Diageo Corporate Citizenship Report 2003

Contents

IFC Our journey so far1 Proud of what we do2 Who we are4 What we stand for6 Social impacts

18 Environmental impacts22 Economic impacts27 Management and policy30 Measuring and reporting32 How we compareIBC Web site mapIBC External assurance statement

Highlights

Signed up to the UN Global Compact and Global Business Coalition on HIV/AIDS

Relaunched code of business conduct andconfirmed compliance at 94%

Relaunched code of marketing practice andcompleted employee training

Participated in industry dialogue with World Health Organisation

Diageo included among the best companies to work for in surveys in nine countries

Anti-retroviral drugs made available in Africa to employees and dependants with HIV

1% of operating profit again spent on community investment

Diageo-supported social investments recognisedby governments in many countries

Established six further server training programmes

Diageo USA airlifted supplies to an orphanageand a children’s hospital in Baghdad

Launched Diageo Earthwatch programme

On track to meet three out of five environmental targets

7% organic growth in operating profit

Published local triple-bottom-line corporatecitizenship reports in four markets

Our journey so far

Diageo plc Merger of Grand Metropolitan and Guinness creates Diageo withfour divisions:UDV,Guinness,Pillsbury and Burger King.

Anthony Greener and Sir GeorgeBull appointed chairmen;JohnMcGrath appointed chief executive.

Strategy and policy Our values established as integralpart of governing objective.

Group activities reviewed inconsultation with internal andexternal stakeholders.

Code of business conduct adoptedand employee whistleblowing help line established.

Global corporate citizenshipguidelines,‘Global brands, localcitizens’,published.

International Business LeadersForum on human capitalismchaired by Diageo chief executive.

Social responsibility and alcohol Marketing codes and employeealcohol policy first developed.

Development and publication ofICAP ‘Framework for responsibility’.

Diageo sponsors educationaltoolkit for UK primaryschoolteachers.

Diageo launches responsible bar server training in Brazil and New York State.

Community involvement 1% of operating profit committedannually to community investment.

Diageo Foundation created.

Community investmentprogrammes guidelines andtoolkits published for Skills for Life,Water of Life,Local Citizens and Our People focus areas.

Global benchmarking exercise to guide best practice in factory closures.

One million employee volunteerhours first recorded.

Revised covenant to 2022 agreedwith Thalidomide Trust in the UK.

Environment Environmental steering groupchaired by executive director.

Environmental working groupestablished.

Confirmed support for BusinessCharter for SustainableDevelopment.

Environmental policy adopted. Environmental report firstpublished.

Implementation of principles,standards and goals.

Measuring and reporting London Benchmarking Group (LBG)template adopted to measurecommunity investment.

Social and economic modeldeveloped to measure ‘footprint’.

Community investment reportpublished.

Economic,social and environmentalreport on Diageo in Polandpublished.

Full LBG global community annualreport first published.

Half year to 30 June 1998 Year to 30 June 1999 Year to 30 June 2000

Lord Blyth of Rowington appointed chairman.

Paul Walsh becomes CEO.

Guinness and UDV divisionsmerged.

Diageo becomes one business with one name.

Acquisition of Seagram spirits and wine brands.

Sale of Pillsbury to General Mills.

Sale of Burger King to Texas Pacific Corporation.

Corporate citizenship committeeestablished,chaired by CEO.

Corporate citizenship guide 2001 published.

Compliance programme established and global compliance director appointed.

World Economic Forum globalcorporate citizenship statementendorsed by Diageo CEO.

Human rights policy adopted.

Partnering with suppliers policy adopted.

UN Global Compact endorsed byDiageo CEO.

‘What we stand for’leafletpublished.

Code of business conduct revised,with e-learning and training modules implementedacross business.

Occupational health and safety policy revised.

Membership of Global BusinessCoalition on HIV/AIDS.

Records management policy formulated.

Diageo launches ‘ServeWise’responsible bar server training in Scotland.

Audit and stakeholder consultationon code of marketing practice.

Diageo sponsors ‘Respect It’alcoholeducational materials for UKsecondary schoolteachers.

Code of marketing practice revisedand relaunched with global training programme.

Hospitality training for unemployedyoung people launched in Thailandand Seychelles.

Water of Life helps half a millionpeople gain access to clean drinking water.

Diageo Foundation launches Global Brands focus area.

Tanqueray four-year bike ridecampaign in the US raises $180 million for HIV/AIDS.

Diageo pledges $1 million to set upSpirit of America Fund after 9/11.

Johnnie Walker Keep WalkingFunds now launched in five countries.

120th UK Foyer for young homeless people opened in Foyer Federation’s 10th year.

Environmental policy revised.

New product review process,NaviGate, includes check withenvironmental policy.

15 Earthwatch fellowships awardedto employees.

Diageo environmentalmanagement system rolled out.

Summary report for supplyemployees published.

Corporate citizenship area onwww.diageo.com launched,reporting on 150 communityactivities around the world.

KPIs agreed for each stakeholdergroup.

Corporate citizenship reports on Diageo in Australia,Nigeria,Poland and Scotland published.

Year to 30 June 2001 Year to 30 June 2002 Year to 30 June 2003

Around the world our business creates brands peopleenjoy,generates returns for investors and provides jobs.Through the taxes we pay,the skills we develop in ourpeople,the goods and services we buy and the businesswe bring to customers,our economic contribution togovernments and communities is substantial.We believe all the communities in which we operate should benefit from our presence and, inworking to achieve this,we give priority to areas where our impacts are greatest. It is commonknowledge that,treated irresponsibly,alcohol products can lead to a range of health and socialproblems.That’s why,as the world’s leading premium drinks business,we have made socialresponsibility and alcohol a primary focus.We also strive to play a positive role in the well-beingof the communities of which we are a part.And we pay appropriate attention to theenvironment,recognising that our operations can impinge on the natural world,both aroundour sites and globally.

Diageo’s record in these areas shows our dedication to good corporate citizenship.As ourendorsement of the UN Global Compact shows,this commitment starts at the top and extendsto all parts of the company.It permeates our major management processes and contributes toDiageo’s unique culture.Our industry leadership confers an important duty to set the prioritiesand standards.Underlying our approach is an ethos of unshakeable integrity and values whichare vital to our future success.

We have a proud history of community and environmental achievement.But there are areaswhere we fall short.This report doesn’t only highlight our successes.It casts a clear light on ourkey areas for improvement.

This publication – our first full corporate citizenship report – has been prepared in accordancewith the 2002 Global Reporting Initiative Guidelines.We believe it represents a balanced and reasonable presentation of Diageo’s social,environmental and economic performance.In sharing our corporate citizenship agenda openly,we see the publication of this report as amilestone on our journey towards the social,environmental and economic sustainability of ourbusiness.We would be grateful to receive your comments on our report and the issues it raises.

Proud of what we do

1 Diageo Corporate Citizenship Report 2003

Lord Blyth of RowingtonChairman

Paul S WalshCEO

Who we are

2 Diageo Corporate Citizenship Report 2003

Diageo is the world’s leading premium drinks business with an outstandingcollection of brands across spirits,wine and beer categories.Operating insome 180 countries around the world,the company is becoming truly global.Diageo is listed on both the London Stock Exchange and the New York Stock Exchange.

Our marketsWe categorise our markets asmajor,key or venture accordingto the scale of our business inthose territories and the businessmodel we use there.The fourmajor markets – North America,Great Britain, Ireland and Spain –make the largest contribution toour business and generate nearly60% of operating profit.

The history of our globalpriority brandsIt took over two centuries tocreate the Diageo brands thattoday we designate our globalpriority brands.Justerini &Brooks,the creator of JεB,cantrace its origins back to Londonin 1749;Arthur Guinnessestablished a brewery in Dublinin 1759;José Cuervo firstproduced tequila in 1795;Johnnie Walker set up shop inKilmarnock,Scotland in 1820;and Charles Tanquerayformulated his recipe for gin in 1830.Smirnoff became theofficial vodka of the Russianimperial court in 1886;theCaptain Morgan Rum Companywas formed in Jamaica in 1944;and the recipe for BaileysOriginal Irish Cream was devisedin 1974.Much more about ourheritage can be found on ourweb site.

Global priority brandsmillions of equivalent units

2003 2002Smirnoff 23.0 21.8Johnnie Walker 10.8 10.6Guinness 11.4 11.1Baileys 6.2 5.7JεB 6.0 6.3Captain Morgan* 2.5 2.6José Cuervo 4.2 4.2Tanqueray 1.9 1.9*Half year only.

Scope of this reportThis report covers the yearended 30 June 2003 andincludes wholly-owned Diageobusinesses as well as jointventures in which Diageo has acontrolling share.Within thesebusinesses,the social section onpages 6 to 17 covers all siteswhile the environmental sectionon pages 18 to 21 covers onlyproduction sites,reflecting the more significant impacts ofthese locations.The economicsection on pages 22 to 26 draws on information for the wholebusiness included in the Diageo annual report.

Diageo in contextDespite the extent of Diageo’soperations as profiled in thisreport,the business accounts fora very small percentage of totalalcohol production worldwide.

Total assets £million20022003

18,49316,197

Turnover by region %

Europe200342.8

North America 33.510.7

7.95.1

Asia PacificRest of worldLatin America

Turnover £million20022003

11,2829,440

Operating costs £million20022003

9,6297,579

Employees20022003

23,91924,561

Product sold millions of equivalent units20022003

113.6119.3

An equivalent unit is that volume which contains the same number of servings as a nine-litre case of spirits.

Premium drinks business only.

Latin AmericaTurnover £463mEmployees 1,316Equivalent units sold 8.0m

Major brands:Johnnie Walker,Smirnoff,Baileys

EuropeTurnover £3,925mEmployees 11,625Equivalent units sold 41.6m

Major brands:Smirnoff,Guinness,Baileys

North AmericaTurnover £2,828mEmployees 3,914Equivalent units sold 44.6m

Major brands:Smirnoff,Johnnie Walker,José Cuervo

Africa and Middle EastTurnover £752mEmployees 5,025Equivalent units sold 13.9m

Major brands:Guinness,Johnnie Walker,Smirnoff

Asia PacificTurnover £993mEmployees 2,681Equivalent units sold 11.2m

Major brands:Johnnie Walker,Smirnoff,Guinness

3 Diageo Corporate Citizenship Report 2003

•Major market

•Key market

•Venture market

•Major production or distribution site

Premium drinks business only.

What we stand for

4 Diageo Corporate Citizenship Report 2003

Diageo’s business activities directly affect the lives of millions of people around the world – as consumers,employees, investors,neighbours andbusiness partners.This brings a duty to be a responsible corporate citizen,so that all those with a stake in Diageo may prosper.

For Diageo,being a goodcorporate citizen is a natural partof doing business.As with allbusiness activities,we rigorouslymanage,measure and evaluateour progress in addressing ourimpacts on the world around us.

Our valuesCorporate citizenship means‘acting with integrity’.By this we mean dealing with issues in their entirety while livingDiageo’s values:

> Proud of what we do We actsensitively with the higheststandards of integrity and socialresponsibility.We enjoy andbenefit from diversity

> Be the best We set highstandards and try hard to exceedthem.We deliver results,winwhere we compete andcelebrate our success

> Passionate about consumersWe’re innovative,constantlysearching for new ideas thatdrive growth and developingthem across the business

> Freedom to succeed We giveourselves and each other thefreedom to succeed because thisfosters an entrepreneurial spirit.

Defining corporate citizenshipBeing a good corporate citizeninvolves all the ways in which ourbusiness and products interactwith society and the naturalworld,and encompasses thebalance between actingresponsibly and the right totrade freely. It includes ethics,governance,relations withemployees,customers,consumers and suppliers,communities,health and safety,and the environment.To be mosteffective,we focus our efforts onareas where our business has thegreatest impact – particularlysocial responsibility and alcohol –and where our efforts can havethe greatest benefit.

Good corporate citizenship:

> helps create a sustainablebusiness environment

> builds awareness among our people

> builds trust with ourstakeholders

> develops team spirit,capabilities and skills

> enhances our reputation andthe value of our brands.

Engaging with stakeholdersWe define our key stakeholdersas those people – individuals and groups – with an interest in,or affected by,our business or our operations:consumers,employees, investors,customers,suppliers,business partners,media,government and thecommunity.

With distinct groups,such asmajor institutional investors,wediscuss corporate citizenshipissues directly with interestedmembers.Our communicationsprogramme in the past year hasincluded presentations tosocially-responsible investment (SRI) analysts as well as one-to-one meetings.

With wider and more variedgroups,such as consumers,we carry on a continuousdialogue.Our primary aim is to gain insights into theirmotivations as purchasers of ourbrands.But we’re building thatdialogue to address concernsconsumers have in the areas of social and environmentalresponsibility.Employees too are a group with whom ourdialogue on these issues is being strengthened.

More generally,our ability tounderstand and respond to theneeds and objectives of ourstakeholders is critical. In thefuture,we will be measuring and reporting our progess in this regard.

5 Diageo Corporate Citizenship Report 2003

‘Can a drinks company ever betruly responsible?’

We make a product that peoplehave been enjoying forthousands of years but which can cause harm if consumedirresponsibly – somethingalcohol has in common withmany other products.Ourapproach is to promote theproper use of our products byadults and help tackle the causesof irresponsible consumption.

‘You’re only interested inselling more drink.Socialresponsibility is a cover forcommercial motives.’

Diageo views social responsibilityas a critical aspect of goodcorporate citizenship,and iscommitted to promoting theresponsible consumption ofalcohol.In the long term,thesustainability of our businessdepends on fulfilling our duties asa good corporate citizen.It makesgood business sense and createsvalue for our shareholders.

‘Social responsibility is amatter for the whole drinksindustry.What good canindividual companies do?’

While we work with industrybodies around the world,as theleading business Diageo has avital role to play in encouragingthe responsible consumption of alcohol.

‘Corporate citizenship is justthe latest business fad.’

Diageo not only has a long track record of good citizenship,but also has a long-termperspective.A responsibleapproach is crucial to our futuresuccess and our journey tosustainability. It is integral to the way we do business.

The benefits of good corporate citizenshipThe chart below summarises the key impact areas identified in ourpolicies and the approach we take to each issue.The benefits tosociety,contributing to progress towards sustainability, form the basis

of the next three sections of the report which cover our social,environmental and economic impacts and performance.The benefits to Diageo add up to an ever-strengthening relationshipwith society within which the business can continue to prosper.

Key impact area See page

Economic

Direct financial contribution 24

Indirect financial contribution 22 – 23

Investment 23

Supply chain 24 – 26

Social

Dignity at work 12 – 13

Life balance 11

Releasing potential 10 – 11

Reward 11

Valuing people 13

Employee engagement 12

Working environment 12

Responsible drinking 6 – 8

Consumer responsibility 9

Community 14 – 17

Environmental

Energy and climate change 19

Water management 19

Materials and recycling 20

Our approach

Pay taxes as required

Manage business effectively

Build total shareholder return

Encourage business partners to share our approach

Treat employees solely according to their ability

Respect employees’commitments at home and in the community

Develop employees’skills and foster self-learningRecognise contribution through fair employment terms

Pay special attention to the needs of young people

Keep employees informed and respectcollective representationEnsure health, safety and welfare of employees

Market responsibly and promote sensible drinkingDeliver product quality and consumer information

Actively engage with society

Minimise energy use and greenhouse gas emissionsMinimise water use and harmful emissionsReuse by-products, reduce packaging and minimise waste

Benefit to society Benefit to Diageo

Public wealth

Employment and business opportunity

Investment opportunity

Business sector integrity

Diverse communities

Community involvement

Quality of workforce

Prosperity

Protection of vulnerable groups

Citizens and corporations in balance

Healthy employees

Responsible drinking patterns

Consumer choice

Community challenges addressed

Climate change curbed

Water resources conserved

Materials and habitats conserved

Progress towards sustainability

Compliance

Increased efficiency

Greater influence and leverage

Better goods and services

Employee diversity

Employee satisfaction

Work quality and productivity

Attract and keep the best people

Long-term employee relationships

Employee empowerment

Compliance and productivity

Industry leadership

Brand loyalty

Closer relationships with markets

Compliance and utility savings

Compliance and utility savings

Material and landfill cost savings

Continuing commercial success and licence to operate

▼ ▼ ▼ ▼

▼ ▼ ▼ ▼

▼ ▼ ▼ ▼

Social impacts

6 Diageo Corporate Citizenship Report 2003

Rob MalcolmPresident,global marketing,sales and innovation

‘We recognise that alcohol beverages may be consumed irresponsibly,creating problems for individuals and for society.This is why we want toensure that Diageo brands are advertised and marketed responsibly and why we are actively involved in initiatives that educate consumers aboutresponsible drinking or help tackle alcohol misuse.’

Social responsibility and alcoholDrinks containing alcohol havebeen enjoyed for at least 7,000years and are found in mostsocieties.Treated responsibly,alcohol is associated withenjoyment and celebration,but it is common knowledgethat excessive or inappropriateconsumption can cause healthand social problems forindividuals and society.Thenature and seriousness of anyproblems related to alcoholmisuse vary from one country toanother and are influenced byvarying cultural attitudes.Theseissues are acknowledged by thedrinks industry as a whole;as theworld’s leading premium drinksbusiness,they are particularlyimportant for Diageo.Ourapproach is based on thefollowing key principles:

> moderate and responsibleconsumption of alcohol,whetherbeer,wine or spirits,can be partof a balanced and healthylifestyle for most adults

> the industry should worktogether to promote responsibledrinking and ensure that self-regulation of marketingpractices is effective

> adults should be able to makeinformed choices about drinking– or not drinking.Young peopleneed appropriate education andguidance from teachers,parentsand other role models.

We believe that brandadvertising that depictsresponsible drinking as a relaxed,sociable and enjoyable part oflife can help promote aresponsible approach to alcohol.Whilst independent scientificresearch shows that advertisinghas measurable effects on bothmarket share and consumerswitching between brands,several other studies suggestthat alcohol advertising does notincrease levels of consumptionoverall.Similar assessments ofadvertising have been reachedby independent third-partyreviews,such as the 10th SpecialReport to the US Congress onAlcohol and Health (2000) andthe Plan for Action on AlcoholProblems prepared by theScottish Executive (2002).

Responsible marketingDiageo seeks to build marketshare in a competitiveenvironment and our aim is to have Diageo’s marketingactivities recognised as the best in our industry,setting the standards for responsiblemarketing.

In addition to abiding by localand national laws andregulations relating to alcoholadvertising,we aim to complywith self-regulatory codes ofpractice drawn up by the drinksindustry or by advertisingstandards authorities.Supportedby effective complaints andenforcement mechanisms,

self-regulation is more flexibleand ultimately more effectivethan legislation.In 2002,weprepared a toolkit to promoteself-regulation in emergingmarkets and the developingworld.This has been publishedby the International Center forAlcohol Policies (ICAP).

In addition to industry codes,we also have our own code of marketing practice,firstimplemented when Diageo wasestablished in 1998.In 2001 we appointed an independentauditor to report on ourcompliance with this code.The auditor examined thepromotion of 27 brands in 47 countries – reviewing about1,000 advertisements – andfound a high level of compliancewith the code.The reviewsuggested a number of ways in which the code could bestrengthened and many of thesesuggestions have been includedin the revised Diageo code ofmarketing practice.We alsoconsulted a range of alcoholpolicy experts,governments andintergovernmental organisations.Feedback from these sourceswere used to update andstrengthen the code.

The new code,which setsminimum standards of practicefor all Diageo marketing activitiesaround the world,was launchedin October 2002.Since then,allour marketing teams and key

Diageo Taiwan played a leading role inestablishing the Taiwan Beverage Alcohol Forum,which targeted youngerdrivers with an anti drink-driveadvertising campaign.

As with all our brands,the responsiblemarketing of our ready to drink productsis important to us.

agency people have beentrained in the use of the codeand new compliance processesput in place in every country.This work has greatly increasedresponsible marketingawareness and capabilitythroughout Diageo;during thecoming year our aim is to furtherstrengthen these processes andto embed the code fully in ourbusiness culture.

An increasing trend is advertisingwith a specific responsibilitymessage.In the US,20% ofDiageo’s broadcast advertisingbudget is dedicated to brandedresponsibility advertisements.Smirnoff Ice,Smirnoff,JohnnieWalker Black,Baileys,CaptainMorgan and Crown Royal have all developed televisioncommercials with a responsibilitymessage.

We take complaints about our marketing activities veryseriously. If a complaint about a Diageo advertisement isupheld, it is withdrawnimmediately. In Britain,oneadvertisement was withdrawnout of 187 separate advertisingcampaigns run across 15 brandsin 2002 – a rate of about 0.5%.In the following year again oneadvertisement was withdrawn,this time out of 224 campaignscovering 22 brands,representinga rate of 0.4%.

InnovationInnovation is crucial to Diageo’slong-term success.We innovateto create new products and to develop extensions of existing brands.

Ready to drink products inparticular have attracted muchcriticism based on theperception that they appeal tounderage drinkers or are a causeof binge drinking by youngadults.This is not supported bystudies of young people’sdrinking patterns,such as the US Federal Trade Commissioninvestigation in 2002 andresearch commissioned by thePortman Group in 1997 and1999.We do observe,however,that there are RTD products insome markets that are notcompatible with the highstandards set out in Diageo’scode of marketing practice.To beeffective,self-regulatory systemsneed to be capable of ensuringthat such products are removedfrom the marketplace.

Recognising the importance ofthese issues,we have structuredthe stages of our productdevelopment process to ensurethat new products are fullycompliant with the code.

Alcohol and healthWhile there may be healthbenefits associated withmoderate alcohol consumptionfor some people,we do notencourage people to drink forhealth reasons.The Diageo codeof marketing practice specificallystates that we will not presentabstinence in a negative light norimply that it is wrong or foolishto refuse a drink.

We are committed to opendialogue with public healthauthorities,research andacademic communities andothers with an interest inalcohol’s impact on health.Weare a signatory to the DublinPrinciples,which set out theethical basis for co-operationbetween the drinks industry,governments,scientificresearchers and the public health community.Weblink:www.icap.org/about_icap/dublin.html

We keep up to date withresearch into the impact ofalcohol on health – for example,through our membership of theindustry-funded Centre forInformation on BeverageAlcohol. As a member of theAlcohol Task Force ofInternational Life SciencesInstitute Europe,we have co-funded a range of peer-reviewed researchoverviews and publications.

The social costs of misuseAs with other products that havethe potential to be abused,thereare a range of health and socialcosts associated with alcoholmisuse, including the cost ofalcohol-related accidents andalcohol’s contribution to theglobal burden of disease.Thesehave to be considered alongsidethe benefits that alcoholproduction and consumptionbring to society, including taxrevenues and possible healthbenefits as well as the enjoyment

that the responsibleconsumption of alcohol brings tomany people.The total picture iscomplex and both the costs and the benefits are difficult toquantify.We believe that thecorrect response to alcoholmisuse is for drinks companies,governments,health authorities,health professionals andinterested citizen groups to work together to find commonground and ways of promotingresponsible drinking.

Young peopleWe share widely expressedconcerns about underage andbinge drinking by young people.Young people sometimesexperiment with drinking andcan encounter problems if notgiven appropriate education andguidance.Parents and teachers,as role models,need to know thefacts about alcohol and lead byexample.Diageo has a role toplay and has helped developworld-class education materialsfor use with young people andcampaigned to prevent sales ofalcohol to those underage.

Industry marketing practices areoften cited as contributing tounderage drinking and abusivedrinking patterns by youngadults.Evidence,based onindependent research,suggeststhat many different influencesshape young people’s drinkingattitudes and behaviour.Sincemost alcohol consumedworldwide is not advertised, itappears these other factors –especially parental and peerinfluences – are more powerful.

Corporate Citizenship Report 20037 Diageo

Hon MEC Thabang Makwelta and TshidiSeane,Diageo South Africa externalaffairs director, launching the Be Safe,Be Seen road safety reflector campaign.

Diageo-sponsored anti-drink-drivecampaign in Thailand.

8 Diageo Corporate Citizenship Report 2003Social impacts

Advertising and promotion

Climate of opinion

– New products– New formats– Packaging– Brand names

– Code of marketing conduct

– Advertising self-regulation

– Server training – Unacceptability of loss of control

– Responsibleadvertising

– Teacher support materials

– Parent education

Product development

Bars – ‘on trade’

Other retailers – ‘off trade’

EducationBrand marketing/ promotions

Consumers

1111

4

1

3 7

2

2

4

Social responsibility and alcohol – Diageo’s holistic approach

In our marketing activities,wenever target people under thelegal purchase age,which varies from country to country.In addition to this, in countrieswhere there is no legal purchaseage,or where the age is set atless than 18, it is Diageo policynot to target our products atpeople under 18.We believe thatall governments should set anage limit for legal purchase at notless than 18 years.Equally, it isessential that controls are inplace to ensure that such lawsare observed and enforced.

As a member of the CenturyCouncil,Diageo has helpeddevelop alcohol educationmaterials for use in colleges inthe United States.

The Diageo Foundationsponsored the production ofeducation materials by the UK’sTeacher’s Advisory Council onAlcohol and Drugs Education(TACADE), including The World ofAlcohol for primary schoolteachers.The Foundation-fundedRespect It materials for UKsecondary school teachers arebeing amended for use inAustralia.

Drinking and drivingWe believe that all governmentsshould set legal blood alcoholconcentration levels for driversand we support tough penaltiesfor those convicted of drink-driving.Through representationby ICAP,Diageo supports thework of the Global Road SafetyPartnership (GRSP),a public-private initiative of the WorldBank that aims to improve roadsafety in the developing world.Diageo chairs the GRSP in Ghana

and leads the drink-drivecommittee of GRSP in SouthAfrica.

As further examples of drink-driving initiatives taken duringthe year: in Canada Diageo ispartnering drink-driveorganisations OCCID (OntarioCommunity Council for ImpairedDriving),TAID (Take ActionAgainst Impaired Driving) andthe Toronto RIDE campaign topromote education about theissue;and in the 2002 festiveseason in Seychelles we workedwith the police and ministry ofhealth on a public educationproject on the consequences ofdrink-driving.In Kenya,Diageosponsored radio advertisementsthat encouraged people on anight out to designate a non-drinking driver.

Responsible servingThose who serve alcohol toconsumers in bars across theworld have the opportunity to influence the way in which it is consumed.Diageo is a strong supporter of responsibleserver training initiatives.Examples include ServeWise in Scotland,developed byAlcohol Focus Scotland.

In the United States,we havesupported the TIPS servertraining initiative for severalyears; in May 2003 we launched a Spanish-language version (see right). In Seychelles,Diageosponsors training on responsibleserving and product knowledgeto bar staff in hotels and barsacross the main island of Mahé.Through our membership of theIrish social aspects organisationMEAS,we support a responsible

serving programme inpartnership with the departmentof health and CERT,the trainingbody of the Irish hospitalityindustry.Over 2,000 bartendershave now been trained underthe Diageo-funded scheme inKenya.Bartender trainingprogrammes have also beenestablished in Brazil,Nigeria and Thailand.

Our employeesAs our ambassadors,we expectour employees to demonstrate aresponsible attitude to drinkingin and out of the workplace.Our long-established employeealcohol policy definesappropriate behaviour andcovers topics such as alcohol andthe workplace,drinking and driving,enforcement andproblem drinking.The vastmajority of the time ouremployees are exemplary in theirconduct in this area.Wherebreaches do occur they are dealtwith through our codifieddisciplinary policies andoccasionally result in dismissal.

PartnershipsWe often work in partnershipwith other drinks companies and a range of external bodies on responsibility initiatives.We are members of many social aspects organisations (SAOs)around the world which focus on tackling alcohol misuse and promoting responsibledrinking.Where possible,suchorganisations are co-funded byrepresentatives of the beer,wine and spirits sectors.Thegeographical spread of the SAOsto which we subscribe coveredtwo-thirds of Diageo’s businessby revenue in 2003.

Diageo memberships of socialaspects organisationsGoda,DenmarkEntreprise et Prévention,FranceMEAS, IrelandFISAC,MexicoStiva,NetherlandsARA,South AfricaFAyS,SpainTBAF,TaiwanThe Portman Group,UKThe Century Council,USA

Diageo is a sponsor of theInternational Center for AlcoholPolicies (ICAP),a not-for-profitorganisation which works to helpreduce the abuse of alcohol andto promote understanding of therole of alcohol in society throughdialogue and partnershipsinvolving the beverage alcoholindustry,the public healthcommunity and others with an interest in alcohol policy.Diageo is also a member of theAmsterdam Group,an alliance ofleading European alcoholbeverage companies which worktogether as well as withgovernments and otherinterested groups to addresssocial problems related to theexcessive or inappropriateconsumption of alcohol.

Further informationICAP produces reports on issuesconnected with the impact ofalcohol on society,such as thesignificance of different drinkingpatterns for individuals andsociety,the social cost,violenceand health warning labelling.ICAP reports can be found atwww.icap.org.Also available on the site is ‘A SuggestedFramework for Responsibility’,fully supported by Diageo,which sets out a checklist ofactions for ensuring theresponsible marketing of alcohol in the developing world and emerging markets.

9 Diageo Corporate Citizenship Report 2003

Serving consumersWe’re passionate aboutconsumers and committed toproviding them with brandsdeveloped,produced andmarketed to the higheststandards of quality,safety andresponsibility.

Product qualityThe quality managementsystems operated by ourbusinesses ensure customers andconsumers receive consistentlyexcellent service,value andquality.Our products aremonitored through manufacture,storage,distribution and at pointof sale to ensure they reachconsumers in pristine condition.This monitoring will besupported in future by the newinternet-based ‘track and trace’system we are currentlyintroducing in Europe to makebatches fully traceable along thesupply chain.In the rare event ofa product having to be recalled(there were no such eventsduring the year),the system willallow this to be done quickly andefficiently,minimising the risk toconsumers.During the year therewere also no breaches of foodsafety regulations by ourproducts.

Consumer satisfactionWe value the views we receivefrom consumers. If there arecomplaints,these are resolvedwherever possible to thesatisfaction of the consumer.Complaints about our brands are shared with our productionstaff and contribute to thecontinuous improvement of our manufacturing methods.

Consumer complaintsper million cases

2003 2002 2001Europe and North America 36 46 88

The number of complaints inEurope and North America hasfallen considerably over the lastthree years.The time taken toresolve product problems hasalso been reduced – from 7.9days in 2001 to 7.2 days last year.

Product informationConsumers have an interest inthe ingredients of the drinks theybuy and,where possible,werespond positively to theirenquiries.We do not,of course,divulge our recipes.

All our brand labels indicate thealcohol content by stating thepercentage of alcohol by volumewhere permitted and required.In some countries,Diageo labelsalso state the number of units orstandard drinks contained in the bottle or can.Because thedefinition of a standard drinkvaries significantly from onecountry to another, it has so far not proved practical tointroduce such a system in all markets.

Genetic modificationPublic opinion on geneticmodification varies from countryto country and is evolving overtime.In North America,wherethere is widespread application of the technology,GM maize may be included in the grainused to make some Diageospirits,but GM ingredients arenot currently used in any otherproducts. It is worth recordingthat the compounds directlyaffected by genetic modification– DNA and proteins – are absentfrom the final product as they areexcluded by the distillationprocess.We will continue tomonitor consumers’views,review legislation and provideinformation to consumers inresponse to their concerns aboutthe ingredients used to produceour brands.

Consumer privacy and data protection We work to build long-termrelationships between ourbrands and their consumers.To ensure privacy,we do notcontact people unless theyexpressly give us permission todo so.All of our marketingactivities – including web sites,emails, texts and direct mail –comply with the eight EU DataPrinciples,the highest standardof consumer privacy and dataprotection in the world.We donot sell or trade consumerinformation.

Counterfeiting Forgery is an unfortunate part of any premium goods business,and an issue about which we are very concerned.Recently,quantities of counterfeit whisky,falsely labelled with a Diageobrand,were found to containdangerously high levels ofmethanol,which is harmful tohealth.This illegal activity alsoimpacts on the taxes recoverableby governments,damages ourbrand values and loses ourbusiness an estimated £70million a year.To protect the well-being of our consumers and thereputation of our brands wemake our packaging difficult tocopy and invest in technology to authenticate our products.

We support the work ofgovernments and tradingstandards authorities around the world by providing trainingand information to help themtrack down and prosecute people involved incounterfeiting.For example, inTaiwan we trained over 100customs officers in how todistinguish between fake andgenuine products and helpedthe government set up a newanti-counterfeit task force.

The road aheadWe have created the policyenvironment and put in place the management structureswithin which we can succeed as a responsible drinks business.In the future,we plan to respond to changing expectations byengaging more actively withmany stakeholder groups –particularly consumers,educators and parents.

Bartender trainingThe Diageo-supported TIPS – Training for Intervention Procedures –programme teaches bartenders aboutthe responsible serving of alcohol.The Spanish-language version of TIPShas been launched and will be run in US cities with large Hispanicpopulations.Our goal is to providesimilar schemes in Latin America and the Caribbean.

World Health OrganisationRepresentatives from Diageo,with 16 other major beverage alcoholcompanies,met senior officials of theWorld Health Organisation (WHO) inGeneva (pictured).The meeting was anopportunity to discuss issues relatingto alcohol and public health.Togetherwith other industry representatives,Diageo briefed WHO on its socialresponsibility and alcohol initiatives.Additionally,discussions took place on drink-driving and the marketing of alcohol and young people.

10 Diageo

Gareth WilliamsHuman resources director

Corporate Citizenship Report 2003Social impacts

‘Diageo has some of the very best talent in business today.The values of ourbusiness and our commitment to all areas of corporate performance areessential in attracting,motivating and retaining that talent.’

Employee benefits awards

> Diageo in the UK won twoProShare awards in 2002:for bestperformance in fosteringemployee share ownership andmost effective communication ofan employee share plan.

> Awards won by the UKpension plan include Best LargeScheme in the 2002 ProfessionalPensions Awards 2002 andPrivate Sector Scheme of the Yearin the UK Pensions Awards 2002.

> Diageo was awarded‘European Leader;Fund Structureand Administration’for thesecond consecutive year in theInvestment and Pensions Europe Awards 2002.The winnerwas selected from a field of 28 country leaders.

Releasing the potential of our peopleReleasing the potential of everyemployee is one of Diageo’s corestrategic imperatives.Achievingthis goal will create sustainablevalue in the business.By valuingour people as individuals andproviding an inspiring andinclusive work environment wesupport the growth of both ourpeople and our business.Releasing the potential of everyemployee has shaped ouremployee policies (summarisedon page 29) and will govern thepractices and priorities wepursue over the next few years.

During the year we had 24,500direct employees in Diageopremium drinks companiesoperating in most markets of the world.

Employees 2003 2002Europe 11,625 11,658Africa 5,025 4,813North America 3,914 3,486Asia Pacific 2,681 2,684Latin America 1,316 1,278Total 24,561 23,919

In 2002 we moved to becomeone business with one name,Diageo,across our operations.The change represented a step in the creation of a globallyconnected business pursuing afocused premium drinks strategy.It marked a significant culturaldevelopment for Diageo.Wehave always valued the creativity,knowledge and skills in ourindividual businesses and

markets.While keeping the bestof what is local we also want toachieve greater consistency inthose areas of strategy,policyand practice which we know willsupport the long-term businessaspirations for our community ofDiageo companies.

Developing our peopleThe capability and training needsof our employees are assessedand addressed through theannual organisation and peoplereviews which take place in every business unit.Two areas of primary focus in the past two years have been peopleand brands.Trainingprogrammes have beendeveloped in each area and aredelivered by our own staff.

High performance coaching is atwo-day manager’s programmedesigned to enhance the qualityand depth of performance anddevelopment conversations andoutputs between managers andemployees. In the past two yearsalmost 4,000 employees havebeen through this programme.

The Diageo way of brand buildingis a collection of world-classmarketing developmentprogrammes which hassuccessfully brought bestpractice in brand buildingprocesses and marketplaceexperience to over 6,000employees.

All employees are expected tohave regular performance anddevelopment conversations withtheir managers.Achieving this inall parts of the business is a goalwe are pursuing with employeesand their representatives which will become a keyperformance indicator for all our businesses.

Training people in new skillsperforms an important socialand economic function,particularly in developingcountries. In Nigeria, for example,Diageo employees benefit fromhaving access to both local andinternational courses onmanagement and acquiringskills.During the year,over£275,000 was spent on trainingfor the 1,500 employees inNigeria and the proportion of theworkforce with IT skills increasedfrom 54% to 73%.

We believe that the internationaldevelopment of a significantproportion of our population is essential for a true globalbusiness.We currently haveapproximately 300 internationalassignments which representover 10% of our managementpopulation.67% of thatpopulation is British or Irish.We aim to increase the mix of other nationalities oninternational secondments byten percentage points over thenext four years.

Strong attention is given toproviding opportunities for ourpeople to develop their careerswithin Diageo.To make thoseopportunities even moreaccessible,we are rolling out anopen global recruitment systemand intranet to support bothinternal and external jobapplications.Launched in theUSA in July 2003, it will takeapproximately two years tobecome fully operational in allparts of our business.

Recognition and rewardWe believe in providingcompensation packages for our employees which arecompetitive in the markets inwhich we operate.We regularlybenchmark our position againstother relevant employers by market.

We are keen to promoteemployee share ownership as we believe there are very clearbenefits in linking employee andshareholder interests in respectof personal value creation.Acrossour companies we have a varietyof plans to promote shareownership.Some of the keystatistics are:

> 18,000 employees of Diageocompanies,past and present,own Diageo shares with 44% ofthese holding over 1,000 shares

> Sharesave plans,offeringemployees shares at adiscounted rate,operate in 16countries,with coverage offurther countries planned.Thehighest participation rate is inKorea where 94% of employeestake part

> Diageo was one of the firstcompanies in the UK to launch a share purchase/share matchplan under 2002 legislation.51% of employees participate in the plan.

Our compensation packagesinclude a range of benefitswhich,when added to the cashelement,support our goal ofattracting and retaining talentedpeople. Increasingly,we offer ouremployees a choice of benefits.In many countries,companypension plans are an importantpart of that benefit mix.At a timewhen pension plan design andcost is coming under increasingexternal scrutiny,we aremaintaining our plans in theirpresent forms,although we docontinually monitor theireffectiveness and cost.

Sharesave plans 2003Countries where plan offered 16Employees covered 66.8%Employees participating where plan offered 37.4%

Life balanceOur employees have a strongcommitment to the company.We recognise that our peoplehave commitments away fromthe workplace and encouragepatterns of working that allow abalance between their home lifeand career.Such flexibility isdependent on the nature of thework being done,but recentdevelopments in a number ofour businesses have allowed forperiods of home or remoteworking supported by company-funded IT connections.Sucharrangements cannot beprovided universally but areparticularly advantageous toemployees with long commutesto work.

Employment by category 2003Full-time 95.4%Part-time 4.6%

Many of our people are activemembers of their communities,with important voluntary roles.Some examples of the great work done by our people aregiven,right.These,and the effortsof thousands of other employeesnot listed here,make us veryproud of the people who workfor Diageo.

Corporate Citizenship Report 200311 Diageo

Employee volunteering andfundraisingEmployees of Diageo Argentina raisedfunds to buy food,clothing and schoolequipment for the Escuela General Las Heras (pictured).

Diageo Ireland employees raised over£11,000 for a new cystic fibrosis unit atOur Lady’s Children’s Hospital,Crumlin,through a Guinness triathlon.Employees of Diageo Germany raisedover £23,000 to support victims of theflood disaster in Dresden.

In October 2002 Daniel Braden,marketing manager in Taiwan,waskilled in the Bali bombing.Tocommemorate his life,Daniel’s familyset up a trust to support education inIndonesia to which Diageo and itsemployees have given their support.Daniel is fondly remembered byfriends and colleagues.The trust’s website is www.encompasstrust.org.

Employees from our Scottish maltdistilleries clocked up over 11,000 hours of voluntary work over the year.Our employees in Scotland are greatcharity fundraisers,generating over£300,000 in a year,a figure boosted by matching contributions from theDiageo Foundation.

12 Diageo Corporate Citizenship Report 2003Social impacts

Employee engagementWe put great value on keepingemployees informed ofdevelopments within thebusiness at global and locallevels.During the year weproduced a suite of brochures for all our people detailing ourvalues,ways of working,language and policies. In afurther initiative,we distributed a booklet How we do things,summarising the business’shuman resources policies and practice.

Employees are encouraged toexpress their views through avariety of channels.A respectedemployee opinion researchcompany, ISR,helped usconstruct and run a global valuessurvey which we use to monitorviews on living the Diageovalues. Individual businesses canadd questions to the core surveyto deal with particular localissues.The results of the surveyare independently benchmarkedagainst a ‘high performancenorm’derived from leadingglobal companies.

Within each value area thesurvey explores the levels ofemployee engagement withtheir roles and with Diageo.Webelieve there is a link betweenemployee engagement (broadlymeasured by the questions inthe table below) and businessperformance.

Where employees did not ratetheir response ‘favourable’they had either a neutral orunfavourable response to thequestion.We are pleased withthe results of the survey,thoughit demonstrates areas forattention.Because we arecommitted to listening to ouremployees,each businessdevelops an action plan focusingon priority areas from the survey.These will be embedded intolocal performance goals and reviewed regularly by senior management.

Occupational health and safetyOur operating units around theworld conform to the Diageooccupational health and safetypolicy,summarised on page 29.The new policy has already beenapplied at production sites;alloffice locations will be fullycompliant with the new riskmanagement standards by June 2005.

Health and safety 2003Fatalities 0Regulatory notices received 6Fines imposed 2

The main causes of incidentsresulting in lost time were headinjuries, lacerations and backstrain.Four of the regulatorynotices related to an explosionwhich occurred in a spirit storagetank at Huntingwood,Australia.The incident fortunately did notcause injury and prompted amajor safety upgrade of thestorage area.The other twonotices,which resulted in finestotalling £1,300,were receivedfollowing accidents at a Diageosite in California.

Our global HIV/AIDS policycentres on providing a variety of workplace programmes thatcover non-discrimination,awareness and prevention,voluntary counselling andtesting,and employee support.Because of the scale of the issuein several of the African countriesin which we operate,we havetaken the decision to make anti-retroviral drugs available toDiageo employees and theirimmediate dependants who areinfected with HIV.

Such drugs have proven thatthey can,with the righttreatment regimes,prolong lifesignificantly.Consequently,oursupport for HIV-infectedemployees will continue even if they leave the company.Foranti-retroviral drugs to workeffectively they must beadministered as part of a totalhealthcare solution.Each of ourAfrican subsidiaries will ensurethat such mechanisms are in place.

Severe acute respiratorysyndrome (SARS) impacted ourbusiness and employees inseveral countries during the year.A special action group,chairedby an executive committeemember,was formed to co-ordinate our approach and taketimely decisions.A small numberof employees were quarantinedto guard against infection.

Dignity at workWe encourage the uniqueness of individual contribution withina team environment.One of ourcore values,‘freedom to succeed’,promotes openness andteamwork, invites employees tochallenge convention andencourages trust in people.Measures of our progress in thisarea are included in our globalvalues survey.

Diversity by gender Men Women% %

Senior managers 80 20Managers 72 28Employees 68 32

We are committed to inclusionand value the diversity of ouremployees.Gender andnationality are two universalindicators from diversity’s manydimensions.The Diageo boardcomprises nine men and onewoman.Of our 930 seniormanagers,20% are women;ofour 275 most senior managers,two-thirds are British.We arecommitted to furtherdiversification of the gender and nationality of this leadership population.

Global values survey Highperfor-

Diageo mancescore* norm

Our values % %Proud of what we do 84 74Be the best n/a n/aPassionate about consumers 70 77Freedom to succeed 78 55

Survey resultsPeople in my team are good ambassadors for our brands outside the workplace 82 n/aPeople in my team can question whether we should keep doing things the same way 81 55My manager generally understands the problems we face in our jobs 74 55How satisfied are you with your freedom to get on with the job? 73 n/aDiageo is seen as a responsible member of the community 79 67I have high stretching objectives agreed with my manager 70 n/aPeople in my team are focused on results 90 n/aMy manager tells me regularly how I’m doing in my job 62 57I am proud to work for Diageo 90 81*Employees responding favourably. n/a:not available.

13 Diageo Corporate Citizenship Report 2003

Our global diversity action planwill cover three areas:

> the way that internal andexternal recruitment processesenable the attraction andselection of a diverse pool oftalent,both now and in thefuture

> increasing the accessibility andacceptability of flexible workpolicies and practice

> developing and recognisinggreat practice in our leaders inrespect of attracting,retainingand developing diverse talent.

Over the next 12 months,thesegoals will be given greatersubstance and targets will be setto measure progress over thenext three years.

There were no substantiatedclaims for harassment or abuseof employees during the year.

Valuing peopleIt is not usual for us to employpeople under the age of 18unless they join through arecognised apprenticeshipprogramme.We support a rangeof work experience schemeswhich expose school students toa work environment.

Neither Diageo,nor its primarypartners,makes use of any formof forced or compulsory labour.

Confronting challenging decisionsWhere we have taken decisionsto close a plant or make postsredundant,we have aimed tohandle such events in a mannerwhich is fair, transparent andsupportive to those impacted.

When we decided to close theStrathleven packaging plant atDumbarton,Scotland in 1999 ourimplementation programmeincluded careful consideration ofthe effect the closure would haveon employees,their families andthe local community,as well asconsumer reaction.We promisedthat people affected would beconsulted throughout theprocess and assisted in planningfor their future.

To ensure best practice wecommissioned research on plantclosures around the world.Weestablished a counselling serviceto help people look for new roles inside and outside thebusiness.Local taskforces wereestablished,with representativesof employees,community,government and fundingagencies.

When the closure was complete,the House of Commons ScottishAffairs Committee reported,‘We believe that Diageodisplayed a well-developed senseof corporate responsibility andemployed a sympatheticapproach to its former workforce.The approach adopted by Diageoat Dumbarton may have lessonsfor other communities that havebeen affected by closure.’

Another example comes from North America whereovercapacity following theSeagram acquisition led duringthe year to the closure of twoproduction sites in Toronto,Ontario,and LaSalle,Quebec.It was a difficult decision:theToronto plant had been runningfor over 70 years and the 51

employees affected had up to 40 years service.At LaSalle,theaverage age was 47 andemployees had served anaverage of 19 years.

The principle we adopted was totreat employees fairly,maintaintheir dignity during the closuresand help their transition to thenext stage of their lives.As a strictrule,as soon as a decision wastaken,we openly communicatedthe impacts of it to ouremployees.We conducted face-to-face meetings regularly to share information on areas ofconcern and on the progress ofthe closures.To ensure a smoothtransition,we provided:

> active on-site human resources support

> open and frequentcommunication with employeesto diffuse tension

> information on benefits andpension issues

> advice on job transfers,job-hunting,education andretirement planning

> modified benefits to helpemployees with the transition.

Although we believe we did theright thing for our people,thesedecisions are sometimeschallenged.At LaSalle,there is a pending complaint abouttransfer to another plant that we believe will be effectivelyresolved.

The road aheadIn many surveys of employees,Diageo is rated a great place to work.We make a point ofallowing our people the freedomto succeed and – an importantindicator – treat them fairly andwith dignity when their servicesare no longer required.Thecompetition to attract and retainthe best people can onlyintensify in the future. Increasingthe diversity of our workforce inyears to come will open up newsources of talent and add to therewarding experience of workingfor Diageo.

Employer of choice awards

> Diageo Australia received ahighly commended award in the ‘Best Companies to Work For’survey 2003 – for the third yearrunning.Weblink:www.afrboss.com.au

> Additionally,over the past yearDiageo in the following countrieshas been independently ratedone of the top employers ofchoice:Hungary, Ireland, Italy,Jamaica,Kenya,Portugal,Spainand the UK.

14 Diageo Social impactsCorporate Citizenship Report 2003

Our communitiesDiageo has a long and proudrecord of communityinvolvement through itspredecessor companies GrandMetropolitan,Guinness and JE Seagram & Sons.For us,community involvement is a vital part of corporate citizenship.The key is ‘involvement’.It marksthe difference between simplymaking charitable donations and taking action within thecommunity.

Local investmentWe consider the impacts on ourcommunities when we makecommercial decisions – forexample,when investing ordisinvesting in a local plant.We have benchmarked bestpractice in this regard around theworld and developed a toolkit toguide our decision making andimplementation.

1% commitmentWhen Diageo was created in1997,the company committed to invest 1% of its worldwideoperating profit on community

involvement and established the Diageo Foundation to helpchannel the money and tosupport the community activitiesof our businesses around theworld.By committing moreresources to fewer projects,focusing on key themes andworking in partnership withothers,we have gone a long waytowards achieving our aim ofmaximising the effectiveness ofour community investment.

Diageo’s community activitiesconcentrate on three focus areaswhich reflect where our businessactivities have greatest impact on society:

> Alcohol Education Helpingpeople make responsibledecisions about drinking

> Local Citizens Investing incommunities where Diageobusinesses operate byencouraging and supporting ouremployees and businesses intheir community activity.Immediate response to disastersfalls within this focus area

> Water of Life Supportinghumanitarian and environmentalprojects.

‘We want to be able to contribute actively to the communities in which weoperate and play a leadership role in helping others to help themselves. I amproud that in Australia we have developed the Helping Hands programmewith huge enthusiasm from our employees.’

John PollaersManaging director,Diageo Australia

Water of Life Clean Water Project,NigeriaBegun by Guinness Nigeria in 2003,the purpose of this programme is to provide 10 communities with basic clean and safe water. Localcommunities are involved in planning,constructing,managing andmaintaining their own projects,whichprovide opportunities for unemployedpeople to contribute their skills andlabour.When our involvement iscomplete at the end of 2003,theamenities will be transferred to localcommunities; the choice oftechnologies employed in theirconstruction will help ensure that theprojects are sustainable.

The £150,000 cost of the project wasborne by Guinness Nigeria,with a£50,000 contribution from the DiageoFoundation.

Alcohol Education Guinness Storehouse,IrelandThe Guinness Storehouse at St James’sGate,Dublin is Ireland’s most populartourist attraction.A new installation atthe Storehouse has been designedaround the theme of responsibility.By using sophisticated communicationtechniques and accommodating largegroups of visitors,the ‘Choice’zonepromotes a balanced understanding of the place of alcohol in society.Find more at:www.guinness-storehouse.com.

The total cost of this project was£800,000;the Diageo Foundationcontributed £250,000 towards theeducational aspects of the zone.

15 Diageo Corporate Citizenship Report 2003

Local Citizens Tomorrow’s People Trust,UKSince its launch,Tomorrow’s People has helped over 350,000 people –including into training,education and employment – in partnership with public sector agencies and over50,000 employers, including Diageocompanies.The charity’s pioneeringwork has inspired other innovativeprojects throughout the world,including the Foyer Federation and theGateway Training Centre for younghomeless people in the UK and theTomorrow’s People bar skills course inBrazil.All these projects build the self-esteem and work skills ofdisadvantaged youngsters.There is more information at www.tomorrows-people.co.uk.Diageo Foundation support (worth£20 million to date) has attracted £150 million from other funders.

> leaving and sustaining projects– we take a long-term view ofour community involvement andwork with partners to developsustained and measurablebenefits even after thepartnership has been dissolved.Having a mutually understoodexit strategy from the start of theproject prevents over-dependence

> communications – we aim tobuild awareness of projectsamong our teams,externalopinion leaders and communityaudiences.We are often calledupon to provide partners withcommunications support.

The road aheadOur key objective is to developand support community projectswith the widest impact.Withinthis broad objective,during theyear we set two specific targets:

> implement communityprojects in all major and keymarkets by June 2005

> ensure that the focus areas andproject support criteria continueto meet the needs of ourcommunities and our business.

Working in partnershipOur community projects must be focused,proactive andprofessionally managed.Duringthe year we revised our guidingprinciples which define thecharacteristics of manysuccessful projects anddeveloped toolkits to help ourbusinesses and communitypartners design and managecommunity programmeseffectively.These address manyof the challenges we face inestablishing community projects:

> researching andunderstanding our impacts onthe local community

> seeking out and engaging with local partners to ensure that each project is in tune with local needs and culturalsensitivities

> school and youth projects –Diageo is actively involved incommunity-based alcoholeducation projects with schoolsand youth groups,many fundedby the Diageo Foundation inconjunction with communitypartners

> community partnerships – a balance is struck betweenDiageo and its communitypartners for mutual benefit

> employee involvement – We recognise and support ouremployees’contribution to thecommunity.We allow employeestime off at their managers’discretion to volunteer oncompany-led programmes

Local Citizens Guinness Skills for Life Centre,South AfricaNelson Mandela approached ourbusiness to become involved inrebuilding South Africa and, inconsultation with local authorities and community representatives,we created the Guinness Skills for LifeCentre.This provides a range ofvaluable community amenities for thepeople of Colesburg in South Africa’sNorthern Cape including HIV/AIDSadvice,an enterprise unit,adulteducation,entrepreneurial training and a communications centre.The project was funded by ourbusiness in South Africa,with acontribution of £250,000 from theDiageo Foundation.

16 Diageo Corporate Citizenship Report 2003Social impacts

Philanthropy

Social investment

Commercially-led initiatives

Business basics

Support for good causes in response to the needs and appeals of charitable andcommunity organisations, increasinglythrough partnerships between Diageo,its employees,customers and suppliers.

Long-term strategic involvement incommunity partnerships to address alimited range of social issues chosen byDiageo to address its long-term interestsand continue to enhance its reputation as a good corporate citizen.

Activities in the community led by ourbusiness, including the promotion of Diageo brands and other social aspectspolicies, in partnership with charities andcommunity organisations.

The core business activities in meetingsociety’s needs for cost-effective products in a manner which is ethically,socially andenvironmentally responsible.

The Diageo FoundationThe Diageo Foundation wasestablished to support thecommunity involvementactivities of our businessesaround the world. Its annualbudget of approximately £3.5 million (which is included inthe 1% community investmentcommitment) provides kick-startfunding and expertise inestablishing projects which arethen supported locally by ourbusinesses. In some cases,theFoundation provides longer-term social investment in areaswhere we can make the mostdifference.

The Foundation’s incorporationunder UK charity law ensuresthat its funds do not support thedirect commercial interests of thebusiness.The Foundation’strustees are appointed by the

Diageo board from aroundDiageo businesses and functions.The independence of theFoundation is maintained by thetrustees working closely withexternal advisers and not-for-profit organisations withspecialist expertise in our focusareas.

The Foundation plays animportant role in developing the principles,disciplines andprocesses through which Diageoengages with its communitiesglobally. Its evaluation modelling,best practice promotion and,above all, its skilled team ofadvisers are on-hand to offercounsel,support and inspirationto the business and its partners.To enable the Foundation’sinvestments to stretch furtherand to achieve more in thecommunity,we have developedsystems which allow successfulprogrammes to be replicatedfrom one location to another.By providing seedcorn finance,the Foundation leverages othersupport such as third-partymatched funding,employeevolunteering,the transfer ofbusiness skills or productdonations from our businesses.

Funding applicationsProjects supported by theFoundation are sponsored byour businesses,which submitfunding proposals guided bytoolkits developed for each focus

area.During the year,theFoundation received 37 fully-developed new projectproposals from our businessesand over 700 externalapplications.These wereassessed according to their long-term business value as well as their potentialcommunity benefit.TheFoundation makes grants tosupport only the communityaspects of the project,anypromotional objective beingpaid for separately by the localDiageo business.

We work closely with our charity partners to track projectoutcomes and assess theirchanging needs.We alsocommission independentresearch to evaluate some of the key projects we support.

Evaluating communityinvestmentWe want to make sure that themoney our businesses allocate tocommunity activities,and the grants contributed by theDiageo Foundation,result in the maximum benefits for thecommunity and, in the longerterm,for our business.We use theLondon Benchmarking Group(LBG) model,which we helped pioneer in 1994,to put a realistic,conservative value on ourcontributions (inputs),and tomeasure the benefits(outputs/impacts) of ourcommunity investments.

The overall spend (input) by ourpremium drinks business during the year amounted to £19 million,which was 1.1% of operating profit (excludingassociates and minorityinterests).This is a decrease of 3%against the 2002 group spend,but an increase of 12% againstthe comparative premium drinks figures for 2001 and 2002.The increase was primarily due to a 66% greater investment inalcohol education programmes(2003 – £6.1 million; 2002 – £3.7 million). In addition thebusiness spent £23.5 million onsocial responsibility advertisingwhich has not been included inthe spend analysis.

Community spend2003 2002 2001£000 £000 £000

Continuing business(Premium drinks)

19,001 16,971 15,256Discontinued business(Pillsbury,Burger King)

– 2,639 4,524Total 19,001 19,610 19,780

The outputs and impacts of ourcommunity programmes cannotbe aggregated but we haveincluded a representative sampleof our project performanceevaluations.

Diageo team first into BaghdadThe Diageo Spirit of America fund wasset up following the terrorism in the USon 11 September 2001,donations fromemployees being matched by thecompany up to US$1million.

The fund’s Diageo Iraq HumanitarianAirlift became the first US civilianmission of its kind to Iraq when a team of New York City firefighters and police,three Diageo US and UKemployees and a representative of Diageo’s US distributors set out for Baghdad.

Starting in New York and pausing in Amsterdam to load a DC-8 cargoplane with milk powder,vegetable oil,rice,sugar, infant formula and proteinsupplement,the team were greeted byUS troops in Iraq and travelled to twochildren’s hospitals before deliveringthe supplies to a Baghdad orphanage.

Philanthropy

Spirit of America(USA)

£360,000 in matched fundingand emergency grants.

£180,000 from employees and business partners.£300,000from Diageo North America.

Money,services and equipmentfor fire and ambulance services.Specialist help for young peopleaffected by terrorist attacks.Humanitarian airlifts of suppliesfor Afghanistan and Iraq.

Programme recognised by the New York mayor,US StateDepartment and internationalhumanitarian agencies.Diageo employees feel proud of their support for the community.

Social investment

Foyer Federation(UK)

Diageo has contributed over£1,000,000 over the 10-yearpartnership.The Foundation isfunding an independentresearch project to evaluate theoverall effectiveness of the Foyermovement.

There are over 120 Foyers acrossthe country helping over 10,000homeless and disadvantaged16-25 year olds each year.Forexample,the Gateway Foyer wasthe first centre of its kind in theUK and provides both housingand training.

Three-quarters of young peopleare in work or further educationon leaving the Gateway Foyercompared with less than a thirdon arrival.Welfare cost savingsfor the UK economy from theFoyer movement amount to £6-20 million per annum.

Public acclaim and positivemedia coverage.Foyermovement has beencommended by UK chancellorof the exchequer.Employeeshave broadened their horizonsand developed new skills.

Commercially-led initiatives

Storehouse Choice zone(Ireland)

£250,000 grant. Guinness contributed £750,000and 10% of the time of twoexecutives.

Additional zone enhancingStorehouse for 700,000 visitors.

The zone has attracted veryfavourable comment as anappropriate response from adrinks company to alcoholmisuse.

Helping Hands(Australia)

£25,000 to act as kick-startfunding.

AUS$62,000 from DiageoAustralia in matching employees’contributions.Diageo Australiamanages project and ensures allcontributions go directly tocharity.

Significant help for thefundraising revenue andactivities of four Australiancharities.

Employees feel involved andproud of their community work.The Australian government hascommended Diageo for theproject and cites it as bestpractice.

Bar Skills (Brazil)

£166,000 over three years. £20,000 from Diageo Brazilwhich also managed the projectand monitored the quality ofteaching and assessments.40volunteers from Diageo tradepartners contributed time to theprogramme.

Young, low-income unemployedpeople provided with bar skillstraining.On target to achieve85% employment of students.The programme has beensuccessfully replicated in othercountries.

Diageo Brazil established as an industry leader in tacklingalcohol related issues.Strengthened relationships with major business clients and government agencies.

Water of Life(Nigeria)

£50,000 over two years. £50,000 from Guinness Nigeria,which also managed the project.Through connection withMichael Powers film CriticalAssignment,project waslaunched at four film premieresin Nigeria.Local Earthwatchchampion appointed.

Ten boreholes and treatmentcentre providing communitieswith drinking water.Employment created inplanning,construction,managing and maintainingprojects.Project being scaled upto provide a further 70,000people with water.

Demonstrates our community commitment and complementsenvironmental investment.Employees feel proud of their community work.Links strengthened with localgovernment and healthcommunity.

Keep Walking Fund(Mexico)

£100,000 over three years. £423,000 from Johnnie Walker.A senior Diageo employee saton the grant making panel.Business leaders from Diageoand other companiesvolunteered as mentors tosuccessful applicants.

Talented young Mexicansenabled to achieve their careerpotential.Johnnie Walkerconsumers have been inspiredto start their own walk ofprogress.The programme hasbeen successfully replicated inother countries.

Brand awareness for JohnnieWalker in Mexico.The campaignattracted 8,000 grantapplications and 20,000 web site hits.

17 Diageo Corporate Citizenship Report 2003

Evaluating some of Diageo’s community investments using the LBG model

Community spend by typePhilanthropy £000

200320022001

Social investment £000

200320022001

200320022001Commercially-led initiatives £000

5,4752,1312,366

8,17612,110

11,249

1,6152,730

5,386

200320022001Total £000

15,26616,971

19,001

Community spend by focus areaAlcohol Education £000

200320022001

Water of Life £000

200320022001

200320022001Local Citizens £000

Business Foundation

4,5003,700

6,151

160200160

10,60613,071

12,690

Community spend by region %

Europe2003

57North America 30

643

AfricaAsia PacificLatin America

Premium drinks business only.

Diageo Foundation Leverage Community benefits Business benefitsInputs Outputs

18 Diageo Corporate Citizenship Report 2003

‘Diageo’s operations – particularly in manufacturing – have impacts on theenvironment.Our approach is to identify and measure these impacts and todo as much as we can to reduce them,setting ourselves targets to aim for.We want a business which is sustainable and which causes no long-termdegradation of natural resources.’

Although our policy is to achievecontinuous improvement in all aspects of environmentalperformance,our efforts areconcentrated on areas of greatest impact:

> use of energy Making drinksrequires energy – for heat duringbrewing and distilling,spaceheating, lighting,poweringequipment,and transport.Therelease of carbon dioxide andother greenhouse gases whenenergy is generated from fossilfuels has a well-documentedeffect on the climate

> water management Water is an obvious requirement of thedrinks industry,as an ingredientand for washing and coolingduring manufacturing.As asignificant water user,we arecompeting with local flora andfauna and the quality ofdischarged waste water has apotential impact on themunicipal sewerage system orbody of water that receives it

> materials and recyclingTheingredients of Diageo drinks arenatural materials such as cereals,hops,grapes,cream and yeast.The by-products are largelyreused rather than wasted.The small proportion of wastethat cannot be reused or recycled is normally sent tolandfill,thereby consuming anenvironmental resource.Theenvironment is also impacted by the disposal of bottles,cans and other packaging.

Environmental managementOur overall approach toenvironmental protection is setout in the Diageo environmentalpolicy which ensures that allparts of the business arechallenged to keep improvingtheir performance.Day-to-dayenvironmental managementand compliance with the policyare the responsibility of eachDiageo business.

All Diageo businesses arerequired to adopt anenvironmental managementsystem (EMS).During the yearthe EMS of our site in Belfast,Northern Ireland was certified to the international standardISO14001,bringing the total with this achievement to four.Eight more facilities around theworld plan to achieve this level of recognition within the nextthree years.

The Diageo environmentalmanagement system,linkedclosely to the group’s riskmanagement framework,coverspolicy,responsibility, incidentinvestigation,monthly recordingand reporting of environmentaldata,site audits and staff training.14% of supply sites have fullyimplemented the system orconform to ISO14001;at 79% of sites implementation isunderway.Nearly 80% of sitesoperate a programme ofenvironmental audits.

Environmental impacts

Ian MeakinsPresident,European majormarkets and global supply

Bottles and cans recycled

Bottles

Bottles and cans

Consum

ersRetailers

Bars andrestaurants

Beers

Wines and spirits

Brewing and packing

Spentgrain

Blending and bottling

Fermentation,distilling andmaturing

Cereals,hops,grapes,sugar and cream

Malting

Cows

Cereals Vines

Animal feed

Farm

The production cycle

Bottles and cans

19 Diageo Corporate Citizenship Report 2003

Key performance indicatorsTo allow for variations in theprofile of the business we targetimprovement in performancerelative to production volumes.We have made good progress inthree out of five targets,asdiscussed in the followingsections.

Considered as totals our five keyperformance indicators showedincreases over the previous year.This was due to increases inproduction,the increasingimportance of ready to drinkproducts – which requireadditional water as an ingredientand energy for pasteurisation –and improvements in our datacollection systems which allowed us this year to include 11 sites for which informationwas unavailable in the past.

Energy and climate changeThe main environmental impactof using energy – in the form of gas, fuel oil,diesel oil,andelectricity generated from suchfossil fuels – is that it releasesgreenhouse gases into theatmosphere. In line with general practice,we express the climate-changing potential of greenhouse gases as CO2-equivalent emissions.

Our approach to reducing theseemissions is to use energy moreefficiently or to switch fuels –from,say,oil to gas.One approachto improving efficiency adoptedby two sites has been to installcombined heat and power (CHP)plants which make use of theheat that is normally wastedduring electricity generation.

2001 saw the introduction of theclimate change levy in the UKand we have agreed energyimprovement targets with thegovernment which must beachieved by 2010 in line with theUK’s undertaking at the Kyotosummit to reduce the country’sgreenhouse gas emissions.

Energy used and greenhousegases released per unit ofproduction showed an increasein 2003 over the previous yearrather than the decreasetargeted.The increase wasalmost wholly due to theinclusion of data from sitesexcluded in the past; the failureto improve on the prior yearperformance was due to thechanging mix of product typesand,at some sites,the running inof new equipment.

The logistics required to moveraw materials into productionsites and carry finished productsaway represents a significantenvironmental impact,mostly

due to the use of fuel.Transportservices are predominantlycontracted to haulagecompanies.An area of focus forus in the future is to quantify andmanage the impacts of thesetransport services and set targetsfor improvement.

Business travel is an area with similar impacts on theenvironment,though distancestravelled have been reduced in recent years by the use ofteleconferencing,a trend we willcontinue to encourage.Flightstaken by employees based infour countries with significantDiageo operations – Ireland,Netherlands,UK and USA –contributed an additional 21,000tonnes of CO2 emissions duringthe year.We are working toimprove our data collectionsystems to allow the reporting of emissions from othercountries and other means oftransport in future years.

Water managementWater quality is crucial to thecharacter of Diageo drinks and,with resources under pressurefrom development in many partsof the world,we are committedto managing water use andwastewater dischargesresponsibly.Water forms thefocus for the Diageo

Total GWhEnergy used

Relative to production kWh/case

200120022003

2,700

9.2

8.610.19.8

2,7003,307

0.02001200220032004 Target

Total million m3

Water used

Relative to production litres/case

200120022003

22.8

77.3

86.081.4

77.2

21.426.6

0.02001200220032004 Target

Total tonnesSolid waste landfilled

Relative to production kg/case

200120022003

30,200

0.10

0.100.070.07

18,30023,710

0.02001200220032004 Target

Total tonnesGreenhouse gas emissions (as CO2)

Relative to production kg/case

200120022003

685,400

2.3

2.12.6

2.4

656,100858,433

2001200220032004 Target

Total million m3

Liquid effluent

Relative to production litres/case

200120022003

17.8

60.4

50.452.3

56.4

15.617.1

0.02001200220032004 Target

A case equals nine litres of product.

Foundation’s conservation andhumanitarian supportprogramme,Water of Life.

The water we use comesprincipally from boreholes ormunicipal mains supplies.Water use during the yearshowed an increase due to thechanging mix of product types,but performance remains ontrack to meet our target next year.

The effluent from our productionplants can have a high BOD(biological oxygen demand – ameasure of its organic content)and may be slightly acid oralkaline or warmer than the receiving water.

Liquid effluent relative toproduction showed a decreaselast year and this performanceindicator is on track to meet theimprovement target in 2004.

Corporate Citizenship Report 2003Environmental impacts

Aluminium cans,too,have beenlightweighted over several yearsand are a prime candidate forrecycling.Reforming a can fromrecycled aluminium takes only5% of the energy needed tomake it from raw materials.This makes used cans a valuablecommodity and encourageswaste companies to extractthem from the waste stream.

Diageo in Italy supports the localcorrugated cardboard industry inthe use of recycled paper,testingtypes of recycled paper on ourproduction lines to help suppliersfind the best balance betweencost and performance.In 1994,when we began producing RTDs,we started to use cases madewith 100% recycled paper.Extending what we learnt toother brands,we are now usingover 90% recycled paper acrossall our production range.

Air emissionsMaturing whisky loses a certainproportion of its volume eachyear by evaporation,known asthe angels’share. In this process,essential to create the desiredflavour,ethanol,a volatile organiccompound (VOC), is released intothe atmosphere.Though ethanolis relatively non-reactive,VOCscan lead to ground level ozoneformation which can present ahealth hazard. In 1999,anestimated 15,000 tonnes ofethanol were released in this way in Scotland.However,thecountry has relatively good airquality and ground level ozoneformation is limited by therelatively low levels of NOx gasesfrom other sources. In addition,ethanol is water-soluble andmuch is removed from the air byrainfall. It is also biodegradable.

Thirteen incidences of non-compliance with effluentconsents were noted by theauthorities during the year,one of which – for excessivesuspended solids in the outfallfrom our Philippines site –resulted in a £340 fine.At anumber of sites in Africa our own audits have revealedeffluent quality that has been acause for concern – for example,outflows may not have reachedprescribed standards in BOD,suspended solids,pH ortemperature.A programme ofcorrective action, involving theconstruction of new treatmentplants or the improvement ofexisting facilities,has begun,withthe bulk of the work scheduledfor completion by December2004.The work represents aninvestment of nearly £18 million.

Materials and recyclingFinding sustainable ways ofworking involves conserving the earth’s natural resources and reducing landfill disposal of waste.We use materials fromrenewable or recycled sourceswhere feasible and reduce theamount of waste by finding ways to recycle it or use it forother purposes.

The bulk of the materials we use are ingredients.Beingorganic,these provide manyopportunities for the reuse ofunwanted residues.For example,after extraction,spent grain isusually sold for processing intoanimal feed.The pulp left afterextracting the juice from grapesis composted and used asagricultural mulch.Excess yeast is processed for use in animalfeed,as is waste from the maltingprocess.Overall,95% of solidwaste is reused or recycled.

Our other main use of materials isin packaging which incorporatesa wide variety of materialsincluding glass,metals,plasticsand cardboard.Some of thesematerials are derived fromrecycled sources and most arerecyclable by consumers afteruse where facilities exist.Improving the sustainability ofpackaging means reducing thetotal amount of material usedand increasing its recycledcontent.

Initiatives to lessen theenvironmental impact ofpackaging materials concentrateon two main areas.First,weaddress the type and quantity of packaging needed to protectour brands on their way to theconsumer and,second,we aim to decrease the landfilling of waste packaging materials fromeach site,including damagedbottles and cans,waste boardand plastics.The increase inlandfilled waste in 2003 was dueto the addition of new sites;performance relative toproduction remains on track to meet the target next year.

Over the last five years there hasbeen a concerted programme of‘lightweighting’bottles,usually byaround 20%.Lightweight bottlesuse less raw material and takeless energy to make andtransport.Further transport fuelsavings have been achieved byreceiving more bottles directfrom the factory,rather than viastorage warehouses.Thesuppliers we use are activelyengaged in glass recycling andcurrently our bottles have anaverage recycled content ofaround 30%,varying betweenabout 12% in colourless bottlesto over 50% in green or amberones.Using recycled glass as araw material reduces the bottlemakers’energy consumption byup to a quarter and theiremissions by up to a fifth.In manymarkets we use bottles that canbe returned and refilled.In Africa,for example,all our beer ispackaged in this way and nearly90% of bottles are returned.

Diageo Italy Use of recycled paper %200120022003

86.990.090.4

20 Diageo

Diageo Earthwatch programmeUnder the Diageo Foundation-fundedEarthwatch programme,15 employeeswere selected from hundreds ofapplicants to take part in six two-weekEarthwatch research projects.On theirreturn to their home countries,our15 champions are sharing theirenthusiasm for environmental issuesand their new knowledge of field work with their colleagues,and helping introduce new approaches tobiodiversity and sustainability aroundthe business.

Earthwatch report 1 Rainforests of northern AustraliaColin Burt,pre-distillation assistantcontroller in Cameronbridge,Scotland,travelled to the rainforests of northernAustralia to join a team researching the effects of agriculture on the localhabitat,and its subsequent impact on fruit-eating animals on which many rainforest trees rely.Back inScotland,Colin is working with wildliferangers to target key species andhabitats within a disused part of theCameronbridge site,developingmanagement techniques that willensure their future sustainability.

21 Diageo Corporate Citizenship Report 2003

Spills and other incidentsFour sites reported incidentswith potential environmentalimpacts during the year.Themost serious occurred at ourbrewery in Cameroon when30,000 litres of fuel oil spilled into the storm water drainagesystem.The immediate cause ofthe incident was the inadequatecolour-coding of oil and watervalves; failure of the bundingaround the oil tank contributedto the seriousness of the spill.The oil polluted an extensivearea, including a stream,marshland and surrounding streets.A £5,000 fine was imposed as aresult.A clean-up operation wasimmediately put into place tocollect,measure and incineratethe pollutant,an exercise thatrequired a total of 14,000 man-hours.The other incidentsinvolved an oil spill on to theforeshore at Burghead,Scotland,a spillage of propionic acid at our distillery at Cameronbridge,Scotland and a spill of causticsoda into the Camac River fromour Baileys site in Dublin. In eachcase,action has been taken toprevent recurrence of theincident,none of which resultedin a fine.

The road aheadThe first part of Diageo’senvironmental journey hasconcentrated on measuringimpacts and targetingperformance improvements atproduction sites. In the future,we intend to broaden thisprocess to our marketing anddistribution locations.

We will also be engaging withstakeholders to take a wider view of our environmentalimpacts,particularly ofpackaging,throughout theproduct life cycle,and examining ways of accountingfor environmental costs.

Ozone-depleting substancesSome man-made chemicals,released as gases into theatmosphere,can damage theprotective ozone layer,allowingharmful ultraviolet radiation toreach the earth.The chemicalschiefly implicated as ozone-depleting are halons,used in firesuppression equipment,andCFCs and HCFCs,used inrefrigeration and air conditioningequipment.Nine sites were madefree from halons and CFCs duringthe year,leaving 17 where one or the other is still present,usually in very small quantities.We willcontinue to replace these materialswith less harmful alternatives.

BiodiversityDiageo is committed toencouraging biodiversity byprotecting habitats within itscontrol and through the Water of Life programme.

At the Diageo-owned GleneaglesHotel estate in Perthshire,Scotland,the glacier that createdthe world-renowned golfinglandforms in the last ice age alsoprovided unique habitats tosupport biodiversity.Nineteenglacial kettle holes, identified assites of scientific interest (SSIs),now have an abundance of raremarginal plant life – bottle sedge,bog cotton,southern marshorchid and cranberry – as well as a variety of mammals andinvertebrates.Of particularinterest is the raised domesphagnum peat mire,a site ofspecial scientific interest (SSSI)which is managed in conjunctionwith Scottish Natural Heritage.

The hotel’s environmentalmanagement plan,accredited tothe pan-European Certificate forEnvironmental Excellence,ensures the compatibility ofhuman recreation with thecontinued protection of ournatural assets.A corridor of oak and pine trees has beenestablished as a habitat for redsquirrels and a glacial melt-waterchannel,which supplies a seriesof lochs stocked with differentvarieties of fish,has beenincorporated into the golf course design.

Earthwatch report 3 The Pantanal,BrazilTanja Gorman,demand developmentleader at Baileys in Ireland, joined ateam in the Pantanal,an importantwetland ecosystem with high levels ofbiodiversity.Tanja’s task included aproject to catch,weigh and tag batsand to study the small pig-likepeccaries.The data collected fromthese activities are needed to helpcreate policies for the sustainablemanagement and conservation of the Pantanal. On returning to Ireland,Tanja is planning an environmentalproject involving the Camac Riverwhich runs through the Dublin site.

Earthwatch report 2 Great Rift Valley,KenyaThe Great Rift Valley is a source ofbiological diversity and is important tolocal people for water,agriculture,fishing and tourism.The future of thearea is threatened,with shorelines afocus for horticulture.Albert Ogundipe,a technician from Diageo’s Beninbrewery in Nigeria, joined a teamlooking at three lakes in the valley,with the challenge to understand itsbiology and advise on its restoration.Since his return to Nigeria,Albert hasbeen planning a project to provide alocal community with a well to giveaccess to fresh water.

22 Diageo Corporate Citizenship Report 2003

‘Through the taxes and duties we pay,the returns we create for shareholders,the employment we provide and the suppliers and other business partnerswe support,we contribute significantly to the markets in which we operateand to the world economy.’

Economic impacts

Cash value added statement 2003 2002£ million £ million

Net cash generatedFrom customers 9,440 11,282Other income 139 123Sale of subsidiaries1 970 5,100Subtotal – net cash generated 10,549 16,505Payments to suppliers for goods and services (4,042) (5,649)Cash value added 6,507 10,856

Distribution of cash value addedTo governments– Excise taxes 2,166 2,119– Other taxes 177 411– Subtotal – to governments 2,343 2,530To shareholders for providing capital 1,619 2,416To employees as remuneration for services 1,069 1,322To lenders as a return on borrowings 355 400Capital investment 361 528Community investment 19 20Research and development 15 28Retained for re-investment 589 20Purchase of subsidiaries2 137 3,592Total 6,507 10,8561.Principally:2002 Pillsbury/General Mills;2003 Burger King.2.Principally Seagram spirits and wine business.

Nick RoseCFO

* Includes money distributed to suppliers,shareholders,employees,lenders and communities and retained in the business.

Breakdown for 70cl bottle ofSmirnoff Red vodka sold in anaverage UK off-licence in 2003.

Where the money goes

Retailer 10%

*Production andmarketing 27%

Taxes and duty 63%

With a turnover of £9.4 billion,Diageo’s business has a strongeconomic impact and ouractivities benefit thecommunities in which weoperate in many ways –including generating revenue for governments,providingemployment,supportingancillary industries and capitalinvestment. Our business canhave a particularly significantimpact on small economieswhere our brands are wellestablished.In Seychelles, forexample,13% of the

government’s tax revenue iscurrently derived from theDiageo brewing business in theislands.The sum total of ourimpacts around the worldcomprise our economicfootprint, illustrated by thediagram on page 23.

Last year we employed over 24,500 people in our premiumdrinks companies across some180 markets around the world,spent £4 billion on goods andservices from suppliers andbusiness partners,committedover £300 million to investment

in plant and buildings anddirectly contributedapproximately £2.3 billion,in theform of taxes and duties,to publicspending.

In addition,the businessgenerates indirect tax revenues.These include sales and value-added taxes paid by consumers,income taxes paid by employees,taxes paid by suppliers andbusiness partners and alcoholduties paid on the proportion of production delivered frombonded warehouses.While noteasily quantifiable,these indirecttaxes represent a very significantfurther contribution to publicfunds.As an example,theproportion of the selling price ofa bottle of vodka in the UK thatgoes in taxes and duty is showndiagrammatically below.

After paying our suppliers andemployees,repaying lenders and settling taxes due,from theremaining profit we paid £1.6 billion to the shareholderswho provided us with our capitaland retained the balance in ourbusiness for investment in futuregrowth.As direct communityinvestment,we have pledged 1% of operating profit – worth £19 million in 2003 – tocommunity causes around the world.

The way in which wealth iscreated by Diageo – or valueadded to the raw materials webuy from suppliers – anddistributed to each of these key stakeholder groups isdemonstrated by a cash valueadded statement.

Distribution of cash value added by recipient % 2003

24.936.0Government

Shareholders16.4

5.5

200223.322.212.2

3.74.90.20.2

EmployeesLenders

0.233.1

Capital investment by region £ million

Europe 175North America 64

392413

315

2003

AfricaAsia PacificLatin AmericaTotal

Excludes Burger King spend of (£67 million), disposals of fixed assets £41 million and net purchases of investments (£20 million).

0.29.1

Research and developmentRetained for re-investment

5.50.3

Capital investmentCommunity investment

2.1Purchase of subsidiaries

One area where cash spending is relatively discretionary iscapital investment.The broadgeographic split,shown below,demonstrates how money re-invested is distributed toprojects around the world.

Pension schemesAdded to the economic impactof the business is the significantcontribution of Diageo’s pensionschemes.These operate in some30 countries – the three principalplans covering the UK,US andIreland – and have combinedtotal assets of approximately £3.5 billion.The UK plan – thebiggest – covers some 70,000members and pays about £120 million to some 32,000 planpensioners and dependants.Thetrustees of the fund have askedtheir investment managers totake social,ethical andenvironmental considerationsinto account when assessinginvestments for the pensionscheme.

Returns for investorsOver 90% of our business isowned by institutional investors,the remainder being held byprivate shareholders who includethousands of employees andformer employees.We aim toengage actively with theinvestment community on ourcorporate citizenship agenda.Some Diageo companies offer a proportion of their shares onlocal stock markets.Weencourage the participation ofthese shareholders as they bringlocal knowledge to our businessand facilitate direct involvementin the community.

We assess the value provided to shareholders by totalshareholder return (TSR) whichmeasures the relative return fromthe movement in the share pricetogether with the dividendsreceived.Dividends and capitalrepayments are treated asreinvested and TSR is calculatedin local currency.TSR in the tableis measured from 1 July 2000

using the average share priceover the previous 12 months as the starting point and the 12 months to 30 June 2003 asthe end point.Diageo is ranked4th in its peer group on thismeasure,achieving our target ofbeing in the top five.

As part of maximising TSR,we arecommitted to return capital toshareholders in the most efficientway possible.During the yearshareholders received £767million in dividends and over£852 million via the repurchaseof shares.

Information on the Diageo shareownership profile can be foundin the annual review.

TSR ranking in peer group1 Altria 74%2 Anheuser-Busch 47%3 Yum! Brands 42%4 Diageo 38%5 Unilever 30%6 Allied Domecq 25%7 Carlsberg 23%8 PepsiCo 21%9 Kellogg 17%

10 Procter & Gamble 7%11 Nestlé 7%12 Colgate-Palmolive 2%13 Heinz (3%)14 Heineken (9%)15 Coca-Cola (15%)16 Gillette (15%)17 Campbell Soup (32%)18 McDonald’s (52%)

Our economic footprint

Suppliers

Government

Investors

Employees

Environmental and social impact

Taxes

Services

Sustainable businessenvironment Community

investment

Taxes

Services

Diageo

Customers

CapitalDividends

ProductivityRemuneration

Business environmentTaxes

Goods and servicesPayment

Our brandsPayment

Society/public sector

Consumers

Payment

Lifestyle andcelebration

23 Diageo Corporate Citizenship Report 2003

Economic stakeholders

24 Diageo Corporate Citizenship Report 2003Economic impacts

Engaging with suppliersNearly 40% of the cash wegenerate – over £4 billion lastyear – flows to the businesseswhich supply the raw materialsand packaging for our brands aswell as the goods and servicesrequired by our operations.This volume of purchasing has asignificant impact on the localeconomies in which we dobusiness.While focused on thecommercial imperative ofprocuring goods and services ofthe required specification andquality on the most favourableterms,to secure supplies whichare sustainable in the long termwe work collaboratively with our suppliers,ensuring thatcontracts are fair and that ourbusiness relationships aremutually beneficial.

Given the international nature ofthe group’s operations,there isno group standard in respect ofpayments to suppliers.Operatingcompanies are responsible foragreeing terms and conditionsfor their business transactionswhen orders for goods andservices are placed,ensuring thatsuppliers are aware of the termsof payment and including therelevant terms in contracts whereappropriate.These arrangementsare adhered to when makingpayments,subject to the termsand conditions being met by the supplier.

> Informal trading – high taxescreate an incentive to tradeoutside formal businesschannels.This may involveconsumers importing more than is permitted for personaluse or re-sale or, in extremecases,more systematicsmuggling

> Illicit production – high taxescan encourage people to distiltheir own alcoholic drinks.Forexample, in Sweden,which hassome of the highest spirits taxesin the world, it is estimated thatillicit production represents 40%of consumption.Such practicescan have dangerousconsequences for health

> Counterfeiting – high taxesencourage the counterfeiting of well-known brands,a practicethat brings health risks,particularly as counterfeit spiritsare sometimes adulterated.For more information oncounterfeiting,see page 9

> A decline in revenue – hightaxes can be counterproductivefor governments and lead to a reduction in revenue ratherthan the increase anticipated.They also tend to be regressive,representing a larger proportionof the incomes of poorerconsumers than those of thebetter off.

Paying government taxesOver one-third of cash valueadded by our business goes togovernments in the form ofduties and taxes.This figureexcludes the sales taxes,such as VAT,which are paid on ourbrands and which boost the totaldirect financial contribution topublic wealth.We generateadditional contributions topublic funds through the incometaxes and other dues paid by ouremployees, investors,suppliersand other business partners.

The prices that an internationalcompany puts on items boughtand sold between subsidiaries in different countries affects itslocal tax liability.Diageo’s policyon this transfer pricing is todetermine prices for ourproducts at open market rates byfollowing established guidelinesand using arm’s-lengthcomparable third-partyinformation.

Working with governmentsThe level and collection of taxescan have dramatic consequenceson the amount of money raised,and on patterns of alcoholconsumption.We work withgovernments in many countriesto help them address theundesirable outcomes of higher levels of alcohol taxes.These consequences whichnegatively impact on total taxrevenue, include:

Purchases by category £ million

Raw materials2003

2,252Marketing 1,203

81Lease paymentsMaintenance 43

463Other4,042Total

Supporting tax reformIn recent years we have been helpingthe Colombian government developan orderly market in beverage alcoholand have financed an independentstudy of spirits taxation in the country.The report’s recommendations for tax reform and transparent taxmanagement have been endorsed bythe International Monetary Fund.

25 Diageo Corporate Citizenship Report 2003

In the case of multiple-tiercontracts for the supply of point-of-sale items such as brandedteeshirts,we will additionallyrequire first-tier suppliers to helpsecond-tier suppliers work to thestandards,with audits beingcarried out to ensure compliance.Where central services are out-sourced,contracts will bestructured to ensure that service providers have a strongcommitment to Diageo’s valuesand corporate citizenshipstandards.

Our aim is to see the principlesand practices of good corporatecitizenship adopted throughoutthe supply chains in which we areinvolved.We will assess progresstowards this by polling prioritysuppliers concerning their policiesand monitoring contracts withcorporate citizenshiprequirements.

We have placed particularemphasis on our brewingsuppliers’management systemsin Europe where we have carriedout over 330 audits of suppliers’sites over the past three and ahalf years.During the visits,aquestionnaire is completedcovering management systems,staff training and performancemonitoring.Suppliers areprovided with feedback andencouraged to address anyweaknesses identified.Sitesscoring less than 75% in theassessment are obliged to makeimprovements to meet Diageorequirements and a follow-up sitevisit is made to verify these.Sincethe audits began,45 companieshave taken steps to improve inorder to continue their businessrelationship with Diageo.

During the year we conducted anenvironmental communicationexercise with companies thatproduce Diageo brands underlicence.This included information-sharing on our respectiveapproaches to environmentalpolicy and management with theaim of developing environmentalbest practice.

Diageo resources are frequentlyemployed to support ourrelationships with suppliers.For example, in Scotland,thedecision was taken recently torationalise haulage services fromtwo logistics companies to one.To support the company that lostthe business,we built in anextended transition process –even though this reduced the potential savings of theconsolidation – and providedDiageo staff to help with thetransfer of employees from onecompany to the other.

Our responsibility for our supplychain goes beyond promotingthe economic stability of ourbusiness partners.We are alsoconcerned that the social andeconomic impacts of thecompanies on which we depend– and,further up the supplychain,the companies whichsupply them – are managed tothe same level as those of ourown businesses.

In addressing these indirectimpacts,we concentrate ourefforts where our involvementand relationships are strongest –with our first-tier suppliers.During the year we launched our Partnering with suppliersprogramme which will beapplied across all categories of procurement.We produced a guide which sets out how weexpect to work with suppliers onethical business practice,humanrights,core labour standards andenvironmental management.Three pilot assessments underthis programme have been carried out.

Over the coming year we will include these corporatecitizenship standards as criteria in our assessment and selectionprocesses for all key suppliers.We foresee a considerablechallenge in implementing strictstandards in some parts of thedeveloping world and haveallocated resources to developspecial strategies for these areas.Our aim is to encourage and helpsuppliers in developing countriesto achieve world-class standards,raising the level of local capability.

The economic footprint of Guinness NigeriaEconomic impact at national level is illustrated by our business in Nigeria,a country where our contribution towealth creation and to the standards of commercial life are particularlysignificant.

One of the first to be quoted on theNigerian stock exchange,the Diageocompany,Guinness Nigeria,todayprovides returns to more than 60,000local shareholders,employs 1,500people and helps support some 50,000further jobs through relationships withmore than 1,000 suppliers.Over half ofthe company’s value added goes to thegovernment in excise duty and tax.

Guinness Nigeria is committed toDiageo’s values and standards of quality and implements Diageo’s social and environmental policies,ensuring the company maintains itsoutstanding reputation as an excellentcorporate citizen.During the year,thecompany published its first corporatecitizenship report.

Developing Park Royal inpartnershipEconomic impact at a local level isshown by the Park Royal developmentin west London – the site of the firstGuinness brewery outside Ireland.By the 1990s,advances in brewingtechnology and the changing needs of employees had made many of thebrewery buildings redundant. Inpartnership with the local authoritiesand developers,we embarked on anambitious building and landscapingscheme to bring the area up to date.The new office park is expected tocreate 6,200 jobs and represent a value of £45 million a year locally and £170 million a year to the wider economy.

Turnover by 2003 2002market type £ million £ millionMajor markets– North America 2,795 2,669– Great Britain 1,429 1,467– Ireland 953 937– Spain 424 380Key markets 2,129 2,078Venture markets 1,231 1,173Total 8,961 8,704Premium drinks business only.

The road aheadPriorities for the future include engaging moresystematically with ourstakeholders throughout oursupply chain to ensure that our investments in corporatecitizenship initiatives are directed towards areas ofgreatest concern.

We will also be extending ourwork with suppliers and otherbusiness partners to encouragethe adoption of the best ethical,human rights and environmentalpractices throughout our supply chain.

26 Diageo Corporate Citizenship Report 2003Economic impacts

Supporting our customersOur customers are thewholesalers,retailers anddistributors of our brands withwhom we deal in over 180markets.We create business for our customers by providingthem with products that peoplewant to buy.We continuallyreview our range of products andseek to meet consumers’needsthrough a programme ofimaginative and technologicalinnovation.During 2003,Diageospent £15 million on researchand development.

In the United States,suppliersmust distribute products throughthird-party companies,which inturn sell through licensedretailers.We have embarked on along-term strategy to build moreeffective and efficientrelationships throughout thisthree-tier system.Our goal ofconsolidating to a singlewholesaler or broker per state will allow us to meet consumerexpectations by working throughhighly trained exclusive sellingdivisions within our chosendistributors. In the long term,weexpect this strategy to deliverimproved sales,more effectivemarketing spend and volumegrowth for suppliers,distributorsand retailers.

In Scotland we provide on-tradecustomers with training andmanagement advice to helpthem improve profitability,spending £1.5 million on suchprogrammes in 2002.We alsowork closely with the off-trade,and spent £2.5 million in GreatBritain advising independentretailers on displaying their stockand sharing consumer insights tohelp them grow their business.

Awards for our brands

> Diageo received the Distiller of the Year Award 2002 in theInternational Wine and SpiritCompetition. In the samecompetition,Diageo whiskiesBrora,Cragganmore,Oban,Glenkinchie,Johnnie Walker andLagavulin won gold medalswhile Talisker was voted bestsingle malt Scotch whisky.

> Diageo was voted Distiller of the Year 2003 by the WhiskyAcademy.

> Diageo in the UK was voted top supplier by trade buyers forproduct quality,value for moneyand new product development.

> Diageo in the US was votedvendor of the year by two keycustomers for its ‘high level ofconsumer insight’.

27 Diageo Corporate Citizenship Report 2003

GovernanceDiageo’s board and executivecommittee are committed toachieving the highest standardsof corporate governance,corporate citizenship and riskmanagement in directing andcontrolling the business.

This section represents only abrief summary of the governanceof the business.Full details areavailable in the 2003 Diageoannual report which conforms to UK and US disclosurerequirements.

Our board consists of thenon-executive chairman,CEO,CFO and seven independentnon-executive directors.The non-executive directors areexperienced and influentialindividuals from a range ofindustries and geographieswhose skills and businessexperience are a majorcontribution to the work of theboard. New directors receivesocial responsibility training as part of their induction.Reporting to the board are audit,nomination and remunerationcommittees,each with clearlydefined terms of reference,procedures,responsibilities and powers.The board reviewsand approves the corporatecitizenship report.

The executive committee,appointed and chaired by theCEO,consists of the individualsresponsible for the day-to-dayrunning of the business.The CEO has created severalexecutive working groups andcommittees which include:

Corporate citizenshipcommittee Chaired by the CEO andresponsible for making decisionsand recommendations to theexecutive committee or board on business conduct,socialprogrammes,community affairs,health and safety,andenvironmental matters.The committee prepares anannual report for the board.

Audit and risk committeeChaired by the CEO andresponsible for overseeing theapproach to securing effectiverisk management and control,reviewing and challenging theadequacy of sources of assuranceand reporting regularly to the audit committee or to the board.

Environmental working groupDevelops strategies forcompliance with theenvironmental policy,sharingbest practice across the businessand communicatingenvironmental issues internallyand externally.

Ad hoc task groupsBrought together as required toformulate responses to particularissues – for example,HIV/AIDS,genetically modified organismsand allergens.

Through these committees and groups we determine thedetailed actions to be takenwithin our overall approach.Achieving a positive impact on the social,environmental andeconomic worlds in which weoperate,this approach is to:

> act with integrity,adhering to high standards of behaviour,encouraging leadership by senior executives,responsibledecision-making and dialoguewith stakeholders

> be proactive in our focus areas– social responsibility andalcohol,community involvementand the environment

> measure,report andcommunicate.

‘A key element of corporate citizenship is compliance with the laws andregulations of countries in which we are privileged to work.Legal requirementsare often minimum requirements and,where appropriate,our policies gobeyond what is required by law.’

Management and policy

Tim ProctorGeneral counsel

Awards for our companies

> Red Stripe won the 2003Jamaica Manufacturers’Association Governor-General’sAward for excellence inmanufacturing and goodcorporate citizenship – the ninthtime the Diageo brewer has wonthis top award since it wascreated 14 years ago.

> East African Breweries,Diageo’sbusiness in Kenya,Tanzania andUganda,was voted MostRespected Company 2002 in aPricewaterhouseCoopers survey– the third year in a row it hasbeen awarded this accolade.

28 Diageo Corporate Citizenship Report 2003

Our vision of sustainabilityThe World Summit onSustainable Development inJohannesburg was a reminderthat the challenge of sustainabledevelopment is a task forgovernments,non-governmentalorganisations,companies andindividuals,working together in partnership.Diageo’sstakeholders have a strong,andgrowing,expectation that we will seize this challenge.

Sustainability for us meansassurance of long-term successwithin a stable world.We believethat,with the values we haveestablished,and the policies andbusiness practices developedfrom these,we are well preparedfor the move towardssustainability.Our social impactsare clearly identified and aparticular focus for our attention.Our environmental impacts,while not insignificant,are notunusual and have been subjectto improvement programmes formany years.Diageo is a creator of wealth,without which manysteps towards sustainabilitycannot be made.By addressingthese issues creatively andrigorously,we believe we aredeveloping a business that can be both commerciallysuccessful and socially andenvironmentally sustainable.

The long-term view ofsustainability can be useful inresolving the dilemmas withwhich we are often presented in balancing the conflictinginterests of differentstakeholders.Our decisions aretaken in the belief that ourbusiness will be more successfulin the long term – andconsequently provide greaterreturns for investors – if we tradein prosperous communities inwhich there is trust between usand society and in which socialissues are addressed.With thisperspective,the imperative to do what we can to create theseconditions becomes clear.

Policy developmentStarting with our Diageo values,we identify the stakeholdersaffected by our operations andthe expectations they have forthe way we work and therelationships we have with allrelevant segments of society.

The development of policies andcodes of conduct,agreedglobally,ensures that,despite thesize and geographical spread ofour business,we can advanceeverywhere on the same journey,knowing we enjoy the support of employees across Diageo.

An example of the consultationprocesses that contribute topolicy formulation is theapproach we took todocumenting our commitmentto human rights.The exercisewas managed by a task groupwhich represented the functionsand geographical spread of thebusiness.The group reviewedexternal human rights codes,including the UniversalDeclaration of Human Rights,the recommendations of theInternational LabourOrganisation and the OECDGuidelines for MultinationalEnterprises.

This input,adapted to the Diageo way of working,resultedin a draft policy on which weconsulted widely amongadvocacy groups such asAmnesty International,sociallyresponsible investmentpractitioners and interest groupslocal to our markets.

The amended draft,whichcrystallised practices which inmany cases were alreadyembedded in the business,underwent a similar process ofconsultation within Diageo toensure that the approachresonated with Diageo cultureand was supported by all parts of the business.Followingendorsement at board level, thenew human rights policy is nowbeing communicated across thebusiness and measures are beingput in place to monitor itsimplementation.

Management and policy

Risk management Our aim is to manage risk and control our activitiescost-effectively.We do so in a manner that enables us to take up profitable businessopportunities,avoid or reducerisks that can cause loss,reputational damage or businessfailure,support operationaleffectiveness and enhanceresilience to external events.To achieve this,we have aprocess for identifying,evaluating and managing therisks we face, in accordance withthe guidance of the Turnbullcommittee,which in 1999 maderecommendations on theinternal control of UK companies.

During the year we established a new emerging issues teamwhose role is to identify technical issues which couldimpact Diageo’s products ormanufacturing processes.Suchissues could arise from changesin regulation,advances inresearch,activity in our marketsor stakeholder concerns.Theteam assesses the riskspresented by emerging issuesand prepares consideredresponses.

ImplementAllocate resources

MonitorMeasure and compare

ReportCommunicate as appropriate

DialogueIdentify stakeholder issues

Values and principles

PolicyDefine and agree

Policy development

29 Diageo Corporate Citizenship Report 2003

Our codes and policiesWe set our own codes andpolicies which often go furtherthan local or national legislation.These are regularly reviewed toensure that they continue toaddress the legitimate concernsof stakeholders and are in linewith best practice.Below aresome of the codes and policieswe have focused on developingand implementing during theyear.The full texts are availableon our web site.

Code of business conductThe code sets out standards onissues such as conflicts ofinterest,competition law,insidertrading,corrupt payments andother illegal acts.The code issupported by an independently-run whistleblowing facility,theSpeakUp helpline.All seniormanagers are required each yearto confirm compliance with thecode or declare areas of possiblenon-compliance.Coverage in 2003 was 94%,compared with 76% in the previous year.Intranet-based learning on the code,currently beingintroduced across Diageo,augments compliance andgovernance workshops as part of a blended approach toeducation and training.Thepolicy was updated during theyear to include anti-money-laundering guidelines.

Code of marketing practice The code provides marketingand advertising practitionerswith guidance on the naming,packaging and promotion of ourbrands,setting standards whichapply in every market,and are in addition to local laws andregulations.The code wasupdated during the year and atraining programme launched tohelp embed the standards of thecode in our ways of working.

Human rights policy In addition to international,national and local legislation,we have developed our ownglobal human rights policycovering respect for nationalsovereignty,community,workingenvironment,dignity at work,lifebalance,employee engagement,releasing potential,andrewarding and valuing people.The policy has been rolled out to all Diageo operations.

Environmental policy Covering management andstandards in each of our mainenvironmental impact areas,ourenvironmental policy draws onbest practice in environmentalmanagement and ensures that all parts of the businesscontinue to be challenged tokeep improving theirenvironmental performance.

Supplier standardsThe high levels we aspire to inour own behaviour are reflectedin the expectations we have ofour suppliers.The Partnering withsuppliers guidelines outlineDiageo’s global positions oncorporate citizenship issueswhich are currently beingphased into our supplierstandards,compliancemonitoring and reporting.

Employee alcohol policyThe policy ensures thatemployees fully understand the nature and effects of alcoholand sets out the expectationsDiageo has for their behaviour.

Occupational health and safety policy We have introduced globalguidelines which set out,at eachof our locations,standards for riskassessment,occupational health,hazardous substances,first aid,noise,ergonomics,protectiveequipment,emergencyevacuation,work permits,visitorsand contractors and accidentreporting.The revised policy will be rolled out across thebusiness in the coming year.

Quality policy The revised policy sets aframework for qualitymanagement systems andcommits every business to continuous improvement in performance.The policy wasrolled out across the businessduring the year and progressmade on implementation andcompliance.

External codes and chartersIn addition to our own policies,Diageo is a signatory to certainexternal codes that definecorporate citizenship principlesand standards of conduct.

Business Charter for Sustainable DevelopmentDiageo announced its support for the Business Charter forSustainable Developmentfollowing the company’sformation in 1997.The charter,drawn up by the InternationalChamber of Commerce,sets out16 principles of environmentalmanagement which influencedthe approach we took in drawing up the first Diageoenvironmental policy.

UN Global CompactIn 2002,Diageo became the firstglobal drinks company to sign up to the United Nations GlobalCompact.The compact,launchedby UN secretary-general KofiAnnan in 1999,calls oncompanies to embrace nineprinciples covering human rights,labour standards and the environment.

World Economic ForumLeadership ChallengeIn 2002,Paul Walsh,Diageo’s CEO,was among the group ofinternational business leaderswho endorsed the LeadershipChallenge,a pledge to apply theprinciples of good corporatecitizenship to their organisations.

Dublin PrinciplesDiageo is a signatory to theDublin Principles which set outthe basis of ethical co-operationbetween the beverage alcoholindustry,governments,scientificresearchers and the public healthcommunity.

The road aheadWe have in place acomprehensive set of policiesand codes which serve as aframework for our approach to corporate citizenship butwhich are at various stages ofimplementation.Our task for the future is to ensure that allthese policies are widelycommunicated and fullyembedded in our ways ofworking,that systems ofmonitoring are in place to ensurecompliance and that targets areset for continuous improvement.

30 Diageo Corporate Citizenship Report 2003

TargetsWe set and publish targets forenvironmental and communityinvolvement KPIs.Once we havean appropriate track record wewill be extending this practice toKPIs in other areas.

During the year we established a new systematic method ofsetting environmental targetswhich will result in a new phaseof stretching improvement goals for our production sites.While driving progress inperformance figures for thebusiness as a whole,the processallows for the fact that some siteshave more room forimprovement than others.It is also flexible enough to alignour targets with those set at anational level – for example,commitments to reducegreenhouse gas emissions under the Kyoto protocol.

Reporting globally and locallyWe intend to publish a Diageocorporate citizenship reportannually,setting out ourwhole-company approach toimportant issues and reportingconsolidated performance dataand improvement targets.Such a report will be in addition to thecoverage given to corporatecitizenship issues in our financialreporting documents.

We acknowledge that many of the social,environmental and economic impacts of our

business work at a local level.Contributing to the prosperity of communities,sustaining jobs,serving consumers and workingwith suppliers are examples ofissues with considerable localsignificance.At this level,we strive further to understand ourimpacts and inform our dialoguewith local stakeholders anddecision makers by measuringand reporting on our ‘footprint’in the countries in which weoperate.We have published 2003corporate citizenship reports on Diageo in Australia,Nigeria,Poland and Scotland whichreflect this.These are available on the web site and in print.

Reporting standardsWe aspire to best practice incorporate citizenship reportingand,to help achieve this,haveincorporated into our thinkingmany recommendations ofwidely-accepted externalstandards.For example,we havereferred to the guidelines of theGlobal Reporting Initiative (GRI) in determining key performanceindicators appropriate to ourbusiness and have prepared thisreport in accordance with the2002 GRI Guidelines.Our aim is to make it easier for ourstakeholders to compare ourapproach and performance withthose of other companies.A GRIcontent index, locatinginformation within the report,may be found on the web site.

We have also sought to completethe report in accordance withthe three principles of theassurance standard AA1000 –materiality,completeness andresponsiveness.These areexplained in the assurancestatement inside the back cover.

AssuranceThe Diageo business riskassurance team validates issuesthat pose a possible threat to the company, including many of those areas covered by thisreport.An additional source ofassurance is the Diageo controlself assessment process,coveringmany corporate citizenship areas,which highlights areas ofweakness in our procedures.

For this report we have notsought an additional audit of the measures underlying thenarrative,commissioning insteada third-party attestation that thereport represents an accurateview of Diageo’s corporatecitizenship journey andperformance during the year.The external assurance statementcan be found inside the backcover. As our measures andsystems develop we will considerwidening the scope of thisassurance in line with stakeholderexpectations.

We do not yet have all the data we would like.The robust systems we are now developing are designed to provide greater scope for quantitative reporting in future years.

In a complex global organisation,the implementation of policiescovering the full range ofcorporate citizenship concerns is a significant undertaking.Central to the process ismonitoring progress,measuringperformance and reportingregularly and publicly to ourstakeholders.

Key performance indicatorsWe have a set of measures of ourprogress covering all of the areasof corporate citizenship whichwe have found to be of concernto our stakeholders anddesignated the most importantof these key performanceindicators (KPIs).

The data required for each ofthese measures from thehundreds of Diageo locationsaround the world are to becollected regularly.Environmental performance and community involvementmeasurements,which we havebeen collecting for a number of years,have their ownmethodology.Socialperformance requirements are being incorporated into a new finance data collectionsystem,additionally allowing the integration of corporatecitizenship measures intomonthly,quarterly and annualbusiness performancemanagement and presenting the opportunity of sharing bestpractice across the business.

Measuring and reporting

31 Diageo Corporate Citizenship Report 2003

Progress to date

Policies on human rights,occupational health and safety andHIV/AIDS have been put in place.A programme of supply chainmanagement has been established,extending our human rightsstandards to major suppliers of goods and services.

An annual compliance programme has been established.

Disputes relating to trade union or staff association membership orcollective bargaining rights are reviewed by senior management toassess compliance with this clause.No disputes were registeredduring the year.

Confirmation is made annually by all parts of the business that nouse has been made of forced or compulsory labour.

Confirmation is made annually by all parts of the business that nouse has been made of child labour other than in approvedapprenticeship or job experience programmes.

A system is being established to monitor employment data by time worked,sex,ethnicity and age and to record any cases ofharassment and abuse. Information on training and placement will also be collected.

Work has begun on installing new effluent treatment plants orupgrading existing facilities at more than a dozen production sites in Africa.

Following environmental audits at 25 further wholly-owned andcontractors’sites during the year,corrective action plans have beendrawn up and are being implemented.

Our environmental policy has been rolled out to all production sitesand environmental management systems,required by the policy,arein place or in development at 93% of these sites.

A programme of supply chain management has been established,extending our environmental standards to major suppliers of goodsand services.

Progress has been made in reducing resource use throughlightweighting both primary and secondary packaging and bypromoting recycling at all stages of production processes.

Work is underway to adapt new more energy-efficient andenvironmentally-friendly refrigeration technologies to our ‘cold’product delivery systems in the marketplace.

Progress against the UN Global Compact

The UN Global CompactIn 2002,Diageo announced thatit had signed up to the nineprinciples of the United NationsGlobal Compact – the first global drinks company to do so – as a public commitment to leadership in social andenvironmental responsibility.The Global Compact providedvaluable input to the formulationof our human rights policy.Through membership of areference forum of UK-basedsignatory companies,we hope to contribute to thedevelopment of the GlobalCompact and give practicaleffect to its principles withinDiageo.As a demonstration ofour strong endorsement of theGlobal Compact,we intend toreport annually on the progresswe have made in implementing the principles.

Principles

Human rightsBusinesses should:1.Support and respect the

protection of internationallyproclaimed human rights

2.Make sure they are notcomplicit in human rights abuses

Labour standardsBusinesses should uphold:3.The freedom of association

and the effective recognition of the right to collectivebargaining

4.The elimination of all forms offorced and compulsory labour

5.The effective abolition of child labour

6.The elimination ofdiscrimination in respect ofemployment and occupation

EnvironmentBusinesses should:7.Support a precautionary

approach to environmentalchallenges

8.Undertake initiatives topromote greaterenvironmental responsibility

9.Encourage the developmentand diffusion ofenvironmentally friendlytechnologies.

32 Diageo Corporate Citizenship Report 2003

How we compare

With accountability at the top of the corporate agenda there are manyopportunities for companies to benchmark their approach and performanceas corporate citizens against their peers.

Socially responsibleinvestment indicesDiageo is included in the DowJones Sustainability Indices andin the FTSE4Good UK,Europeanand Global Indices, listings whichhelp investors select companieswith good records of corporatecitizenship.To be included,companies must be judged to beworking towards environmentalsustainability;developingpositive relationships withstakeholders;and upholding andsupporting universal humanrights.

Corporate Responsibility IndexIn the UK,Business in theCommunity this year announcedthe results of its first CorporateResponsibility Index,anassessment of the social andenvironmental managementand performance of 122 leadingcompanies.Diageo scored 68%in the index,which placed us in the middle rank ofparticipating companies.

Index of CorporateEnvironmental EngagementThe same organisation alsocompiles an Index of CorporateEnvironmental Engagement,assessing companies’approachto environmental managementand performance in key impactareas.These companies are notnecessarily the same as those inthe Corporate ResponsibilityIndex.This year Diageo scored82%,an increase from 73% in the previous year’s index,andwas ranked 58th out of 168participating companies.Thedetailed results of the surveyhave been considered by theDiageo Environmental WorkingGroup and areas forimprovement identified.

1999

Index of Corporate Environmental Engagement

Diageo score %

200020012002

647373

82

We value your viewsWe welcome your views onDiageo’s first corporate citizenshipreport.Please use the reply card enclosed.

If you prefer,or if the card has beenused,email your comments tocorporatecitizenship@diageo.com

or write to:Geoffrey BushDirector of Corporate CitizenshipDiageo plc8 Henrietta PlaceLondon W1G 0NB United Kingdom

Further informationFor greater detail on the issuesraised in this report,particularlythose connected with thegovernance of the business,taxation and financialperformance,please visit thewebsite www.diageo.com.

Future priorities

Fully embed values,codes and policies into waysof working and performance reviews

Improve systematic processes to monitorstakeholder concerns

Specify accountability for corporate citizenshipperformance in annual business plans

Establish diversity action plan and set targets for progress

Ensure that there is an alcohol education initiativein every Diageo market

Continue to commit 1% of operating profit tocommunity investment

Empower our community partners to developsustainable programmes

Extend environmental programme to all parts ofthe business

Ensure Diageo-wide collection of keyperformance indicators

Ensure targets are set for all appropriateperformance indicators

Deploy new health and safety risk managementstandards at all locations

Promote our standards of corporate citizenshipthroughout the supply chain

Publish country-level corporate citizenship reportscovering important markets

Help establish corporate citizenshipbenchmarking for our industry

Who we are

Site map of www.diageo.com,showing corporate citizenship pagesProud of what we do Media room Investor room

Corporate citizenship

Introduction

Governance

Leadership

Our stakeholders

Codes and policies

Responsible drinking

The environment Environment reports

Community The Diageo Foundation Alcohol Education

Water of Life

Local Citizens

How to apply

Reporting Corporate citizenship report 2003

Download report

Community investment Policies

Ethical investment

Archive

GRI content index

Around the world Assurance statement

What’s new Country reports

Our approach

Diageo Corporate Citizenship Report 2003

We have checked and are satisfied that the contents of this report areconsistent with underlying records,mainly data provided by Diageobusinesses and obtained from audited financial statements.

External assurance statement and commentary

The Corporate CitizenshipCompany acts as specialistadviser to corporations thatseek to improve theireconomic,social andenvironmental performance.Information about ourcapabilities as externalassurers and our relationshipwith Diageo are available atwww.diageo.com.Alsoavailable is a more detailedassurance statement andcommentary, including anassessment of the extent towhich this report has beenprepared in accordance withemerging best practice,notably the principles of theassurance standard AA1000and the guidelines issued bythe Global Reporting Initiative.

In our opinion,the reportprovides a fair and balancedrepresentation of materialaspects of performance,with gaps in performance data and stakeholder viewsidentified where appropriate.We have not independentlyverified otherwise unauditeddata.

Diageo bases its approach tocorporate citizenship on itsvalues and policies.Theseaddress the full range ofstakeholder groups and socialresponsibility concerns.Onmany issues,Diageo is a leaderin its industry and good dataare presented here,notably on:

> governance andmanagement systems relatingto corporate citizenship

> relations with consumers,responsible marketing andsupport for action on thesocial aspects of alcohol

> investment in employees,staff satisfaction and employeealcohol policy

> environmental performance in manufacturing

> the worldwide communityinvestment programmemeasured in accordance withthe LBG model.

However,this first globalcorporate citizenship reportdoes contain some importantgaps in performance data.These include aspects ofemployee relations,stakeholder consultation,social responsibility in thesupply chain,andenvironmental impactsbeyond manufacturing suchas the recycling of consumerpackaging.We commentfurther on these in our full on-line statement.

Next year we recommend thatDiageo reports more fully onsocial and environmentalimpacts in its value chain fromsuppliers to retailers.It shouldalso strengthen and reportbetter on its engagement withstakeholders,especially aroundresponsible marketing and thesocial aspects of alcohol.

The Corporate CitizenshipCompany,London 4 September 2003www.corporate-citizenship.co.uk

Diageo plc8 Henrietta PlaceLondon W1G 0NBUnited KingdomTel +44 (0) 20 7927 5200Fax +44 (0) 20 7927 4600www.diageo.com

Registered in England No. 23307

© 2003 Diageo plc.All rights reserved.

All brands mentioned in this report aretrademarks and are registered and/orotherwise protected in accordance withapplicable law.

Diageo employs over 20,000 talentedpeople.It is our people who make us whowe are.Each one of them is passionateabout our consumers and committed to delivering great performance andshareholder value.Featured on the cover of this report,in recognition of specialindividual contribution,are Willie Mackenzieand Kay Charles.

Designed and produced by Radley Yeldar.

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