The Nestlé Sustainability Review

1 The nestl Sustainability ReviewGood Food, Good LifeGood Food, Good LifeContents2 Quality Food Products and Sustainable Development 4 Our Principles, Values and Culture5 The nestl Corporate Business Principles5 The nestl Corporate Governance Principles6 The Basic nestl Management and Leadership Principles7 Auditing Adherence to the nestl Corporate Business Principles8 Sustainable Economic Performance and Development9 Long term Reliable Returns for Shareholders 10 Investor Relations10 Impact on Food Production and National Economies14 Food Business and Agricultural Development: Investment in Human Capacity15 Purchase of Agricultural Raw Materials18 Sustainable Environmental Practices 19 Environment Progress Report 200019 Integrated Approach Throughout the Supply Chain21 Water as a Key Priority25 Systematic Management of Environmental Performance26 Sustainable Social Development27 Relationships with our Employees27 Long term relationships27 Training.

2 Transfer of technology and accumulated know-how28 Safe work environments 29 nestl labour and employment practices30 Right to association31 Safeguarding employment during restructuring31 Child labour32 Relationships with our Suppliers and Business Partners32 Audits of industrial suppliers32 Anti-corruption measures33 Relationships with Consumers and Society33 Quality, safety and nutritional value36 Research and innovation for food safety, quality and enhanced well-being37 Listening to consumers40 Advertising to consumers and children41 Marketing of breast-milk substitutes41 Infant formula marketing audits44 Involvement in Communities46 The FutureQuality Food Products and Sustainable DevelopmentAt nestl , we define sustainable development asthe process of increasing the world s access to higher quality food, whilecontributing to long term social and economic development, and preserving the environment for future generations.

3 In the 135-year life of nestl , our fundamental approach tobusiness has been the creation of long term sustainable value for our consumers, customers, employees, shareholders, andsociety as a whole. The nestl Corporate Business Principlesstate openly that we favour long term business development overshort term profit. While we are committed to making a healthyprofit, we instruct managers not to do so at the expense of longterm, sustainable we move ahead in the 21st century, we believethat a business strategy based on high-quality foodand beverage products can only be maintained by business practices based on the principles of long term sustainable development.

4 In this report we attempt to describe how we practiceand implement the principles of sustainabledevelopment where we have direct influence andimpact on economies, societies and everyone in our company, our responsibilities andvalues are reflected in our commitment to the nestl Corporate Business Principles. These set outthe basic rules we follow to make sure we maintain the highest standards of conduct. This reportpresents some key performance measures andfigures, and shows how we endeavour to put ourPrinciples into practice. In meeting our commitment to be a leader insustainable development, we build on two of the essential pillars of our long term strategy:innovation-renovation and operational efficiency.

5 We innovate in new products and technologies to meet the present and future needs of ourconsumers in an increasingly sustainable manner, and we improve or renovate existing products andtechnologies for the same reasons. We are dedicatedto continuous improvement in the efficient use ofresources, resulting not only in lower operating costs, but also in a lower impact on the our activities in accordance with the principles of sustainable development makesgood business the company s focus on high quality, foodsafety, nutritional value, and consumer appeal, nestl needs to purchase high-quality agricultural goodsproduced in a sustainable way.

6 Even though we ownno agricultural land, our approach has been, throughtechnical assistance, to improve the farming methodsand standard of living of millions of is nestl s initial effort to report on sustainabledevelopment, attempting to describe our impact on the well-being of people and the planet. As such,it is a step on a journey, as opposed to an end point in itself. In addition, we have produced moredetailed reports, entitled Environment Progress Report 2000and nestl in the Community,and our annual Management Reportprovides details on financial performance. You will findinformation on these and other publications at theend of this are committed to being open and transparent,and to listening to the views of others as we moveforward in sustainable development.

7 For this reason,we invite you to use the enclosed card or to write tous ( ) with any comments andsuggestions you may have after reading this Brabeck-LetmatheChief Executive Officer3 Our Principles, Values and CultureOur values and principles are elaborated in the nestl Corporate Business Principles. These were issued in 1998 andupdated in 2002 in order to integrate all existing businessprinciples at nestl into one single document, nowincorporating our Corporate Governance Principles. The updated version includes all nine principles of the UN Secretary-General s Global Compact, regarding labour standards, human rights, and the nestl Corporate Business PrinciplesThe nestl Corporate GovernancePrinciples5 nestl Sustainability ReviewSome of the basic nestl values and principles are: Favouring long term development over short termprofit; Long term commitments and relationships; Respect for and integration with diverse cultures; Proper conduct and ethical values as basicrequirements for our management and employees.

8 Recognition that consumers deserve informationabout the products they buy and the companybehind the Principles have been translated into over forty languages and all nestl managers are required to know and abide by them. They are incorporatedinto our ongoing training programmes, particularly for new covered in the nestl Corporate BusinessPrinciplesinclude: national legislation andinternational recommendations; consumers; children as consumers; infant health and nutrition; humanrights; human resources and the workplace; childlabour; business partners; conflicts of interest;relationships with suppliers; competition; externalrelations; protection of the environment; water policy;agricultural raw materials.

9 And Principles incorporate our official nestl Corporate Governance Principles, which cover four essential areas: the rights and responsibilities of shareholders; the equitable treatment of shareholders; the duties and responsibilities of the Board of Directors; and disclosure and of the nestl Board of Directors arenominated and carry out their duties according to Swiss law. The Board has a high degree of independence, as all are non-executive members,with the exception of the administrateur d l gu (CEO), the Board member delegated to activelymanage the public disclosure, the Financial Statementsof the nestl Management Report 2001 include more detailed information on the remuneration ofmembers of the nestl Board of Directors and theNestl Executive Management Board is also ultimately responsible foroverseeing and implementing all the nestl Corporate Business Principles.

10 It is worth noting that Mr Stephan Schmidheiny, one of the members of the nestl Board, is also one of the founders of the World Business Council for SustainableDevelopment, a leading organisation in environmental is registered in Switzerland and governedunder Swiss company law. While shareholders of Swiss companies have to meet greaterrequirements for introducing shareholder resolutionsthan in some other countries, nestl shareholdersexercise a number of additional rights in comparisonwith shareholders of companies registered in manyother countries. For example: Shareholders decide on the appropriation of profits resulting from the balance sheet of nestl and, in particular, they determinethe amount of the dividend; Shareholders adopt and amend the Articles of Association; Shareholders can place items on the agenda andask questions at General Meetings in accordancewith the Articles of applies the principle of one share one vote up to a maximum of 3% of the total shares (at the time of the publication of this Review , no oneshareholder owned more than 3% of the total amount of nestl shares).