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    PEABODY ENERGY CSR_Report2007 PEABODY ENERGY CSR_Report2007 Presentation Transcript

    • 2007 Report Corporate & Social ReSponSibility
    • Summary | Economic | Employee | Environmental | Public | Appendix Our Mission: Peabody’s mission is to be a leading worldwide producer and supplier of sustainable energy solutions, which power economic prosperity and result in a better quality of life. Our Values Our Results On the Cover Employees at Peabody’s Our culture is driven by strong corporate governance We operated the safest U.S. large surface mine, and the past Farmersburg Mine in Indiana were n n honored by the U.S. Department of and a continuous focus on safety, stewardship, three years have been the safest in our 125-year history Labor this past year for operating sustainability and best-in-class performance We earned half of the U.S. Department of the Interior’s awards n the safest large mine in America. for reclamation excellence and good neighbor practices Safety is core to our mission, and our employees n Inside commit to a vision of an incident-free workplace We earned global recognition for sustainable practices on n Peabody’s Caballo Mine in Arizona’s Black Mesa Wyoming won the U.S. Interior We believe that greater use of clean coal drives n Bronze Good Neighbor Award for We joined China’s centerpiece GreenGen near-zero emissions energy security, economic growth and environmental n an innovative partnership with initiative as the only non-Chinese company solutions area ranchers to reclaim land We set records for sales volume, revenues and EBITDA and that is twice as productive for n We are the global leader advancing clean coal n grazing. delivered 64% total shareholder return initiatives to achieve near-zero emissions We ranked first among peers in Fortune’s Most Admired listing, n We believe clean, affordable electricity improves n with the number-one score in every category, including social quality of life and longevity responsibility 2 Peab od y Ener gy
    • Summary | Economic | Employee | Environmental | Public | Appendix Key Stakeholder Communications and Focus Areas Environmental Employee Public Corporate & • Letter from the Chairman and CEO 4 Responsibility Responsibility Responsibility Economic Responsibility • Sustainability Awards 6 Annual ✓ Report • Economic and Corporate Responsibility 8 Environmental ✓ ✓ Regulatory • Employee Responsibility 16 Filings and Public Notices • Environmental Responsibility 27 SEC ✓ Filings • Public Responsibility 32 ✓ ✓ ✓ ✓ Website • Appendix 40 ✓ ✓ ✓ ✓ Employee Publications Corporate & ✓ ✓ ✓ ✓ Social Responsibility Report Management believes that a suite of external communications vehicles including the annual report, Securities and Exchange Commission (SEC) filings, website, employee publications and Corporate & Social Responsibility Report represent a full portrayal of the company’s commitments and progress to stakeholders. This report is intended to provide information regarding responsibilities that, by design, are not as thoroughly discussed in other communication vehicles. In compiling this report, Peabody reviewed Global Reporting Initiative guidelines for sustainability and incorporated appropriate reporting data. The use of the words “Peabody,” “the company,” and “our” relate to Peabody, our subsidiaries and our majority-owned affiliates. Celebrating 125 Years 3
    • Summary | Economic | Employee | Environmental | Public | Appendix Dear Stakeholder: Peabody celebrates our 125th anniversary this year, an extraordinary milestone Peabody is the Largest Private-Sector Coal Company and a tribute to our 7,000 employees worldwide who transform our vision for corporate and social responsibility into actions and results. 250 Peabody is the world’s largest Shenhua Energy private-sector coal company. 200 We are a Fortune 500 company Sales (Tons in Millions) Rio Tinto and a member of the S&P 500 150 Index. We rank first in our sector Arch BHP among Fortune’s “Most Admired Companies” listing, with the Anglo-American 100 China Coal Energy number-one position in all Xstrata Foundation Consol categories, including social Alpha Natural 50 Massey Resources responsibility. Yanzhou Patriot International Coal I am pleased that the past 0 three years have been our 1 2 3 4 5 6 7 8 9 10 safest, that we continue to earn Reserves (Tons in Billions) the industry’s highest honors for Source: Most recent company reports and websites, SEC filings and Peabody analysis. Values are on a short-ton basis. Peabody sales and reserves based on 2007 data. environmental excellence and good neighbor practices, and that we are strengthening Peabody is the world’s largest private-sector coal company, with world record sales of 238 million tons and a 9.3 billion-ton reserve base. The energy value of communities around the world, our reserves exceeds the oil or gas reserves in the Continental United States. injecting $3.2 billion in direct Peabody Energy Chairman and Chief benefits into economies in 2007. Executive Officer Gregory H. Boyce Our 125th anniversary comes Peabody was founded in 1883. Coal is the rock that built America and the at a time when the world energy landscape is dramatically changing, global modern world, and coal will continue to build fast-growing population centers markets are strong, and we face enormous energy needs. As we settle into the and improve quality of life for billions of people around the world. 21st century, coal’s contribution to society is even more valuable than when 4 Peab od y Ener gy
    • Summary | Economic | Employee | Environmental | Public | Appendix We have an enormous opportunity to create sustainable energy solutions to solve our energy and environmental challenges, ease supply issues and improve health and longevity for people around the world. In the next quarter century, global energy use is expected to increase by nearly Peabody’s vision is to achieve near-zero emissions from coal, and we are the 50 percent, and world electricity generation will nearly double. At a time when global leader advancing signature clean coal projects in the United States, competing fuels are increasingly strained and coming from unstable regions, China and Australia. Greater use of clean coal is important for solving the greater use of coal can advance the goals of clean energy solutions that world’s energy needs and advancing climate solutions. build energy security, strengthen economies and solve our environmental As a nation, we must commit to significant funding increases to commercialize challenges. I believe it is our responsibility to advance all of these three “Es” carbon capture and storage technologies for clean electricity and Btu Conversion at all times. projects. The magnitude of this challenge is enormous, but within reach as our We need all forms of energy to meet these most powerful solution for an energy-short world. heavy demands, though coal is the only You will read more about Peabody’s positions, priorities and successes in this sustainable fuel that can keep pace. Oil and 2007 report, which builds on five years of benchmarking by our management natural gas supplies are increasingly strained. and board of directors. The U.S. petroleum industry predicts that Once again, I want to recognize our global team of employees for their hard the global supply of oil and natural gas from work delivering best-in-class performance. I also thank our board for its wisdom conventional sources will not meet the and guidance. I am privileged to lead such a dedicated team that continues significant projected growth demand over creating sustainable energy solutions for health, wealth and prosperity through the next 25 years. Coal has been the fastest- robust use of clean coal. growing fuel for each of the past five years, and coal use is expected to grow nearly 75 percent over the next quarter century. In 2008, Peabody was named first among Mining and Crude Oil industries in Gregory H. Boyce Fortune Magazine’s “Most Admired Companies” ranking of U.S. companies. Chairman and Chief Executive Officer Peabody ranked first in the sector and held the number-one score in every category, including social responsibility. Celebrating 125 Years 5
    • Summary | Economic | Employee | Environmental | Public | Appendix peabody leads the industry in Reclamation excellence, Year after year, Peabody scientists, engineers and reclamation specialists develop innovative programs that apply the principles of sustainable development to mining and reclamation. These industry-leading programs brought home five of 10 prestigious awards for community and environmental stewardship from the U.S. Department of the Interior in 2007. SuStainability Somerville Central Mine in Indiana partners with area land- Caballo Mine in Wyoming collaborates with local Employees at the former Gibraltar Mine in owners to revitalize productive farming and pastureland and ranchers to double the productivity of area range for Kentucky reclaim mined land to highly support local recreational, civic and educational institutions. grazing and assists with conservation projects. productive forest, pastureland and wildlife habitat. Gibraltar Mine Caballo Mine Excellence in Reclamation Award Bronze Good Neighbor Award U.S. Department of the Interior U.S. Department of the Interior Miller Creek Mine Caballo Mine Excellence in Reclamation Award Wyoming Department of Indiana Department of Natural Resources Environmental Quality “Good Neighbor” Award Ken Rogers Reclamation Innovation Award Caballo Mine Indiana Society of Mining and Reclamation Wyoming Engineering Society Project of the Year Award 6 Peab od y Ener gy
    • Summary | Economic | Employee | Environmental | Public | Appendix earning top Honors for environmental Stewardship Twentymile Mine in Colorado is home to The former Seneca Mine in Colorado has developed reclamation Miller Creek Mine in Indiana reclaims highly large populations of Columbian sharp- practices that restore native vegetation that is hardy enough to endure productive farmland and wildlife habitat for the tailed grouse, who use the land for mating northwest Colorado’s harsh winters. community. and breeding. Vern Pfannenstiel Seneca Coal Company Somerville Central Mine Reclamationist of the Year Excellence in Reclamation Award Excellence in Reclamation Award American Society of Mining and Colorado Division of Reclamation, Mining U.S. Department of the Interior Reclamation and Safety; Colorado Mining Association Somerville Central Mine Somerville Central Mine Twentymile Mine and Seneca Mine Excellence in Reclamation Award Silver Good Neighbor Award Excellence in Reclamation Award Indiana Department of Natural Resources U.S. Department of the Interior U.S. Department of the Interior awaRdS 2007
    • Summary | Economic | Employee | Environmental | Public | Appendix economic and Corporate Responsibility concepts of corporate and social responsibility were defined, Peabody Peabody’s Global Operations Contribute Billions established its own tenets for best practice. Peabody’s 7,000 worldwide in Economic Benefits employees seek to operate under a mission statement to provide clean energy solutions that contribute to economic prosperity and a better quality of life Southwestern U.S. $260 million for families and communities around the world. Colorado $157 million Peabody believes that greater use of clean coal is the answer to improving energy security, fueling the world’s strongest economies and ensuring continuous emissions improvement: what we call the “3Es.” The company also believes that greater use of coal must be guided by the ultimate vision of near- Midwestern U.S. zero emissions. Technology is the key to satisfying growing energy demand $733 million while addressing climate concerns. More on this topic is included in the Public Responsibility section of this report. Peabody is the world’s largest coal company in reserves and sales, fueling Powder River Basin approximately 10 percent of all U.S. electricity and 2 percent of the world’s $1.0 billion Australia power. $1.0 billion More coal is being used around the world, and Peabody is uniquely positioned to fuel this long-term global growth. Peabody is reshaping its global operations and business portfolio to serve the fastest-growing markets. This includes increasing operations in Australia, tripling our trading activities and focusing on growing Pacific Rim markets from China and Mongolia to Mozambique. One of Peabody’s primary corporate responsibilities is to provide strong share- holder returns. The company delivered an 840 percent total shareholder return Peabody’s global operations injected nearly $3.2 billion in direct economic over the past five years. In 2007, Peabody achieved record financial results in benefits in communities where we do business in 2007, with each dollar typically contributing a four-fold benefit. sales volume, revenues and EBITDA. The company continues organic growth, with three major mines completed Peabody is the world’s largest coal company in in Australia this past year and a new greenfield mine in New Mexico under reserves and sales, fueling approximately 10 percent development that will begin operation in the second half of 2008. And Peabody is pursuing clean generation and Btu Conversion opportunities that convert of all U.S. electricity and 2 percent of the world’s power. coal’s energy into other fuels. In 2007, Peabody completed the spin-off of certain operations in West Virginia Peabody has 125 years of leadership in corporate and social responsibility. and Kentucky, focusing its efforts on expanding globally and building on Some would call that a great run. We believe it’s a great start for our next leading U.S. positions in the Powder River Basin, Colorado and the Midwest. 125 years of world-class practices in sustainability. Decades before the 8 Peab od y Ener gy
    • Summary | Economic | Employee | Environmental | Public | Appendix Economic and Corporate Responsibility All told, Peabody operations infused nearly $3.2 billion in direct economic Peabody Serves the Highest-Growth Markets benefits into communities through wages, taxes, royalty payments, capital investments, vendor contracts and charitable contributions in 2007. In 2007, Peabody received recognition for performance in safety, stewardship and investor activities. Peabody earned eight major awards for safety, operated the safest large surface mine and the most productive mine in the United States. Nearly two dozen awards were earned for sustainable practices in the past two years. Peabody has ranked among Fortune’s Most Admired Companies for six successive years. And BTU was named to the Forbes Platinum List of America’s Best Big Companies and ranked among the top 10 companies in CFO Magazine’s “value creators” S&P 500 ranking. This section highlights: • he “3E’s”: Energy Security, Economic T Growth and Environmental Solutions Peabody Headquarters • Corporate Governance and Ethics Peabody Offices COALTRADE Offices • Code of Business Conduct and Ethics Position Sales Reserves • inancial Disclosure and Sarbanes-Oxley F Wyoming PRB #1 140 3,341 2007 sales volumes and reserves in millions Compliance of short tons. Reserves are 2007 proven and Midwest #1 31 3,691 probable. Sales and reserves adjusted for Colorado #1 8 207 October 2007 spin-off of Patriot Coal and 2007 • Corporate Compliance and Training Southwest #2 14 990 Peabody reserve acquisitions. Venezuela sales volume for Paso Diablo Mine, of which Peabody Programs Australia #5 21 1,073 owns a 25.5% interest. Venezuela #1 7 182 Short tons in millions Peabody is the world’s largest coal company based on our world record sales of 238 million tons and 9.3 billion-ton reserve base. We have a growing global presence and 31 operations in the United States and Australia. Celebrating 125 Years 9
    • Summary | Economic | Employee | Environmental | Public | Appendix economic and Corporate Responsibility Energy, Economic and Environmental Solutions Against this backdrop, Peabody is creating sustainable energy solutions for the world’s most pressing energy and environmental challenges, while improving health and wealth around the world. Energy Solutions According to the U.S. Energy Information Administration’s 2008 Energy Outlook, Global energy needs are soaring as emerging nations around the world drive coal will remain the primary fuel for U.S. electricity, growing to 55 percent by enormous economic development and improvements in quality of life. China, 2030 as other energy forms face supply and cost constraints. Global competi- India and the United States are leading this growth, representing nearly tion for natural gas supplies is pushing global liquefied natural prices above 90 percent of long-term coal demand over the next two decades. $10 per million Btu. The delivered cost for natural gas in the United States was Coal represents 40 percent of world electricity – nearly double the share of its nearest competitors – at a fraction of the cost of other fuels. Coal has been Low-Cost Electricity Correlates with States that Use Coal the fastest-growing fuel for each of the past five years, and global coal use is expected to increase nearly 75 percent over the next 25 years, according to the Retail Cost per kWh & Percent of Coal Generation International Energy Agency. 6.4¢ In the next quarter century, the world’s population is expected to grow 8% 13.3¢ 7.5¢ 6.4¢ 25 percent to more than 8 billion people. World Gross Domestic Product (GDP), 2% 64% 94% 7.0¢ 7.4¢ the primary driver of energy demand, will more than double. Global energy 8% 60% 5.1¢ 15.3¢ 6.8¢ 8.4¢ 1% consumption will increase by more than half, and world electricity generation 15% 47% 5.3¢ 63% 8.6¢ 95% 59% will nearly double, based on forecasts by the International Energy Agency’s 9.1¢ 6.8¢ 6.2¢ 55% 10.0¢ 77% 7.9¢ 60% World Energy Outlook. China and India are experiencing industrialization, 22% 8.6¢ 6.5¢ 86% 6.4¢ 5.3¢ 48% 94% 85% 7.7¢ 12.8¢ urbanization and the digital revolution all at once, setting the pace for global 98% 7.1¢ 6.9¢ 68% 6.5¢ 5.8¢ 1% 45% 73% 82% 93% energy markets with sustained annual double-digit economic growth. 7.8¢ 7.1¢ 61% 8.5¢ 7.3¢ 64% 7.4¢ 7.2¢ 6.9¢ 37% 47% In the past 20 years, more than 1 billion people have gained access to electricity 77% 40% 47% 7.5¢ 7.8¢ 8.8¢ 54% 62% in developing nations. Clean energy is one of life’s necessities, fundamental to 35% 10.3¢ human activities, economic and social development and longevity. Reducing 8.4¢ 36% 25% 13.1¢ 9% energy poverty remains one of our most pervasive global issues. 10.3¢ 30% MA 15.2¢ 25% “Energy leads people out of poverty, increases life 21.3¢ CT 16.2¢ 11% 13% expectancy, reduces infant mortality and facilitates NH 14.0¢ 17% RI 13.2¢ 0% <9.0¢ education… It provides a window to the wider world,” ¢ = average retail price per kilowatt hour for CY 2007 NJ 13.4¢ 16% >9.0¢ % = percent of total generation from coal for CY 2007 VT 12.0¢ 0% Hydro says the World Coal Institute. MD 11.4¢ 59% Source: Energy Information Administration, March 2007. DE 11.3¢ 66% Today nearly one-third of the world’s population – more than 1.6 billion people around the world – lack access to affordable electricity. About 2.4 billion people The 10 states that use the highest percentage of natural gas for electricity rely on primitive biomass for electricity and 1 billion people live on less than generation have electricity prices that are 120 percent greater than the states that $1 per day, according to the World Energy Institute. use the most coal. Coal creates an advantage for citizens who are increasingly concerned about high energy costs. 10 Peab od y Ener gy
    • Summary | Economic | Employee | Environmental | Public | Appendix economic and Corporate Responsibility four times the price for coal in 2007. Higher natural gas prices have cost trade deficit. The SSEB study also calls for production of ultra-clean liquid America nearly $500 billion more than expected since the beginning of the transportation fuels, including 5.6 million barrels a day of coal-to-liquids fueled decade. Nuclear is valuable, though hampered by safety and disposal concerns. by about 1 billion tons of U.S. coal per year. The net result: • A renewed U.S. industrial boom, with direct new energy sector investments Economic Growth of up to $200 billion by 2030; Access to affordable energy is vital to economic prosperity. It frees up a • More than 1.4 million new jobs created over two decades; family’s disposable income and allows them to make positive lifestyle choices. • A projected reduction of the U.S. trade deficit by $600 billion by 2030; and Consider that the 10 states that use the highest percentage of coal-fueled • A conservation and efficiency savings equivalent to 19 million barrels per electricity enjoy electricity costs that average 40 percent lower than states day of current oil usage. relying on other fuels. Affordable energy also drives business growth. Over the past 10 years, the states with the lowest business energy costs grew 25 percent faster and U.N. Human Development Index Improves with Greater created 60 percent more new jobs than the states with higher energy costs. Electricity Use The United States has more coal than any nation, with 27 percent of the world’s reserves. Numerous studies support the thesis for greater use of coal 1.0 Sweden to improve energy security, drive down costs and build the economy. In the United Finland Italy Canada 0.9 States Argentina next decade, coal use is expected to add more than $1 trillion to U.S. economic Qatar UAE output, along with up to 9 million jobs, according to a study by Pennsylvania 0.8 Malaysia Brazil State University researchers. China 0.7 Indonesia South Africa Several major studies call for greater use of coal for industrial growth and Morocco 0.6 India economic development. The National Coal Council’s “Coal: America’s Energy Bangladesh Future” calls for more than doubling U.S. coal production annually for clean 0.5 Zimbabwe electricity, natural gas, transportation fuels, hydrogen and ethanol. 0.4 Zambia Mozambique The study, conducted at the request of U.S. Energy Secretary Samuel Bodman, Ethiopia 0.3 calls for investing a present value of $350 billion to create a new energy infra- structure that would drive down energy costs 33 percent, create 1.4 million 0.2 0 5,000 10,000 15,000 20,000 jobs and create $3 trillion in net-present-value economic benefits by 2025. Electricity Use The Southern States Energy Board (SSEB), a consortium of governors and state legislators from 16 southern states and two territories, conducted the Source: International Energy Agency, World Energy Outlook 2005 “American Energy Security” study, which concludes that greater use of coal will create a renewed industrial boom, create millions of jobs and reduce the There is a strong correlation between global electrification and improvement in the United Nations Human Development Index. Economies of nations that have access to low-cost electricity also enjoy improved health and longevity. Celebrating 125 Years 11
    • Summary | Economic | Employee | Environmental | Public | Appendix economic and Corporate Responsibility The Electric Power Research Institute reports that the cumulative benefit for improving coal technology and reducing exposure to high-priced natural gas- fired generation within the electricity sector from 2007 to 2050 could reach $1.3 trillion in 2000 dollars. Notably, the scenarios used natural gas price assumptions well below those represented by recent prices and the futures market through 2010. Coal also helps drive improved lifestyles, which is demonstrated by the strong correlation between global electrification with improvement in the United Nations Human Development Index. A 2007 study by a respected Johns Hopkins University epidemiologist, “The Health Benefits of Low-Cost Energy,” finds that improving human life expec- tancy is driven by access to affordable energy. It states that removing coal from the energy equation could cause 150,000 deaths each year. A report prepared by a Duke professor draws similar conclusions, showing the benefits of low- cost electricity, leveraged by coal’s continually improving environmental profile. Environmental Solutions Peabody believes that a world that enjoys improved quality of life and growing economies can do more to achieve the parallel and important goal of a cleaner Peabody continues expanding globally, completing three major new mines in environment. Coal has a strong and improving environmental track record Australia and expanding global coal trading offices in the United States, the thanks to tens of billions of dollars of investments in technologies that have United Kingdom, Australia and China. The Millennium Mine in Queensland is ramping up to produce 3 million tons of metallurgical coal annually. enabled significant emissions reductions. Peabody’s vision is to achieve near-zero emissions from coal, and the company Corporate Governance and Ethics is advancing voluntary initiatives to commercialize clean coal technologies and address concerns about climate. Good corporate governance is the foundation for Peabody Energy’s actions Chief initiatives include Peabody’s participation in GreenGen in China, the at every level, and the board of directors has adopted a robust corporate COAL21 Fund in Australia and FutureGen and Vision 21 in the United States, governance program it believes is in the best interests of the company and projects that seek to demonstrate near-zero emissions from coal while its shareholders. capturing and storing carbon. More about these projects and Peabody’s position on climate is included in the Public Responsibility section of this report. 12 Peab od y Ener gy
    • Summary | Economic | Employee | Environmental | Public | Appendix economic and Corporate Responsibility Corporate Governance Principles The company’s Mission Statement reflects Peabody’s global leadership in providing energy solutions and is a reflection of managers’ commitment to use The board of directors operates under a set of governance principles covering the principles for decision-making. such issues as the roles and responsibilities of the board and management, Peabody’s board of directors regularly reviews corporate governance policies board composition and director qualifications, director election procedures, and procedures to ensure continued compliance with best practices, applicable meeting procedures, committee functions, director orientation and continuing laws and Securities and Exchange Commission (SEC) requirements. education, and management evaluation and succession. The board has carefully considered the company’s director election process Some of the key corporate governance practices adopted by the company and, in July 2007, amended the company’s bylaws to provide for majority include the following: voting in uncontested director elections. • At least a majority of the company’s directors must meet the criteria In addition, the board has recommended to the shareholders that they approve for independence established by the New York Stock Exchange. The an amendment to the company’s articles of incorporation to eliminate the independence of each director is reviewed at least annually and at other company’s classified board structure in favor of the annual election of times when a change in circumstances could potentially impact the directors. This amendment was approved at Peabody’s 2008 Annual independence of one or more of the directors. Meeting of Shareholders. • The company’s bylaws provide for majority voting in uncontested director Peabody will continue its strong focus on best practices to ensure effective elections. corporate governance for the benefit of the company’s shareholders. • The Audit, Compensation and Nominating and Corporate Governance Committees of the board are comprised entirely of independent directors. Board of Directors • Non-management directors meet at least quarterly in executive session Peabody is governed by a board of directors consisting of 12 members elected without management. by shareholders. Eleven members of the board are independent under New • The board and its committees conduct annual performance reviews to York Stock Exchange rules. The board of directors appoints and oversees the evaluate whether they are functioning effectively and to determine what Chief Executive Officer and other officers who are charged with the conduct actions, if any, could improve their performance. of the company’s business. Directors have full and free access to officers and • Each director participates in a director orientation program shortly after employees of the company and its affiliates. his or her election, and is encouraged to periodically attend, at company expense, appropriate continuing education programs. Board Committees • The board and each committee have the authority to hire independent legal, The board has appointed four standing committees from among its members financial and other advisors without consulting or obtaining the advance to assist it in carrying out its obligations. These committees include an Audit approval of any officer. Committee, Compensation Committee, Executive Committee and Nominating • Each member of the Audit Committee has been deemed an “audit and Corporate Governance Committee. Each standing committee has adopted committee financial expert” for purposes of the SEC’s rules relating to a formal charter that describes in detail its purpose, organizational structure audit committees. and responsibilities. Celebrating 125 Years 13
    • Summary | Economic | Employee | Environmental | Public | Appendix economic and Corporate Responsibility Communications • The Audit Committee must pre-approve all audit and non-audit services performed by the company’s independent registered public accounting firm Our shareholders, customers, employees and the public can communicate to ensure that such services do not impair that firm’s independence. directly with the board by submitting their written comments to the Chairman, • Directors may not serve on more than four other public company boards. Peabody Energy, 701 Market Street, St. Louis, MO 63101. These written • Directors are required to submit their resignation to the board for consider- communications are forwarded to each board member and reviewed by the ation following a job change. full board, as appropriate. • Directors may not stand for election or be appointed to fill vacant or newly If a concern arises about ethical conduct, it should be sent directly to Peabody’s created board positions after reaching age 75. Chief Legal Officer, who will promptly forward a copy of the communication • The company has adopted and disclosed stock ownership guidelines for to the Chairman of the Audit Committee, and if appropriate, the Chairman and officers and directors. Chief Executive Officer, for immediate action to address the matter. The company also has established compliance procedures for the Code of Code of Business Conduct and Ethics Business Conduct and Ethics. Employees who have concerns about busi- Employees and directors must adhere to a rigorous Code of Business Conduct ness practices are asked to raise their concerns to their supervisor or human and Ethics, which is designed to avoid conflicts of interest, achieve compliance resources representative or may use a third-party hotline called “Tell Peabody.” with laws and protect company assets. Tell Peabody allows for confidential and anonymous communication of The Code of Business Conduct and Ethics defines ethical standards to help all potential concerns, which are reported to the company’s corporate compli- employees establish and maintain our reputation as a world-class company. ance officer, who determines the appropriate action, including investigation. Report summaries are distributed to senior management weekly and routinely Employees are regularly reminded of their discussed with the Nominating and Corporate Governance Committee. obligation to act in a responsible, ethical and constructive manner through workplace Transparency communications and training sessions. All salaried employees are required to take online Peabody ensures that key corporate compliance and governance information training at least annually and to provide written and documents are accessible to shareholders and other stakeholders. The certification of compliance with the Code of company’s Corporate Governance Guidelines, board committee charters, Code Business Conduct and Ethics. of Business Conduct and Ethics and other information about our governance practices are available online at PeabodyEnergy.com. Any exceptions or qualifications are investi- gated and reported to the board of directors. Our annual proxy statement also includes detailed governance information Any modification in or waiver of the Code regarding director candidates and board independence, board meetings and for executive officers or directors must be attendance, director compensation and the director nominating process. approved in advance by the board of direc- tors and promptly disclosed as required by law or stock exchange regulations. 14 Peab od y Ener gy
    • Summary | Economic | Employee | Environmental | Public | Appendix economic and Corporate Responsibility Corporate Governance Ratings and the company’s registered independent public accountants. The results of the sub-certification process and the ongoing assessments of disclosure The board reviews the company’s corporate governance practices at least controls are reviewed among senior management and discussed in detail with annually to ensure that they continue to reflect best practices and promote the Audit Committee. the best interests of shareholders. During this process, the board solicits input Further quality assurance related to the company’s public reporting of financial from leading governance advisors who are independent of management. The information is provided by the Disclosure Committee. The company maintains board also considers views expressed by third parties, including independent a multi-discipline Disclosure Committee, which reviews financial statements governance ratings agencies. and certain SEC filings, and advises the CEO and CFO regarding potential The company’s governance practices are rated by several independent disclosure items. All earnings releases, quarterly reports and annual reports organizations, including RiskMetrics (formerly Institutional Shareholder are reviewed with and approved by the Audit Committee prior to filing. Services), Moody’s, Glass Lewis and Governance Metrics International. While individual ratings can vary widely, Peabody’s practices are generally rated Corporate Compliance and Training Programs better than average when compared to other companies in its industry group To ensure legal and ethical compliance, the company conducts regular and in line with the average of S&P 500 companies. training sessions at appropriate levels on a variety of topics, including safety, Financial Disclosure and Sarbanes-Oxley Compliance environmental laws, antitrust laws, securities and insider trading laws, equal employment opportunity matters, discrimination and sexual harassment. Peabody is committed to providing clear, complete, timely and accurate Peabody also maintains robust corporate compliance policies and approval financial information for external reporting purposes. The primary goal of the processes that are updated regularly and communicated throughout the financial reporting process is to provide stakeholders with financial information organization. that is useful in making informed business and economic decisions. These objectives are consistent with the Sarbanes-Oxley Act of 2002, which also requires the company to maintain all necessary systems, policies and proce- dures and documentation of financial controls to ensure its periodic financial reports are complete and accurate. Peabody believes the company’s written charters and governance guidelines, Code of Business Conduct and Ethics, robust internal policies and procedures and documentation of controls over financial reporting establish the proper “tone at the top” that facilitates compliance with Sarbanes-Oxley requirements. Under Sarbanes-Oxley, the company’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO) are required to certify the completeness and accuracy of financial statements included in public filings, and to periodically assess the effectiveness of the company’s financial controls over financial reporting. To support the CEO and CFO certification responsibility, the company maintains a Hundreds of safety observations are conducted daily across Peabody operations thorough sub-certification process and robust system of internal and disclosure to recognize best practices and correct unsafe acts. These safety contacts are controls that are regularly tested and monitored by management, Internal Audit entered into a hand-held PDA and tracked through a mine management safety system. Celebrating 125 Years 15
    • Summary | Economic | Employee | Environmental | Public | Appendix employee Responsibility The past three years have been the safest in Peabody’s North Antelope Rochelle Mine – the world’s largest coal mine – was also the most productive in 2007, based on the most recent industry data. North Peabody’s 125-year history, and once again we Antelope Rochelle earned dual honors from the governor and state as the safest operated the nation’s safest large surface mine. mine in Wyoming this past year. Creating an accident-free workplace through best practices in safety is central Throughout the organization, we seek to elevate performance excellence, to Peabody Energy’s mission and a major component of our position on embracing four key pillars of leadership: inspiration, innovation, collaboration employee responsibility. Our vision for safety is to achieve zero incidents and execution. We believe effective leadership must inspire employees to of any kind. This means operating free of injuries, occupational illnesses, perform at their highest level… innovate through new technologies, new property damage and near misses. We continue to accelerate our emphasis markets and new approaches… and collaborate to build and develop teams on communications, training and prevention, and the past three years have that enable Peabody to seize opportunities. These elements drive execution been the safest in our 125-year history. and ensure strong results. We believe that our responsibility to employees also includes providing an By building on these leadership qualities, Peabody believes we can help empowered, collaborative work environment. We reward performance in employees achieve their highest potential, build employee satisfaction and safety, continuous improvement, innovation and creativity, and provide create a high-performing organization. Employees also are encouraged to seek opportunities for personal growth and career advancement. broader assignments to advance career goals and participate in continued development, education and training. 16 Peab od y Ener gy
    • Summary | Economic | Employee | Environmental | Public | Appendix employee Responsibility This section highlights: All Peabody meetings start with a safety contact, and hundreds of safety observations are conducted daily across the company to monitor behavioral • Peabody’s Safety Results work practices and immediately correct unsafe acts. These observations • Emergency Preparedness are tracked and shared through a computer-based safety management system. • Best-In-Class Training Centers Peabody also has expanded its recruiting to attract graduates • Employee Demographics from the nation’s top universities offering occupational • Next Generation Workforce health and safety degrees to provide a fresh perspective on • Diversity Initiatives best practices and create a path for succession planning. • Employee Relations and Benefits Peabody’s Safety Results “Peabody’s safety vision is to operate safe workplaces that are incident free.” Management continues accelerating efforts to improve safety, focusing on strengthened communications, reinforcing safe behavior and eliminating The following governing principles for safety and health hazards. Specialized training in incident investigation and root cause analysis apply to everyone at a Peabody workplace: is being conducted for all U.S. mine managers and supervisors this year, with a heightened focus placed on assessing and alleviating risk. • The safety and health of our most important asset, The prestigious our employees, is a core value that is integrated For instance, a new awareness program empowers employees to “SLAM” U.S. Department of Labor’s into all areas of our business; hazards using a simple premise: “Stop, Look, Assess, Manage.” SLAM means Sentinels of Safety Award considering all the safety controls available and mitigating potential risk before has been presented to • All workplace incidents can be eliminated, Peabody operations three performing a job. Every U.S. employee will receive SLAM procedure training including injuries, occupational illnesses, property of the past four years. this year. damage and near misses; • Management has the overall accountability for Actions that build on our successes and continually improve performance are employee safety and health; guided by the Executive Safety Committee, Central Safety and Health Team and Mine Safety and Health Teams. These teams collaborate with employees at • Each employee is responsible for their own safety and health, as well as each operation to refine best practices, create standard processes and provide promoting the safety of their co-workers; technical transfer for best-in-class performance at every level. • Each employee must be empowered with the skills and authority to perform their job in a safe manner; Excellence in safety also is driven through individual accountability. Every Peabody employee commits to our safety vision and governing principles, and • All employees must comply with established safety rules and regulations; managers, front-line supervisors and employees are held responsible for their • Open, honest and effective safety communication is essential; own safety and the safety of each other. • All safety and health efforts must be sustainable and will be continuously reviewed and improved; and • The workplace is anywhere a Peabody employee is on the job. Celebrating 125 Years 17
    • Summary | Economic | Employee | Environmental | Public | Appendix employee Responsibility Safety Improvements largest in the world – was also honored as the safest mine in Wyoming, recognized by both the governor and the state mine inspector. Peabody’s U.S. employees achieved a 2.59 safety rate per 200,000 hours All told, employees earned nearly 20 awards for emergency preparedness and worked in 2007, reflecting a 29 percent improvement in the past three years. best practices in safety in 2007, including four U.S. Labor Sentinels of Safety The Farmersburg Mine in Indiana set the pace, earning Sentinels of Safety certificates for low incident rates. honors by the U.S. Department of Labor as the safest large surface mine in Peabody’s Australia operations improved their lost-time accident rate by more America. Peabody operations have earned this honor three of the past four than half, which includes the contribution of new mines that became part of years. Peabody through the Excel acquisition. Employees at the Viking Mine completed the year with zero reportable Peabody is standardizing its Australian safety tracking system this year to incidents, and employees at the Lee Ranch Mine achieved dual state honors create a consistent reporting mechanism for its U.S. and Australian operations as the safest mine in New Mexico. The North Antelope Rochelle Mine – the based on the Mine Safety and Health Administration (MSHA) standard. Emergency Preparedness U.S. Safety Performance Peabody Versus Other Industries In June 2006, President Bush signed into law the Mine Improvement and U.S. Accidents Per 200,000 Worker Hours New Emergency Response Act (MINER Act) creating 13 major provisions for emergency preparedness and technology research. The legislation called for additional compliance-related training, new reporting standards and more 4.64 stringent PSI standards for mine seals. It also called for developing two-way underground communication systems, safe chambers and caches of self- Agriculture/Forestry/Fishing/Hunting contained self-rescuers. Transportation & Warehousing Even before the MINER Act was created, Peabody operations already were Education & Health Services complying with several of the new mandates as a matter of practice. For 2.59 instance, the act calls for developing mine emergency response plans, which Leisure & Hospitality are completed annually at Peabody operations. Manufacturing Peabody 2007 Construction Coal Mining Each of our underground U.S. mines have approved emergency plans that Wholesale include the location of safety chambers. To comply with the act, safety Utilities Retail chambers designed to provide oxygen, food and water for up to 32 workers for 96 hours have been ordered, and deliveries are expected to begin as early as this spring. Thousands of self-contained self-rescue units also are being Source: 2007 data from Peabody and the U.S. Department of Labor; 2006 data from Occupational Safety & delivered to build underground caches. Health Administration Beyond providing safety tools, the MINER Act has a number of practical Peabody’s safety results are significantly better than the coal industry average and requirements, such as ensuring that operations are supported by local mine the average in other major industries, including transportation, manufacturing, rescue teams. Four hours of monthly drilling is mandatory, and mine rescue agricultural and construction. We maintain an intense focus to continually improve. 18 Peab od y Ener gy
    • Summary | Economic | Employee | Environmental | Public | Appendix employee Responsibility These teams continually hone their emergency response capabilities, through sophisticated annual mine emergency rescue drills (MERDs) involving multiple regulatory agencies and local emergency responders. Drilling is frequent throughout all regions. In 2007, employees earned eight awards for major national and regional mine emergency competitions. Peabody installed redundant communication systems at its underground mines this past year and evaluated several two-way communication systems, which included testing at the Twentymile Mine in Colorado. The system awaits approval from MSHA. Best-in-Class Training Centers Recognizing the need to attract and retain the industry’s best talent, Peabody has developed a premier training regime through high-tech training centers in the Midwest and West. These centers offer virtual technology, advanced curriculum and hands-on skills applications. The safety and management team at Farmersburg Mine in Indiana celebrates best-in-class performance as America’s safest large surface mine. Continuous improvement in safety toward a vision of zero incidents is a core value. response teams must be located within one hour of the mines they serve. Approximately 10 percent of Peabody’s sales come from underground operations. Peabody has encouraged mine rescue training and drilling for decades to main- tain the highest level of preparedness, with teams typically training at twice the required level. The company has emergency response and mine rescue teams at every U.S. location, with resources significantly enhanced this past year. Ten mine rescue and Surface Mine Emergency Teams (SMET) were established Peabody is training its Next Generation Workforce through facilities in Wyoming in the Midwest in 2007, which include new rescue teams at the Air Quality and and Indiana. More than 2,600 employees received training at the Western facility Gateway mines, and two teams at Vermilion Grove. Every U.S. Peabody mine located at the Rawhide Mine in 2007. The new miner program uses virtual technology for basic safety and skills training. has a mine rescue or SMET team. Celebrating 125 Years 19
    • Summary | Economic | Employee | Environmental | Public | Appendix employee Responsibility Training center curriculum is geared to develop core competencies, including: 2007 Safety Competition Milestones Safety Milestones • Safety Caballo Mine Farmersburg Mine • New miner development 1st Place and 2nd Place Sentinels of Safety Award • Mobile and mining equipment operator skills 11th Annual Red Desert Trauma U.S. Department of Labor • Maintenance, electrical and welding skills Conference Francisco Mine • Plant, mine, and equipment monitoring and control systems Caballo Mine Sentinels of Safety Certificate • Continuous improvement skills 1st Place “B” Flight U.S. Department of Labor 21st Annual Safety Olympiad • Supervisory and leadership skills Lee Ranch Mine • Testing and evaluation Lee Ranch Mine Operator of the Year Award 1st Place Five-Person Event New Mexico Mine Inspector New miners participate in formal classroom training and hands-on skills 69th Annual Tri-State Firemen’s development in both shop and on-the-job training environments. Lee Ranch Mine Association Training and Competition Safe Operator Award Students use virtual technology to hone their skills to safely operate under- North Antelope Rochelle Mine New Mexico Mine Inspector ground and surface equipment including continuous miners and longwalls, roof 1st Place Overall and bolters, haul trucks and other surface equipment while supervisors benchmark Lee Ranch Mine 1st Place in Advanced “A” Flight student progress. Students are graded on every subject and must successfully Sentinels of Safety Certificate 21st Annual Safety Olympiad complete the course to earn certification. U.S. Department of Labor North Wambo Mine Peabody’s Wyoming and Midwest training centers opened in 2006. These North Antelope Rochelle Mine 1st Place centers trained 6,700 employees and vendors this past year, totaling more “Safe Sam” Award Hunter Valley Mine Rescue than 128,000 hours. Classes were primarily provided for new miners and State Mine Inspector & Wyoming Competition experienced employees covering safety, maintenance, equipment operator Mining Association skills, managing people skills for supervisors, and continuous improvement Twentymile Mine North Antelope Rochelle Mine and change management. 1st Place: Chuck Harvey, Benchman Wyoming Governor’s Safety Award National Mine Rescue Competition Safety Awards & Recognition Governor’s Office U.S. Department of Labor Peabody employees continue demonstrating Somerville Central Mine Willow Lake Mine excellence in safety, earning 18 awards for safety Sentinels of Safety Certificate 1st Place and emergency preparedness in 2007, which U.S. Department of Labor Illinois Department of Natural includes top honors for mine rescue in every region. Viking Mine Resources Sentinels of Safety Certificate Mine Rescue Competition U.S. Department of Labor 20 Peab od y Ener gy
    • Summary | Economic | Employee | Environmental | Public | Appendix employee Responsibility The remaining workforce is based at corporate headquarters in St. Louis or regional offices serving multiple locations. The typical employee has about 11 years of tenure. The company maintains a 92 percent voluntary retention rate through excellence in safety, leadership development and good compensation. Approximately 94 percent of Peabody’s U.S. sales volume is produced by union-free operations, which is consistent with national trends where more than 90 percent of private-sector workers choose to be union free. Peabody believes that its union-free operations offer a stronger team environment, greater flexibility, performance-based reward programs, opportunities for advancement and improved competitiveness. The Majority of Peabody Employees Work at Surface Mines Salaried 21% Peabody expects to recruit a significant amount of frontline employees over the Underground next several years to help fuel international expansion, organic growth and Btu 40% Surface Hourly Conversion opportunities. Global energy markets are extremely robust. 60% 79% Employee Relations Peabody provides some of the best jobs in communities where it operates and seeks to be the employer of choice. Peabody strives to provide employees with The vast majority of Peabody’s U.S. sales volume – approximately 90 percent – is an entrepreneurial work environment that offers career growth opportunities produced from large, efficient surface operations. Approximately 60 percent of and financial rewards aligned with performance and dedication. our employees work at these locations, with nearly 80 percent of the company’s workforce represented by hourly workers. Employee Demographics Next Generation Workforce Campaign Global energy markets are strong, and coal demand is unprecedented. Peabody believes it has a bright future based on a long period of sustained Recognizing the need to attract and retain the industry’s best and brightest growth. Multiple initiatives are under way to attract and manage talent and talent, Peabody has launched a broad recruiting effort that offers high-tech position the company for growth through international expansion, organic training and career development programs. development and Btu Conversion opportunities. Major initiatives in the Next Generation Workforce campaign include: Peabody employed nearly 7,000 highly skilled and talented employees in the • School recruiting programs for two-year and four-year degree graduates in United States, Australia, China and the United Kingdom at Dec. 31, 2007. mining engineering, skilled trades and other related disciplines; Approximately 94 percent of employees – or more than 6,400 employees – work at mine operations and regional offices. • Scholastic contributions to encourage mining school enrollments; Celebrating 125 Years 21
    • Summary | Economic | Employee | Environmental | Public | Appendix Employee Responsibility • Scholarship programs for high performing interns from two- and four-year The company provided nearly $150,000 in scholarships to 45 operations management trainee interns and contributed $420,000 to 12 of the nation’s top degree programs; mining schools. Student chapters of the Society of Mining Engineers at these • Partnerships with junior colleges and vocational and technical schools to schools were awarded an additional $90,000. develop mining technology programs and serve as a source for well-trained mining technicians; Diversity Initiatives • Succession planning and development programs to prepare employees for Peabody promotes a culture of diversity and embraces the principles and future management assignments; practices of equal employment opportunity that are consistent with the • Training Center programs for new miners and employees in high-skill areas company’s mission and Code of Business Conduct and Ethics. of electrical and mechanical maintenance and machine operations; Supporting, encouraging, and achieving diversity among our employees and • Recruitment of supervisory and management talent from the coal industry suppliers is fundamental to Peabody’s commitment to working ethically and with opportunity for career advancement; and constructively with stakeholders. In fulfilling this commitment, Peabody seeks • Standardization and upgrading of candidate screening and selection to double the percentage of minority and female employees at all job levels methods. in the organization in the next five years and increase company spending with In 2007 and through first quarter 2008, Peabody hired nearly 30 operations minority and women-owned businesses. management trainees and graduated nearly 350 new surface and underground Peabody has maintained a partnership with INROADS for the past three years, miners who participated in Peabody’s new miner training program. The increasing internship opportunities for minority students and building the company also had more than 100 operations management summer interns pipeline for qualified candidates. We expanded our minority-focused college during the period. recruiting to 10 campuses and enhanced our minority outreach program, partnering with the American Association of Blacks in Energy, the National Urban League and the Congressional and Hispanic Black Caucuses. We sponsored the National Urban League’s Annual Convention in St. Louis and contributed more than $25,000 in scholarship and empowerment initiatives for high school students. Peabody also has an Inclusion Committee that guides company initiatives, with a charter and goals approved by Peabody’s Chairman. Our corporate diversity Peabody seeks to advance goals are advanced through the following core initiatives: corporate diversity through • Employment Initiative education, outreach and advocacy initiatives. Minority- Seeks to increase the percentage of minority and female employees at focused recruiting expanded all job levels in the corporate organization as defined in our Corporate to 10 campuses last year. Affirmative Action Plan (AAP). 22 Peab od y Ener gy
    • Summary | Economic | Employee | Environmental | Public | Appendix employee Responsibility • Employee Development and Compensation Initiative • Executives who oversee regional operations engage in frequent briefings with their manage- Ensures that minority and female employees are provided the full benefit of ment teams and semi-annual or quarterly “all Peabody’s educational and developmental programs and are compensated employee meetings” at the mines. fairly. • Mine management hosts daily before-shift • Vendor Initiative communications meetings and weekly safety Commits to increase the percentage of goods and services purchased from communication meetings to emphasize standard minority vendors that can meet job requirements at a competitive price. The operating procedures and accident prevention. company will pursue additional ways to access information regarding the • Peabody has a broad employee communications goods and services available through minority vendors. program with regular company news and information • Employee Communication Initiative articulated through management, e-mail announcements, website informa- Builds on education within the organization to promote a culture of tion, a quarterly stakeholder newsletter, personal letters and brochures, inclusion, which includes a two- to three-hour training program for information packets, internal “intranet” postings, videos, the annual report supervisors and managers. and corporate and social responsibility report. Regular podcasts are being • Outreach Initiatives initiated for salaried employees and will be posted on the intranet. Provides financial support and employee participation in organizations • Peabody’s Conveyor is a quarterly stakeholder paper that serves as a that advance diversity through education, work and community programs. regular information source on Peabody strategies, industry issues and For instance, Peabody employees chartered the first St. Louis Chapter of public policy, supporting the company’s missions and principles. The the American Association of Blacks in Energy to create a voice for energy company also has developed a new Powerline electronic communication policy. Employees continue to provide leadership in the organization. that is being rolled out at U.S. mines this year through a series of kiosks. • Political Initiatives • Peabody’s Chairman and Chief Executive Officer provides frequent employee “Safety Contact” and “Awards & Recognition” e-mail communica- Involves Peabody in political minority organizations that advocate tions for salaried employees. These announcements provide an immediate U.S. energy policy and matters related to Peabody’s business interests. mechanism to feed the pipeline with positive information and recognize Peabody is a major annual sponsor and participant in the Congressional employees for exceptional results. Black Caucus. • Peabody also conducts an annual “Best Practices Forum” to leverage the Communications and Team-Based Approach good work of its employees and encourage the study of other world-class organizations. Peabody believes that a team-based approach with open, honest, and candid communication is a driver of success at all levels and results in top Training and Development performance. Peabody values nimble decision-making and strives toward a management structure that fosters open communication. Peabody believes that life-long learning and skills development are important to employee satisfaction, advancement and performance. The company focuses Employee communications are evolving as the company grows and becomes on employee and organizational development in four primary areas: feedback larger and more complex. Research shows that 90 percent of employees favor and coaching, training and education, work assignment opportunities and face-to-face communication and that supervisors are the most credible source knowledge and best practice sharing. of information. To that end: Celebrating 125 Years 23
    • Summary | Economic | Employee | Environmental | Public | Appendix employee Responsibility Feedback and Coaching Peabody believes every manager must provide employees with candid feedback on career path, personal strengths and developmental areas to help drive professional growth. This is a necessary and fundamental part of good management and is practiced through the Peabody Performance Appraisal Program and through ongoing guidance and coaching. Peabody also uses a “360” feedback process to help managers understand how they are perceived by their supervisor, peers and subordinates based on the four leadership pillars, which forms the basis for developing and applying plans to improve their leadership effectiveness. Training and Education Formal training gives employees the opportunity to increase capacity for learning, add new job skills and increase relevant job knowledge in a structured environment. Training provides the means for helping employees meet minimum education requirements for career advancement, for acquiring Peabody provides some of the best jobs in communities where it operates and necessary knowledge and skills in their current job and for supplementing strives to provide employees with an entrepreneurial work environment that offers career growth. job experiences to improve performance. Continuing education opportunities include: Work Assignment Opportunities • The Peabody Tuition Reimbursement program, which provides 100 percent One of the best means of employee development is to provide varied work tuition reimbursement for achieving associate, undergraduate and graduate assignment opportunities. Building skills through cross-training provides degrees for salaried employees. During 2007, more than 60 employees learning challenges, opportunities for career advancement and leads to a participated in the program resulting in nearly $325,000 in paid tuition, a depth of management talent that strengthens the organization. nearly 20 percent increase in fund allocation over the prior year. Peabody encourages all of its managers to provide employees with assign- • Peabody-required training, which targets specific job groups and includes ments that continue to build new skills, knowledge and capabilities skills and safety training for a variety of mining positions, orientation for commensurate with their performance and potential. Managers are also new hires, people management training for supervisors, and leadership encouraged to recognize and include these assignments as an important part development programs for middle and senior managers. of each employee’s annual performance appraisal development plan. • Specific training and education programs are also incorporated into each employee’s development plan based on their current job needs and career A thorough succession planning process identifies employees who have interests. potential to advance to key management positions. 24 Peab od y Ener gy
    • Summary | Economic | Employee | Environmental | Public | Appendix employee Responsibility Knowledge and Best Practice Sharing • Flu shots • Mobile mammograms Through Peabody’s Center of Excellence, Central Safety Committee and leader- • Weight Watchers® subsidy ship and best practice forums, the company leverages the good work of its • A “To Your Health” quarterly newsletter that includes personal stories employees and encourages the study of other world-class organizations. and achievements to inspire others Health and Welfare Benefits • First Aid training Peabody provides employees and retirees with comprehensive health care and Adoption Assistance Program prescription drug benefits that are competitive within the industry and with the The Adoption Assistance Program provides employees with reimbursement majority of large employers. to help offset expenses associated with the adoption of a child under the Health Care Cost Challenges age of 18. Reimbursement covers most types of adoption expenses, providing up to Like most major employers, Peabody’s health care plans have experienced $5,000 per child. Peabody was named to the Dave Thomas Foundation’s top cost pressures in recent years. Peabody’s covered population is affected by 100 “Adoption Friendly Workplace List” for 2007, based on the company’s many health risk factors such as coronary artery disease, diabetes and chronic financial assistance policy. obstructive pulmonary disease (COPD). Non-Health Care Benefits Peabody is responding to these challenges with aggressive cost-management strategies and healthy lifestyle initiatives. These programs have resulted in In addition to health care benefits, additional welfare benefit programs include: health care cost rates that are favorable to U.S. averages. • An employee assistance program that provides counseling to help with Wellness Program family issues, substance abuse and legal or financial difficulties • Short- and long-term disability coverage Peabody provides quality health care benefits to employees and retirees and • Life insurance promotes wellness as a natural offshoot of the company’s safety initiatives. • Accidental death and dismemberment coverage Peabody hired a medical director in 2003 to design education programs • Business travel accident coverage that promote healthy diets, regular exercise and preventative care. Among • Tax-free health care reimbursement accounts the initiatives offered is “Invest in Yourself,” a program that incentivizes employees to improve their health based on measurable progress on key • Sickness and accident leave health risk factors. Third-party experts offer tips for lifestyle management • COBRA, HIPAA and FMLA benefits and advice on managing nutrition, weight, fitness and stress. • Workers’ compensation coverage Other wellness benefits include: • Wellness program • Vacation and holidays • Lifestyle modification programs • Disease management programs Celebrating 125 Years 25
    • Summary | Economic | Employee | Environmental | Public | Appendix employee Responsibility Professional Compensation Retirement Savings Peabody offers a full package of competitive compensation and benefits The company provides for many employees to save for the future through to attract and retain talented employees. Level of pay is based on job responsi- the 401(k) Plan, aligning employee and shareholder interests to enhance bilities benchmarked with peer market data, and opportunities for pay growth performance and value creation. are based on measured job performance. Peabody has designed compensation Both the 401(k) and Employee Stock Purchase Plan programs provide programs that: employees with avenues for ownership in Peabody. The Employee Stock Purchase Plan offers a 15 percent discount on BTU shares, based on the closing • Have a clear link to shareholder value; price of our stock at the beginning or end of the six-month offering period. • Are designed to support achievement of the company’s business objectives; Annual Contributions • Incentivize the vast majority of employees; and Performance Contribution to 401(k) Program • Establish total compensation opportunities at levels that are competitive with marketplace practices and other pertinent criteria, taking into account Annual such factors as executive performance, level of experience and retention Year Performance Base Total value. 2007 3% 6% 9% 2006 5% 6% 11% Variable incentive pay constitutes: 2005 6% 6% 12% • Annual incentive plan; 2004 4% 6% 10% • Long-term incentive opportunities through annual awards of stock options, 2003 4% 6% 10% performance units and restricted stock; • Incentive pay for salaried and hourly employees based on metrics tied to The 401(k) program allows employees to contribute from 1 percent to companywide business unit and individual performance, and based on each 60 percent of their regular pay based on IRS guidelines. The company then individual’s position and level; matches 100 percent of an employee contribution up to 6 percent of base salary. • Incentive pay incorporates “absolute” (internal) and “relative” (external) performance measures; and Employees also may be eligible for an additional annual performance contribu- • Programs are communicated so that participants understand how their tion equal to as much as 6 percent of regular salary, based on the company’s performance against financial targets set by the board of directors each year. decisions affect business results and their compensation. 26 Peab od y Ener gy
    • Summary | Economic | Employee | Environmental | Public | Appendix environmental Responsibility and recreation areas, often to a condition that is better than before mining occurred. We use best practices and regularly seek community involvement in our activities. Peabody is the most recognized company among its peers for sustainability and corporate responsibility, according to a study by Ceres and the Investor Responsibility Research Center. Validating the company’s sustainable approach, Peabody earned international recognition at the Energy Globe Awards in Brussels, Belgium, for community and environmental practices on tribal lands in Arizona spanning nearly 40 years. Peabody’s business alliance with the Navajo Nation and the Hopi Tribe creates hundreds of local jobs, tens of millions of dollars in annual tribal revenue and a legacy of stewardship that preserves cultural and traditional values. “I’m especially proud of the work we’ve done in reclaiming mined lands to hardy, productive range, implementing grazing management programs, and developing a first-of- its-kind program to restore plants and herbs for ceremonial and medicinal use,“ says Scott Williams, Peabody’s Restoration of cultural plants used by Navajo and Hopi for medicinal, ceremonial Operations Manager for the Arizona Business Unit. and cultural purposes is part of a broad collection of sustainable initiatives on Arizona’s Black Mesa. Peabody earned world recognition for its environmental, In 2007, employees garnered a dozen awards for stewardship, notably economic and community practices on tribal lands, among the best in nearly 100 nations. earning half of the U.S. Department of the Interior’s 2007 awards for good neighbor practices and reclamation excellence in Colorado, Kentucky, Indiana Peabody’s mission: “When the mining is complete, and Wyoming. Two Peabody environmental managers, Vern Pfannenstiel and we will leave the land in a condition equal to or Ken Rogers, were honored by their peers for their environmental leadership. better than we found it.” This section highlights: • Environmental Policy Peabody has a 125-year legacy of innovation, creating environmental solutions • Management’s Environmental Committee that return lands to a condition that is equal to or better than before mining occurred. Peabody believes in continuous environmental improvement in coal • Regulatory Oversight mining and coal use and is leading global initiatives to commercialize technology • Reclaiming Lands for Higher Use toward a vision of near-zero emissions from coal. • Reclamation Bonding Excellence in stewardship is core to Peabody’s mission. Mined lands are returned for productive rangeland, farmland, forest, wildlife habitat, wetlands • Environmental Compliance Celebrating 125 Years 27
    • Summary | Economic | Employee | Environmental | Public | Appendix environmental Responsibility A World-Class Approach to Reclamation Excellence Management’s Environmental Committee Peabody’s environmental policies and programs are designed to ensure that Peabody has an Environmental Committee comprised of operations and coal mining and coal use benefit current and future generations, enhance the environmental managers, technical directors and executives. The committee company’s leadership in environmental excellence, and assure compliance guides continuous improvement of the company’s stewardship initiatives and with all legal and regulatory requirements. environmental management program. Environmental performance measures are reported and regulatory issues are addressed on a monthly basis and Multiple federal, state, tribal and international environmental laws and regula- individually at each operation. tions govern mining operations, and Peabody conducts regular monitoring of the air, soil, water and reclamation at its operations to ensure compliance. The The committee’s responsibilities include: company’s policy is to act within the spirit and letter of environmental laws • Providing leadership and direction for best practices in reclamation while advancing environmental excellence. initiatives and environmental compliance; Our reclamation philosophy is to restore mined land as quickly as possible • Ensuring implementation of Peabody’s Environmental and Reclamation so that lands can be returned for productive community use. We spent Policy and updating when required; nearly $230 million on reclamation and environmental activities in 2007. • Reviewing and recommending proper resources for environmental and Last year, the company continued to expand its conservation activities by reclamation activities; recycling nearly 14,000 tons of metals, oil, fuel and other materials. • Ensuring specific goals and programs are being established to support the Policy and that performance is continuously being measured and monitored; and • Reviewing and improving Peabody’s Environmental Management Program to improve overall environmental performance. Regulatory Oversight In the United States, the Office of Surface Mining (OSM) within the U.S. Depart- ment of the Interior administers the Surface Mining Control and Reclamation Act (SMCRA) and is the chief regulator for rigorous mining, environmental protection and reclamation standards, and for the surface effects associated with deep mining. U.S. mine operators must obtain SMCRA permits and permit renewals for mining operations from the OSM or the state authority that has primacy. SMCRA permit provisions include detailed requirements for coal prospecting; mine plan development; soil removal, storage and replacement; selective Demonstrating the caliber of Peabody’s worldwide environmental team, handling of overburden materials; mine area backfilling and grading; protection Peabody’s Ken Rogers, a Midwest Region Reclamation Manager (right) was of the hydrologic balance; subsidence control for underground mines; surface honored by the state of Indiana for innovative practices in stewardship. Rogers drainage control; mine drainage and mine discharge control and treatment; earned the prestigious Vance “Pat” Wiram Award from the Indiana Society of and revegetation. Mining and Reclamation. 28 Peab od y Ener gy
    • Summary | Economic | Employee | Environmental | Public | Appendix environmental Responsibility Reclaiming Lands for Higher Use Peabody has a long history of environmental stewardship programs. Through Operation Green Earth, we began restoration activities two decades before the 1977 Surface Mining Control and Reclamation Act (SMCRA) was put into place, resulting in the planting of tens of millions of trees on reclaimed lands. In 2007, Peabody reclaimed more than 7,900 acres of land and planted more than 525,000 trees. Peabody believes sustainability is achieved by creating environmental solutions that return lands for higher community benefit through best practices and stakeholder collaboration. We continue to accelerate community-based partnerships to promote environ- mental excellence. In 2007, our employees earned five major awards from the U.S. Department of the Interior for excellence in reclamation. Vern Pfannenstiel, Peabody’s Reclamation Manager for Environmental Services-West was recog- nized as Reclamationist of the Year by peers in the American Society of Mining and Reclamation, and Ken Rogers, Midwest Region Reclamation Manager, was Peabody planted more than a half million trees in 2007, creating natural carbon sinks that use photosynthesis to remove carbon dioxide from the atmosphere. Peabody has reduced its greenhouse gas intensity by 31 percent since 1990. Mine reclamation plans incorporate all SMCRA provisions in addition to state and federal requirements for complementary environmental programs that impact coal mining. Mine inspections are routine and frequent, and are often conducted with several regulatory authorities. Peabody’s environmental team continues to maintain an excellent record of compliance. In addition to annually committing several hundred million dollars for best practices in reclamation, in 2007 Peabody paid $61.2 million in abandoned mine land (AML) taxes to a federally administered fund for reclamation projects and other pre-SMCRA reclamation projects that were left by mining companies that are no longer in business. The AML tax has faced frequent expiration deadlines. In December 2006, the U.S. Congress extended the tax for an additional 14 years. The company Peabody’s Caballo Mine in the Powder River Basin won the U.S. Interior Bronze supports the extension to provide reclamation funds for a number of mine sites Good Neighbor Award for an innovative partnership with area ranchers to reclaim that were abandoned by mining companies that are no longer in business. land and repair water reservoirs and groundwater wells. Celebrating 125 Years 29
    • Summary | Economic | Employee | Environmental | Public | Appendix environmental Responsibility honored with a Reclamation Innovation Award from Indiana Society of Mining Peabody Seeks Excellence in Environmental Performance and Reclamation. Major stewardship milestones in 2007 include: (Dollars in Millions) • Somerville Central Mine in Indiana was honored by U.S. Interior with both 2007 2006 2005 2004 2003 a Silver Good Neighbor Award and an Excellence in Mining and Reclamation Reclamation Performance Bonds Approved $1,073.4 $1,018.3 $897.2 $845.5 $823.5 National Award for its innovative, community-based approach to reclama- Federal Coal Reclamation Fees $61.2 $62.2 $59.9 $56.1 $52.6 tion. U.S. Interior credited the mine for partnering with area landowners to revitalize productive farming and pastureland and for supporting local Developed Land (acres) 7,570 6,565 5,520 4,733 4,733 Permanently Reclaimed Land (acres) 7,945 7,159 4,070 3,970 3,754 recreational, civic and educational institutions. Cumulative Developed (acres) 107,511 111,712 100,764 93,278 91,952 The mine also earned honors for its work restoring waterways, seasonal Cumulative Permanently Reclaimed (acres) 72,271 71,693 62,705 56,273 56,337 wetland and wildlife habitat and for partnering with the American Chestnut Bond Release All Phases $36.3 $47.6 $38.9 $41.5 $50.1 Foundation to reintroduce a hardy chestnut hybrid on reclaimed lands. Once the pride of Eastern U.S. forests, the chestnut tree was all but wiped out by Number of Trees Planted 527,048 385,287 568,424 728,727 533,934 a lethal fungus in the late 19th century. Peabody’s efforts will help restore a Forest Land Established (acres) 711 286 123 731 410 blight-resistant species, returning an important part of America’s heritage to the Eastern woodlands. 2003 data includes Peabody and contract mines. All data reflect continuing operations. • The Caballo Mine in Wyoming received a Bronze Good Neighbor Award for its collaboration with local ranchers to preserve Wyoming’s traditional Western heritage. U.S. Interior recognized the mine for working with ranchers to double the productivity of area range for grazing and assisting and waterways. A partnership with the American Chestnut Foundation to with conservation projects adjacent to the mine. reintroduce hybrid, blight-resistant American Chestnut trees to the Eastern Caballo’s efforts included working cooperatively with neighbors to help United States also contributed to the honors. conserve water by building and repairing reservoirs, irrigation pipelines and • The Twentymile Mine and former Seneca Mine in Colorado were honored groundwater wells. Caballo Mine is highly productive and has a long history for reclaiming wildlife habitat that has become the home to large populations of stewardship, winning five state and national reclamation awards during of Columbian sharp-tailed grouse. The restored wildlife habitat is so pristine, the past 10 years. the grouse migrated onto reclaimed lands, a rare occurrence in the wild and • Gibraltar Mine, formerly operated in Kentucky, was honored with a a key reason the operations were honored. Mine reclamation and environ- National Excellence in Mining and Reclamation Award for reclaiming mental staff has developed best practices that restore native range and highly productive farmland, pastureland and wildlife habitat. Employees wildlife habitat to endure harsh winters in Northwest Colorado. also were recognized for working with the University of Kentucky to restore sustainable forests. Peabody has demonstrated the principles of sustainability throughout its 125-year history and will continue best practices in stewardship to achieve The mine collaborated with local farmers to develop prime farmland and maximum benefits for future generations. pastureland and created a diverse landscape of native grasses, forests 30 Peab od y Ener gy
    • Summary | Economic | Employee | Environmental | Public | Appendix environmental Responsibility Environmental Compliance Peabody’s Vern Pfannenstiel, Reclamation Manager for Environmental Services – West, (right) was honored as “Reclamationist of the Year” by his peers in The U.S. Surface Mining Control and Reclamation Act of 1977 establishes the American Society of Mining and Reclamation for developing sustainable programs on Black Mesa that include collaboration with tribal members on mining, environmental protection and reclamation standards for all aspects of range management programs. Vern led efforts on Black Mesa that resulted in surface mining, as well as the surface effects associated with deep mining. worldwide recognition for sustainable practices. There are a number of regulations that must be adhered to, many of which may be considered administrative in nature. Reclamation Bonding Our mines comply with a host of state, federal and tribal laws and regulations Peabody’s reclamation approach restores mined lands as quickly as possible and are subject to regular inspections, often with multiple regulatory agencies. for productive use. Peabody has approximately 114,000 surface acres We also conduct periodic environmental assessments to strengthen permitted and secured by reclamation bonds throughout its U.S. mining compliance using both internal teams and third-party consultants with operations and has posted nearly $1.1 billion in reclamation bonds. results benchmarked and evaluated. During 2007, we increased our reclamation activities over the prior year. Employees participate in extensive environmental training, and annual Development activities were initiated on more than 6,700 acres, more than performance reviews are based upon their success in achieving environmental 7,900 acres were reclaimed and 8,600 acres were released from bond. We goals. Peabody holds contractors accountable for compliance by including released $36.3 million in bond liability in 2007 and $47.6 million in bond liability mine environmental standards in contractor work agreements. in 2006. Celebrating 125 Years 31
    • Summary | Economic | Employee | Environmental | Public | Appendix public Responsibility Peabody is the global leader advancing near-zero Peabody advocates the long-term goal of achieving near-zero emissions. This position is central to our enduring mission and forms the foundation of our emissions through centerpiece clean coal initiatives position on public responsibility. in China, Australia and the United States. Peabody is the global leader advancing clean coal solutions with signature projects in China, Australia and the United States. We are participating in broad Society faces urgent energy needs and long-term environmental goals at a industry and private partnerships to advance the science of carbon storage. time when the world is energy short. As the world’s largest private-sector coal And we continue progressing with carbon management initiatives: We have company – and 125 years strong – Peabody Energy is uniquely positioned to improved our U.S. greenhouse gas intensity by 31 percent since 1990. advance sustainable solutions to address both of these crucial concerns. Peabody will continue to advance development of clean coal technologies as Clean coal benefits society both through its abundance and low cost, and is an the world increases its use of coal for energy security, economic growth and increasingly diverse source of energy that can be transformed into electricity, environmental solutions that help people everywhere live longer, healthier and transportation fuels, natural gas, steel and hydrogen. with a better quality of life. This section highlights: • Near-Zero Emissions • Coal’s Role in Carbon Dioxide Solutions • Technology First, Then Controls • Btu Conversion Technologies • Political Activities The Goal of Near-Zero Emissions Peabody believes that through clean coal, America can secure its energy supplies and achieve its climate goals. Our centerpiece near-zero initiatives include GreenGen in China, the COAL21 Fund in Australia and the Vision 21 and FutureGen projects in the United States. Peabody joined GreenGen at a formal signing ceremony at the prestigious State Guest House in Beijing last year. The agreement was announced during the Sino-U.S. Joint Commission on Commerce and Trade meetings attended by U.S. and Chinese dignitaries, including U.S. Secretary of the Treasury Henry M. Paulson, Jr. and China’s Vice Premier Wu Yi. 32 Peab od y Ener gy
    • Summary | Economic | Employee | Environmental | Public | Appendix public Responsibility COAL21 Fund: Peabody is a founding member of the COAL21 Fund in Australia, another near-zero emissions technology initiative funded by leading coal companies that are pursuing commercialization of multiple advanced technologies. The first project being funded is a 30 megawatt oxyfuel demonstration project with carbon storage in Central Queensland that would begin operating next year. FutureGen: Peabody is a founding member of the FutureGen Alliance, a consortium of the world’s largest energy and coal companies that have committed $400 million toward development of a 275 megawatt near-zero emissions coal-fueled power plant prototype with carbon storage. FutureGen would be sited in Illinois. Despite significant development progress, the U.S. Department of Energy is redirecting FutureGen funding. Peabody and the Alliance believe this approach only serves to delay commercialization of a global model for clean coal that is less than a year away from groundbreaking. The Alliance is working with the state of Illinois, the Congressional delegation and other major stakeholders to maintain FutureGen funding as the nation’s top priority for near-zero emissions coal technology. It is essential for the federal government and for the industry to support development of clean coal technology to improve efficiency and greenhouse intensity. Beyond its core initiatives, Peabody is advancing major coal and carbon partnerships in the United States and around the world. These include leadership in: • The Midwest Geological Sequestration Consortium, a regional partnership GreenGen: Peabody is the only non-Chinese equity partner in GreenGen, that advances the science of sequestration for evaluating the best geologic China’s most important carbon initiative advancing development of a multi- storage locations. phase 650 megawatt prototype southeast of Beijing. • The Power Systems Development Facility in Alabama, the nation’s premier GreenGen is a planned integrated gasification combined cycle power plant that laboratory for testing coal gasification technology in partnership between would create clean generation with hydrogen production, marketable byproducts the U.S. Department of Energy and Southern Company. Peabody is a major through polygeneration, and eventual carbon dioxide capture for enhanced oil sponsor of the facility’s research. recovery. Construction for the first 250 megawatt unit is expected to begin this year, and the project could be on line as early as next year. Celebrating 125 Years 33
    • Summary | Economic | Employee | Environmental | Public | Appendix public Responsibility Coal’s Role in Carbon Dioxide Solutions • The PowerTree Carbon Company, LLC, a voluntary carbon sequestration initiative involving major energy companies partnering on six hardwood Abundant coal is increasingly important for nations seeking energy security restoration projects in Arkansas, Mississippi and Louisiana. Peabody is a at a time when oil and natural gas are coming from volatile regions and a founding member of the initiative. number of countries are nationalizing their energy resources and using them • The Asia-Pacific Partnership for Clean Development and Climate, which for political gain. brings together companies around the world to develop and transfer In the next quarter century, global energy use will increase by more than half technology for energy security, emissions reductions and concerns about and world electricity generation will nearly double, based on forecasts by the climate. Companies from the United States, Australia, Canada, India, Japan, International Energy Agency’s World Energy Outlook. Around the world, coal China and South Korea are participating, with initiatives that include oxyfuel is driving enormous economic development in the largest and fastest-growing and mobile post-combustion pilots to capture carbon dioxide. population centers. In the United States, greater use of coal-fueled generation will build up Peabody Seeks to Continually Improve Its Greenhouse capacity reserve margins and improve reliability. The North American Electricity Gas Intensity Levels Reliability Corporation (NERC), a government watchdog agency, forecasts that Pounds of GHG Emitted (CO2 & CH4) Per Ton of Coal Produced U.S. electricity demand will outpace new baseload generation by an 18 percent 70 to 8 percent margin over the next 10 years. There are about 40 units planned or in development around the United States 60 that would generate 20-plus gigawatts of coal-fueled electricity, representing an extra 85 million tons of coal per year. 50 These projects are highly efficient, creating more electricity using less fuel 40 than traditional plants, and resulting in emissions that are significantly less than the existing U.S. fleet. While this represents good progress, the nation needs 30 six times that amount to satisfy NERC’s long-term demand projections. 20 To build reliability and achieve continued environmental improvement toward near-zero emissions, Peabody advocates multiple steps. 10 First, which Peabody believes is essential: build advanced supercritical combustion plants with improved efficiencies to help the environment and 0 stabilize our baseload electric reliability for the next 15 years. 1990 1993 1996 1999 2002 2005 Source: Center for the Study of Carbon Dioxide and Global Change, 2006. Data represent Second, which is equally important: demonstrate carbon capture and storage continuing operations. and move it toward commercialization. Peabody is a regular contributor to the U.S. Department of Energy’s voluntary Third, commercialize coal-to-gas and coal-to-liquids technology that can reporting system and has reduced its U.S. greenhouse gas emissions 31 percent remove the carbon in a concentrated stream. since 1990 based on each ton of coal produced. Peabody also is a member of Australia’s Greenhouse Challenge Plus, which seeks to improve emissions. 34 Peab od y Ener gy
    • Summary | Economic | Employee | Environmental | Public | Appendix public Responsibility could lead to another 2 million to 3 million barrels of oil per day produced in the Fourth, commercialize Integrated Gasification Combined Cycle (IGCC) United States alone, according to a major study by the National Coal Council. technology with carbon capture and storage. GreenGen, COAL21 and FutureGen all share this goal. Researchers are even examining the potential for using carbon-consuming algae that absorb carbon dioxide and other power plant emissions, oxygenating Fifth, pursue technologies to capture carbon dioxide from existing pulverized the air during photosynthesis. Other technology paths include coal gasification coal plants. This is the only way to break through on the many coal plants being processes that can create separate hydrogen and carbon streams, reducing developed, particularly in the Pacific Rim. carbon dioxide in an oxygen-rich environment during combustion or using scrubbing agents for removal. The Technology Path to Near-Zero Emissions from Coal Once the carbon dioxide stream is separated, it is compressed into a fluid-like New Supercritical Plants & CCS Demonstration Essential state for transport via pipeline. Ultimately the carbon dioxide is injected deep underground into the same impermeable caverns that have safely stored Advanced Supercritical Combustion Plants methane, coal and oil through the millennia, eventually dissolving and mineralizing. The United States has centuries of storage available for carbon. Demonstrating Carbon Capture/Storage (CCS) Coal Use Triples as Emissions Rapidly Decline Commercial CTG/CTL with CCS 203% 200% Gross Commercial IGCC with CCS 182% Domestic Product 150% Electricity Retrofitting PC Plants with CCS from Coal Energy 100% Consumption 2007 2010 2020 2030 Population 47% Total 50% Emissions 47% Carbon Dioxide Technology Advancements 0% Carbon dioxide is necessary for life and is exhaled with every breath. It also -42% is the result of most of our activities, from walking and driving to heating -50% our homes and using our computers. Peabody believes that commercializing 70 80 90 95 96 97 98 99 00 01 02 03 04 05 06 carbon capture and storage technology will ensure that our most abundant Source: Energy Information Administration, Annual Energy Review, June 2007; U.S. EPA Air Emissions Trends Data, July 2007. energy resource is developed in a climate-friendly way. A number of promising technologies are being advanced around the world Advancements in clean coal technologies have enabled U.S. coal-based electricity to manage carbon. Using carbon dioxide for enhanced oil recovery (EOR), for generation to triple since 1970 while regulated emissions have been reduced instance, is a process employed by the petroleum industry for 30 years. EOR 42 percent. New emission standards are leading to continued environmental brings the benefit of improved oil production and improved energy security and improvement, toward the ultimate goal of near-zero emissions. Celebrating 125 Years 35
    • Summary | Economic | Employee | Environmental | Public | Appendix public Responsibility Technology First, Then Carbon Management Programs Peabody is Advancing Clean Coal Projects with Carbon When America put the Clean Air Act into place, it set a benchmark for the Capture and Storage world’s toughest environmental standards. Technology has allowed coal used for electricity generation to more than triple since 1970 while primary 3 emissions have been reduced by 42 percent. “Criteria emissions,” including 2 sulfur dioxide, nitrogen oxides, particulates and mercury, will continue to be reduced by employing these advanced technologies. To achieve similar success with carbon management, Peabody believes 5 technology must be available to capture and store carbon and that regulatory 1 certainty must be created. Both elements must be in place before setting artificial caps. 6 While a cap and trade regime worked well for sulfur dioxide, the challenges 4 for carbon dioxide are much greater: reducing carbon dioxide is a global rather than regional issue. There is no low-carbon coal and no known costs for scrubbers or carbon-reducing technologies. Initiating a cap before technology is ripe will pave the way for industry and emissions to flow to nations who simply choose to opt out. 7 The magnitude of the carbon capture challenge is enormous, and Peabody believes that increased public-private partnerships are needed to advance carbon capture and storage. We believe that an economy-wide fee and a National Institute of Energy – like Health – is essential to devote the proper objective resources to an aggressive carbon capture and storage program. Peabody’s approach of commercializing technologies to capture and store carbon and avoiding premature caps that would hurt the economy is also an 1. Clean Coal Fuel Supply 5. Enhanced Oil Recovery approach supported by the American people. In a recent survey by RT Strategies 2. Carbon Capture 6. Carbon Dioxide Injection based in Washington, D.C., Americans overwhelmingly supported greater use 3. Electricity Production 7. Saline Aquifer Storage 4. Carbon Dioxide Injection of coal for electricity (60% versus 34%), and 60 percent of Americans agreed that technology is the solution for reducing greenhouse gas emissions. Advancements in carbon capture and sequestration are being made on a number of fronts and include scrubbing and storing carbon in oil fields, saline aquifers and beneath the ocean floor in geology that offers both ample space and permanence. 36 Peab od y Ener gy
    • Summary | Economic | Employee | Environmental | Public | Appendix public Responsibility Btu Conversion Technologies tons of coal annually could produce more than 3.6 million barrels of diesel and naphtha annually. Coal-to-liquids with carbon capture and storage can produce Transforming the Btus stored in coal into other high demand forms of energy, cleaner fuels with ultra low sulfur at the same rate of carbon dioxide emissions what Peabody calls Btu Conversion, is expanding markets for clean coal to as imported oil. natural gas, diesel and aircraft fuels. There are nearly 150 commercial gasification plants operating in 27 nations, Btu Conversion Transforms Coal to Clean Fuels and the U.S. Department of Energy forecasts that this capacity will climb 30 percent in the next two years as new gasification plants, primarily fueled by coal, become operational. Fischer-Tropsch Jet Fuel Process Diesel Fuel Global coal-to-liquids production tells a similar story, expected to annually top more than 800 million barrels of synthetic fuels by 2030, according to the Sulfur U.S. Energy Information Administration. Gasification Methanation Natural Gas China alone is investing tens of billions of dollars to replace more than 10 percent of its petroleum consumption with coal-to-liquids and is developing Gas Coal about 20 projects that would annually produce more than 100 million barrels of CO + H2 oil by 2030, according to estimates by the International Energy Agency’s World Clean Up Energy Outlook. Other reports suggest China will pursue even more robust CO2 development of these facilities. H2 Solids Coal gasification technology has been in commercial use for more than 50 years for the refining, chemical, and power industries. Gasification is the first step in Btu Conversion, a process where carbon-containing material is Geological converted into a synthetic gas composed primarily of carbon monoxide and Storage hydrogen, which can be used as a fuel to generate electricity and steam or used as a basic chemical building block in the petrochemical and refining Fuel Cell H2 Car industries. Through methanation, the gas from coal is transformed into pipeline quality Electric H2O H 2O Power Vapor Vapor synthetic natural gas that could become a practical alternative to create natural gas for power plants. Synthetic natural gas from coal with carbon capture and Btu Conversion starts with coal gasification, a chemical conversion process where storage also has a better carbon footprint than liquefied natural gas. oxygen, heat, pressure and coal are converted into synthesis gas composed Coal liquefaction also offers promise for nations that are rich in coal, yet scarce primarily of two streams… hydrogen and carbon monoxide. Clean-up processes in oil, such as the United States and China. A plant using more than 6 million remove sulfur and particulates, and the back-end technology creates gas, diesel or jet fuel. Celebrating 125 Years 37
    • Summary | Economic | Employee | Environmental | Public | Appendix public Responsibility Another project involves an equity investment in GreatPoint Energy, a Massachussets-based start-up company that has proprietary bluegasTM technology that converts coal into clean substitute natural gas while enabling carbon storage. GreatPoint has successfully tested a pilot and is engineering its first commercial project. Peabody and GreatPoint also are evaluating the potential for development of a joint coal gasification project in Wyoming using Peabody reserves. Peabody has multiple large contiguous blocks of coal that can be devoted to generation or conversion projects. Political Activities Peabody engages in political and policy arenas in ways that advance the company’s mission and balanced energy policy. This engagement includes direct contact through meetings and discussions with state and federal legislators to discuss specific issues or indirect political contributions. Peabody works with trade associations to perform lobbying on most major issues affecting the industry and frequently provides leadership in support of these efforts. Government Relations Priorities GreatPoint Energy is developing a bluegas™ demonstration facility near Boston that will transform coal to gas. Construction is beginning this year The company funds government affairs and external relations for lobbying, and the plant is expected on line in late 2008. political action committees, consulting services and resources in Washington, D.C., and at the state level. Peabody Seeks to Capitalize on New Markets for Coal Political contributions by Peabody and the Peabody Political Action Peabody is evaluating Btu Conversion projects to capitalize on these new Committee (PAC) are designed to further the interests of our shareholders. markets and is investing in emerging technologies for coal gasification. Contributions go to both Republicans and Democrats when it can be Through a partnership with ConocoPhillips (NYSE: COP), Peabody is advancing demonstrated that recipients support Peabody’s mission and vision to provide development of a coal-to-gas facility that would produce 1.6 trillion cubic feet clean energy solutions from coal. Our political contributions are subjected to of gas over its first 30 years of operation, annually fueled by 2.5 million tons careful legal scrutiny and are made in accordance with all federal, state and of coal. local laws. A feasibility study is under way for selection of a final site and Peabody is working with the Kentucky Geological Survey to examine the best carbon capture and storage options. 38 Peab od y Ener gy
    • Summary | Economic | Employee | Environmental | Public | Appendix public Responsibility Peabody Advances Education, Arts and Communities 2007 Contributions Arts & Culture $ 180,255 Civic 252,550 Community Development 133,350 Diversity 71,400 Environmental 60,076 Health Care 97,908 Higher Education 447,140 Human Services 128,674 Mining/Coal Education Initiatives 25,070 Youth Services/Education K-12 111,903 United Way of Greater St. Louis 220,000 Scholarships 508,400 Charitable Matching Program 78,300 Grand Total $ 2,315,026 At a time when competing fuels are increasingly strained, greater use of coal can advance the complementary goals of clean energy solutions that build energy security, strengthen economies and solve our environmental challenges. Peabody provided $2.3 million in charitable contributions in 2007, with more than $1 million targeted for higher education, mining and engineering universities and trade schools, along with student scholarships. Memberships Environmental, Corporate Communications and an at-large position. The To advance our clean energy vision and the public policy framework that committee structures Peabody’s charitable giving program to support supports it, Peabody engages in a variety of organized policy initiatives using corporatewide initiatives as well as region-specific opportunities. industry coalitions and associations. The company also takes on leadership in a number of organizations that include the American Coalition for Clean Coal Clean Coal is the Solution for an Energy-Short World Electricity, the National Mining Association, the Coal Utilization Resource Council, and state chambers of commerce and coal associations. The world needs all forms of energy to meet enormous demands. That includes greater use of clean coal and renewables, along with energy efficiency Charitable Contributions and conservation. Peabody has a formal charitable giving program that provides support based Peabody believes that it is essential for America to commit significant funding on an informal analysis of the social need, our ability to make a meaningful increases for carbon storage and other clean coal technologies to achieve difference, the connection of the opportunity with our core business and major priorities of energy security, economic growth and environmental shareholders, and the ability of the company to contribute. Peabody’s solutions. That is the most powerful energy solution for an energy-short world. charitable giving committee includes representatives from Human Resources, Celebrating 125 Years 39
    • Summary | Economic | Employee | Environmental | Public | Appendix appendix • Management has the overall accountability for employee safety and health; Following are a series of documents including Peabody’s mission statement and safety vision in addition to key policies supporting the company’s goals • Each employee is responsible for their own safety and health, as well as of social responsibility and sustainable development. promoting the safety of their co-workers; • Each employee must be empowered with the skills and authority to Peabody’s Mission Statement perform their job in a safe manner; Peabody Energy’s mission is to be a leading worldwide producer and • All employees must comply with established safety rules and regulations; supplier of sustainable energy solutions, which power economic prosperity • Open, honest and effective safety communication is essential; and result in a better quality of life. • All safety and health efforts must be sustainable and will be continuously We will be Best in Class in six fundamental areas: reviewed and improved; and • We will develop and manage safe, efficient, technology-driven, low-cost, • The workplace is anywhere a Peabody employee is on the job. coal mining operations; • We will provide customers with quality products, reliable supply, innovative Environmental Mission solutions and superior service; PEABODY ENERGY POLICY No. 400.00 • We will provide our employees with an empowered, collaborative work PURPOSE: environment based on mutual trust and respect that emphasizes safe working conditions, rewards continuous improvement, innovation and creativity, and Peabody Energy embraces the concept of sustainable development and provides opportunities for job satisfaction and career advancement; pledges to conduct its activities in a manner that recognizes the needs of • We will reward shareholders with superior earnings performance and society and the needs for economic prosperity, national security, and a healthy sustained earnings growth; environment. • We will at all times operate in a responsible, ethical and constructive Coal mining and coal use are essential to economic prosperity and a better manner; and quality of life. Peabody Energy recognizes these benefits while pledging to • When the mining is complete, we will leave the land in a condition equal to manage our business in a manner that minimizes any adverse impacts our or better than we found it. activities may have on communities and the environment. Within coal mining, our goal is to restore mined land to a productive condition Safety Vision Statement that provides lasting benefits to future generations. Within coal use, Peabody supports continuous improvements in emissions by developing advanced coal Peabody’s vision is to operate safe workplaces that are incident technologies. free. The following governing principles for safety and health apply to everyone at a Peabody workplace: Our environmental policies and programs are designed to ensure that coal mining and coal use provide maximum benefit to current and future generations, • The safety and health of our most important asset, our employees, is a core enhance Peabody’s leadership in environmental excellence, and assure compli- value that is integrated into all areas of our business; ance with all legal and regulatory requirements. • All workplace incidents can be eliminated, including injuries, occupational illnesses, property damage and near misses; 40 Peab od y Ener gy
    • Summary | Economic | Employee | Environmental | Public | Appendix appendix Employees are expected to be familiar with and adhere to appropriate STATEMENT OF POLICY: environmental requirements and to report to their supervisor any situations Peabody’s policy is to act within the spirit and letter of environmental laws that may be contrary to this policy. while promoting excellence and best practices regarding coal mining and coal The responsibility for providing environmental leadership and policy guidance use. This includes: resides with the Peabody Energy Environmental Committee. • Developing approaches to mine planning and development that are The responsibility for environmental compliance resides with the President and responsive to possible environmental impacts through every stage of the Chief Operating Officer, V.P Engineering and Environmental Services, the Group . mining cycle. Executives – Operations, and each Operations Manager within their respective • Developing, submitting, and obtaining all required permits for mining and areas of responsibility. energy production in a timely manner. REFERRALS: • Complying fully with permit requirements and all other federal, state, and local environmental rules and regulations. Reclamation Policy 400.02 • Exploring, developing and utilizing environmental practices and technologies Coal Use Policy 400.04 that continue to improve efficiencies and environmental performance in our mining and processing operations and in the use of our products. Reclamation Mission • Promoting pollution prevention and waste minimization through the safe PEABODY ENERGY POLICY No. 400.02 and efficient use, recycling, and disposal of products through an under- standing of their life cycle. PURPOSE: • Promoting the efficient use of mining equipment and infrastructure to Peabody Energy’s reclamation activities are driven by our mission statement, reduce energy and the net carbon emissions intensity of our operations and which says that when the mining is complete, we will leave the land in a reclamation. condition equal to or better than we found it. • Employing the most suitable reclamation practices to timely return affected In 1954, Peabody launched “Operation Green Earth,” an ambitious program to lands to a condition that is equal to or better than before mining. (See plant trees and other vegetation and reintroduce fish and wildlife onto mined Reclamation Policy 400.02) lands. Nearly half a century later, this vision continues as the company creates • Supporting coal use, continuous improvement in power generation valuable resources to benefit future generations. Our ongoing reclamation emissions, and additional research to improve scientific understanding of efforts continue to result in the planting of more than half a million trees per year. the existence, causes and effects of climate change. (See Coal Use Policy Former Peabody mined lands are being enjoyed today as high-yield farming and 400.04) grazing lands, productive industrial and commercial sites, forests, golf and • Adhering to the highest ethical business practices in all our operations and recreation areas, wetlands, and rich wildlife habitat. It is our commitment that to interact responsibly with employees, industry, customers, the govern- Peabody mining operations and reclamation activities will be managed consis- ment and the public to constructively address environmental issues. tent with our tradition of environmental excellence and our mission statement. • Encouraging and recognizing meaningful initiatives of those involved in our efforts to achieve environmental excellence. Celebrating 125 Years 41
    • Summary | Economic | Employee | Environmental | Public | Appendix appendix Coal Use Mission STATEMENT OF POLICY: The goal of reclamation is to restore the mined land to a productive condition PEABODY ENERGY POLICY No. 400.04 that provides lasting benefits to future generations, supporting a wide variety PURPOSE: of uses. It is our policy that: Peabody believes that sound energy and environmental policies must balance • Planning will be conducted in advance for contemporaneous reclamation the needs of America’s citizens with the need for a strong economy, a clean of mining sites in accordance with site-specific criteria. We will work with environment, and a secure nation. Peabody pledges to be a responsible leader employees, federal and state agencies, and local communities to identify in advocating a balanced and sustainable energy policy. the appropriate use of a post-mined site. Coal is the reason the United States has affordable electricity, providing more • We will exercise creativity and innovation to reclaim sites in a cost-effective than 50 percent of the fuel for electric generation. Nationally, coal use has more manner. Reclamation planning will promote the development of terrestrial than tripled since 1970 even as SO2 and NOx emissions from coal-fueled gen- carbon sequestration sites. eration have decreased. Peabody advocates and supports continued reductions • Operations will be in full compliance with the requirements of the Surface of emissions while balancing the need to maintain affordable electricity for all Mining Control and Reclamation Act, the state and tribal laws and consumers in the United States. For the near and intermediate term, Peabody regulations governing mine reclamation. recognizes the need to upgrade the existing base of coal-fueled generation • Reclamation activities will be conducted in a safe manner and in full with emissions technologies as well as the need to install state-of-the-art emis- compliance with health and safety laws and Peabody’s Safety Program (see sions technologies on all new coal generation units. For the long term, Peabody Commitment to Safety Policy 300.00). supports the development of technologies for a coal-fueled plant of the future that would be ultra-efficient, produce electricity and hydrogen, emit nearly no • Special attention will be given to good housekeeping at all active and emissions and sequester carbon dioxide. closed mine sites. • Final reclamation and bond release will be undertaken as soon as is STATEMENT OF POLICY: practical. Peabody believes that coal use benefits Americans through affordable The responsibility for land reclamation resides with the President and Chief electricity, resulting in enhanced lifestyles and longer life spans. Coal use Executive Officer, V.P Engineering and Environmental Services, the Group . benefits the economy by providing inexpensive electricity that lowers the cost Executives – Operations, and each Operations Manager within their respective of goods and services, and serves as a catalyst for the Information Age. Coal areas of responsibility. Final reclamation and disposal of reclaimed mined land use benefits homeland security because coal is by far the most abundant is delegated to the Operations Manager Conservancy and the V.P Resource . domestic energy resource. Management, respectively. Peabody supports: REFERRALS: • Improved emissions standards in the United States, on reasonable time- Commitment to Safety Policy 300.00 tables, which will create greater certainty in investments and continue to provide affordable energy for all energy users. 42 Peab od y Ener gy
    • Summary | Economic | Employee | Environmental | Public | Appendix appendix • Peabody supports investment in research, development, and deployment of • We will responsibly develop our coal resources by evaluating all aspects new coal generation that utilizes the best available emissions technologies of projects through a balanced and scientific approach, addressing the and provides continuous improvements in the emissions intensity of the concerns of stakeholders and maximizing overall project value. existing coal base. • We will use our assets and expertise to develop and protect the natural, • Careful action regarding climate change. human and societal resources in the communities where we operate. We will create skilled, high paying jobs and a safe work environment, – Improving the scientific understanding of the existence and cause of encourage a cycle of prosperity, and work collaboratively to strengthen climate change; communities now and in the future. – Developing a better understanding of the ability of plant life and oceans • We will embrace the concepts of stewardship in all aspects of planning, to serve as carbon-absorbing sinks; mining and reclamation, which include improved efficiency, conservation, – Advancing technologies that would chemically or physically capture and productivity and excellence in reclamation. We will leave the land in a sequester carbon dioxide; superior condition, returning it to beneficial use for communities. – Promoting increases in efficiencies to reduce energy input needed to create electricity; Charitable Giving Policy – Expanding the measurement of carbon emissions and uptakes; and PEABODY ENERGY POLICY No. 700.06 – Increasing voluntary measures to reduce carbon intensity. PURPOSE: • Aggressive research and development efforts to better understand the impacts of a hydrogen based energy economy in the United States. The company’s mission is to be a worldwide supplier of low-cost energy, which Peabody executives will play a leadership role in promoting this policy and will contributes to economic prosperity and a better quality of life. The company’s commit prudent levels of investment in clean coal technologies. charitable giving will be consistent with its mission and also aligned with the objectives of sustainable development. Generally the primary focus in charitable The responsibility for coal use strategies resides with the Senior Vice President giving will be to protect and enhance the environment, support the education of Government Relations and the Executive Vice President of Operations. and training of the company’s current and future workforce, and provide economic assistance to the communities in which the company’s operations Sustainable Development Mission are located. The guiding principles for charitable giving include programs that: Peabody’s vision for sustainable development is to balance the needs of • Protect and enhance the environment and wildlife; individuals with the need for a strong economy, a clean environment and a • Support the advancement of education for the company’s current secure future. workforce and the next generation of employees; • We will develop projects that provide a reliable, low-cost supply of energy • Improve the quality of life in communities where the operations are located; that contribute to economic prosperity, a better quality of life and improved • Provide assistance to the underprivileged in communities where the energy security. operations are located. • We will promote balanced energy policies and provide industry leadership in developing clean coal technologies that provide for continuous environ- mental improvements in emissions from coal-based generation with the ultimate goal of near-zero emissions. Celebrating 125 Years 43
    • Summary | Economic | Employee | Environmental | Public | Appendix appendix STATEMENT OF POLICY: EMPLOYEE GIFT MATCHING PROGRAM To facilitate its commitment to the above stated principles, the company and Community involvement is an important value of our company. Through the its subsidiaries actively participate in charitable giving endeavors. Employee Gift Matching Program, full-time employees with at least one year of service are encouraged to contribute personally to nonprofit organizations with Requests will be considered only from bona fide 501(c)3 charitable a matching contribution made to the organization from the company. organizations. Contributions must be requested in writing, be accompanied with suitable supporting documentation and, if approved, will be disbursed by The guidelines for eligible organizations that will be considered under the company check. In some circumstances, assistance may be provided in kind Employee Gift Matching Program are as outlined in this policy. Contributions through the utilization of the skills of our workforce and the use of the equip- not eligible under this program include: ment and materials and supplies available through the company. All dinner tickets, sporting events, raffle tickets or other donations where a Grants will not be made to: benefit is received as a result of the donation; dues and subscription fees; tuition fees, loan repayments and payments in lieu of tuition; bequests and • Private individuals; insurance premiums which name an organization as beneficiary; United Way, • Political candidates or organizations; which receives support through the company’s annual drive. • Religious organizations; The company will match employee contributions up to a total of $1,000 per • Organizations such as booster clubs, fraternal or social groups or whose year. A minimum gift eligible for matching under this program is $50; maximum chief purpose is to influence legislation; or annual matching contributions to any one organization are $1,000. • Organizations that discriminate in any way with national equal opportunity policies. CHARITABLE GIVING COMMITTEES Contributions made on behalf of the company’s St. Louis subsidiaries will be approved by a Charitable Giving Committee whose members are appointed by the company’s Chairman and CEO. The Charitable Giving Committee will meet, review and approve requests on a quarterly basis. All non-St. Louis based subsidiaries will follow the guidelines stated in this policy but will limit charitable giving to the communities in which they operate and where their employees and families live. Each subsidiary head will appoint the members of their own Charitable Giving Committee to review and approve contributions for their group. 44 Peab od y Ener gy
    • Summary | Economic | Employee | Environmental | Public | Appendix Copyright © 2008 Peabody Energy Celebrating 125 Years 45
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