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Annual report 2013

Responsibility monitoring and steering

Responsible operator

 

Management approach

We are committed to responsible working principles and we together generate economic value added

Material aspects

• Economic performance

• Indirect economic impacts

• Anti-corruption

• Public policy

• Anti-competitive behaviour

• Compliance

• Grievance mechanisms for impacts on society

• Customer privacy

We generate economic value added

At Kesko, economic responsibility refers to the good management of finances, the efficient use of resources, as well as generating stable, long-term economic benefits to the various stakeholders. Kesko's operations generate economic benefits for shareholders, personnel, retailers, suppliers of goods and services and their employees, customers, as well as municipalities and states.

Responsible working principles (Code of Conduct) and reputation management

Different aspects of responsibility, such as ethicality of production and sourcing, fair and equal treatment of employees and environmental protection are increasingly important for customers. Kesko's attitude to bribery and other malpractice is absolutely uncompromising. Responsible working principles are essential for building trust between Kesko, K-stores, our customers and our partners.

Public policy

Kesko plays an active role in trade and industry organisations in Finland and in the European Union, contributing its expertise to social development and legislative work. Kesko does not donate funds to political parties.

Customer privacy

Customers' personal data are, for instance, processed in various personal data registers and online stores' customer registers that are collected for the implementation of marketing activities. K-Plus Oy, a Kesko subsidiary, manages and maintains the K-Plussa customer loyalty system, operated by K-chains and K-Plussa partners. Using the information received from the K-Plussa customer loyalty system we can develop and tailor our operations to better suit our customers' needs. Taking care of our customers' privacy is of utmost importance to us.

Objectives

The objectives have been recorded in the responsibility programme.

Policies, working principles and commitments

 

Accounting policies

Kesko Group complies with International Financial Reporting Standards (IFRS) approved for adoption by the European Union.

Corporate Governance principles

Kesko's decision-making and corporate governance are guided by Kesko's values and responsible working principles. Decision-making and corporate governance comply with the Finnish Limited Liability Companies Act, regulations concerning publicly quoted companies, Kesko's Articles of Association, the charters of Kesko's Board and its Committees and the rules and guidelines of NASDAQ OMX Helsinki Ltd. The company complies with the Finnish Corporate Governance Code for Listed Companies 1 October 2010.

Risk management principles

The risk management policy confirmed by the Board of Directors guides risk management in Kesko.

Good trading practices

Kesko Food and Kespro are committed to good trading practices.

Our responsible working principles

The 'Our responsible working principles' guidelines (Code of Conduct) bind all Kesko employees in all operating countries to act in accordance with shared values and responsible working principles.

Data protection policy

The data protection policy defines how Kesko Group strives for compliance with the law in the processing of personal data and a high level of data protection in all of its operations and operating countries.

Monitoring and control systems; programmes, projects and initiatives

 

Financial reporting and planning

Kesko's financial reporting and planning are based on Kesko Group's management system. The Group's financial development and achievement of financial objectives are monitored by financial reporting covering the entire Group.

Compliance

Kesko runs compliance programmes to ensure that Kesko employees are familiar with the key laws relating to operations and act in compliance with them. For Kesko, knowledge of and compliance with competition laws is of primary importance. Kesko has a competition law compliance programme, composed of training sessions and an e-learning component available to all Kesko employees. Those whose work is largely related to competition laws are separately obligated to complete the training.  The Group Legal Affairs Unit supervises the completion of the training.


Prevention of malpractice

Kesko's Internal Audit pays special attention to the efficiency of controls that prevent malpractice and financial losses. Measures preventing malpractice have included more effective communications, training and guidelines as well as tightened controls. Kesko's Risk Management, Legal Affairs and Internal Audit have organised value discussions in Kesko subsidiaries with the focus on anti-bribery work.

Through Kesko's intranet, employees in all operating countries, except for Belarus, can give feedback and ask questions concerning operations not only in their own units but also directly to top management. Feedback can be given openly or anonymously. Through the intranet or by e-mail at IA (at) kesko.fi, employees can also contact Kesko's Internal Audit in confidence.

A new channel for reporting suspected malpractice was taken in use in Kesko's Russian subsidiaries. The channel for suspected malpractice is a Russian-language channel through which the partners and employees of Kesko's Russian subsidiaries can report in confidence any suspicions of malpractice in Kesko's Russian subsidiaries.

Risk management

Kesko has a uniform risk assessment and reporting system. Risk identification is based on business objectives and opportunities and the defined risk appetite.

Risks are prioritised on the basis of their significance by assessing the impacts in euros and probability of their materialisation. When assessing the impact of materialisation, the impacts on reputation, people's wellbeing and the environment, among other things, are considered in addition to impact in terms of euro. Risk management measures are assigned persons in charge who are responsible for planning, implementing and monitoring the measures. The measures defined are added in action plans and monitoring systems.

Privacy protection

Personal data collected for various purposes on the grounds defined in the Finnish Personal Data Act form separate person registers. For example, the customer information of K-Plussa cardholders forms a customer database that is used, with the customer's permission, for managing customer relationships, for customer contacts and marketing purposes of the companies that have joined the K-Plussa system.

K-Plussa customers can prohibit the connection of product or product group level information to their identified customer relationship. In compliance with the Personal Data Act, K-Plus Oy's file description is available in Finnish at www.plussa.com.

Data controllers ensure that customer information is only used for the purposes specified in the file description. Information on individual customers is secured by issuing instructions to personnel and by using technical systems. Customer data is only disclosed to third parties if required by law. In 2014, Kesko started a data protection programme which consists of training events and an e-learning session. The implementation of the programme is overseen by the Privacy Officer who works under the supervision of the Legal Affairs Unit.

Responsibilities and resources

Kesko's Corporate Governance structure is laid out in Kesko's Corporate Governance

• The Group Legal Affairs Unit

• The Group Internal Audit and Risk Management Unit

• K-Plus Oy

Management approach assessment

The management approach is assessed continuously as part of operations. Changes in the operating environment and in Kesko are taken into account by adjusting objectives, operating principles, monitoring systems and resources.

In January 2015, the risk management function took part in an international self-assessment concerning the level of risk management. The results will be used to further improve Kesko's risk management.

Kesko Group's internal audit conducts audits in data protection issues as part of its normal auditing functions.

   
   

For the benefit of the community

 

Management approach

We build a better society together

Material aspects

• Purchase practices

A local approach has an effect on the entire society

Retail trade plays an important role in a local community. It serves and employs local people. In addition to its direct employment impact, the retail trade is also a significant indirect employer through its suppliers and business partners.

Retailers, supported by Kesko's district organisations, represent local activities. The K-retailer entrepreneur is responsible for his or her store's staff and customer satisfaction. Listening to the wishes of local customers and making use of customer data, K-retailers build a selection of products and services that meet customer needs. We develop our business in interaction with our customers.

Kesko purchases the majority of the products it sells from Finland and encourages K-retailers to include locally produced products in their selections. The impact of Finnish products on employment is significant. For example, Pirkka products are produced in nearly 160 companies all over Finland.


Objectives

The objectives have been recorded in the responsibility programme.

Policies, operating principles and commitments

 

Good trading practices

Kesko Food and Kespro are committed to good trading practices.

Our responsible working principles

Kesko requires that its suppliers and other partners act in compliance with Kesko's responsible operating principles. A responsibility clause has been incorporated in all significant new agreements since the beginning of 2013.

Chain business model

The principal business model in the Finnish market is the chain business model, in which independent K-retailers run retail stores in Kesko's retail chains. In Finland, all food stores, building and home improvement stores and agricultural stores in the K-Group are run by K-retailer entrepreneurs.

In the retailer model, through its chain operations Kesko provides a first-class setting for its retailer entrepreneurs to provide the best possible service to their customers. The K-retailer entrepreneur implements the chain concept and is responsible for store management, customer satisfaction, personnel and business profitability.

Stakeholder interaction

In Kesko's operations, social impact on local communities is estimated as part of the development of the store network. The establishment of a new store or the expansion or change of an existing store involves various statutory reports – both at the planning and building permit stages – and hearings of local inhabitants and operators, depending on the extent of the project. Reports take a stand on the impact of the project on the community structure, traffic and employment, among other things.

Monitoring and control systems; programmes, projects and initiatives

 

The Blue and White Footprint campaign

K-food stores, K-citymarket Oy (home and speciality goods), Anttila department stores, Kodin1 department stores for interior decoration and home goods participated in the Blue and White Footprint campaign of the Association for Finnish Work in 2014. The campaign will continue in 2015 when K-rauta and Rautia stores will also join in. The campaign aims to increase the sales of Finnish products and consciousness of the positive impacts of buying Finnish work.

Responsibilities and resources

• K-retailers and K-Retailers' Association

• Kesko's district organisation

• Steering group for responsible purchasing and Kesko's buyers

• Division Management Boards

Management approach assessment

The management approach is assessed continuously as part of operations. Changes in the operating environment and in Kesko are taken into account by adjusting objectives, operating principles, monitoring systems and resources.

   
   

Working community

 

Management approach

We perform and offer high-quality work

Material aspects

• Employment

• Labour/management relations

• Occupational health and safety

• Training

• Diversity and equal opportunity

• Equal remuneration

• Labour practices grievance mechanisms

Employment and labour/management relations

We want to be the most attractive workplace in the trading sector, with satisfied employees and competent supervisors. The K-Group offers varied career and personal development opportunities in varied jobs of the trading sector.

In reorganisation situations, Kesko complies with the local legislation in all its operating countries. In Finland, the Act on Co-operation within Undertakings determines the key statutes concerning reorganisations.

Health and safety at work

Kesko and K-stores are responsible for providing employees a safe working environment and appropriate training and guiding for their work.

Development of personnel

Systematic, business-driven development of personnel and management is critical for future success. In line with its values, Kesko invests in the development of the working environment and the quality of management with the objective that the employees think highly of their work and employer and are motivated to perform well. In the K-Group, there are many kinds of development paths an employee may follow.

Diversity and equal opportunity

A pluralist organisation that promotes diversity guarantees equal opportunities, rights and treatment to all. Equality, justice and non-discrimination are important principles which are observed at Kesko throughout the employment relationship. The most suitable person with the most development potential is selected for the job, and applicants are judged according to their competence, skills and accomplishments.


Remuneration

The objective of remuneration in Kesko is to encourage employees to exceed the objectives given and to motivate them to do long-term work in order to meet the goals of Kesko Group and its subsidiaries. Remuneration is fair and is based on principles that are commonly known.

Labour practices grievance mechanisms

Employees can ask questions and give feedback or development proposals on issues related to the operations of Kesko or its subsidiaries anonymously via the Direct Line available on the Keskonet intranet. Answers are published for all to see on Keskonet.

Objectives

The objectives have been recorded in the responsibility programme.

Policies, working principles and commitments

 

HR policy

Kesko's HR management is based on Kesko's values and responsible operating practices, which are described in the guide 'Our Responsible Working Principles'. Kesko's HR policy defines key operating principles in the various areas of HR management. The HR strategy defines HR management objectives, critical success factors and key development initiatives.

Diversity commitment

Kesko is a member of Diversity Charter Finland. The operations of Diversity Charter Finland are based on a charter that is signed by all members.

Monitoring and control systems; programmes, projects and initiatives

 

Wellbeing at work programme

In the development of wellbeing at work, the objective is to increase employees' job satisfaction and motivation, reducing sickness, increasing the retirement age and enhancing employer image and, in this way, increasing personnel productivity. The wellbeing at work programme focuses on the development of supervisory work and management and on improving the efficiency of cooperation in occupational healthcare and labour protection.

Labour protection programme

The personnel's ability to work is protected by creating a safe and supportive working environment. The goal of labour protection is to secure and maintain employees' ability to work and to prevent and avoid occupational injuries, occupational diseases and other physical and mental health hazards arising from work or the working environment.  

Youth Guarantee in the K-Group programme

Kesko and K-stores participated in the Youth Guarantee programme launched at the beginning of 2013 to promote employment and prevent social exclusion among young people.The aim of the Youth Guarantee in the K-Group programme was to employ 1,000 young people during 2013-2014.  By the end of December 2014, nearly 1,800 young people had found employment in K-stores and Kesko across Finland.  

Employment of disabled people and people with partial work capacity

In 2012, the K-Retailers' Association launched a project called 'Many kinds of performers' in cooperation with the Finnish Association on Intellectual and Developmental Disabilities (FAIDD). The project was turned into a permanent working model in 2013.

In the Greater Helsinki area, Kesko's Occupational Health Service directs employees to AMI rehabilitation, which promotes mental health. A partial daily allowance can help an employee return to work after sick leave. The support provided by pension insurance companies for occupational rehabilitation has been used to promote return to work.

Responsibilities and resources

• HR Management Board

• Kesko HR/Common Services

• Division and company HR

• HR Service Centres

• Each supervisor is responsible for labour protection in his/her area as it is part of the line organisation's normal management and supervisory work.

Management approach assessment

The management approach is assessed continuously as part of operations. Changes in the operating environment and in Kesko are taken into account by adjusting goals, operating principles, monitoring systems and resources.

The personnel survey, to be implemented at about 18 month intervals since 2015, measures the quality of management. The results of the survey are used when agreeing on development measures that are integrated as part of the yearly action plan and personnel plan. The fulfilment of the measures is monitored.

   
   

Responsible purchasing and sales

 

Management approach

We purchase and sell responsibly and support our customers in their sustainable choices

Material aspects

• Products and services

• Supplier assessment for labour practices

• Labour practices grievance mechanisms

• Human rights

• Customer health and safety

• Product and service labelling

• Marketing communications

• Compliance

Purchasing from high-risk countries

In its operations, Kesko pays special attention to human rights issues and working conditions in its purchasing chain and, in monitoring these, primarily focuses on suppliers in high-risk countries. In accordance with the BSCI (Business Social Compliance Initiative), these are countries and areas where there is a risk of human rights and workers' rights violations. The classification is based on the World Bank's Worldwide Governance Indicators. High-risk countries typically produce clothing and home textiles, shoes and other leather goods, furniture, carpets, interior decoration items, sports equipment, toys, agricultural products (such as coffee, tea, cocoa, fruit, vegetables, wines) and canned fish, fruit and vegetables.

In 2014, direct purchases by Kesko's Finnish companies from suppliers in risk areas totalled €131 million (€123 million in 2013) and accounted for 1.5% (1.6%) of Kesko's total purchases. The most significant high-risk countries in terms of imports are listed at human rights assessments. Direct imports from high-risk countries accounted for 21.1% (21.7%) of Kesko's total imports into Finland. There are no statistics available on the imports of Kesko's subsidiaries in other countries from high-risk countries, but in 2014 Kesko's purchases analysed by a company's country of domicile and by a supplier's country of domicile also included purchases from high-risk countries at a total value of €367 (€328) million, or 4.2% (4.2%) of Kesko's total purchases. Around 76% (74%) of Kesko's imports into Finland (excluding imports by VV-Auto) come from EU countries.

In addition to its own direct imports, Kesko also purchases goods produced in high-risk countries from other brand and import companies operating in Finland. There are no reliable statistics available on the countries of origin of these imports.There may also be social risks involved in the manufacture of products imported to Finland through third countries or in the production of their ingredients.

Product safety and product labelling

Kesko and K-Group stores are responsible to the products' end-users for ensuring that the products comply with all the requirements of Finnish and EU legislation, are safe for users and meet quality and other promises. Product labelling and marketing communications comply with legislative requirements and authorities' recommendations.

Kesko and K-Group stores want to support customers in making sustainable choices and offer a wide selection of products with responsibility criteria.

Objectives

The objectives have been recorded in the responsibility programme.

Policies, working principles and commitments

 

Purchasing principles

Responsible purchasing is guided by Kesko's purchasing principles. The principles are based on national labour protection legislation and corresponding conventions of the International Labour Organization (ILO), which are applied when national legislation does not correspond to the same level.

Policy on chemicals

Kesko's policy on chemicals applies to home textiles, clothing, leather goods, shoes and upholstered furniture. Based on EU and Finnish legislation, it lists the chemicals which are prohibited or the quantity of which is restricted in the products supplied to Kesko. In addition, for substances of very high concern, Kesko sets restrictions that are stricter than those set in legislation.

PVC statement

Kesko reduces its impact on the environment by actively seeking options for PVC plastic, both in the packaging of its own brands and in the products themselves. It has been estimated that the elements and compounds contained in PVC, such as chlorine and phthalates, have significant environmental and health impacts. Therefore, replacing PVC with materials more suitable for recycling is appropriate, particularly in packaging and products with short life spans.

Sustainability statements

Various product group-specific policy statements, such as the palm oil policy, the fish and shellfish statement, the timber policy, and the stand on the sandblasting of jeans, have been prepared to support purchasing operations.

K-responsibility concept

Responsible choices are communicated to customers in stores according to the K-responsibility concept with shelf labelling and product labelling, among other things. The selection and marketing policies of organic, eco-labelled and Fairtrade products are included in K-food stores' chain concepts. The K-responsibility concept was first adopted by K-food stores in 2013. During 2014, the concept was adopted by K-rauta stores and the adoption started in Rautia chain stores. During 2015, it will be visible in all Rautia stores and the K-maatalous chain.


Monitoring and control systems; programmes, projects and initiatives

 

Audits of suppliers in high-risk countries

Kesko requires its suppliers in high-risk countries to have social responsibility certification or audits. Kesko is a member in the European BSCI audit system and is committed to the BSCI Code of Conduct, the content of which is practically the same as Kesko's own purchasing principles.

In cooperation with the BSCI, Kesko follows other audit systems in the market and accepts audits based on them, provided that the level of requirements is the same as in the BSCI audit. Below is a table of the certification and audit systems Kesko uses in various product groups.

In China and India, Kesko supports its suppliers through monitoring. A local monitoring officer guides and oversees Kesko's suppliers in issues related to terms of employment and working conditions and compliance with environmental and chemical regulations. Kesko's own monitoring principles are based on the BSCI audit requirements. The ultimate aim is to get the factory to apply for a third-party BSCI audit or SA8000 certification. The responsibility of the purchasing chain is also monitored and developed as part of the sourcing cooperation with other European retail chains (Swisstec, ICA, AMS).

Kesko has a SUMO (supplier monitoring) database, in which the information on supplier audits, certifications and monitoring visits to suppliers in high-risk countries is saved alongside their respective risk ratings. The information on BSCI audits is also saved in the database maintained by the BSCI and is available to all members.

In 2014, a risk assessment tool was developed with the purpose of better identifying risks across the entire purchasing chain of Kesko's own brands, incuding indirect purchases from high-risk countries. The intention is to first adopt the tool for Kesko Food's purchases, where it has already been piloted.

Audits of Kesko Food's own brand product manufacturers and producers

Kesko Food requires that the manufacturers and producers of its own brand products have an international food safety certification. Kesko Food accepts the following audit procedures: BRC, IFS, ISO 22000, SQF1000/2000 and GlobalGAP (in Finland, the 'Quality Requirements for Vegetables' requirements).  

Kesko Product Research Unit's laboratory

The Product Research Unit Laboratory monitors the quality of products sold by K-food stores, Anttila department stores, K-citymarket hypermarkets and Kodin1 department stores for interior decoration and home goods. It is a testing laboratory T251 which has been accredited by the FINAS accreditation services and approved to comply with the SFS-EN ISO/IEC 17025 standard.

K-responsibility concept audits

The assessment of a store's responsible operations comprises the store's annual self-assessment, the criteria defined in the store's quality system and a responsibility audit performed by an external party on a specified sample. The auditor reports the results to the store and to Kesko.

Responsibilites and resources

• The Group's Corporate Responsibility Steering Group

• The Steering Group for Responsible Purchasing and Kesko's buyers

• Kesko Food Commerce's Responsibility Steering Group

• Kesko Product Research Unit

• Division parent companies' employees responsible for communications and marketing

• K-stores

Management approach assessment

The management approach is assessed continuously as part of the operations of the steering groups. Changes in the operating environment and in Kesko are responded to by adjusting objectives, working principles, monitoring systems and resources.

Internal Audit conducts audits on responsible sourcing in Kesko companies. The audits evaluate the effectiveness of controls and provide recommendations on how shortcomings can be corrected.

The self-control of Kesko Food and K-food stores is developed on the basis of the results of official inspections, among other things. The Product Research Unit's laboratory is audited annually as required by the SFS-EN ISO/IEC 17025 standard. In addition, its operations are assessed annually with an internal audit and an inspection by the management.

   
   

Certification and audit systems related to production in high-risk countries used by Kesko

 

Certification/audit system

Product group

Coverage of criteria

Product label

BSCI (Business Social Compliance Initiative)

All product groups

Social, limited environmental part

No

SA8000

All product groups

Social

No

ETI

All product groups

Social

No

Sedex/SMETA

All product groups

Social, limited environmental part

No

ICS

All product groups

Social

No

ICTI CARE

Toys

Social

No

FSC (Forest Stewardship Council)

Wood products and timber

Social, environmental

Yes

Fairtrade

Agricultural products, incl. cotton

Social, environmental

Yes

Rainforest Alliance

Agricultural products

Social, environmental

Yes

UTZ Certified

Coffee, cocoa, tea

Social, environmental

Yes

RSPO (Roundtable on Sustainable Palm Oil)

Products containing palm oil

Economic, environmental, social

Yes

WIETA

Wines

Social

Yes

MSC (Marine Stewardship Council)

Caught fish and shellfish

Environmental (sustainable fishing)

Yes

ASC (Aquaculture Stewardship Council)

Farmed fish and shellfish

Social, environmental

Yes

Wellbeing for  customers

 

Management approach

We offer services that promote customers' wellbeing

Material aspects

• Customer health and safety

Products and services that promote wellbeing

Kesko and K-stores aim to make their customers' lives easier, providing them with services that promote health and wellbeing and guidance on the proper use of products. Promoting healthy ways of living and eating habits as well as physical activity is central to the K-Group's food and sports stores.

E-commerce and multi-channel services

Customers' needs and consumption behaviour change greatly as new electronic services and, particularly, mobile services become increasingly widespread. Kesko's key strategic objective is to provide customers with optimal service in all of its divisions in electronic channels irrespective of place and time.

Objectives

The objectives have been recorded in the responsibility programme.

Policies, working principles and commitments

 

K-responsibility concept

The K-responsibility concept is used to tell customers about the store's good deeds and to help them make healthy and sustainable choices easily. The K-responsibility concept was first introduced in K-food stores in 2013. The concept was taken into use in K-rauta stores and its launch in Rautia stores started over the course of 2014. It will be introduced in all Rautia stores and in the K-maatalous chain in 2015.

E-commerce and multi-channel services

The development of electronic services requires major investments in competence development and capital expenditure in technology and logistics. At the beginning of 2015, the building and home improvement division and the home and speciality goods division were combined into the home improvement and speciality goods division which provides customers with multi-channel stores and services in the building, interior decoration and speciality goods trade. Kesko also strongly develops e-services and online sales in the grocery trade, and e-services in the car and machinery trade.

Monitoring and control systems; programmes, projects and initiatives

 

Product research

Kesko Product Research Unit's laboratory monitors the safety and quality of groceries and home and speciality goods sold by K-food stores, Anttila department stores, K-citymarket hypermarkets and Kodin1 department stores for interior decoration and home goods.

In addition to the laboratory, the Product Research Unit includes the test kitchen and Kesko Food's consumer service. The test kitchen's duties include sensory evaluations of products and testing their cooking properties.

The consumer service provides information on Pirkka products. Customers give feedback about products and ask about various aspects such as product origins, ingredients, their suitability for different kinds of users and instructions for use and preparation.


Recipe service

The home economics teachers in the Pirkka test kitchen develop and test hundreds of new food recipes annually. The nutritional contents for about 5,400 recipes found in the K-ruoka.fi recipe service have been calculated to help customers make choices.

K-responsibility concept audits

The assessment of a store's responsible operations comprises the store's annual self-assessment, the criteria defined in the store's quality system and and an external responsibility audit based on a defined sample. The auditor reports the results to the store and Kesko.

Customer satisfaction

The recognition level and images of Kesko's chains are regularly monitored in brand surveys targeted at consumers in all product lines. The same practice is applied to the K-Plussa customer loyalty programme and the grocery trade's own brand products. Store-level customer satisfaction is measured by customer satisfaction surveys and the mystery shopping method in food stores and the building and home improvement stores.

Responsibilities and resources

• Kesko's divisions

• Kesko's Product Research Unit

• K-stores

Management approach assessment

The management approach is assessed continuously as part of the operations. Changes in the operating environment and in Kesko are responded to by adjusting objectives, operating principles, monitoring systems and resources.

   
   

Mitigation of climate change

 

Management approach

We take part in mitigating climate change and promote the sustainable use of natural resources

Material aspects

• Energy

• Water

• Biodiversity

• Emissions

• Wastewater and waste

• Environmental assessment of suppliers

Energy consumption

Energy consumption has a significant impact on both the progress of climate change and the costs of the K-Group's operations. The energy consumption of properties accounts for a considerable share of the greenhouse gas emissions caused by the K-Group. Mitigating climate change resulting from energy consumption is one of the focus areas in Kesko's environmental work.

Water

Properties managed by Kesko use municipal water. In the K-Group's own operations, water is used mainly for cleaning.

Biodiversity

Kesko concentrates on diminishing the effects of climate change to preserve biodiversity. Kesko only builds retail stores in areas zoned for business properties, so building does not have significant direct biodiversity impacts. Indirect impacts occur through the products sold.

Emissions

Kesko's logistics company Keslog has long reduced emissions from the K-store supply chain by centralising distribution. New replacements in the vehicle fleet have reduced unit-specific emissions. Key tools in improving logistics efficiency also include the optimisation of transport routes and a high volumetric efficiency. A significant part is also played by efficient reverse logistics. Drivers have been trained in economical driving styles.

Waste management

Preventing the generation of waste, increasing the recovery rate and recycling of materials are the means by which Kesko reduces the amount of waste.

Environmental assessments of suppliers

The assessment procedures of Kesko's procurement practices include environmental criteria.

Objectives

The objectives have been recorded in the responsibility programme.

Policies, working principles and commitments

 

Environmental and energy policy

The K-Group's environmental and energy policy covers the operations of Kesko Group and the K-Group stores both in Finland and the other operating countries. The K-Group's key business partners are also expected to observe corresponding environmental management principles.

Environmental management is part of the K-Group's management system and is based on the ICC Business Charter for Sustainable Development, environmental management standards, as well as requirements set by legislation and the authorities.


Monitoring and control systems, programmes, projects and initiatives

 

Environmental work steering

Kesko Group's Corporate Responsibility Advisory Board defines the main policies for environmental work and the target levels for the Group companies, taking account of the environmental impacts of operations and their significance throughout the whole life cycle and supply chain. The division parent companies and subsidiaries specify the main policies of their environmental work into environmental action programmes which support their business operations. The action programmes are monitored and updated annually as part of strategy work.

Environmental systems

At the end of 2014, environmental systems covered 63% of the Kesko companies' net sales in Finland and 53% of the whole Group's net sales. The coverage has been calculated in proportion to retail sales.

The logistics operations of Kesko and Anttila are ISO 14001 certified.

VV-Auto Group Oy and its subsidiaries fulfil the requirements of environmental programme of Finnish Central Organisation for Motor Trades and Repairs Association and the ISO 9001 quality system.

In the food stores and the building and home improvement stores, environmental management is based on the K-responsibility concept. Key environmental issues are also included in the concept measurement of the food store chains. The K-responsibility concept was also taken into use in K-maatalous stores. No certified environmental systems were yet in use in operations in other countries.

 

Energy consumption monitoring

Kesko's maintenance partners monitor the energy consumption of properties with the help of the EnerKey.com system supplied by Energiakolmio Oy. Energiakolmio reads remotely energy consumption measurement terminals located in properties and records the data in the database by the hour. Also the consumption figures for properties where the data are collected manually are saved in the EnerKey system. The EnerKey programme responds to even minor location-specific changes in consumption and sends an alarm to the person in charge.

Energy efficiency agreement

Kesko has signed the trading sector energy efficiency agreement.

In terms of specific energy consumption, the types of properties with the highest energy consumption are K-citymarkets, K-supermarkets, Anttila department stores and large wholesale and warehouse buildings.

Kesko conducts energy reviews in the properties managed by it on a regular basis.

Water consumption monitoring

Water consumption monitoring is part of real estate consumption monitoring.

Biodiversity

In line with Kesko's sourcing recommendation, the garden furniture made of tropical wood and sold by the K-Group stores is either FSC certified or made of wood species whose cultivation is possible in accordance with the principles of sustainable development.

The K-Group’s fish and shellfish statement directs Kesko Food's and Kespro's own sourcing, as well as K-food retailers' sourcing to safeguard responsible fishing and cultivation of fish.

Palm oil must be produced in a responsible manner, taking account of economic, social and environmental aspects. Kesko Food is a member of the RSPO (Roundtable on Sustainable Palm Oil). Kesko Food's objective is that by 2020, all palm oil used in Pirkka products will be responsibly produced (CSPO).

Sustainability statements

Waste management

Kesko develops recycling systems in cooperation with other operators and promotes waste recycling by developing packaging methods and the use of materials. The generation of waste is prevented by using reusable transport units and by minimising the wastage of products on sale.

According to Kesko's business model, retailer entrepreneurs are responsible for wastage management in K-stores.

Building contracting and maintenance

Kesko's building contracting is based on target conditions and key technical quality factors determined for each business concept and the planning and execution instructions in respect of building services and construction engineering based on them. Kesko measures the efficiency and quality of planning and execution by providing its individual properties with international environmental certificates, such as BREEAM and LEED. In 2014, Kesko's partners in the maintenance and service of properties were Caverion Oy, Ovenia Oy and L&T plc. The environmental systems of Caverion Oy and L&T plc are ISO 14001 certified.

Business Environmental Performance Initiative BEPI

In late 2014, Kesko joined the Foreign Trade Association's (FTA) Business Environmental Performance Initiative (BEPI). BEPI is aimed at helping member companies in the management of global supply chains and, consequently, increasing the transparency and risk management of their product supply chains. BEPI provides a practical framework and guidelines for suppliers to improve their environmental activities.


Responsibilities and resources

• Group Corporate Responsibility Advisory Board

• Environmental Steering Group

• Store Sites and Real Estate Unit

• Keslog Ltd

Management approach assessment

The management approach is assessed continuously as part of the operations. Changes in the operating environment and in Kesko are responded to by adjusting objectives, operating principles, monitoring systems and resources. Audits and reviews of the environmental systems.

   

Environmental systems at Kesko

 

Function

Environmental management system

Comment

Keslog's warehousing, terminal and transportation operations

ISO 14001

Certificate revised in 2013.

Anttila Oy's logistics centre

ISO 14001

Certificate revised in 2014.

Real estate service and maintenance operations

ISO 14001, ISO 9001

ISO 14001, ISO 9001: Caverion, L&T

ISO 9001: Ovenia

VV-Auto Group Oy

ISO 14001 and AKL's environmental programme

 

ISO 14001 certificate: Audi Center Espoo. Action programme of The Finnish Central Organisation for Motor Trades and Repairs (AKL): VV-Autotalot Oy

K-food stores: 845 K-responsibility stores

K-responsibility concept

Chain requirement for K-citymarket, K-supermarket, K-market and K-extra stores

K-rauta stores: 40 K-responsibility stores

K-responsibility concept

Total number of stores: 42

Rautia stores: 88 K-responsibility or K-environmental stores (including combination stores)

K-responsibility concept and K-environmental store concept

Total number of stores: 96

K-maatalous stores: 24 K-environmental stores

K-environmental store concept

Total number of stores: 35