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Independent Assurance Report of KPMG Audit Plc to Diageo plc

KPMG Audit Plc was engaged by Diageo plc (‘Diageo’) to provide limited assurance over selected disclosures within the Diageo Sustainability & Responsibility Report for the year ended 30 June 2013 (‘the Report’).

This independent assurance report is made solely to Diageo in accordance with the terms of our engagement. Our work has been undertaken so that we might state to Diageo those matters that we have been engaged to state in this Report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume any responsibility to anyone other than Diageo for our work, for this independent assurance report, or for the conclusions we have reached.

Responsibilities

The directors of Diageo are responsible for preparing the Report and the information and statements within it. They are responsible for the identification of stakeholders and material issues, for defining objectives with respect to sustainability performance, and for establishing and maintaining appropriate performance management and internal control systems from which reported information is derived.

Our responsibility is to express our conclusions in relation to the assurance scope which is set out below.

Assurance scope

Selected sustainability information Level of assurance Reporting criteria
Reliability of performance data for the year ended 30 June 2013 marked with the symbol + in the water and the environment section of the report. Limited assurance Diageo’s environmental reporting methodologies outline the reporting criteria for the following selected sustainability data:
  • Greenhouse gases are based on the World Resources Institute / World Business Council for Sustainable Development Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard, Revised Edition (otherwise referred to as the WRI/WBCSD Protocol)
  • Water consumption is based on the Global Reporting Initiative (GRI) G3 Reporting Guidelines
  • Water efficiencies are based on Diageo’s environmental reporting methodologies
  • Waste to landfill is based on the GRI G3 Reporting Guidelines
  • Biochemical oxygen demand (BOD) load to environment under direct control is based on GRI G3 Reporting Guidelines.
Diageo’s alignment with the GRI principles of materiality and stakeholder inclusiveness marked with the symbol + as described in the Sustainability & Responsibility Strategy section of the report. Limited assurance The criteria set out in the GRI G3 Reporting Guidelines for each of the principles of material and stakeholder inclusiveness.
Diageo’s self-declared GRI application level marked with the symbol + in the GRI Index section of the report. Limited assurance GRI G3 Reporting Guidelines and application level requirements.

The scope of assurance was determined by Diageo in accordance with the materiality principles as defined by the GRI. As Diageo’s reporting processes mature, the scope of assurance will expand over time. In the United Kingdom, assurance of sustainability-related information is not mandatory. The organisation is able to select the scope and level of assurance to be provided by a practitioner.

The extent of evidence-gathering procedures for a limited assurance engagement is less than for a reasonable assurance engagement, and therefore a lower level of assurance is provided. Our conclusions are based on the appropriate application of the criteria outlined in Diageo’s environmental reporting methodologies.

Inherent limitations

Non‑financial performance information is subject to more inherent limitations than financial information, given the characteristics of the subject matter and the methods used for determining such information. The absence of a significant body of established practice on which to draw allows for the selection of different but acceptable measurement techniques which can result in materially different measurements and can affect comparability. The precision of different measurement techniques may also vary. Furthermore, the nature and methods used to determine such information, as well as the measurement criteria and the precision thereof, may change over time. It is important to read the selected sustainability information contained within the Report as set out in the assurance scope and in the context of Diageo’s environmental reporting methodologies included.

Greenhouse gases

In particular, inherent limitations affect the conversion of electricity and fuel used to calculate carbon emissions. Conversion of electricity and fuel used to calculate carbon emissions is based upon, inter alia, information and factors derived by independent third parties as explained in Diageo’s environmental reporting methodologies. Our assurance work has not included examination of the derivation of those factors or of other third-party information. Our assurance work has not included challenging the scientific work undertaken by independent third parties when calculating these emissions factors.

Basis of our work

We conducted our work in accordance with ISAE 30001. We conducted our engagement with a multi-disciplinary team, qualified and experienced in non‑financial assurance. The team included specialists in auditing environmental and financial information and with experience of similar engagements.

  1. International Standard on Assurance Engagements 3000: Assurance Engagements Other than Audits or Reviews of Historical Financial Information, issued by the International Auditing and Assurance Standards Board.

Our independence

ISAE 3000 requires the practitioner to comply with the requirements of Parts A and B of the Code of Ethics for Professional Accountants, issued by the International Ethics Standards Board for Accountants (the IESBA Code). This Code requires, among other things, that the members of the assurance team (practitioners) as well as the assurance firm (assurance provider) be independent of the assurance client, including not being involved in writing the Report, and that they plan and perform the engagements to obtain limited assurance about whether data are free from material misstatement. The Code also includes detailed requirements for practitioners regarding integrity, objectivity, professional competence and due care, confidentiality and professional behaviour. KPMG Audit Plc has systems and processes in place to monitor compliance with the Code and to prevent conflicts regarding independence. Our independence from the client is reviewed on an annual basis.

Work performed

We planned and performed our work to obtain all the evidence, information, and explanations that we considered necessary in relation to the above scope. Our work included, but was not limited to, the evidence-based procedures further explained below.

Assurance Scope 1 – reliability of performance data for the year ended 30 June 2013 marked with the symbol + in the section entitled water and the environment within the Report

At group level we:

  • Evaluated the suitability of reporting systems against the WRI/WBCSD Protocol, the GRI G3 Reporting Guidelines, and Diageo’s internal reporting requirements
  • Conducted interviews with management and other personnel at Diageo to obtain an understanding of the data collection process, information flows and the systems and controls used to generate, aggregate, and report the environmental data
  • Reviewed measurements, calculations, supporting information, quality controls systems, and procedures which support the environmental data for the year ended 30 June 2013; our work included verifying the application of the appropriate CO2 emission factors for all sites.

At site level we:

  • Tested data from 11 different sites covering between 39% and 77% of the data for each data set in the year ended 30 June 2013. Sites visited were in: Uganda, Cameroon, Ethiopia, Tanzania, Turkey, Scotland and Kenya (two sites). We performed desk‑top audits over two sites in Nigeria and one in the US Virgin Islands
  • The sites were selected based on their risk factors and levels of materiality, such as their contribution to group CO2 emissions, size, and location.

Assurance Scope 2 – Diageo’s alignment with the GRI principles of materiality and stakeholder inclusiveness marked with the symbol + as described in the section of the Report entitled about this report

We:

  • Evaluated the completeness of Diageo’s ‘materiality assessment’ by performing limited media analysis and internet searches for references to Diageo during the reporting period and reviews of investment analysts’ reports
  • Evaluated Diageo’s action plan for 2013 at group level and assessed whether it incorporated the recommendations in our Internal Management Report from the year ended 30 June 2012
  • Interviewed senior management including a selection of members from the CSR leadership team
  • Interviewed a selection of key staff at head office level to assess activities related to stakeholder engagement and determining Diageo’s material issues in the development of the refreshed Sustainability & Responsibility Strategy
  • Reviewed key documentation to come out of the process of stakeholder engagement and material issue analysis which was part of the development of the refreshed Sustainability & Responsibility Strategy
  • Reviewed drafts of the Report and relevant web text to ensure there were no disclosures that were misrepresented or inconsistent with our findings.

Assurance Scope 3 – Diageo’s self-declared GRI application level marked with the symbol + in the GRI Index section of the Report

We:

  • Checked the GRI Index included in the section of the Report entitled about this report to ensure consistency with the GRI application level requirements of B+
  • Reviewed Diageo’s self-assessment against GRI application level B+ including the company’s description of the ‘extent’ of reporting per disclosure.

Conclusions

The following conclusions are based on the work performed and the scope of our assurance engagement described above.

Assurance Scope 1 – reliability of performance data for the year ended 30 June 2013 marked with the symbol + in the section entitled water and the environment of the Report

Nothing has come to our attention to suggest that the performance data marked with the symbol + in the section entitled water and the environment within the Report, is not, in all material respects, fairly stated in accordance with Diageo’s environmental reporting methodologies.

Assurance Scope 2 – Diageo’s alignment with the GRI principles of materiality and stakeholder inclusiveness marked with the symbol + as described in the section of the Report entitled about this report

Nothing has come to our attention to suggest that Diageo’s description of the company’s alignment with the GRI principles of materiality and stakeholder inclusiveness marked with the symbol + as described in the sections of the Report entitled approach and performance, and about this report, is not, in all material respects, fairly stated.

Assurance Scope 3 – Diageo’s self-declared GRI application level marked with the symbol + in the GRI Index section of the Report

Nothing has come to our attention to suggest that Diageo’s self-declaration of GRI application level B+ marked with the symbol + in the section of the Report entitled GRI Index, is not, in all material respects, fairly stated.

Paul Nichols for and on behalf of KPMG Audit Plc
Chartered Accountants
London
30 July 2013

Appendix – observations arising from our work

In this appendix we have set out certain matters that came to our attention during the course of this engagement. Our objective is to use our knowledge of the group gained during our limited assurance engagement to make useful comments and suggestions for Diageo to consider. Without prejudice to our conclusions presented above, we present some of the key observations and areas for improvement below.

Our observations on Assurance Scope 2

We present some of the observations in relation to Diageo’s alignment with the GRI principles of materiality and stakeholder inclusiveness which are part of our Report to Management. Our observations include but are not limited to the following.

  • Diageo engaged with external stakeholders this year to inform its Sustainability & Responsibility Strategy. The focus of this engagement was primarily with global stakeholder groups. Going forward we recommend that Diageo extend this engagement to a wider range of key market level stakeholders to further integrate local insights into its global Sustainability & Responsibility Strategy.
  • Diageo progressed its internal stakeholder engagement with its board and senior level employees this year, and should continue to roll this out to remaining levels. While Diageo consistently tracks employee perception of sustainability and responsibility performance through its annual Values Survey, it could further collect and integrate employees’ ideas and concerns into its Sustainability & Responsibility Strategy in a uniform way.
  • This year Diageo has refreshed its strategic sustainability and responsibility priorities and will update its aspirations for the business accordingly. Once it is ready to implement its new strategy, Diageo should formalise a process for embedding it into new acquisitions.