendations concerning environmental accounting are still relatively imprecise, and has not started monitoring environmental income, costs, and investments in this way.
Independent assurance improves the reliability of reporting information and promotes the continuous development of indicators and measuring methods – and an assurance has been provided for Kesko’s Corporate Responsibility Report since 2002.
Kesko and the Finnish division parent companies adopted an online system for collecting information and reporting on corporate responsibility in 2005. The system has been designed to improve the efficiency and systematic nature of collecting information on corporate responsibility and reporting processes, and enable the more efficient use of responsibility performance indicators in monitoring day-to-day operations and Kesko’s management system.
The system consists of a data collection module, based on Kesko’s organisational structure, and separate reporting and analysis tools. The system collects and combines responsibility data from various organisational levels and from separately specified source systems in a form required by GRI guidelines. The system has been tailored for Kesko’s operating sector environment – the indicator of materials use, for instance, complies with the reporting requirements of the packaging waste directive. The calculation of emissions from energy consumption and transportation has also been automated in the system.
The most important separate source system to be integrated into the reporting system was EnerKey, a web-based consumption monitoring system supplied by Energiakolmio Oy. This has enabled consumption and area information on approximately 600 properties owned or leased by Kesko to be automatically transferred monthly to the corporate responsibility reporting system, thereby making more detailed monitoring of chain-specific consumption and targets possible. In respect of other important source systems, such as waste and personnel information, the objective is to integrate them by the end of 2006.
