Environmental, Social and Governance

As Responsible Entity (RE) for the Rural Funds Group (RFF, the Fund), Rural Funds Management (RFM) takes the environmental, social and governance (ESG) responsibilities of the Fund seriously.

The statements outlined below have been endorsed by the RFM Board of Directors, with RFM senior management responsible for their implementation and monitoring.

Some areas relate more directly to RFM than RFF. For instance, RFF does not directly employ staff, so the human capital management section is in reference to staff employed by RFM which manages the Fund’s assets.

Environment

Climate Change

RFM is aware of the potential risks that climate change could present to RFF assets. RFM has committed to a climatic diversification strategy in order to mitigate these risks. In FY20, RFM committed to undergoing a quantification of the primary emissions on specific RFF assets (Carbon dioxide, Methane and Nitrous oxide). Having engaged independent experts, RFM is expected to be able to quantify the emissions from RFF’s assets and undergo infrastructure and practice changes in response. For more information, see Discussion Paper #9 Understanding the drivers of climate change on RFM’s website.

Carbon Dioxide

Through the use of infrastructure such as water pumps, diesel generators and machinery, RFF’s almond orchards, macadamia orchards, vineyards, and cotton assets are producers of carbon dioxide.

Steps have been taken by RFM towards reducing emissions on RFF’s assets. Some of RFF’s cattle farms have benefitted from solar energy installations to offset energy use. RFM has also entered into a feasibility study for one of RFF’s almond orchards to explore the possibility of a future solar energy installation.

Methane

RFF’s cattle assets are a producer of methane. RFM is investigating the means of quantifying these emissions and exploring ways to reduce them, including pasture improvements and supplementary feeding. Dietary changes have the potential to reduce methane emissions in cattle, as the feed that would have been converted to methane becomes energy for the animal instead.

Nitrous oxide

Cereal and cotton cropping is a common source of nitrous oxide emissions, mostly through the application of nitrogenbased fertilisers. Waterlogging caused by excessive irrigation is also a source of nitrous oxide emissions. These are issues that best management practice avoids on RFF’s cotton and almond properties, but nevertheless will be the subject of future review and measurement.

Management of natural resources

RFF owns a portfolio of Australian agricultural assets and the stewardship of these assets is of critical importance to the performance and growth of RFF. RFF’s leases require operators to use appropriate agricultural production methods.

Wherever practical, the Fund will:

> monitor industry developments and adopt farm management practices that incorporate the latest research findings and technologies to minimise environmental impact, protect biodiversity and better use the natural resources,

> maximise water-use efficiency through the use of modern, well managed irrigation systems,

> ensure water management practices consider and manage water quality and minimise run-off,

> use communication technologies to access water-use data remotely, assisting with optimal water use adopt nutrient management practices that improve long term soil health,

> ensure that pest and weed management requiring the use of chemicals occurs in a safe and environmentally responsible manner, and

> ensure that lessees and personnel understand and are focused on sustainable farming principles and adhere to environmental legislation and regulations.

Best farming practice

RFF leases require operators to use appropriate agricultural production methods. These include farm management tactics to minimise environmental impact, protect biodiversity, manage water and sustain soil health. For the full details, see the Environmental Policy located on RFM’s website.

Social

Animal welfare

Some of RFF’s properties are leased to agricultural producers involved in intensive production, such as cattle feedlots. RFM has policies and procedures which are explicit about animal treatment and welfare.

RFF’s cattle lessees are required to comply with best husbandry and pastoral practice. This is stipulated in leases signed with RFF. Best practice includes low stress handling, disease minimisation and sustainable stocking rates. Most cattle sold by RFF lessees are sold in the domestic market, but a small number may be sold to the live export market.

Community engagement

An integral part of our corporate culture is to donate to charities and causes that are close to the hearts of our employees, including in the communities in which we operate.

Tahen Project

Tahen is a village in the Battambang province of Cambodia. RFM has committed $1 million over three years to assist farmers in agricultural practices to improve productivity and commodity diversification. The project aims to provide guidance and education to sustainably and reliably improve production. It is hoped that Tahen will also become a model which could be replicated by other local communities.

Additional support

RFM has also supported a number of organisations through donations and labour. Further details can be located on the Community Involvement page on the RFM website.

Our staff

As RFF does not directly employ staff, RFM is responsible for staff management associated with the management and operation of the Fund. RFM has implemented a range of staff related policies, including: Code of Conduct, Environmental, Health, Safety and Environment (HSE), Incident Management, Diversity and Equal Employment Opportunity. The aim of these policies is to create a safe, diverse and equitable workplace.

RFM takes its obligations relating to Work Health and Safety seriously and has implemented an extensive HSE management system to educate employees and contractors and protect them from harm. The RFM Board receives a monthly workplace health and safety report identifying any issues and incidents. RFM periodically reviews arrangements with contractors to determine their practices and standards meet our safe work practices and expectations, legislative requirements and contractual obligations. RFM is committed to providing employees with ongoing opportunities for HSE training and development.

RFM staff are permitted to organise flexible working arrangements, tailored specifically to the needs of the individual. Staff undergoing additional training and development to support their current role are eligible to apply for study leave and flexible working arrangements.

Governance

Corporate governance

RFM has established an internal compliance committee (ICC) that reports to the RFM Board of Directors monthly. The ICC monitors and reports on compliance with RFM’s Australian Financial Services Licence (AFSL) and compliance program to ensure that it is effective in meeting RFM’s compliance requirements. The ICC also provides a supporting role to the Compliance Officer. The ICC is structured to include representatives from different business units to ensure compliance monitoring and review are well embedded across RFM.

Conflicts of interest and related party transactions

RFM manages a number of entities, including its role as Responsible Entity for four funds. Where related party transactions occur between RFF and another RFM managed entity, they are subject to RFM’s Conflict of Interest Management Policy. RFM’s responsibilities and contractual obligations are set out in the Fund’s Constitution, the Corporations Act, the ASX Listing Rules and it’s AFSL. As the Responsible Entity, RFM must always act in the best interests of the unitholders, and if there is a conflict between the unitholders’ interests and its own interests, it must give priority to the unitholders’ interests.

RFM has also established protocols, including appointing separate personnel to act for each entity with separate external advisers. To monitor compliance with these obligations, the RFM Board receives a monthly report from the Compliance Officer, who reports on the Responsible Entity’s compliance, conflicts of interests and related party transactions.

The Board of the Responsible Entity confirms all related party transactions are on an arm’s length basis.

Ethical conduct

RFM seeks to act ethically while doing business and this underpins our approach with all transactions.

RFM employees are obligated to conduct themselves in accordance with the standards set out in the RFM Code of Conduct, the Corporate Governance Charter and other related policy documents. Our employees are expected to conduct themselves with integrity, in compliance with legislative requirements and with internal policies and procedures. Employee performance is monitored by management through a combination of ongoing informal reviews.

RFM’s recruitment process includes reference checking of all potential employees, as well as national police checks and bankruptcy checks for sensitive roles. RFM’s anti-money laundering and counter-terrorism financing program policy aims to identify, mitigate and manage the risk that the Company or its Officers may unwittingly facilitate money laundering or financing of terrorism. The Responsible Entity manages the above risks in accordance with its Risk Management Policy available on the Responsible Entity’s website.