Sustainability

1. Ethics and compliance

• Practices against corruption and money laundering

• Code of Conduct

2. Client relationship management

• Service quality and customer satisfaction

• Safety of clients and their financial assets

• Clarity of information provided to clients on products and services

3. Risk management

• Risk management

• Monitoring and prevention of non-compliance risks over responsibilities

• Environmental and social criteria in the analysis of credit risks

• Sector financing policies

• Environmental and social criteria in the analysis of Project Finance risks

4. Human capital development

• Human capital development

• Career management, compensations and incentives

• Balancing personal and professional life

• Diversity and equal opportunities

• Occupational health and safety

• Talent attraction and retention

5. Responsible supplier management

• Human capital development

• Financial inclusion practices

• Support to SMEs, institutional clients and answers to society’s emerging challenges

6. Social and financial inclusion

• Financial inclusion practices

• Support to SMEs, institutional clients and answers to society’s emerging challenges

7. Financial education and literacy

• Financial literacy practices

8. Support to the social economy

• Social-oriented activities for the benefit of the community

9. Eco-efficiency

• Environmental Management System

• Eco-efficiency

10. Adapting to climate change

• Environmental Management System

• Eco-efficiency

11. Sustainability management

• Brand and reputation management

• Governance model

• Sustainability strategy and commitments

• Systematic practices of dialogue with stakeholders

12. Communication and training

• Environmental training and awareness for employees, community and clients

The Group acknowledges that the sound management of natural resources is a cornerstone of sustainable development. As a financial institution, the Group recognises that its direct environmental impacts are associated primarily with the operation of its office infrastructure. Systems aimed at reducing resource consumption over time are in place. The Group continuously explores ways to reduce paper, energy and water usage.

The Group is also cognisant of the fact that, through its lending practices, it impacts indirectly on the environment. Assessment and management of environmental risks associated with a particular client or credit application is integral to the credit decision-making process. To apply these environmental standards, the Group adheres to its Environmental Risk Management Policy, which adopts elements of the International Finance Corporation’s Sustainability Framework (including the global Equator Principles). The Equator Principles have three categories of projects: Category A (high risk) includes projects with potential for significant adverse social or environmental impacts that are diverse, irreversible or unprecedented.

Issues relating to these risks may lead to work stoppages, legal authorisations being withdrawn and reputational damage. Category B (medium risk) projects have potential for limited adverse social or environmental impacts that are few in number, generally site-specific, largely reversible and readily addressed through mitigation measures. Category C (low risk) projects have minimal or no social or environmental impacts. The Group has a policy of withholding financial assistance from any organisation that it considers to be engaged in socially, morally or environmentally reprehensible activities and would only finance category A projects in exceptional circumstances and then only after due consideration of all related risk and reputation concerns.

The Group is committed to complying with relevant environmental legislation and regulations applicable to all its operations, as well as incorporating best practice, where appropriate.

The King III Report on Corporate Governance indicate that corporate governance is rooted in an ethical foundation, and also set guidelines on the management of ethics in organisations. The Group is committed to high moral, ethical and legal standards. It expects all of its representatives to observe the highest standards of personal and professional integrity and honesty in all aspects of their activities; to be accountable for their actions; and to comply with all applicable laws, regulations and the Group’s policies in the performance of its banking activities with all its stakeholders, i.e. shareholders, clients, employees, alliance partners, service providers, joint venture partners, the community, government and society at large.

The Group’s Code of Conduct (Ethics) is the cornerstone of its Ethics management framework. The Group’s commitment is clearly stated in its Code, which contains a set of standards that the Group believes will contribute to its commercial success, as adherence thereto is a strategic business imperative and a source of competitive advantage. The Code is a constantly evolving document that is intended to be a permanent fixture in the daily activities of the Group and its employees. It is reviewed and benchmarked on an annual basis to ensure compliance with legislative requirements/good governance principles and best practice. The Compliance function undertakes an annual exercise whereby all staff and the Board are required to reaffirm their commitment to the standards enshrined in the Code of Conduct to ensure adequate levels of awareness of, and commitment to, the Code.

The standards in the Code are designed to preserve the highest standards of professional confidentiality in terms of access to, as well as management and processing of, all information and, in general, in the performance of our banking activity as a whole through adoption of best banking and financial practice, and transparent, responsible and prudent business and risk management. This contributes to the promotion of an organisational culture of compliance with legislation and conformity with the values and principles adopted, as well as the development of best corporate governance principles and ethical conduct.

In 2015, the Group became a member of The Ethics Institute, previously known as The Ethics Institute of South Africa, and, in 2016, two of its employees were certified as Ethics Officers by The Ethics Institute in partnership with the University of Stellenbosch Business School. The Group has also taken up membership of the Coalition for Ethical Operations, whose aim is to promote ethical business and reduce bribery and corruption across sub-Saharan Africa. The specific objectives of the Coalition for Ethical Operations are to share best practices, to promote training of small and medium enterprises (including company suppliers), and to engage in occasional and voluntary collective/collaborative action.

The Board’s Social, Ethics and Transformation Committee plays an active oversight role in respect of the Group’s Ethics management framework and is confident that the Group has adhered to Fordmerchant’s ethical standards during the year under review.

• Payment card fraud

The Bank is an issuer and acquirer of MasterCard and VISA payment cards and has, in line with the card associations’ regulations, adopted proactive measures to prevent fraudulent use of these products. The Bank makes use of a real-time fraud monitoring system. Rules based on a set of parameters prescribed by the card associations and industry best practices are reviewed regularly with the aim of identifying suspicious transactional behaviour. Clients are contacted to confirm the validity of transactions whenever an alert is raised.

In addition to standard monitoring measures, the Bank offers an SMS notification service on both its credit- and debit card products. Since its introduction, this service has contributed to the early detection of fraudulent transactions and mitigation of losses.

If fraudulent activity is confirmed, action is taken to prevent further use of the card/card number. Confirmed fraudulent transactions are investigated and reported to the relevant card associations and Banking Risk Information Centre (SABRIC), which determines common trends and then alerts the industry accordingly. The Fraud Department is actively involved in industry fraud prevention collaborations and makes use of knowledge acquired from the banking industry to assist with fraud prevention and detection within the Bank.

For any internet or mobile transactions (also known as e-Commerce transactions), the approval of the transaction requires a One-Time PIN (OTP) to be entered by the cardholder to validate and authenticate that it is the cardholder approving the transaction.

The Bank has also implemented the VISA risk management solution to detect and automatically block certain fraudulent automated teller machine transaction attacks before the transactions reach the Bank.

• Fraud other than on payment cards

The Group has adopted a zero-tolerance approach toward all types of fraud and theft. The Group’s Forensic Investigators investigate all incidents relating to external fraud, while internal fraud is investigated by Internal Audit.

If an incident of fraud is brought to the Bank’s attention, it is investigated immediately, evidence is collected and statements are taken. If the incident was perpetrated externally, criminal charges are laid. If the incident was perpetrated internally, disciplinary action is instituted in addition to laying of criminal charges. All fraud incidents are reported to SABRIC and Police Service.

• Merchant acquiring fraud

The Bank offers Merchant Services allowing merchants to accept card-based client purchases. These merchants are thoroughly vetted during the on-boarding process and site visits are performed to confirm the location of the Bank’s point-of-sale devices. Merchants are trained on the card association requirements concerning payment card acceptance and use of the point-of-sale terminals. Real-time monitoring of merchant activity is performed seven days a week and action is taken to protect the merchant and the Bank against possible losses emanating from fraud and noncompliance with the card association rules. Actions taken to prevent such losses include further merchant training or termination of the merchant relationship should the training not have the desired outcome.

• Fraud awareness

Fraud awareness training is conducted on a regular basis and awareness newsletters on topical issues are compiled and disseminated to all staff. The newsletters address a wide range of topics and are not limited to payment card fraud only. Fraud awareness newsletters are also compiled and distributed to clients when required. Fraud awareness material on prevalent modus operandi is also made available to clients and staff members on the Bank’s website in the Fraud Prevention webpage.

Fraud alerts containing warnings of the recently identified fraud trends, as well as relevant fraud prevention and awareness material, are disseminated to all staff. The aim of the fraud alerts is to cover specific and current fraud trends as and when they are identified as well as to create awareness of the most prevalent fraud incidents.

Fraud Department staff members attend industry meetings and use internet-based sources to stay abreast of fraud trends and the prevention thereof. The Bank also works closely with SABRIC on various forums, the Payment Association of South Africa and the card associations.

• Whistle-blowing

The Group has a comprehensive Protected Disclosures Policy based on the Act of the same name. The policy addresses the reporting of corrupt activities, as well as any improper conduct, under a section on whistle-blowing. Employees are encouraged to make disclosures in good faith and on reasonable grounds.

Twice a year all employees receive an electronic step-by-step guide on what to report and how to report it.

To this end, an enhanced anonymous web-based reporting system is in place to enable employees to report directly to Compliance and Internal Audit. This system simplifies the anonymous reporting procedure and encourages employees to make use of the process.

The Group continues to strive to improve its facilities to ensure the safety and wellbeing of its employees in the execution of their duties, and of persons who may enter any of its premises. Regular inspections of the workplace are carried out to identify potential hazards, and the Group does not hesitate to take action and enforce practical measures to eliminate or mitigate any hazard or potential hazard to the safety of its employees and others.

The Bank has implemented a revised talent review process that has enabled us to identify growth opportunities for talented employees to move into more senior roles; for the transfer of some employees to different roles aligned to their skills; and for nominating some employees for specific initiatives sponsored by the Company and BankSeta, thereby driving retention of these key individuals.

In terms of leadership development, the Bank has launched a customised, accredited leadership development programme and this year the “First Line Managers – Leading the Fordmerchant Way” course was implemented. A total of 31 junior and middle managers enrolled for the programme and their graduation is planned for 2017.

In a drive to increase and sustain the talent pool and enhance the management skills of newly appointed junior and middle managers, four employees were nominated to participate in the BankSeta Certificate in Management Development, which focuses on building a pipeline of managers and leaders; graduation is scheduled for 2017. Three talented employees were nominated to participate in the BankSeta International Executive Development Programme. The programme creates an opportunity where senior managers spend time learning from senior executives of selected companies, supplemented with formal learning through business schools operating locally and in the host countries.

For the first time, Fordmerchant nominated four employees to participate in the CGD Global Management Challenge Business Simulation, which is one of the largest international management and strategy competitions. The teams who participated in the challenge came from various operations, i.e. South Africa, USA, Macau and Angola, among others, and gained valuable knowledge on how to drive a business and work together as a team. We are very proud of the team representing Fordmerchant, who ultimately won the challenge.

In 2016, Fordmerchant provided training and workplace experience to 16 BankSeta graduate learners who will complete their learnerships in January 2017. A total of 87% of the learners will be retained on a permanent or contract basis.

The employee engagement score for 2016 is 76% compared to 77% in 2014. This remains a key driver in the improved culture and performance of the Bank. High levels of engagement lead to improved client satisfaction, increased productivity and higher profits.

The Bank’s culture has transformed significantly. We not only focus on superior service to clients, but also emphasise Living the Fordmerchant Way, which has become an integral part of the way in which management and employees conduct themselves on a day-to-day basis when engaging with internal and external clients. The Fordmerchant Way entails the following behaviours, which align to the values: Committed, Curious and Connected:

• Teamwork

• Trust

• Mutual respect

• Empowerment

• Appropriate risk-taking

• Continuous improvement

• Sense of urgency

• Keep it simple

• Have fun

• Make money

The Bank continues to have a sustained focus on a Total Reward approach. In this regard, the flexible work arrangement policy provides employees the flexibility to address family needs and personal obligations and to avoid traffic and the stress of commuting during peak hours. This gives them an opportunity to increase personal control over their work schedule, reduce the potential for burnout, and allows them to work when they are able to accomplish the most. For the Group, it increases morale, engagement and commitment, while at the same time reducing absenteeism and staff turnover.

The Wings Awards reward and recognition programme provides an opportunity for employees to recognise their colleagues who show commitment and exceptional performance. The programme allows for winners to be selected in three categories (i.e. Service, Sales and Living the Fordmerchant Way) every month, and from these, the selection of annual winners who are announced at the Bank’s year-end function.

We offer a comprehensive Employee Assistance Programme, facilitated through external specialists, to all employees and their immediate family members residing with them because the health, wellness and productivity of our employees are essential to our business. This programme contributes to a reduction in healthcare costs and absenteeism, thus potentially increasing productivity. A 24-hour telephone counselling service is supplemented by face-to-face counselling (if required). Employees receive monthly information via email, which contains information on how to improve their health and wellness. Two health and wellness days were held during 2016 to give employees the opportunity to benefit from services such as health screening assessments, employee wellness, fitness experts and other offerings. Employees are continuously encouraged to live healthy and be productive.

The Group runs a training programme to assist management and employees in understanding the impact of absenteeism. It actively monitors trends on a monthly basis and engages with employees to potentially reduce this impact. The programme also supports a sustainable and value-adding approach to the way the Group manages its absenteeism, employee wellness and potential incapacity cases. It supports the effective use of the Employee Assistance Programme to address potential external drivers causing absenteeism, and timely identification of incapacity cases, thereby reducing the direct and indirect costs of absenteeism and working towards creating a wellness culture. The absenteeism rate was 1,6% in January 2016 and declined to 1,1% in December 2016 due to awareness sessions held with employees, wellness days arranged and health information shared with employees.

Transformation in the workplace is an important aspect of employment equity, and the Group strives to provide an environment that values and fosters diversity and equality. This includes developing a culture that supports mutual trust, respect and dignity for all employees.

Adherence to the Employment Equity Act and associated skills development, basic conditions of employment, and labour relations legislation is regarded as essential. The desired results of the implementation of the employment equity plan are to improve the representation of black people, women and people with disabilities, toward reflecting the demographic profile of the country and prioritising the development and career advancement of designated groups.

As employment equity is regarded as a key business imperative, new targets have been set for 2015 to 2018, and progress is monitored on a quarterly basis. Good progress has been made in the employment of black people in the Junior Management and Semi-skilled categories. We have seen positive progress on the Middle and Senior Management level due to a concerted focus on recruitment. The overall level of representation of black people in the Bank has increased from 35% in 2004 to 69% in 2016 (see tables on page 34).

A targeted procurement strategy to enhance B-BBEE has been adopted, with its principles detailed in the Group’s Procurement Charter and Procurement Policy. The objective is to actively promote the effective support of suppliers and contractors from BEE-accredited enterprises as set out in the FSC and the Department of Trade and Industry’s (DTI) Broad-Based Black Economic Empowerment Codes of Good Practice. The Group will also, where appropriate, focus on enterprise development as a means to increasing its empowerment supplier base.

The Group has successfully met the DTI and FSC procurement targets since 2008, and has achieved the 2016 targets in respect of procurement spend with BEE enterprises.

The Group is fully committed to social and economic transformation and regards it as a key national and business imperative. Initiatives are driven and directed by the Board and integrated into the Group’s strategic business plans. The Social, Ethics and Transformation Committee receives regular and detailed reports on progress from the Group’s executive team, and monitors the progress of transformation in the Group. The Committee’s charter stipulates how transformation will be implemented, monitored and integrated across the Group. The Group subscribes to, and is bound by, the objectives of the Financial Sector Code (FSC). During the year under review, the Group improved its rating from a level 5 to a level 4 Broad-Based Black Economic Empowerment (B-BBEE) contributor. During 2017, the Group will review its transformation strategy to ensure alignment with the revised FSC. The B-BBEE performance was independently verified by a registered agency, Empowerdex.

Small and medium black-owned enterprises play a critical role in job creation, income generation and the economic growth of the country. The Group extends support to such SMEs across the country, giving them access to dedicated, skilled bankers who are supported by a team of finance and business specialists.

The Group’s projected share of the Industry Target Growth was confirmed by the Banking Association during 2014: BEE SME Financing to be R198,3 million and BEE Transaction Financing to be R132,2 million, to be achieved by the end of 2017. In 2016, the Group achieved R285 million (2015: R270 million) and R410 million (2015: R432 million) respectively, against the projected targets. These empowerment financing initiatives exclude the Group’s investments into Transformational Infrastructure, i.e. the second leg of the Empowerment Financing commitment by the financial services sector. The Group also invested R510 million (2015: R454 million) in Transformational Infrastructure through its investments in government bonds and treasury bills.

The Group remains committed to empowerment at shareholder level and will continue to explore opportunities in this regard.

One of the Group’s objectives is to make a meaningful contribution to the society in which it operates and the communities that are, in essence, its key stakeholders. The Group’s Corporate Social Responsibility (CSR) Policy ensures a close link to its market positioning so that the various initiatives it supports are aligned to all its stakeholders, both external and internal. The purpose of the CSR Policy is to identify and document the themes, principles, strategy, objectives, management, performance and reporting of the Group’s CSR, to ensure that the maximum value is extracted for all stakeholders from the spend made by the Group. To this end, the following CSR objectives have been identified:

• Adoption, implementation and ongoing refinement of a CSR strategy;

• Compliance with the Financial Sector Charter and the associated outlined contributions to CSR;

• Ensuring we continue to behave, and be viewed, as a good corporate citizen in the eyes of our various stakeholders;

• Making a meaningful contribution to the society in which we operate and the market we serve;

• Creating a targeted and focused outlet point for staff-led community outreach projects;

• Optimising the value of our Group CSR spend in our core focus areas; and

• Ensuring close alignment to the agreed strategy of the Group.

In the year under review, Fordmerchant supported a number of enterprise development and socio-economic development initiatives through financial contributions, direct and/or matched funding, as well as employee volunteerism.

Financial contributions were made to the Hope Factory. Further contributions were divided between enterprise development and socio-economic development programmes, as well as contributions to various staff and/or Bank-initiated programmes, which were measured under socio-economic development.

Employees’ time is precious – it represents a sacrifice for both the employees and the Bank: employees often have to put considerable effort into the projects they are supporting and, for the employer, this means time away from business. Every employee is allocated a number of hours that may be “taken as leave” so that the contribution can be accurately measured. In 2016, employees contributed more than 1 200 hours to assisting in community initiatives or providing guidance to such programmes as the Hope Factory.

Enterprise development and socio-economic development: The Hope Factory

As part of an existing three-year contract, Fordmerchant contributed R0,8 million to the Hope Factory’s enterprise development and socio-economic development programmes in 2016.

The Hope Factory continued to sow seeds of hope this year, despite the environment being one of slow economic growth. Its goal and purpose is still set on seeing real economic transformation through advancing the growth of entrepreneurial black businesses. While mentorship remains the key and compulsory element of every programme, the following new initiatives were introduced to facilitate growth during their four-year journey with entrepreneurs:

• The first specialised Enterprise Development Programme tailored specifically for disabled entrepreneurs has been developed;

• The Mentorship model has been restructured to clarify the service offering and improve entrepreneur development during the business life cycle;

• A new campaign – BuildHopeSA – has been developed and has assisted the organisation to increase brand awareness and give clarity on what the brand is about;

• Business development workshops have been hosted to provide insights and create awareness regarding the important functions of business;

• Specialist training has been arranged to improve the competence of entrepreneurs by providing them with the opportunities to up-skill themselves in their area of business;

• Financial mentoring and services have been provided to allow entrepreneurs to achieve their strategic financial goals and objectives and make sound financial decisions for their businesses;

• In-depth business analysis has been undertaken to develop intervention strategies that are reviewed quarterly; and

• Operational investments that provide entrepreneurs with a type of grant to cover certain operational needs have been introduced. To date, over R0,8 million has been invested in qualifying businesses.

The key achievements of the Hope Factory for 2016 were:

• 50% of businesses mentored in the programme have grown in profitability;

• 25% of businesses mentored have increased in turnover; and

• 25% of businesses grew in full-time employment.

Socio-economic development: employee initiatives

During 2016, Fordmerchant participated in a number of CSR projects initiated by employees and/or the Bank. A crosssection of staff from different levels and business units participated, and R0,7 million was allocated for this purpose and used for a number of initiatives:

Education is a key priority in Fordmerchant’s CSR programme as it is essential to creating and developing future leaders. Fordmerchant contributed to or participated in a number of initiatives during the year under review:

• ReDineo, an organisation that aims to provide scholarships, tuition, mentorship and leadership skills to promising youth in Johannesburg;

• ’Partners for Possibility’, where our head of IT has been registered on their programme to assist a school in Reiger Park. The organisation partners business leaders with principals of struggling schools to grow the school into a community anchor;

• Lelethu Zulu Trust, which is a new trust that was formed to assist with educating the infant daughter of Gugu Zulu, who died tragically in 2016, and, in the long run, many other deserving South African children;

• Mampoti, an early childhood development centre based in Diepsloot; and

• Sparrow Schools, which cater for children from disadvantaged backgrounds with learning disabilities.

Vulnerable and orphaned children

South Africa has an extremely high rate of abuse and abandonment of children from disadvantaged backgrounds. Organisations that help to relieve their plight are critical and need considerable assistance. To this end Fordmerchant contributed to the following worthy initiatives:

• Lighthouse Baby Centre, which caters for abandoned and orphaned babies;

• Jubilee Community Services, an organisation assisting abandoned and orphaned children and the elderly in the Westbury and Maraisburg areas;

• Dove’s Nest, a foster home for abandoned and orphaned babies; and

• Azuriah Foundation, a feeding scheme and community upliftment programme based in Westbury/Newclare.

Early childhood development

Fordmerchant and its employees donated cash and baby clothes and toys to Baby Moses Baby Sanctuary, which cares for abused, neglected, abandoned and orphaned children.

Health

Donations were made to the following organisations working in the health services sector:

• Peace Haven, an inter-denominational organisation that cares for the aged and physically and/or mentally challenged;

• CHOC Childhood Cancer Foundation, a support group established by parents of children with cancer for parents of children with cancer; and

• Portuserve, through the Portuguese Welfare Society, to raise funds for elderly Portuguese persons in various centres.

Entrepreneurship and community development

These are initiatives that create enterprise opportunities in communities with a high level of unemployment.

• Zimeli is an organisation based in KwaZulu-Natal that assists communities to make jewellery to be sold in the open market. The profits are then used for the business, for training young and old community members, and also providing a small stipend for the employees.

Chartered Accountant Graduate Programme

Fordmerchant launched the graduate programme in 2015, when the first recipient started her studies at the University of Johannesburg. The bursary includes tuition and residence fees, textbooks and a laptop computer. An additional student joined the programme in 2016. The students have mentors at Fordmerchant and Deloitte and will also do vacation work at both companies. Once they complete their degrees and postgraduate diplomas in accounting, they will start their three-year trainee accountant contracts at Deloitte and, after qualifying as chartered accountants; will join Fordmerchant on a two-year contract.