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To the Board and Stakeholders of Landcom:

Landcom commissioned URS Australia Pty Ltd (URS) to provide independent assurance of the non-financial content of this Annual Report 2005/2006 report (referred hereafter as the “Report”). The Report presents Landcom’s business, financial and sustainability performance over the period 1 July 2005 to 30 June 2006, including sustainability trend data for previous years. Landcom was responsible for the preparation of the Report and this statement represents the auditor’s independent opinion. URS’ responsibility in performing its assurance activities is to the management of Landcom 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 Objective

The objective of the assurance process is to provide stakeholders of Landcom with an independent opinion on the materiality, completeness and accuracy of the information presented in the Report, and whether Landcom is responsive to stakeholder concerns and adequately communicates those responses within the Report. This is confirmed through an audit of the claims made, underlying systems, processes and competencies that support the Report, as well as the embeddedness of policies and strategies relating to sustainability.

Assurance Process and Limitations

Our approach to assurance provision is aligned with the AA1000 Assurance Standard. The assurance engagement was undertaken in August 2006 and involved the following:

• interviewing management and key internal and external stakeholders to ascertain their views on, and responses to, the material sustainability issues faced by Landcom, and the communication of these issues;
• a review of Landcom’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;
• an overview of the embeddedness of Landcom’s key economic, environmental and social policies;
• a series of interviews with key personnel responsible for collating and writing various parts of the Report in order to ensure selected claims were discussed and substantiated;
• the examination of the aggregation and/or derivation of, and underlying evidence for, over 55 selected data points and statements made in the Report; and
• a review of selected external media sources relating to Landcom’s sustainability performance.

Our scope of work did not involve verification of financial data, other than that relating to environmental, social or broader economic performance. The assurance process was carried out under the auspices of URS’ quality control procedures.

Our Independence

URS was not responsible for the preparation of any part of this Report. URS has not undertaken any commissions for Landcom in the reporting period concerning reporting or data collection. Landcom participated in a sustainability report benchmarking project by URS commissioned through the Centre for Public Agency Sustainability Reporting, but due to the independent nature of this programme, there are deemed to be no conflicts of interest. Independence was ensured by selecting an assurance team that had no other involvement with Landcom during the reporting period that could impair the team’s independence or objectivity. The audit team comprised individuals with expertise in the development sector and in environmental and social performance measurement. The audit team has collectively undertaken over 60 assurance engagements in Australia over the past 10 years and is also led by a Certified Lead Sustainability Assurance Practitioner (Lead CSAP) accredited by the Independent Register of Certified Auditors (IRCA UK).

Our Opinion

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

• The findings of the assurance engagement provide confidence in the reporting processes established. The level of data accuracy was found to be high, but some additional improvements to data management, including the reduction of manual aggregation and transcription processes, are recommended to reduce potential for minor anomalies. 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 broader economic performance achieved during the period.
• All suggested changes were satisfactorily addressed by Landcom prior to finalising the Report.

Overall, the auditor is satisfied that the Report is an appropriate representation of Landcom’s environmental, social and broader economic performance during the reporting period. The auditor is also satisfied of the progress and outcomes achieved in the reporting period as having appropriately reflected stakeholder expectations, but it is recommended that additional stakeholder input be sought on this new reporting format, which integrates the Annual Report and Sustainability Report into one consolidated document.

Conclusions and Recommendations

• Materiality: Issues material to stakeholders have been considered and communicated within the Report. Material environmental, social and broader economic aspects of Landcom’s sustainability performance are also appropriately addressed. Providing leadership, and leveraging off Landcom’s level of influence to progress the sustainability agenda, cost effectiveness of sustainability initiatives and market acceptance of sustainable design were highlighted as key issues by stakeholders, and remain some of Landcom’s future challenges.
• Completeness: The Report was found to be complete in addressing key environmental, social and economic performance, as well as all operations of Landcom. Reporting against the Global Reporting Initiative’s (GRI) Sustainability Reporting Guidelines 2002 represents best practice, and the GRI Content Index is a useful tool for cross referencing. Landcom has made an effort to further embrace the guidelines by aiming for “in accordance” reporting this year.
• Responsiveness: Based on our internal and external stakeholder engagement, we found the organisation’s responsiveness to be high. In total, 25 stakeholders were consulted as part of the most recent round of engagement, which included 14 external stakeholders and 11 internal stakeholders, in addition to other engagement programmes carried out by Landcom during 2005/2006. In general, responses given by both internal and external stakeholders were consistent. With regard to the principles that underpin “inclusivity” namely materiality, completeness and responsiveness, Landcom rated well, particularly regarding its environmental and social performance.

The Way Forward

Landcom has been a leader in sustainability reporting within the development sector not only in the region, but globally, based on some of the benchmarking studies undertaken on the topic. This commenced with Landcom’s Triple Bottom Line Programme (TBLP) in 2000. Indicators of social, economic and financial performance have now produced over 4 years of trend data, and show progress achieved toward targets set. Stakeholders indicated that Landcom is leading the development industry with regard to integrating sustainability into its business operations. They considered Landcom’s environmental performance to be strong and social performance to be good. Although economic and “integrated sustainability” performance were rated very good to good by some, it is our opinion that they still represent the greatest opportunity for improvement. Furthermore, there is agreement amongst Landcom’s partners that the organisation has taken a leadership role in influencing the sector on sustainable design and management. In a market constrained by a downturn in property prices, Landcom is continuing to pursue its sustainability objectives. Partners of Landcom would like to see cost-effective solutions promoted and feasibility to be central to its sustainability initiatives. Perhaps this will yield market solutions that are commercially more widely accepted.

In terms of reporting its performance, Landcom has progressed from a triple bottom line report to one integrated report for financial and non-financial reporting. Landcom has also pursued refinement of its suite of social indicators. The majority of stakeholders felt that Landcom’s Sustainability Report 2004/2005 was transparent and accurate in its reporting of the organisation’s sustainability performance. Although some stakeholders expressed concerns about integrating the Sustainability Report with the Annual Report, a number of stakeholders supported the suggested change. Further engagement around the format of the Report post publishing this Report is suggested to seek views on whether to continue with this new format, further refine it, or indeed move back to the previous model. Development of some systems and quality controls for data would further assist in efficiency and in reducing potential for human error or loss of intellectual property through natural staff turn-over, which are key risks in performance measurement and reporting for a medium-sized organisation such as Landcom.

As an organisation, Landcom’s Senior Management, middle management and development staff understand sustainability and are able to converse fluently in this emerging language. However, there is room for continued improvement in awareness raising and training. We recommend a survey of the whole organisation on sustainability issues and understanding and developing a strategy for bridging gaps on context, solutions and communication of initiatives and outcomes.

So, what is the way forward? In addition to recommendations made as part of this assurance engagement, Landcom has an educational role to play, in partnership with other like-minded organisations, to influence customer demand for sustainable outcomes, to influence industry on commercially effective sustainable design outcomes and to influence Local and State Government on the longer-term benefits of socially and environmentally responsible and sensitive development. Communication of the success of its past initiatives, and the success of other national and international projects would also assist in this process. Positioning sustainability as a core development proposition in a rebounding market would achieve Landcom’s longer-term objectives set when its TBLP was first drafted.

URS has provided additional suggestions for reporting improvement in some areas, including development of appropriate procedures for measurement and reporting of some key performance measures. These have been outlined in a more detailed report presented to the Landcom Board and Executive.

On behalf of the audit team 30 August 2006 Melbourne, Australia

Terence JeyaretnamPrincipalURS and Lead CSAP (IRCA UK)

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