To the Board of Directors, Members and Stakeholders of mecu Limited: mecu Limited (mecu) commissioned Net Balance Management Group Pty Ltd (Net Balance) to provide independent assurance of this Sustainability Report 2007 (the ‘report’), the third sustainability report by the organisation.

The report presents mecu’s sustainability performance over the period 1st July 2006 to 30th June 2007. mecu was responsible for the preparation of the report and this statement represents the assurance provider’s independent opinion. Net Balance’s responsibility in performing our assurance activities is to the Board and executive of mecu alone and in accordance with the terms of reference agreed with them. Any reliance any third-party may place on the report is entirely at their own risk.

Assurance Objectives

The objective of the assurance process is to provide stakeholders of mecu with an independent opinion on the materiality, completeness and accuracy of the information presented in the report, and whether mecu has responded to stakeholder concerns and adequately communicated those responses within the report. This is confirmed through a review of selected claims made, underlying systems, processes and competencies that support the report, as well as the embeddedness of policies and strategies on sustainability. Ensuring continuous improvement in data management systems and associated reporting processes is also a complementary objective.

Assurance Process

Our approach to assurance provision is aligned to the AA1000 Assurance Standard. The assurance engagement was undertaken in July and August 2007. The process involved:

• interviewing management and internal stakeholders to ascertain their view on, and responses to, the material sustainability issues faced by mecu, and the communication of these issues. A total of five interviews were conducted.
• interviewing selected external stakeholders to ascertain their perception of the material sustainability issues faced by mecu, and the appropriateness of mecu’s response to these issues in terms of their performance as well as external reporting. A total of five interviews were conducted with regulators, Directors, non-government organisations, members and industry associations.
• a review of mecu’s key sustainability strategies, policies, objectives, management systems, measurement and reporting procedures, background documentation and data collection and reporting procedures;
• a review of the report for any significant anomalies, particularly in relation to significant claims as well as trends in data;
• an overview of the embeddedness of mecu’s key economic, environmental and social policies and its Sustainability Covenant with the Environment Protection Authority of Victoria (EPA);
• a series of interviews with key personnel responsible for collating and writing various parts of the report in order to substantiate the veracity of selected claims;
  a System Diagnostic Audit as a follow-up to development of data procedures resulting from the previous year’s assurance outcomes;
• the examination of the aggregation and/or derivation of, and underlying evidence for, over 70 selected data points and statements made in the report. The audited items were broadly selected to not only satisfy the principles of materiality, completeness and responsiveness, but also as supporting evidence for conclusions reached; and
• a review of selected external media sources relating to mecu's sustainability performance, so as to further substantiate reported claims and, more importantly, to ensure that no significant omissions were made in the report.

The assurance process was carried out under Net Balance’s quality control procedures.

Assurance Limitations

Our scope of work did not involve verification of the accuracy and robustness of financial data, other than that relating to environmental, social or broader economic performance. No regional sites were visited as part of this year’s assurance engagement. Our observation of stakeholder engagement activities was limited to reviewing external stakeholder engagement processes and outcomes, and the ten interviews that were conducted with internal and external stakeholders.

Our Independence

Net Balance was not responsible for preparation of any part of this report. Net Balance has not undertaken any commissions for mecu in the reporting period concerning reporting or data collection. Our team’s independence was ensured by selecting an assurance team that had no other involvement with mecu during the reporting period that could impair the team’s independence or objectivity. Net Balance holds a business bank account with mecu, but this was assessed by both Net Balance and mecu as not being in conflict with this assurance engagement.

Our Capacity

The audit team comprised of individuals with expertise in the finance sector as well as in environmental and social performance measurement and reporting. The audit team has collectively undertaken over sixty assurance engagements in Australia over the past ten years and is also led by a Lead Sustainability Assurance Practitioner (Lead CSAP) accredited by the Independent Register of Certified Auditors (IRCA UK). The team is also a global leader in the use of the AA1000 Assurance Standard in assurance provision.

Our Opinion

Based on the scope of the assurance process, the following represents the auditor’s opinion:

• The findings of the assurance engagement provide confidence in the information reported within the report. The level of data accuracy was found to be within acceptable limits, but additional improvements to data management, including the reduction of manual aggregation and transcription processes are recommended to reduce potential for minor anomalies and mis-statements. Data trails selected were easily identifiable and traceable, and the personnel responsible were able to reliably demonstrate the origin(s) and interpretation of data.
• The statements made in the report appropriately reflect environmental, social and economic performance achieved during the period.
• All suggested changes were satisfactorily addressed by mecu prior to finalising the report.

Overall, the auditor is satisfied that the report is an appropriate representation of mecu’s sustainability performance during the reporting period.

Conclusions and Recommendations

• Materiality: Issues material to stakeholders have been considered and communicated within the report. Materiality was determined by assessing compliance performance, issues material to stakeholders, policy-related performance and peer-based norms. It was found that material environmental, social and broader economic aspects of mecu’s sustainability performance are appropriately addressed. Managing direct and indirect environmental performance, continuing to successfully develop and market environmental and social products, staff retention, reputation and supply chain risks were issues raised as being important over the short to medium term.
  
  
• Completeness: The report was found to be complete in addressing key environmental, social and economic performance as well as all operations of mecu, using the Global Reporting Initiative’s (GRI) G3 as a guide. The populated GRI index represents reporting best practice. Completeness was also tested using peer-based norms, and ensuring that no operations of the organisation were omitted. It was found that the report is complete in addressing key material social and environmental issues, as well as all operations of mecu.
  
  
• Responsiveness: Net Balance tested the responsiveness of the organisation through a review of management systems, documents and policies prepared by the organisation relating to the way it responds to stakeholder concerns and interests; by assessing the resources allocated to implement the aforementioned policies and commitments; by assessing the timeliness and accessibility of reported information; and by undertaking a review of key policies, targets and indicators and assessing the extent to which these are implemented by mecu. Net Balance also engaged with five selected external stakeholders and five internal stakeholders using a structured-survey process to gain an appreciation of their perception of mecu’s sustainability performance and mecu’s reporting thereof. The organisation has established stakeholder engagement mechanisms and communication processes with its members. The organisation has also conducted a comprehensive engagement program with staff, further to identifying this as a priority in 2006/07. The results of the staff engagement process highlighted that a significant number of staff are highly motivated around sustainability issues, which shows that mecu’s sustainability initiatives have engaged the whole organisation. External stakeholders felt that the organisation’s responsiveness is in general average to very good and that it was performing well above average within its sector in economic, social and environmental performance.

The Way Forward

mecu sees sustainability as a core value proposition. mecu has focused its effort in sustainability over the past four years on integrating sustainability principles within its business, at all levels. This has resulted in management commitment, an increased level of awareness of mecu’s own environmental and social footprint, and an aspiration to lead the sector and influence members and peers to become more sustainable. mecu sees sustainability both as a risk management approach as well as a point of differentiation. Our discussions and assurance process has confirmed the organisation’s success in this area. As a relatively small financial institution in a competitive market, mecu sees leadership and differentiation through sustainability as offering a developing business case. mecu’s goGreen® Car Loan and Home Loan products along with several other product and market initiatives described throughout the report suggest that this philosophy is very much becoming central to core business. The significant positive change in community and political awareness on matters relating to sustainability in the Australian market, particularly around climate change will catalyse opportunities for early movers such as mecu, well positioned to capitalise on such new market opportunities.

In terms of direct impact, the organisation’s characterisation of its environmental footprint is advanced, and comprehensive. Improved environmental performance is reflective of organisational commitment. Understanding around its social footprint is developing. As a result of last year’s assurance recommendations, some systems and quality controls for environmental and social data have been developed, which would further assist in efficiency and in reducing potential for human error or loss of intellectual property through natural staff turnover, which are key risks in performance measurement and reporting for a medium-sized organisation such as mecu.

The report itself continues to be a significant effort for a relatively small organisation with comments and input having been sought from several levels within mecu. The report was again prepared for external assurance within thirty days of the end of the reporting year, which is a commendable effort. This rapid turn-around, which is unusual in the market, does have its weaknesses, one of which is a symptom of time constraints – capacity for human error. Notwithstanding, the data management systems and quality controls have reduced the potential for human error. We also suggest that moving to continue to reduce the amount of text, so as to increase readability, without compromising the comprehensiveness of coverage would improve reporting performance. A suitable approach is to separate the mission, values and policies into a document that does not require annual reiteration, whilst streamlining a less voluminous annual sustainability ‘performance’ report.

Continued work on reducing direct footprint along with additional work on quantifying and managing indirect footprint associated with mecu’s market, including customer and supply chains remain key challenges. Measuring and managing indirect impacts in the finance sector is still at its infancy in development, and therefore mecu is well positioned to show leadership by starting to review these effects beyond its sphere of direct influence. In order for this to effectively progress, stakeholder engagement needs to continue, and in particular awareness amongst members needs to be raised.

Net Balance has provided additional suggestions for reporting improvement in some areas. These have been outlined in a more detailed report presented to the mecu Board and executive.

On behalf of the audit team
22nd August 2007
Melbourne, Australia

Terence Jeyaretnam
Director, Net Balance & Lead CSAP (IRCA UK)