S U S TA I N A B I L I T Y R E P O R T

TRADEMARK NOTICE The trade-marks appearing in this report constitute registered and unregistered trademarks of Kruger Products L.P when marked with a ™, ® or an asterisk (*) and of Kimberly-Clark Worldwide, Inc. (“Kimberly-Clark”) when marked with a ®’ or ®!. Kimberly-Clark’s registered trademarks are used under licence, by Kruger Products.

ABOUT THIS REPORT 2

MESSAGE FROM THE CHIEF EXECUTIVE OFFICER 5

KRUGER AT A GLANCE 7

APPROACH TO SUSTAINABILITY 13

GOVERNANCE AND MANAGEMENT SYSTEMS 15

ECONOMIC CONTRIBUTION 19

ENVIRONMENTAL PERFORMANCE 23

COMMITMENT TO EMPLOYEES 31

SOCIAL CONTRIBUTION AND COMMUNITY INVOLVEMENT 35

AWARDS AND DISTINCTIONS 37

GRI INDEX 43

TABLE OF CONTENTS

ABOUT THIS REPORT

GLOBAL REPORTING INITIATIVE GUIDELINESKruger Inc. has endeavoured for several years now to enable its stakeholders to assess its sustainability efforts by publishing reports that give a clear and open account of its environmental, social and economic performance. Kruger Inc. prepared this Sustainability Report and its previous report (2009-2010) with the objective of complying with the Global Reporting Initiative (GRI) Sustainability Reporting Guidelines. As indicated in the GRI Index at the end of this Report, the Company has prepared this Report based on GRI’s G3.1 Application Level C. This Report has not been verified by an independent third party.

SCOPE Although this Report covers the period between January 1, 2011 and December 31, 2012, it does contain infor-mation on events that occurred after December 31, 2012, where appropriate. This Report examines the impact of Kruger Inc.’s operations in Canada and the United States and that of the entities over which it has control and significant influence: its divisions, subsidiaries and facilities presented in this Report.

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CONTENTSKruger Inc.’s many business units were consulted in order to identify the sustainability themes, issues and development indicators deemed most relevant for the various stakeholders for whom this Report has been written. In their everyday activities, Kruger Inc.’s business units identify and prioritize the expectations of the Company’s stakeholders as regards disclosure based on individual stakeholders’ stated interests, concerns and goals. The analysis revealed that the following issues are of particular interest: reducing energy consumption and greenhouse gas emissions, manufacturing environmentally responsible products, workplace safety and employee mobilization. Since Kruger Inc. is a private corporation, this Report voluntarily contains no specific information on financial performance.

CONTACT FOR ANY QUESTIONS ABOUT THIS REPORT, PLEASE CONTACT:

Corporate Affairs and Communications

KRUGER INC. - HEAD OFFICE 514-343-3213 | communications@kruger.com

KRUGER S U S T A I N A B I L I T Y R E P O R T 2 0 1 1 - 2 0 1 2 4

STAKEHOLDERS TAKEN INTO ACCOUNT FOR DEFINING REPORT CONTENT

STAKEHOLDERS TYPES OF FORMAL AND INFORMAL ENGAGEMENT

EMPLOYEES/ UNIONS

• One-on-one meetings

• Performance reviews and interviews

• Focus groups

• Surveys

• Training and orientation programs

• Negotiations and ongoing dialogue with Unions

• Intranet sites

• Internal newsletters

COMMUNITY • Local outreach (various facility-level communication activities)

• Organized community groups at various facilities

• Public input process for forest management plans

• Executive regional visits

• Local chambers of commerce participation

• Philanthropic engagement

• Educational institutions

• Town halls

NGOs/THIRD-PARTYCERTIFYING BODIES

• Partnership with Earth Day® Canada

• FSC® certification through Rainforest Alliance

• Certifications through EcoLogoM, ISO, PEFC, SFI and CSA

• One-on-one meetings

• Audits on sustainable foresty management and product certification processes

• Industry coalitions

• First Nations round tables

GOVERNMENT • One-on-one meetings

• Lobbying and political involvement

• Membership in various industry associations

• Public input process for forest management plans and land tenure

SUPPLIERS/PARTNERS

• One-on-one meetings

• Policies

• Surveys

• Industry association meetings/conferences

• Evaluation and auditing

CONSUMERS • Customer service call centre feedback

• Social media channels

• Newsletters

• Focus groups

INVESTORS • Annual shareholder meeting

• Quarterly telephone/web conference

• One-on-one meetings

• Investor conferences

CUSTOMERS • One-on-one meetings

• Surveys

• Newsletters

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MESSAGE FROM THE CHIEF EXECUTIVE OFFICER

WELL BEFORE SUSTAINABLE

DEVELOPMENT BECAME A BUZZWORD,

KRUGER INC. DEMONSTRATED ITS VISION

FOR A SUSTAINABLE FUTURE BY LAYING

THE FOUNDATIONS OF SUSTAINABLE

PRACTICES THAT WE CONTINUE

TO UPHOLD TODAY. THE GLOBAL

ECONOMIC DOWNTURN, CLIMATE

CHANGE, PRESSURE BROUGHT TO BEAR

ON NATURAL RESOURCES, SCARCITY

OF SKILLED LABOUR AND INCREASED

CONSUMER DEMANDS ARE JUST SOME

OF THE RECENT CHALLENGES THAT

HAVE COMPELLED US TO REVIEW

OUR WAYS OF DOING THINGS AND

BETTER INTEGRATE SUSTAINABLE

DEVELOPMENT PRINCIPLES

INTO OUR DAILY OPERATIONS.

Now more than ever, our financial sustainability is closely tied to our environmental and social performance; everything we do must centre on creating value for our diverse stakeholders: our employees, our customers and the communities where we do business.

Our legacy businesses – Publication Papers and Forests and Forest Products – have been going through a period of adjustment for some years now. Significant effort was made in 2011 and 2012, including new industrial synergies and meaningful collaboration with our key stakeholders, to continue operations in several regional communities in Québec and Newfoundland and Labrador. The publications papers and forest industries are facing sustained pressure, which requires leaders to step up and pave the way for change. Kruger Inc. has been and will continue to be a leader in this respect.

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Fortunately, the current situation is not just about challenges, risks and constraints. We are excited about the growth prospects of our Kruger Energy business unit, which is capitalizing on worldwide demand for renewable energy sources. We are also seizing every possible opportunity for environmental innovation in order to stand out from the competition. For example, our Tissue Products business unit reached a historic milestone in 2011 when it became the first Canadian tissue manufacturer to earn Forest Stewardship Council® (FSC®) Chain of Custody certification (CoC) by the Rainforest Alliance. Furthermore, we are eager to enter complementary markets that will enable us to secure a better future and increase our service offering. For instance, in May 2012, our Recycling business unit expanded its services to include on-site confidential document shredding, making privacy protection and recycling more flexible and convenient than ever.

We have seen major change in recent years and from all accounts, the coming years will be no different. Our future success will be determined by our ability to continue to invest in our employees and nurture their growth; our continued commitment to the well-being of the communities where we do business; the ongoing care for our environment; and sustaining consistent financial returns. I am confident that we will succeed.

I am happy to present our second Sustainability Report, which is based on the guidelines of the Global Reporting Initiative (GRI), the international benchmark for sustainability reporting. In a spirit of transparency, this Report outlines not only our successes, but also the challenges we face in further improving our sustainability performance. I am proud of the progress made in 2011 and 2012 and thank each and every employee for their contribution.

JOSEPH KRUGER IICHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER

“ IN A SPIRIT OF

TRANSPARENCY, THIS

REPORT OUTLINES NOT

ONLY OUR SUCCESSES,

BUT ALSO THE

CHALLENGES WE FACE

IN FURTHER IMPROVING

OUR SUSTAINABILITY

PERFORMANCE. ”

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KRUGER INC. AT A GLANCEFOUNDED IN 1904, KRUGER INC.,

A PRIVATE CORPORATION BASED

IN MONTRÉAL, QUÉBEC, IS A MAJOR

NORTH AMERICAN PRODUCER

OF A VARIETY OF CONSUMER,

INDUSTRIAL AND COMMERCIAL

PRODUCTS: TISSUE PRODUCTS,

GREEN AND RENEWABLE ENERGY,

PUBLICATION PAPERS, LUMBER

AND OTHER WOOD PRODUCTS,

CONTAINERBOARD AND PACKAGING

MADE FROM RECYCLED FIBRE,

AND WINES AND SPIRITS.

The Company is also a leader in paper and paperboard recycling in North America. Kruger Inc. has facilities in Canada (British Columbia, Ontario, Québec, and Newfoundland and Labrador) and the United States (Maine, New York, Rhode Island, Tennessee and Virginia). The Company markets and sells its products worldwide.

For more information, visit: www. kruger.com

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VISION

KRUGER INC.’S OBJECTIVE IS TO BE

THE QUALITY LEADER AND LOW-COST

PRODUCER IN ITS INDUSTRY, WHILE

MAINTAINING A LEADERSHIP ROLE

IN ENVIRONMENTAL PROTECTION.

This is achieved by employees optimizing the quality of each action that takes place in the business of buying, producing, selling and servicing the Company’s products – all within a safe work environment that encourages each employee’s development and satisfaction.

MISSION

FOR OVER 100 YEARS, KRUGER INC.’S MISSION HAS BEEN TO PROVIDE PRODUCTS AND SERVICES THAT CONSISTENTLY MEET ITS CUSTOMERS’ EXPECTATIONS.

GUIDING PRINCIPLES • SAFETY AND ENVIRONMENTAL

STEWARDSHIP AND COMMUNITY RELATIONS

• EMPOWERMENT AND RESPONSIBILITY

• BUSINESS JUDGEMENT

• FUNCTIONAL EXCELLENCE IN RESPECTIVE AREAS OF OPERATIONS

• CUSTOMER FOCUSED

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ACTIVITY SECTORS

TISSUE PRODUCTS

ENERGY

PUBLICATION PAPERS

CONTAINERBOARD & PACKAGING

FORESTS AND FOREST PRODUCTS

WINES & SPIRITS

INTERNAL TRANSFERSRECYCLING

EXTERNAL SALES

INDUSTRIALCLIENTELE

RETAILCLIENTELE

PUBLICUTILITIES

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Kruger Products, a subsidiary of Kruger Inc., is Canada’s leading manufacturer of bathroom tissue, paper towel, facial tissue and napkins for both consumer in-home use, and commercial away-from-home use. Its facilities produce tissue and convert it into a host of packaged products.

Kruger Products’ top-selling consumer brands include Cashmere® and Purex® bathroom tissue, Scotties® facial tissue, SpongeTowels®, as well as White Swan® and White Cloud®. Several of these brands are available in 100% recycled versions under EnviroCare®. Kruger Products offers a portfolio of over 40 EcoLogoM-certified consumer products made from 100% recycled fibre that have been FSC® (Forest Stewardship Council®) certified by the Rainforest Alliance. EcoLogoM is North America’s most respected environmental certification that is recognized for its holistic and stringent evaluation of the entire manufacturing process.

Kruger Products’ Away-from-Home (AFH) Division also manufactures more than 50 EcoLogoM-certified tissue products that are marketed under the Embassy®, Esteem® and White Swan® brands.

In 2011, Kruger Products was the first Canadian tissue product manufacturer to earn FSC® certification. Approximately 40% of its product portfolio is FSC®-certified. With EcoLogoM and FSC® certification, Kruger Products offers one of the widest selection of third-party-certified products in its category in North America.

Kruger Products’ output totalled 356,092 and 361,332 air-dried metric tonnes in 2011 and 2012, respectively.

In December 2012, Kruger Products launched its first initial public offering by creating a new company – KP Tissue Inc. – in order to acquire a minority interest in Kruger Products L.P. KP Tissue Inc. owns approximately 17% of Kruger Products’ shares, while Kruger Inc. holds the remainder. KP Tissue Inc. is listed on the Toronto Stock Exchange under the symbol “KPT.”

For more information on this activity sector, visit: krugerproducts.ca.

Kruger Energy specializes in the development, management and operation of green, renewable energy power plants in Québec, Ontario, Newfoundland and Labrador, and in several US states. Its mission is to develop energy projects that promote the optimal and respectful use of natural resources that contribute to reducing greenhouse gas emissions, and to diversify the geographic locations and means of renewable energy production.

Not only does Kruger Energy supply green energy in the form of hydro and biomass cogeneration power to some paper mills within the Kruger network, but it also sells to energy utilities in Canada and the United States.

After the Kruger Energy Chatham Wind Farm in Ontario was brought online in June 2011, and throughout 2012, Kruger Inc. and Kruger Energy together operated 34 production sites that generated electricity from renewable sources – hydroelectricity, wind, biomass and biogas – with a combined installed capacity of 423 MW that rose to 523 MW in December 2012, when the new Montérégie Wind Farm was commissioned.

In 2011 and 2012, Kruger Energy produced 1,024,143 megawatt-hours (MWh) and 1,011,444 MWh of electricity, respectively.

For more information on this activity sector, visit: energy.kruger.com.

TISSUE PRODUCTS ENERGY

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The facilities that make up Kruger’s Publication Papers Division manufacture and market newsprint and coated printing paper for magazines, catalogues and flyers. The Division comprises four mills, three in Québec and one in Newfoundland and Labrador. It serves markets in North and South America, Asia, Europe and the Middle East. Its clientele is mainly publishers and printers that purchase their paper directly from Kruger Inc. or through agents or brokers.

In 2011 and 2012, the combined annual production of the facilities in this Division was about 1.2 million air-dried metric tonnes of paper each year.

For more information on this activity sector, visit: paper.kruger.com.

PUBLICATION PAPERS

FORESTS AND FOREST PRODUCTS

CONTAINERBOARD AND PACKAGING

Kruger Packaging manufactures linerboard from 100% recycled fibre sourced from recovered paper and containerboard at its mill located in Montréal, Quebec. The mill earned FSC® certification in 2012 and produces 155,000 metric tonnes per year of white top (GreenWhite™) linerboard and brown (Turkraft) linerboard, as well as some specialty grades such as hanging file folder stock and saturated release paper.

Over half of the Division’s containerboard is sold in the Canadian market, with the majority of the mill’s output supplied to Kruger Packaging’s plants located in LaSalle, Québec, and Brampton, Ontario. Both establishments have an installed capacity of over 2 billion square feet of production per year and are equipped with modern technologies for a wide range of packaging solutions that meet customers’ expectations.

For more information on this activity sector, visit: pack.kruger.com.

Kruger’s Forests and Forest Products sector manages two Forest Management Units (FMUs) where it sources its wood fibre – FMU 041-51 and FMU 043-51 – in Mauricie, Québec. Operations include harvesting and transporting various tree species, building and maintaining forest access roads and other infrastructure, and applying silvicultural regimes, including reforestation. Kruger’s forest sector team also prepares forest management plans and reports, takes forest inventories, and obtains and maintains forest and environmental certifications.

Kruger’s sawmill operations also fall under this activity sector. The Division’s sawmills produce lumber, mainly for the construction industry, and supply Kruger Inc.’s paper mills with wood chips and biomass. All sawmills earned FSC® Chain of Custody certification in 2010 (certificate SW-COC-005279), as did the finger-joint plant in Trois-Rivières in 2013.

This Division used 504,346 m3 of virgin fibre in 2011 and 924,880 m3 in 2012.

For more information on this activity sector, visit: forest.kruger.com.

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Kruger Inc.’s Recycling business unit supplies recycled fibre to the Company’s mills, making it a leader in paper and paperboard recycling in North America. The business unit’s activities include loose and baled containerboard and paper collection and confidential document destruction services for large office buildings and industrial, commercial and institutional customers in Québec. Kruger Recycling also provides its customers with a wood recycling service for pallets, crates, boards and other dry wood products, as well as a railway tie and treated wood collection service. It also operates four recovery centres and a brokerage that enables it to better control its recycled paper and wood supply and soundly manage its resale activities.

Kruger Recycling supplies raw material to Kruger Inc.’s three mills in Québec that use recycled fibre: a containerboard mill in Montréal, a tissue mill in Crabtree, and a newsprint mill in Brompton. It also supplies the biomass boilers at the Trois-Rivières and Brompton paper mills with wood waste that is used to generate steam and electricity.

Kruger Recycling diverted 216,206 and 224,006 metric tonnes of dry waste from landfills in 2011 and 2012, respectively.

For more information on this activity sector, visit: recycling.kruger.com.

Kruger Wines and Spirits specializes in the production, import and marketing of alcoholic beverages, including Sortilège Canadian maple whisky, Spicebox spiced whisky, Kamouraska vodka, and Toro Loco, Settler’s Cove, Notting Hill, Marquis de Méricourt and Lulu B. wines, as well as several other wines. Over the years, Kruger Wines and Spirits has developed flagship brands that have placed it among the 10 largest Canadian companies in its industry.

This subsidiary has two distribution units – Maison des Futailles, which distributes product lines in grocery and convenience stores across Québec, and Mondia Alliance, which, in addition to offering its own branded products, also offers agency services in Canada to prestigious vineyards and international domains. Together, they have an impressive portfolio of over 250 products.

Kruger Wines and Spirits produced 34.4 million and 30.0 million litres of various wines and spirits in 2011 and 2012, respectively.

For more information on this activity sector, visit: ws.kruger.com.

RECYCLING WINES AND SPIRITS

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APPROACH TO SUSTAINABILITYSINCE THE COMPANY’S LONG-TERM

SUCCESS IS CLOSELY TIED

TO THE SUSTAINABLE DEVELOPMENT

OF RESOURCES LIKE FORESTS

AND WATER, INCORPORATING

SUSTAINABILITY PRINCIPLES INTO

ITS DIFFERENT AREAS OF ACTIVITY

HAS LONG BEEN A TRADITION

FOR KRUGER INC. DIVERSIFICATION,

COMBINED WITH THE SOCIAL,

ECONOMIC AND ENVIRONMENTAL

CHANGE SEEN OVER THE PAST FEW

DECADES, HAS CAUSED KRUGER INC.’S

APPROACH TO SUSTAINABILITY

TO EVOLVE SIGNIFICANTLY IN RECENT

YEARS SUCH THAT IT NOW COVERS

THE COMPANY’S ENTIRE VALUE CHAIN.

Kruger recognizes that sustainability encompasses both micro and macro issues, including, among other things, natural resource conservation, climate change, social acceptability of projects, relations with First Nations and financial sustainability. Now more than ever, the Company understands the direct and indirect impact its operations have on the environment, biodiversity, the economy and the communities in which it operates. It also knows that in order to have a significant reach, its sustainability actions must focus first and foremost on its core operations.

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THE THREE PILLARS OF SUSTAINABLE DEVELOPMENT

COLLABORATION WITH THIRD PARTIESBecause its future depends on it, Kruger Inc. is committed to cooperating with relevant industrial, sectoral and governmental organizations in order to reach goals that are larger than those in the scope of the Company itself and to ensure the long-term sustainability of the industries in which it operates. With this in mind, Kruger is a member of, or collaborates with, the following organizations:

ENVIRONMENT Kruger Inc. is commmitted to further reducing the environmental footprint

of its operations, whether through sustainable forest management, reducing

its water and non-renewable energy consumption or closely monitoring

the discharges and waste it generates.

SOCIAL Kruger Inc. firmly believes

in the important role it plays in ensuring the well-being and

advancement of the communities where it has operations. It strives to promote the social acceptability of its projects and operations, maintain harmonious relations with the various audiences it

engages, and establish an open and frank dialogue with the communities where it

develops its projects. It also believes in the importance of giving back

to the community.

ECONOMIC Beyond the sales and tax revenues

it generates, Kruger Inc. is fully aware of the considerable impact

its operations have on the economic development, and sometimes even the survival, of communities where

its facilities are located. As the economic driver of several rural regions

in North America, Kruger Inc. attaches great importance to the reciprocal

business relationships it builds with communities.

• AgencesrégionalesdemiseenvaleurdesforêtsprivéesdelaMauricie, desBois-FrancsetdeQuébec

• AssociationdesviticulteursnégociantsduQuébec(AVNQ)• AssociationforestièredelaValléeduSaint-Maurice• AssociationofCanadianDistillers(ACD)• Associationquébécoisedesagencesdevins,bièresetspiritueux(AQAVBS)• Associationsdelasantéetdelasécuritédespâtesetpapiers(ASSIFQ/ASSPPQ)• CanadianCorrugatedandContainerboardAssociation(CCCA)• CanadianFederationofIndependentGrocers(CFIG)• CanadianSanitationSupplyAssociation(CSSA)• Comitésectorieldelamain-d’œuvredesindustriesdelatransformationdubois(CSMOBOIS)• Conseilpatronaldel’environnementduQuébec• CorporationdesapprovisionneursduQuébec• Éduc’alcool

• FoodConsumerProductManufacturersAssociation(FCPMA)• FPInnovations• GroceryManufacturersAssociation(GMA)• InternationalSanitarySupplyAssociation(ISSA)• NaturalSciencesandEngineeringResearchCouncilofCanada(NSERC)• PackagingAssociationofCanada• Paper&PaperboardPackagingEnvironmentalCouncil(CEEPC)• PrivateLabelManufacturersAssociation(PLMA)• QuébecForestIndustryCouncil(CIFQ)• RECYC-QUÉBEC• RegionalCommissionsonNaturalResourcesandLandUse(CRRNT)• SectoralTableoftheMauricieForestIndustries• Sociétédeprotectiondesforêtscontrelefeu(SOPFEU)• WindEnergyTechnoCentre

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GOVERNANCE AND MANAGEMENT SYSTEMS

BOARD OF DIRECTORSA seven-member Board of Directors, chaired by Joseph Kruger II, the grandson of the Company’s founder, prudently administers Kruger Inc. In addition, four Board members are Kruger Inc. executive employees and the two others are members of the Kruger family. The Board of Directors’ Executive Committee sees to Kruger Inc.’s management and operation between Board meetings.

Each of the Company’s activity sectors must prepare an annual strategic plan outlining its key objectives, issues and projects for the upcoming year, including its sustainability initiatives, and present it to the Management Committee. This Committee tracks progress through monthly and quarterly reports.

KRUGER BELIEVES THAT

AN ORGANIZATION THAT IS SERIOUS

ABOUT ITS SUSTAINABILITY

PERFORMANCE MUST PROMOTE

SUSTAINABILITY VALUES AND ACT

IN ACCORDANCE WITH THE HIGHEST

STANDARDS OF GOVERNANCE AND

ETHICS. ITS RIGOROUS CORPORATE

GOVERNANCE MODEL WAS THEREFORE

DEVELOPED WITH THE OVERRIDING

OBJECTIVE THAT ALL FACETS

OF ITS OPERATIONS BE ADMINISTERED

WITH INTEGRITY AND WITH FULL

REGARD TO APPLICABLE LAWS

AND REGULATIONS IN COUNTRIES

WHERE IT DOES BUSINESS.

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ETHICS AND BUSINESS CONDUCTIn 2008, Kruger Inc.’s long-standing commitment to ethics and integrity was formalized with the adoption of a Code of Business Conduct and Ethics that applies to all of the Company’s employees, officers and directors.

In addition to business practices and compliance with the applicable laws and regulations in all countries where Kruger does business, the Code also focuses on the Company’s desire to provide a discrimination-free workplace and on best practices in health and safety, the environment, competition, protection of information, conflict of interest management and whistleblower protection. The Executive Committee of the Board of Directors is responsible for the implementation of, and compliance with, the Code and has the sole authority to amend it.

During 2011 and 2012, there were no incidents of non-compliance with regulations and the Company’s voluntary codes concerning marketing communications, including advertising, promotion and sponsorship. Furthermore, no complaint was filed against the Company for unfair competition, restrictive practices or anti-trust practices.

ENVIRONMENTAL GOVERNANCE At the Head Office, Corporate Environmental Services ensures that the Company complies with all new regulations, supports Kruger’s sites in their application for permits and certificates of approval, monitors incidents that may have environmental impacts, and ensures that all of the Company’s operations comply with its Environmental Policy. Management includes a Corporate Director, Environment, who reports to a Vice President whose responsibilities include environmental matters.

In addition, each Kruger Inc. mill has an environmental officer who ensures that environmental protection measures are implemented and maintained, and oversees the operation and continuous improvement of mill systems and processes. Environmental officers also prepare a monthly compliance report on their facility’s environmental performance.

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All of these parties must report to Kruger Inc.’s Board of Directors by submitting a quarterly consolidated report outlining compliance with the Environmental Policy and the applicable environmental standards at all Divisions. Monthly reports are also prepared and distributed to Company executives in order to report all environmental non-compliances and their causes and, where applicable, required corrective actions to deal with them.

POLICIESThe following policies are part of Kruger Inc.’s corporate governance framework:

CODE OF BUSINESS CONDUCT AND ETHICS

2008

ENVIRONMENTAL POLICY 2009, updated in August 2013

FOREST POLICY 2012, updated in July 2014

FIBRE PROCUREMENT POLICY 2012, updated in May 2014

POLICY TO PROMOTE HARMONIOUS RELATIONS WITH FIRST NATIONS

2011

In 2012, Kruger Inc. completed an extensive review of its environmental governance that examined all links in the chain of environmental governance and analyzed their effectiveness, from horizontal and vertical communications on the environment, to internal and external audit processes, to the roles and responsibilities of Corporate Environmental Services and mill personnel. As a result of this review, several environmental processes were modified in 2013 and 2014, and the Environmental Policy was updated. Its latest version was formally adopted on August 1, 2013.

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CERTIFICATIONSKruger Inc. endeavours not only to comply with government environmental protection requirements, but also to obtain and maintain the most stringent environmental certifications in its various activity sectors. For stakeholders, these certifications are a guarantee that its operations are managed sustainably.

CERTIFICATIONSBYACTIVITYSECTOR(ASATDECEMBER31,2012)

PUBLICATION PAPERS

Brompton Mill FSC® C103971 (CoC) ISO 9001:2008 ISO 14001:2004 PEFC (CoC) PwC-ICoC™:2005 (CoC) C-TPAT

Wayagamack Mill FSC® C103971 (CoC) ISO 9001:2008 C-TPAT PEFC (CoC) PwC-ICoC™:2005 (CoC)

Trois-Rivières Mill FSC® C103971 (CoC) ISO 9001:2000 ISO 14001:2004 PEFC (CoC) PwC-ICoC™:2005 (CoC) C-TPAT

Corner Brook Mill ISO 9001:2000 PEFC (CoC) PwC-ICoC™:2005 (CoC) C-TPAT

TISSUE PRODUCTS

Gatineau Mill FSC® C104904 (CoC) ISO 9001:2008 HACCP C-TPAT BPF Several EcoLogoM- certified products

Sherbrooke (Lennoxville) Mill FSC® C104904 (CoC) ISO 9001:2008 C-TPAT Several EcoLogoM- certified products

Crabtree Mill FSC® C104904 (CoC) ISO 9001:2008 C-TPAT BPF Several EcoLogoM- certified products

Memphis Mill FSC® C104904 (CoC) ISO 9001:2012 Several EcoLogoM- certified products

New Westminster Mill FSC® C104904 (CoC) ISO 9001:2008 C-TPAT Several EcoLogoM- certified products

CONTAINERBOARD AND PACKAGING

LaSalle Plant ISO 9001:2000 ISO 14001:2004 C-TPAT HACPP ICI ON RECYCLE! Attestation

Place Turcot Plant FSC® C106738 ISO 9001:2008 SFI Annex 1 (Sourcing of Fibre) C-TPAT

Brampton Plant HACCP C-TPAT

WINES AND SPIRITS

Production Plant ISO 22000:2005

Winemaking Centre ISO 22000:2005

ORGANIZATIONAL REPORTINGThe day-to-day management of Kruger Inc.’s operations is handled at the individual business unit level. Rigorous reporting through each business unit’s executives is regularly conducted with Kruger Inc. leadership and the Board of Directors. Kruger Inc.’s executive management must comply with formal accountability rules through performance evaluations.

FOREST CERTIFICATIONS

QUÉBEC

Industries Parent (FMU 43-51) FSC® C103971 (CoC – Parent Sawmill only) FSC® C007364 (Forest Management) ISO 14001:2004 (EMS) C-TPAT

Gérard Crête et fils (FMUs 41-51, 42-51, 43-52) FSC® C103971 (CoC) FSC® C007364 (Forest Management) ISO 14001:2004 (EMS) C-TPAT

NEWFOUNDLAND AND LABRADOR

Corner Brook Pulp and Paper Ltd. FSC® C001506 (CoC) (Forest Management) ISO 14001:2004 (EMS) CAN/CSA-Z809-08 (Sustainable Forest Management) PwC-PEFC-273 (CoC) PwC-ICoC™:2005 (CoC) C-TPAT

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ECONOMIC CONTRIBUTION KRUGER INC. ACTIVELY CONTRIBUTES

TO THE ECONOMIC HEALTH AND

DEVELOPMENT OF MANY COMMUNITIES

THROUGHOUT NORTH AMERICA.

THE COMPANY WORKS TOWARD

ACHIEVING THE BEST POSSIBLE BALANCE

BETWEEN ITS SOCIAL, ENVIRONMENTAL

AND ECONOMIC IMPERATIVES, BECAUSE

IT FIRMLY BELIEVES THAT PROFITABILITY

AND SUSTAINABLE VALUE CREATION

ARE INSEPARABLE.

The Company’s overall financial performance improved in 2011 and 2012, despite the ongoing challenging economic context faced by the publication papers industry. This progress is due in large part to the diversification of the Tissue Products business unit and the performance of Kruger Energy, which together account for a significant part of the Company’s operations.

KRUGER S U S T A I N A B I L I T Y R E P O R T 2 0 1 1 - 2 0 1 2 20

ECONOMICVALUEGENERATEDBYKRUGERINC.

2012($000)

2011($000)

2010($000)

2009($000)

2008($000)

Economic Value Derived from Revenues1

2,112,066 2,052,699 2,066,045 2,229,479 2,569,814

Capital Expenditures 207,956 174,900 250,552 83,058 201,162

1 Worldwide revenues from all business units’ sales, in all regions where Kruger is active.

REVENUEDISTRIBUTIONOFKRUGERINC.,BYREGION(2012)

CANADA UNITED STATES REST OF WORLD

45% 45% 10%

2012

43.5%TISSUE PRODUCTS

33.8%PUBLICATION PAPERS

9%CONTAINERBOARD AND PACKAGING

5.1%WINES AND SPIRITS

3.9%FORESTS AND FOREST PRODUCTS

3.6%ENERGY

1.1%RECYCLING

REVENUEDISTRIBUTIONOFKRUGERINC.,BYACTIVITYSECTOR(2012)

S U S T A I N A B I L I T Y R E P O R T 2 0 1 1 - 2 0 1 2 KRUGER21

Each year, Kruger makes numerous investments that generate economic spinoffs in the regions where it operates. Mindful of the need to ensure the Company’s long-term success, the shareholder and executives support the reinvestment of operating profits in the Company in a way such that Kruger’s capital expenditures always have major positive repercussions on the benefiting communities. Capital expenditures topped $175 million in 2011 and totalled $208 million in 2012.

QUALITY JOBSKruger also boosts collective prosperity by creating and maintaining thousands of direct jobs, including several in remote regions with high unemployment rates, plus several thousand indirect jobs. Kruger had 4,968 employees as at December 31, 2012.

EMPLOYEESBYACTIVITYSECTOR(ASATDECEMBER31,2012)

BUSINESS GROUPTOTAL

WORKFORCEMEN WOMEN

Permanent Temporary Permanent Temporary

Tissue Products 2,291 1,866 65 308 52

Energy 87 54 21 11 1

Publication Papers 1,527 1,417 7 96 7

Containerboard and Packaging

512 461 2 48 1

Forests and Forest Products

177 164 1 12 0

Recycling 34 21 0 12 1

Wines and Spirits 237 145 7 77 8

Head Office 103 58 7 36 2

TOTAL 4,968 4,186 110 600 72

KRUGER S U S T A I N A B I L I T Y R E P O R T 2 0 1 1 - 2 0 1 2 22

THE KRUGER WAYThe objective of the Kruger Way is to have everyone working together to continuously improve ways of doing business, processes and behaviours in order to create value for the Company’s customers, employees and shareholder. The Kruger Way, developed in 2005, is a continuous improvement, strategic planning and decision-making procedure that is systematically applied across all of the Company’s activity sectors. It is built on the five pillars of the Company’s Operating Strategy:

• potential or the gap to be closed between current performance and performance that is technically feasible;

• performance management or identifying performance indices for all of the Company’s strategic elements;

• talent management or introducing adequate training programs on the performance of continuous improvement tasks and initiatives;

• problem-solving tools or creating various improvement tools for continuous improvement teams; and,

• continuous knowledge management or knowledge-sharing mechanisms to ensure that best practices are sustained and shared across all production units.

Most of Kruger Inc.’s manufacturing plants have implemented a Quality Management System that meets ISO 9001 requirements. This certification helps them continuously improve performance by systematically setting goals to achieve very specific objectives.

In 2011, a partnership between Kruger Inc.’s Forests and Forest Products sector and Industries Perron Inc. resulted in the creation of a new commercial entity, Industries Parent Inc., a manufacturer of value-added lumber products. The partnership received a $21-million investment to upgrade equipment and start up operations at Kruger’s sawmill in Parent and at Perron’s finger-joint mill in Trois-Rivières, which had both been closed for a year and a half. Thanks to this investment, some 300 employees were able to return to work: about 90 at the Parent Sawmill, 40 at the Perron Mill, and 170 loggers and forest planning employees.

Kruger Energy commissionned its Chatham Wind Farm, in Chatham-Kent, Ontario, in June 2011, and its Montérégie Wind Farm, in Québec, in December 2012. As a result of these two projects, 26 new employees were hired in 2011 and 2012.

In August 2012, in order to remain competitive, the Tissue Products business unit had to retire obsolete assets at its mill in New Westminster, B.C., and consequently reduce the mill’s workforce from 587 to 400 employees. During the same time, however, the business unit’s tissue mill in Memphis, Tennessee, prepared for the commissioning of its new Through-Air-Dried machine (TAD), hiring 19 salaried workers and 97 hourly-rated employees.

The Publication Papers sector went to great lengths to sustain operations at its newsprint mill in Corner Brook, NL. Close cooperation between Kruger, the Communications, Energy and Paperworkers Union of Canada – which represents more than half of the Mill’s 650 or so employees – and the Government of Newfoundland and Labrador helped to maintain mill operations over the long term through rightsizing. Although this process gradually eliminated 46 positions, it led to the implementation of a viable and sustainable business model for the mill, a key employer in a region that was dealt a hard blow with the closure of two other newsprint mills in recent years.

S U S T A I N A B I L I T Y R E P O R T 2 0 1 1 - 2 0 1 2 KRUGER23

ENVIRONMENTAL PERFORMANCE KRUGER INC.’S DESIRE TO FULLY

ASSUME ITS ENVIRONMENTAL

PERFORMANCE RESPONSIBILITIES

IS EVIDENCED BY MAJOR INVESTMENTS

AND CONCRETE ACTIONS THROUGHOUT

ITS VALUE CHAIN, FROM THE SELECTION

OF FORESTRY PRACTICES TO THE

DELIVERY OF ENVIRONMENTALLY

RESPONSIBLE FINISHED PRODUCTS.

FOREST MANAGEMENTSustainable forest management (SFM), based on the principle of adaptive management and third-party verification, has been a priority for Kruger’s Forests sector for many years. This integrated approach is clearly defined in its Forest Policy. Kruger uses harvesting and silvicultural techniques that ensure sustainable and healthy forest stands through the careful protection of regeneration and through reforestation. In 201 1 and 2012, the Forests Group planted more than 12.8 million seedlings in the forest areas it manages.

KRUGER S U S T A I N A B I L I T Y R E P O R T 2 0 1 1 - 2 0 1 2 24

In 2008, Kruger began a process to earn forest management certification of the timber supply areas it manages under the Canadian National Boreal Standard of the Forest Stewardship Council® (FSC®). Certifications for forest areas in Québec were obtained in 2010, while certification for the area in Newfoundland and Labrador was obtained in 2012. Kruger’s Environmental Management System (EMS) for all forest areas it manages in Québec and Newfoundland and Labrador was also certified in 2001 under the internationally recognized ISO 14001 standard. These certifications are a testament to Kruger’s commitment to the sustainable management of the forested areas entrusted to it.

In late 2012, Kruger Inc. managed 42,699 km2 of forests in Canada. Over 99.77% of these forestlands were covered by a recognized Sustainable Forest Management certification.

ASATDECEMBER31,2012

AREA CERTIFICATIONS (AREAS)

CSA FSC® ISO 14001

Newfoundland and Labrador

14,189 km2

Québec (Mauricie)* 28,413 km2

British Columbia 97 km2

* Kruger is the FSC® certificate agent for 13,996 km2 and an FSC® certificate co-applicant for 14,417 km2, in partnership with 14 organizations.

Kruger Inc. is a signatory to the Canadian Boreal Forest Agreement (CBFA). As such, it is actively involved in the completion of a network of protected areas and the recovery of species at risk, and is strengthening its relations with Aboriginal communities and other forest resources users.

THE FOREST STEWARDSHIP COUNCIL®

IS AN INTERNATIONAL NON-PROFIT

ORGANIZATION DEDICATED TO

PROMOTING THE ENVIRONMENTALLY

APPROPRIATE, SOCIALLY BENEFICIAL

AND ECONOMICALLY VIABLE

MANAGEMENT OF THE WORLD’S

FORESTS. FSC® STANDARDS ARE AMONG

THE STRICTEST AND MOST RESPECTED

IN THE GLOBAL FOREST INDUSTRY.

S U S T A I N A B I L I T Y R E P O R T 2 0 1 1 - 2 0 1 2 KRUGER25

FIBRE PROCUREMENTKruger Inc. favours sustainable forest ecosystem management and the responsible use of natural forest resources. Its Fibre Procurement Policy, adopted in 2012, formalizes its commitment to make every effort to ensure that its wood fibre is sourced from forests where forestry practices comply with the requirements of recognized forest certification standards, such as FSC®, SFI, PEFC and CSA Z809, or that it is not sourced from controversial sources.

The Company’s various activity sectors used 1,952,512 oven-dry metric tonnes (ODMT) of virgin and recycled wood fibre for production purposes in 2012. This fibre came from a variety of sources in North and South America: forests managed by Kruger, wood chips and virgin fibre purchased from third-party suppliers, pre-consumer recovered fibre, and recycled paper and containerboard.

In 2012, 510,864 ODMT of recycled fibre went into the manufacturing of products. This fibre is sourced primarily from recycled and sorted office waste and institutional waste otherwise destined for landfill in Canada and the northeastern United States. A significant portion of the recycled fibre used by Kruger’s manufacturing plants comes from its Recycling Division.

Kruger Inc. has taken sustained concrete action to obtain FSC® Chain of Custody certification for its sawmills and tissue converting facilities. As at December 31, 2012, eleven facilities held FSC® Chain of Custody certification, which enables Kruger’s customers to track the entire manufacturing process, from wood fibre sourcing to the product on the shelf, including manufacturing, converting and distribution.

KRUGER S U S T A I N A B I L I T Y R E P O R T 2 0 1 1 - 2 0 1 2 26

RENEWABLEENERGYKruger’s business units have made a concerted effort in recent years to maximize their use of renewable energy. Biomass cogeneration plants are in operation in two Publication Papers mills, and several Kruger mills are equipped with biomass-fuelled boilers (bark, wood waste and water treatment sludge). The New Westminster tissue mill uses a biomass gasification system to generate the steam it needs for its operations.

In 2011 and 2012, almost 67% of the energy consumed by the Company’s operations came from renewable sources.

ENERGYEFFICIENCYIn addition to promoting the use of renewable energy, the Company constantly seeks to use innovation and technology for environmental protection in order to minimize its environmental footprint.

In 2011, the Kruger Wayagamack Publication Papers Mill modernized its precipitator to reduce the number of recovery boiler shutdowns, and at the same time increased its reliance on renewable energy by 5,000 GJ/year. This Mill also recovers used steam to pre-heat chips, saving some 90,500 GJ of energy annually.

In September 2012, the Place Turcot Containerboard Mill joined Hydro-Québec’s Energy Savers’ Circle of large industrial companies that have reduced their annual energy consumption by at least 5%. A number of energy efficiency projects, including the installation of a high- efficiency motor and the replacement of a refiner, have reduced the mill’s total energy consumption.

ENERGY CONSUMPTIONBy their very nature, some of Kruger Inc.’s operations are significant energy users. In 2011 and 2012, the Company’s efforts to reduce its energy consumption continued to pay dividends. In absolute terms, the facilities of the Tissue Products, Publication Papers and Containerboard and Packaging business units – by far the largest energy-consuming activity sectors, consumed about 32,173 terajoules (TJ) and 31,156 TJ of energy in 2011 and 2012, respectively, down considerably from 33,693 TJ in 2010.

In 2011 and 2012, hydroelectricity (32%), biomass (26%), natural gas (19%) and black liquor (8%) were the top energy sources for the Company’s manufacturing sectors. During these two years, approximately 45% of the energy consumed was self-generated.

ANNUALENERGYCONSUMPTION in terajoules (000 GJ)

34,000

33,000

32,000

31,000

30,000

29,0002010 2011 2012

* Data for the Tissue Products, Publication Papers and Containerboard and Packaging business units.

33,693

32,173

31,156

S U S T A I N A B I L I T Y R E P O R T 2 0 1 1 - 2 0 1 2 KRUGER27

REDUCEDGREENHOUSEGASEMISSIONINTENSITY kg CO

2 equivalent/tonne of production

1990

2000

2002

2004

2006

2008

2010

2012

640

340

340

330

280

230

210 37

191 37

1

2

GREENHOUSE GAS EMISSIONSSince Kruger Inc. believes it is important to participate in global efforts to counter climate change, it constantly strives to cut its direct greenhouse gas (GHG) emissions (Scope 1) by making greater use of cleaner fuels like biomass. Although most of Kruger’s Canadian facilities are powered by low-emission hydroelectricity, its tissue mill in Memphis, Tennessee, uses electricity primarily generated by fossil fuels, which increases the Company’s indirect GHG emissions (Scope 2).

Initiatives over past decades, some of which are outlined in Kruger’s Sustainability Report 2009-2010, have reduced the Company’s GHG emissions (Scope 1) by more than 66% since 1990 – and by 57% in absolute terms – from 640 kg CO

2 equivalent/tonne of production in 1990

to 191 kg CO2 equivalent/tonne of production in 2012.

In December 2011, the Government of Québec adopted a new regulatory framework for a cap-and-trade system for greenhouse gas emission allowances (Système de plafonnement et d’échange de droits d’émission de GES - SPEDE), making Québec the first Canadian province to follow California’s lead in setting up a carbon exchange. Under the regulations, Kruger Inc.’s operations in Québec are subject to the SPEDE since January 1, 2013. Kruger seized the opportunity to review and improve its GHG emissions performance and developed, in 2012, a strategy to adequately comply with the new regulatory framework. Several facilities have conducted a Pinch analysis to establish the basis for potential energy conservation and GHG emissions reduction projects.

1 Since analysis methods have been optimized, the 2010 figure provided in the Sustainability Report 2009-2010 was adjusted in this Report.

2 The values for 2012 include data for the Kruger Products tissue mill in Memphis, Tennessee.

Scope 1 Emissions Direct GHG emissions from Kruger facilities (processes and use of fossil fuel).

Scope 2 Emissions Indirect GHG from the generation of purchased electricity.

KRUGER S U S T A I N A B I L I T Y R E P O R T 2 0 1 1 - 2 0 1 2 28

WATER USEKruger recognizes the importance of reducing the impact its converting and manufacturing operations have on aquatic environments. Therefore, all of its mills aim to reduce their water use by improving processes and reusing process water where possible.

20101 2011 2012

Effluent Flow (m3/MT of production)

59.4 60.5 58.3

Suspended Solids (kg/MT of production)

1.61 1.49 1.34

Biochemical Oxygen Demand (kg/MT of production)

0.73 0.80 0.67

1 Since analysis methods have been optimized, the 2010 figure provided in the Sustainability Report 2009-2010 was adjusted in this Report.

* Accumulated statistics on water use by the Tissue Products, Publication Papers, and Containerboard and Packaging business units, Kruger’s biggest water users. A biochemical oxygen demand and suspended solids removal rate of 85% has been applied for mills that discharge their effluent into a municipal wastewater system, in order to take municipal wastewater treatment into account.

OTHER ATMOSPHERIC EMISSIONSIn addition to closely monitoring its GHG emissions, Kruger Inc. works to limit other air contaminant emissions. For example, several mills are equipped with state-of-the-art systems that are regularly checked and that prevent the release of particulate matter into the free atmosphere beyond regulatory standards.

Furthermore, as part of the second round of depollution attestations for pulp and paper mills in Québec, all affected Kruger mills have been compiling their NOx, particulate matter and other significant air emissions in accordance with a standard characterization model since 2012.

S U S T A I N A B I L I T Y R E P O R T 2 0 1 1 - 2 0 1 2 KRUGER29

WASTE MANAGEMENT Kruger makes every effort to limit the amount of solid and liquid waste generated by its operations, as well as its impact on the environment. For example, bark and wood waste are burned in the Company’s biomass boilers and turned into energy. Organic sludge produced by wastewater systems at Kruger’s mills is also converted into energy or used as fertilizer. In total, more than 87% of this material is reused.

Overall, the amount of residual materials used to produce energy has increased in recent years from 52% in 2010 to 56% in 2011, and to 59% in 2012, while the amount of landfilled residual materials has decreased from 33% in 2010 to 27% in 2011, and to 23% in 2012.

59%ENERGY PRODUCTION

23% LANDFILLING

11%RECYCLING

7%AGRICULTURAL RECLAMATION

RESPONSIBLE MARKETINGKruger Inc.’s concern for the environment is evidenced not only by its ongoing efforts to minimize the impact of its operations on ecosystems, but also by the features of its products. The Company is proud to offer a wide array of environmentally responsible products, many of which have earned third-party certification from respected, credible and well-known organizations, such as the EcoLogoM program and FSC® certification.

WASTEMANAGEMENTATALLKRUGERMILLS

2012

KRUGER S U S T A I N A B I L I T Y R E P O R T 2 0 1 1 - 2 0 1 2 30

COMPLIANCE WITH LAWS AND REGULATIONS Kruger’s mills are subject to a multitude of environmental protection regulatory requirements and make every effort to comply with them. Specifically, the Tissue Products, Publication Papers and Containerboard and Packaging mills must comply with several limits on effluent discharged into the receiving environment or municipal sewers, as the case may be. Thousands of tests are conducted each year to ensure that these mills’ effluents meet current regulations. The non-compliance rate below pertains to effluent discharges in relation to the key regulated parameters: biochemical oxygen demand (BOD5), suspended solids (SS), pH and toxicity for rainbow trout:

2011 2012

Number of Measurements1 12,885 12,884

Number of Non-compliances 3 8

Non-compliance Rate2 0.02% 0.06%

1 The number of measurements is the total number of measurements required by operating licences, environmental permits or a similar framework in the region where the entity operates. The total number corresponds to the number of measurements multiplied by the number of parameters per measurement.

2 The non-compliance rate is expressed as a ratio of the total number of non-compliances to the total number of compliance measurements. A non-compliance is a measurement result that does not meet a threshold value stipulated in a permit, regulation or any other relevant regulatory framework.

All incidents of non-compliance are assessed and their root causes examined, while corrective action plans are developed to prevent recurrence. Kruger Inc. aims to be fully compliant with all threshold values and all environmental legislative requirements.

No environmental fine was levied on Kruger Inc. in 2011 or 2012.

S U S T A I N A B I L I T Y R E P O R T 2 0 1 1 - 2 0 1 2 KRUGER31

COMMITMENT TO EMPLOYEES KRUGER INC. BELIEVES THAT

ITS EMPLOYEES ARE ITS MOST

VALUABLE RESOURCE, WHICH IS

WHY IT IS DETERMINED TO ATTRACT,

TRAIN, MOBILIZE AND RETAIN TALENTED

EMPLOYEES. IT OFFERS QUALITY JOBS

ACROSS ITS BUSINESS UNITS AND

A CHALLENGING, REWARDING AND

DISCRIMINATION-FREE WORKPLACE.

IT ALSO ENDEAVOURS TO TREAT

ITS EMPLOYEES WITH RESPECT

AND FAIRNESS AT ALL TIMES.

Kruger Inc. is an equal opportunity employer without regard to race, gender, religion, disability, age, marital status, sexual orientation, political beliefs or any other characteristic protected by the applicable laws of the jurisdiction where it has operations. During 2011 and 2012, there were no incidents of discrimination or disciplinary action taken.

Furthermore, when the Company is compelled to lay off employees due to economic conditions or industry realities, it makes every effort to mitigate the impact of those lay-offs by creating adjustment committees and giving priority to laid-off employees when operations resume.

KRUGER S U S T A I N A B I L I T Y R E P O R T 2 0 1 1 - 2 0 1 2 32

PERCENTAGEOFEMPLOYEESCOVEREDBYALABOURAGREEMENT(ASATDECEMBER31,2012)

CATEGORY NUMBER OF EMPLOYEES %

Unionized Employees 3,676 74

Non-unionized Employees 1,292 26

Total 4,968 100

EMPLOYEESBYOCCUPATIONALCATEGORY,GENDERANDAGEGROUP(ASATDECEMBER31,2012)

CATEGORY NUMBER OF EMPLOYEES

Production Employees 3,724

Management Personnel 412

Professionals 274

Administrative Personnel 558

MEN WOMEN

4,296 672

86% 14%

S U S T A I N A B I L I T Y R E P O R T 2 0 1 1 - 2 0 1 2 KRUGER33

TO

TA

L N

UM

BE

R O

F E

MP

LO

YE

ES

EMPLOYEE AGE

18 21 24 27 30 33 36 39 42 45 48 51 54 57 60 63 66 69 72 75

300

250

200

150

100

50

0

HEALTH AND SAFETYKruger Inc. is firmly committed to the three following health and safety principles:

• No job is important enough to endanger the health or safety of any of its employees or partners;

• The behaviours of the organization influence individual behaviours; and

• Operational excellence is based on the absence of injury and illness.

These principles led to the adoption of a health and safety philosophy and management strategy based on three requirements: leadership, control of the workplace, and accountability and commitment to everyone’s health and safety. These requirements were laid out in 2011 during a major Company-wide campaign on “Our Commitment to Health and Safety” to heighten awareness of the stakes involved in occupational health and safety.

With the goal of being an occupational health and safety industry leader, Kruger executives created the position of Corporate Manager, Health and Safety, in 2010. This individual is responsible for visiting each Kruger Inc. site and evaluating local programs and progress against the health and safety goals set by each activity sector and each site. Furthermore, Kruger Inc. occupational health and safety stakeholders and executives meet each year for the Kruger Health and Safety Centre of Excellence to establish the Company’s general directions and enable facilities in all activity sectors to share their best practices and initiatives that have proven effective. Lastly, numerous occupational health and safety awareness and training programs are provided to all of the Company’s employees.

KRUGER S U S T A I N A B I L I T Y R E P O R T 2 0 1 1 - 2 0 1 2 34

OSHA RATE* Kruger’s rigorous occupational health and safety efforts are successful. The results of all efforts made in 2011 and 2012 are detailed below:

2007 2008 2009 2010 2011 2012

Containerboard and Packaging 3.75 1.5 1.5 1.9 2.5 1.6

Recycling 6.3 0.0 8.7 0.0 10.1 6.6

Publication Papers 6.4 6.3 3.7 4.6 2.9 3.8

Tissue Products 7.7 6.9 6.6 4.7 3.0 2.9

Forests and Forest Products 17.4 16.5 5.7 5.4 3.3 12.9

Wines and Spirits n/a n/a n/a 2.9 3.3 3.8

Energy n/a n/a n/a 0.0 3.6 1.1

Head Office n/a n/a n/a n/a n/a n/a

TOTAL KRUGER n/a n/a n/a 4.4 2.9 3.3

ASSPPQ** 6.7 5.4 4.5 4.6 3.8 3.2

ASSIFQ*** 13.7 11.2 12.8 12.8 12.2 10.2

RECRUITMENT AND RETENTIONWhile Kruger Inc. makes every effort to recruit and retain the best talent for each activity sector, it did experience a significant increase in recruitment needs for hourly employees at its sites in 2011 and 2012. Recruitment was a major challenge for its legacy businesses, such as Forests and Forest Products and Publication Papers, and an industry-wide reality.

To address this challenge, the Company partnered with educational institutions and developed programs to train enough qualified employees to meet its operational needs over the coming years.

Kruger Inc. knows it is crucial to let its employees know how much it values their dedication and hard work. The Company is convinced that recognition and appreciation are major factors in its employees’ high mobilization and performance levels. Kruger Inc. strives to create a challenging workplace that encourages its employees to acquire skills and develop their full career potential. Efforts to retain talented employees are paying off. In 2012, 58% of its employees had ten or more years of service, 32% had 20 or more years of service and 17% had 30 or more years of service.

TRAINING AND DEVELOPMENT Kruger Inc. attaches great importance to succession planning in order to adequately prepare its future employees, managers and leaders. The Company’s managers, who are proponents of learning by doing, ensure that employees work in an environment that gives them the opportunity to improve every day. In this regard, they develop individual development programs and identify skills that can be upgraded with specific training and education. Consequently, Kruger Inc. invests significant resources each year in order to refine the diverse skills of its workforce.

In addition to technical and health and safety training, Kruger Inc. offers various development programs to employees who want to advance their careers. These could include specific training programs identified during the performance management cycle or broad-based programs that support the Company’s vision and growth strategies.

*** ASSIFQ: Association de santé et sécurité de l’industrie forestière du Québec

** ASSPPQ: Association de santé et sécurité des pâtes et papiers du Québec

* OSHA RATE = Event preventing an employee from performing his work x 200 000

Total employee hours worked at the mill

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KRUGER INC. IS DEEPLY COMMITTED

TO ACTING AS A RESPECTFUL AND

RESPONSIBLE CORPORATE CITIZEN BY

PROMOTING THE SOCIAL ACCEPTABILITY

OF ITS PROJECTS, MAINTAINING

HARMONIOUS RELATIONS WITH THE

VARIOUS AUDIENCES IT ENGAGES,

ESTABLISHING AN OPEN AND FRANK

DIALOGUE WITH THE COMMUNITIES

WHERE IT OPERATES, AND SUPPORTING

CAUSES THAT ARE DEAR TO IT.

SOCIAL CONTRIBUTION ANDCOMMUNITY INVOLVEMENT

Wherever the Company operates, it is dedicated to cooperating with representatives of civil society to harmonize its actions with their expectations and concerns as much as possible. Therefore, it encourages the creation of advisory committees on its forestry and energy activities and recently adopted a Policy to Promote Harmonious Relations with First Nations.

Kruger Inc. believes in the role that education plays in the collective success to come. Through the Gene-H.-Kruger Fund, it awards scholarships to administration, science and engineering students at the Cégep régional de Lanaudière, HEC Montréal, Laval University, McGill University, Sherbrooke University in Québec, Bishop’s University, the University of British Columbia and Simon Fraser University, also located in British Columbia, as well as Memorial University and the College of North Atlantic in Newfoundland and Labrador.

KRUGER S U S T A I N A B I L I T Y R E P O R T 2 0 1 1 - 2 0 1 2 36

Kruger Inc. also believes it is important to give back to its host communities by sharing with them the direct and indirect benefits of its operations. In keeping with its long tradition of donations and sponsorships, the Company supports numerous philanthropic projects and causes that are echoed in the lives of its stakeholders.

COMPANY-WIDE • Association forestière de la Vallée du St-Maurice (AFVSM), in support of educating youth about sustainable forestry

• Association forestière du sud du Québec (Southern Québec Forestry Association)

• Baie-Comeau Regional Hospital Centre Foundation

• Canadian Breast Cancer Foundation (CBCF) (since 2004)

• Children’s Miracle Network Hospitals (CMN Hospitals) (since 2012)

• Earth Day® Canada (2012)

• Fondation du maire de Montréal pour la jeunesse (Montréal Mayor’s Youth Foundation)

• Friends of We Care (since 2000)

• Log-a-Load for Kids Canada

• Maisonneuve-Rosemont Hospital Foundation

• Montréal Heart Institute

• Nature Canada (since 2005)

• Ronald McDonald House Charities of Canada®

• Scotties® Tournament of Hearts® and the Canadian Women’s Curling Championships (since 1982)

• United Way/Centraide

• Wildlife Foundation of Québec

Kruger Inc. also reaches out to individuals and communities going through difficult situations. For instance, in May 2011, Joplin, Missouri, took a direct hit from a tornado that left a trail of destruction, which prompted Kruger Products to donate approximately 80,000 rolls of White Cloud® bathroom tissue and paper towels to help the community get through the first few difficult days. Similarly, in June 2011, Kruger Products provided a full truckload of 30,000 rolls of SpongeTowels® paper towels and White Swan® products to assist in the relief efforts in flooded communities along the Richelieu River in Québec’s Montérégie region.

Also in 2011, Kruger Products’ Scotties® brand worked with Erin McLaughlin, Editor-in-Chief of Style at Home, to redesign an inpatient lounge in the Oncology Unit of Toronto’s Sunnybrook Health Sciences Centre, where one in ten women diagnosed with breast cancer in Ontario will receive treatment.

Each year, Kruger Inc.’s Corporate Head Office employees collect food and toys during the holiday season and donate them to a local food bank to give families in need an opportunity to joyfully celebrate the holidays.

S U S T A I N A B I L I T Y R E P O R T 2 0 1 1 - 2 0 1 2 KRUGER37

AWARDS AND DISTINCTIONS ALTHOUGH KRUGER INC. DOES NOT

STRIVE FOR EXCELLENCE FOR

THE SOLE PURPOSE OF GARNERING

PRAISE, IT PROUDLY WELCOMES

RECOGNITION, MENTIONS AND AWARDS

THAT ACKNOWLEDGE ITS SUSTAINED

EFFORTS TO CONTINUALLY IMPROVE

ITS PROCESSES, PRODUCTS, RELATIONS

WITH ITS EMPLOYEES AND VARIOUS

STAKEHOLDERS AND, MORE GENERALLY,

THE WAY IT DOES BUSINESS. THESE ARE

SOME OF THE HIGHLIGHTS OF

THE 201 1-2012 CALENDAR YEARS.

KRUGER S U S T A I N A B I L I T Y R E P O R T 2 0 1 1 - 2 0 1 2 38

ENVIRONMENTAL PROTECTION

ACTIVITY SECTOR RECOGNITION

20

11

Tissue Products

Winner, CIPEC Leadership Awards, Process and Technology Improvements Category, Biomass Gasification System at the New Westminster, B.C. Mill

Finalist, Pulp and Paper International – Promotional Campaign of the Year Award (Environmental Message), FSC® Certification

20

12

Containerboard and Packaging Member of Hydro-Québec’s Energy Savers’ Circle

Tissue Products

Winner, Association of Energy Engineers - International Energy Project of the Year, Gatineau, Québec, Mill

Finalist, Canadian Association of Importers and Exporters (CAIE) - Greening of the Supply Chain

Finalist, Pulp and Paper International – Promotional Campaign of the Year (Environmental Message), Sustainability 2015

Finalist, Les Phénix de l’environnement – Fight Against Climate Change Category

S U S T A I N A B I L I T Y R E P O R T 2 0 1 1 - 2 0 1 2 KRUGER39

SUPPLIER

ACTIVITY SECTOR RECOGNITION

20

11 Tissue Products (Away-From-Home Division)

Winner, Supplier of the Year, Adapt Marketing Group

Winner, Sysco Canada, Top 30 Suppliers of the Year

20

12

Containerboard and Packaging Winner, Preferred Supplier, ESSELTE

Tissue Products (Away-From-Home Division)

Winner, Sanitation Supplier of the Year, Balpex

Supplier of the Year, Adapt Marketing Group

Winner, Sysco Canada, Top 30 Suppliers of the Year

Winner, Platinum Supplier of the Year, Unisource Canada

Tissue Products (Consumer Products Division)

Winner, Supplier of the Year, Overwaitea Food Group

Ranked #2, Canadian Packaged Goods Supplier - Industry Survey

Publication Papers Winner, Supplier of the Year, Gannett Group

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EMPLOYEES

ACTIVITY SECTOR RECOGNITION

20

12

Forests and Forest ProductsFinalist, SME, Health & Safety Innovation Award, Commission de la santé et de la sécurité du travail du Québec, St-Roch-de-Mékinac

Energy One of the Top 50 Employers of Interns, École de technologie supérieure

PRODUCTS & MARKETING STRATEGY

ACTIVITY SECTOR RECOGNITION

20

12

Tissue Products (Consumer Products Division)

Gold Award, Cassies – Sustained Success, SpongeTowels®

Gold Award, Cassies – Packaged Goods, SpongeTowels®

Silver Award, Cassies – Sustained Success (Québec), SpongeTowels®

Silver Award, Cassies – Sustained Success, Cashmere®

Silver Award, Cassies – Packaged Goods, Cashmere®

First Runner-up, Cause + Action 2012 Competition, 2011 White Cashmere® Collection, Fashion with Compassion

Tissue Products (Away-From-Home Division)

Gold Award, Summit International Awards (SIA), Design Excellence Award Category, “Performance In Every Fibre™ ”

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COMMUNICATION AND PUBLIC RELATIONS CAMPAIGNS

ACTIVITY SECTOR RECOGNITION

20

11

Tissue Products

International Association of Business Communicators (IABC) Gold Quill Award of Merit – Photography, 2010 White Cashmere® Collection: Fashion with Compassion

IABC Silver Leaf Award of Excellence – Photography, 2010 White Cashmere® Collection: Fashion with Compassion

IABC Silver Leaf Award of Excellence - Publications, EnviroCareTM

and Earth Day® Canada

IABC Ovation Award of Excellence – Communications Creative – Photography, 2010 White Cashmere® Collection: Fashion with Compassion

20

12

Tissue Products

IABC Ovation Award of Excellence – 2011 White Cashmere® Collection: Fashion with Compassion

IABC Gold Quill Award of Merit – Photography, 2011 White Cashmere® Collection: Fashion with Compassion

Canadian Public Relations Society (CPRS) ACE Silver Award – Best Media Relations Campaign, 2011 White Cashmere® Collection: Fashion with Compassion

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WINES AND SPIRITS

COMPETITION RECOGNITION

20

11

Coupe des Nations

Gold Medal, Settler’s Cove Shiraz Cabernet Sauvignon

Gold Medal, Notting Hill Bin 404

Gold Medal, Australian Chardonnay

Silver Medal, Notting Hill Bin 808

Seal of Distinction, Lulu B. Pinot noir

Seal of Distinction, Mopaya

Seal of Distinction, Settler’s Cove Chardonnay

Seal of Distinction, Australian Ridge Shiraz

Seal of Distinction, Blackburn Cape

Seal of Distinction, Valle della Rosa

Seal of Distinction, Notting Hill Bin 505

20

12

Coupe des Nations

Gold Medal, Notting Hill Bin 404

Gold Medal, Pomme de glace

Silver Medal, Notting Hill Bin 808

Silver Medal, Campo de la Taranta

Seal of Distinction, Valle della Rosa

Seal of Distinction, Australian Ridge Shiraz

Seal of Distinction, Charles Meunier

Seal of Distinction, Lulu B. Cabernet Sauvignon Merlot

Concours mondial de Bruxelles

Grand Gold Medal, Australian Ridge Chardonnay

Silver Medal, Notting Hill Bin 404

Silver Medal, Settler’s Cove Shiraz Cabernet Sauvignon

Intervin International Competition

Bronze Medal, Valle della Rosa

Bronze Medal, Blackburn Cove

Canadian Whisky Tasting Contest

Silver Medal, Tap 357, Flavoured Whisky of the Year – Multi-market

Silver Medal, Sortilège Crème

Bronze Medal, Sortilège, Award of Excellence

Bronze Medal, Sortilège Prestige

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GRI INDEX

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STANDARD DISCLOSURES PART 1 PROFILE DISCLOSURES

STRATEGY AND ANALYSIS

INDICATOR DISCLOSURE LEVEL OF REPORTING PAGE

1.1Statement from the most senior decision-maker of the organization on the relevance of sustainable development to the organization and its strategy.

Fully 5-6

ORGANIZATIONAL PROFILE

INDICATOR DISCLOSURE LEVEL OF REPORTING PAGE

2.1 Name of the organization. Fully 7

2.2Primary brands, products, and/or services - indicating the nature of the organization’s role in providing these products and services, and the degree to which it utilizes outsourcing.

Fully 7-12

2.3Operational structure of the organization, including main divisions, operating companies, subsidiaries, and joint ventures.

Fully 7-12

2.4 Location of organization’s headquarters. Fully 7

2.5Number of countries where the organization operates, and names of countries with either major operations or that are specifically relevant to the sustainability issues covered in the report.

Fully 7

2.6 Nature of ownership and legal form. Fully 3

2.7Markets served, including geographic breakdown, sectors served, and types of customers/beneficiaries.

Fully 7-12, 20

2.8Scale of the reporting organization (number of employees, number of operations, net sales, total capital, etc.).

Fully 9-12, 18, 19-22

2.9Significant changes during the reporting period regarding size, structure, location, or ownership.

Fully 21-22

2.10 Awards received in the reporting period. Fully 38-42

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REPORT PARAMETERS

INDICATOR DISCLOSURE LEVEL OF REPORTING PAGE

3.1 Reporting period (fiscal/calendar year) for information provided. Fully 2

3.2 Date of most recent previous report, if any. Fully 2

3.3 Reporting cycle (annual, biennial, etc.). Fully 2

3.4 Contact point for questions regarding the report or its contents. Fully 3

3.5Process for defining report content (determining materiality, prioritizing topics within the report, etc.).

Fully 3-4

3.6Boundary of the report (countries, divisions, subsidiaries, leased facilities, joint ventures, suppliers).

Fully 2

3.7 State any specific limitations on the scope or boundary of the report. Fully 3

3.8Basis for reporting on joint ventures, subsidiaries, leased facilities, outsourced operations, and other entities that can significantly affect comparability from period to period and/or between organizations.

Fully 2-4

3.12 Table identifying the location of the Standard Disclosures in the report. Fully 44-47

GOVERNANCE, COMMITMENTS AND ENGAGEMENT

INDICATOR DISCLOSURE LEVEL OF REPORTING PAGE

4.1Governance structure of the organization, including committees under the highest governance body (board of directors or similar body), responsible for specific tasks, such as setting strategy or organizational oversight.

Fully 15-18

4.2Indicate whether the Chair of the board of directors (or similar body) is also an executive officer (and, if so, their function within the organization’s management and the reasons for this arrangement).

Partially 6, 15

4.3For organizations that have unitary board structure (or similar body), state the number of independent and/or non-executive members.

Fully 15

4.14 List of stakeholder groups engaged by the organization. Fully 4

4.15Basis for identification and selection of stakeholders with whom to engage.

Fully 3-4

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STANDARD DISCLOSURES PART 2 PERFORMANCE INDICATORS

ECONOMIC

INDICATOR DISCLOSURE LEVEL OF REPORTING PAGE

Economic Performance

EC1

Direct economic value generated and distributed, including revenues, operating costs, employee compensation, donations and other community investments, retained earnings, and payments to capital providers and governments.

Partially 20

ENVIRONMENTAL

INDICATOR DISCLOSURE LEVEL OF REPORTING PAGE

Energy

EN3 Direct energy consumption by primary energy source. Partially 26

EN5 Energy saved due to conservation and efficiency improvements. Partially 26

EN6Initiatives to provide energy-efficient or renewable energy based products and services, and reductions in energy requirements as a result of these initiatives.

Partially 26

Emissions, Effluents and Waste

EN16Total direct and indirect greenhouse gas emissions by weight (CO

2 eq tonnes).

Partially 27

EN18 Initiatives to reduce greenhouse gas emissions and reductions achieved. Partially 27

EN21 Total water discharge by quality and destination. Partially 28

EN22 Total weight of waste by type and disposal method. Partially 29

Products and Services

EN26Initiatives to mitigate environmental impacts of products and services, and extent of impact mitigation.

Partially 23-30

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SOCIAL: LABOUR PRACTICES AND DECENT WORK

INDICATOR DISCLOSURE LEVEL OF REPORTING PAGE

Employment

LA1Total workforce by employment type, employment contract, and region, broken down by gender.

Partially 21, 32-33

Labour/Management Relations

LA4 Percentage of employees covered by collective bargaining agreements. Fully 32

Occupational Health and Safety

LA7Rates of injury, occupational diseases, lost days, and absenteeism, and number of work-related fatalities by region and by gender.

Partially 34

SOCIAL: HUMAN RIGHTS

INDICATOR DISCLOSURE LEVEL OF REPORTING PAGE

Non-Discrimination

HR4 Total number of incidents of discrimination and actions taken. Fully 31

SOCIAL: SOCIETY

INDICATOR DISCLOSURE LEVEL OF REPORTING PAGE

Public Policy

SO5Public policy positions and participation in public policy development and lobbying.

Partially 4, 14

Anti-Competitive Behaviour

SO7Total number of legal actions for anti-competitive behaviour, anti-trust, and monopoly practices and their outcomes.

Fully 16

SOCIAL: PRODUCT RESPONSIBILITY

INDICATOR DISCLOSURE LEVEL OF REPORTING PAGE

Marketing and Communications

PR7Total number of incidents of non-compliance with regulations and voluntary codes concerning marketing communications, including advertising, promotion, and sponsorship by type of outcomes.

Fully 16

K R U G E R I N C .

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