The Sustainability and Integrated Reporting Handbook Volume 1

The

Sustainability and Integrated REPORTING HANDBOOK South Africa 2014

RT REP IO NG 9

79 8 0772223 6 2 0 6 1540014 0018

0 714001 005

2014

ISBN 978062061001-8

alive2green.com

Moving forward also means giving back.

Ranked as one of the world’s 100 most sustainable companies.

Standard Bank is the only company in Africa to achieve a ranking in the 2013 Global 100 most sustainable corporations in the world, as selected by Corporate Knights. We’re pleased to have been recognised for our commitment to responsible management in environmental, social and governance areas. www.standardbank.com Authorised financial services and registered credit provider (NCRCP15).

The Standard Bank of South Africa Limited (Reg. No. 1962/000738/06). SBSA 3012 09/13 Moving Forward is a trademark of The Standard Bank of South Africa Limited

Standard Bank Moving Forward

TM

Also trading as Stanbic Bank

Standard Bank – A leader in Integrated and Sustainability Reporting Standard Bank is accountable to a broad range of stakeholders – from shareholders, analysts and regulators, to employees, clients, customers and members of the public. We recognise that different stakeholders have different information needs. Investors and analysts might be focused on our bottom line, the public may want to assess our environmental impacts and the extent to which we give back to communities through our corporate social responsibility programmes, while our staff may focus on whether or not we have lived up to our aspirations of being an employer of choice.

The King III Report in South Africa recommends that companies incorporate both financial and non-financial performance measures in their long-term corporate strategy.

It encourages companies to publish reports that provide a brief yet comprehensive overview of their performance against key issues. These integrated reports are intended to enhance transparency, and provide relevant information to stakeholders. They typically include information on company strategy, financial performance, employees, governance, corporate social responsibility and sustainability.

The innovation in integrated reporting, which was driven by King III, has been echoed in other parts of the world and is driving a change in the way companies report. The focus is on those issues that either shape or enable the company to deliver its strategy and meet the performance expectations of shareholders. Stakeholders want to see how a company’s leaders have considered the impact of socio-economic and environmental issues on current financial performance, and the impact those issues might have in future.

Standard Bank’s integrated reports cover our operations in South Africa, the rest of Africa and the rest of the world. They are the result of the combined efforts of many people in the group, across various business areas. We aim

to consistently present a balanced and succinct analysis of our strategy, performance and prospects by focusing on the primary challenges and developments that we believe influence the achievement of our strategic objectives, and thus our ability to remain commercially viable and socially relevant to the communities and countries in which we operate.

Standard Bank also issues a comprehensive sustainability report, which follows the Global Reporting Initiative (GRI) Sustainability Reporting Guidelines and the GRI Financial Services Sector Supplement.

We are an industry leader in both integrated and sustainability reporting. Our first annual integrated report, which covered 2010, was ranked fifth in the country in EY’s 2011 Excellence in Corporate Reporting awards, which are based on a review of the Top 100 companies listed on the Johannesburg Stock Exchange. Our 2011 report was ranked in the Top 10 of EY’s Excellence in Integrated Reporting awards. Our 2012 integrated report was recognised as the best for a financial institution, and third overall. EY noted that it presented a well-articulated business model clearly linked to income statement impacts and risk metrics with a clear explanation of the impact of the economic environment on nonfinancial variables.

Our sustainability report has also received acclaim in recent years. Our 2010 sustainability report was runner up for the financial sector in the 2011 ACCA South Africa Awards. In 2012, our 2011 report won the best sustainability reporting award in the financial sector category.

Our annual reports enable us to demonstrate where we’re doing well, and how we plan to do better. They enable our stakeholders to hold us accountable for our performance. And they provide us with a valuable opportunity to connect with the people we serve, and to communicate how we’re achieving our vision of being Africa’s leading bank.

Authorised financial services and registered credit provider (NCRCP15).

The Standard Bank of South Africa Limited (Reg. No. 1962/000738/06). SBSA 6403 – 11/13

The

Sustainability and Integrated REPORTING HANDBOOK South Africa 2014 VOLUME 1

EDITOR Lloyd Macfarlane

DIVISIONAL HEAD OF SALES Annie Pieters

EDITORIAL BOARD Lloyd Macfarlane Douglas Kativu Ian Jameson

PROJECT LEADER Mena Anyachor

CONTRIBUTORS Ernst Ligeringen, Paul Druckman, Maryna Mohr Swart, Seakle Godschalk, Alistair Schorn, Don Gibson, Lloyd Macfarlane, Alex Hetherington, Kathy Myhill-Muller, Reana Rossouw, Jonathon Hanks, Carol Adams, Jayne Mammat, Kelly Gilman, Kerri Savin, Louise Gardiner, Niel Morris, Tendai Matika

CHIEF EXECUTIVE Gordon Brown

ADVERTISING EXECUTIVES Florah Nemaorani

LAYOUT & DESIGN EDITORIAL & PRODUCTION Nicole Kenny ADMIN MANAGER Suraya Manuel

DIRECTORS Gordon Brown Andrew Fehrsen Lloyd Macfarlane EDITORIAL ENQUIRIES lloyd@gsacampbell.com PUBLISHER

DIGITAL MARKETING MANAGER Marcus Matsi DISTRIBUTION Edward Macdonald

www.alive2green.com

The Sustainability Series Of Handbooks PHYSICAL ADDRESS: Alive2green Cape Media House 28 Main Road Rondebosch Cape Town South Africa 7700

SBN No: 978 0 620 45240 3.

Volume 1 - first Published in June 2014. All rights reserved.

Disclaimer:No part of this publication may be reproduced or transmitted in any way or in any form without the prior written consent of the publisher. The opinions expressed herein are not necessarily those of the Publisher, The GRI, the IIRC, the Editor, or the Editorial Board. The views and opinions expressed in articles are those of the authors and should in no way be linked to the abovementioned parties. All editorial contributions are accepted on the understanding that the contributor either owns or has obtained all necessary copyrights and permissions.

TEL: 021 447 4733 FAX: 086 6947443 Company Registration Number: 2006/206388/23 Vat Number: 4130252432

IMAGES AND DIAGRAMS Space limitations and source format have a ected the size of certain published images and/or diagrams in this publication. For larger PDF versions of these images please contact the Publisher.

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DISTRIBUTION AND COPY SALES ENQUIRIES distribution@alive2green.com INTERNATIONAL FRANCHISE ENQUIRIES info@alive2green.com PAPER PRINTER SED Print ADVERTISING ENQUIRIES sales@alive2green.com

AVIS PURSUES ENVIRONMENTALLY SUSTAINABLE MEASURES FOR ALL FACETS OF THE BUSINESS Avis, a division of Barloworld Ltd, takes environmental stewardship seriously and is concerned about the effects business and humankind have on the environment. South Africa’s leading car rental company is committed to playing a healthy, involved and pioneering role in the pursuit of sustainability in South Africa and globally. Some of its flagship activities relate to water and energy saving as well as waste management.

Intensive Water Saving Avis is aware that water is South Africa’s most precious resource and that the conservation thereof needs to receive urgent attention from the industries that consume it in significant quantities.

As one of these industries, Avis has substantially in an efficient water recycling infrastructure at its Johannesburg, Cape Town, Durban and Port Elizabeth airport vehicle preparation facilities.

The company washed 743 224 vehicles at these facilities in 2013 and saved over 103 million litres of water - 49 million litres in Johannesburg, 35 million litres in Cape Town, 18 million litres in Durban and 891 677 litres in Port Elizabeth.

Bulk reservoirs at Avis’ vehicles preparation centres form part of rainwater harvesting systems installed to capture rainwater run-off. In 2013,

3.3 million litres of rainwater was harvested. This system reduces water usage at the final rinse stage of the vehicle washing process. A valve system, introduced to the wash bay machines, automatically shuts off the clean municipal supply and replaces it with harvested rainwater and therefore the Avis depots become water-neutral facilities for several days during the rainy seasons.

Energy Saving and Waste Reduction All shower facility geysers at Avis operate on energy efficient technology. The technology was installed as part of a new building design and retrofitting projects. Heat pumps were recently installed at the Gauteng regional office building and will save on electricity costs and reduce Avis’ carbon footprint.

Avis collaborates with re-Return on Environment to run the waste management programme in Johannesburg, Cape Town and Durban that result in the recycling of an average of 7 tons of office waste a month.

Visit avis.co.za for more information

EDITOR’S NOTE

Lloyd Macfarlane Editor

S

outh Africa has a relatively mature reporting landscape which has been influenced by strong leadership, compliance, social context and the country’s status as a developing economy in Africa. There is and always will be a requirement for sustainability reporting in our country, and as we develop our collective understanding of the relative importance of certain (material) issues over others, we will increase our ability to influence our environment and our society as a whole.

King III provided impetus for the inclusion and integration of environmental, social and governance issues in corporate reporting practices, culminating in the development of the ‘integrated reporting’ process as a vehicle for implementation.

As expectations and regulations grow, so too does the requirement for guidance around the principles of integrated reporting. This is just one of the reasons for the emergence of the <IR> Framework – a framework that will no doubt work together with other already established systems such as the Global Reporting Initiative (GRI) Guidelines to bring about effectiveness in the corporate reporting arena.

It is important for companies to understand and correctly apply the various principles and guidelines in their reporting activities and it is with this in mind

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that the Sustainability and Integrated Reporting Handbook has been launched â&#x20AC;&#x201C; a publication that seeks to profile information and discussions from thought leaders and stakeholders in this space.

I have been fortunate to have had guidance and input from representatives from the GRI (Douglas Kativu) and the IIRC (Ian Jameson) on the Editorial Board, which was guided by the Content Statement for this publication (see page 6). I would like to express my sincere thanks to these gentlemen for their input and for the good work that they are doing in their respective roles at these important organisations.

I would also like to thank the many authors who have given of their time and whose contributions are greatly appreciated.

Advertising support has been particularly impressive for this first volume and this has contributed to the publisherâ&#x20AC;&#x2122;s ability to print as many as 8000 copies of the handbook, most of which will be freely circulated to key stakeholders in Southern Africa.

I invite your comments and suggestions and I look forward to the development of this platform as a useful resource in South Africa.

Sincerely Lloyd Macfarlane Editor

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CONTENT STATEMENT

THE INTEGRATED AND SUSTAINABILITY

REPORTING HANDBOOK VOLUME 1

CONTENT STATEMENT

I

n contemplating the scope and nature of content to be included in the Integrated and Sustainability Reporting Handbook, the Editorial Board has considered various content objectives which are directed at providing a meaningful, credible and relevant content resource for key reporting stakeholder groups in South Africa.

The handbook is a publication that represents a volume of content which is a reflection of the reporting landscape at a particular point in time. The emphasis and inclusion of subject matter may shift from volume to volume but will always be directed at the content objectives.

The content objectives have informed the development of editorial principles which have guided calls for interest, the article selection process and the editing and review processes (where applicable).

Content Objectives: â&#x20AC;˘ To deliver content that is as accurate, balanced and as independent as possible. â&#x20AC;˘ To be fair and inclusive in the process of soliciting and selecting content.

For further information please contact the Editor.

Lloyd@gsacampbell.com

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FOREWORD

Ernst Ligteringen Chief Executive Global Reporting Initiative

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ike the perfectly cut diamond on this handbook’s cover, a company’s ultimate worth rests on the clarity it presents to its admirers and (potential) interested parties. Flaws and impurities have to be identified to provide a true valuation. Consequently, shareholders, stakeholders and investors are now demanding a high degree of transparency from the companies and organisations they represent, and are keen to recognise corporate personalities which go beyond the glittering presentation of financial facts and figures.

Sustainability reporting makes a major contributions in making these assessments.

According to the KPMG International Survey of Corporate Responsibility Reporting 2013, over 90 percent of the world’s largest 250 companies now issue a CR report, of which over 80 percent use the Global Reporting Initiative (GRI) Sustainability Reporting Guidelines, G4.

In short, sustainability reporting has now become truly mainstream, with GRI now providing the de facto global standard in this area.

However, as well as enhancing the relevance and quality of standalone sustainability reports, the indicators contained in G4 are also designed to offer a standard for sustainability information contained in integrated reports. The link between financial and non-financial performance can be highlighted in these reports to illustrate how a company creates (or lessens) value, taking into account not only its financial worth, but also the significance of the natural and social assets it uses.

Like the proverbial diamond, an integrated report has to identify the many facets that make up a company or organisation. Rather than presenting a relatively narrow, two-dimensional financial snapshot of a company’s present and future, reporting on nonfinancial information is all about providing business and investors with a comprehensive, 3-D picture of how sustainable a company’s business model really is.

This handbook will make an important contribution to future debates about both sustainability and integrated reporting in South Africa, and the way in which an organisation’s value is ultimately judged on how its human, natural and social capital relates to strategy, performance and prospects.

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FOREWORD

Paul Druckman Chief Executive International Integrated Reporting Council

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fficient and productive markets depend on regular and accurate flows of information. Business leaders increasingly believe that having a comprehensive understanding of how they generate value and the ability to communicate this well is vital for an effective business strategy. To do so they are broadening the scope of their reporting structure to include more than financial information.

The International Integrated Reporting <IR> Framework will enable businesses to do just that. With its focus on encouraging integrated thinking within the business, <IR> leads to a better communication of value, a better relationship between the business and its providers of financial capital and, once it becomes widespread, a more resilient global economy.

It is the IIRCâ&#x20AC;&#x2122;s mission for Integrated Reporting to be embedded into mainstream business practice in the public and private sectors, and our vision is to make a lasting contribution to financial stability and sustainable development, brought about by the adoption of <IR> as the global corporate reporting norm.

This vision is embodied in the International <IR> Framework, which was released in December 2013, and we are now entering the phase of implementation and scaling-up the adoption of the Framework globally. The Framework brings technical

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FOREWORD

rigour and cohesion to a process that has grown organically and through market pressure over the last few years. It will be used, together with practical examples of reporting innovation, to assist those already on the <IR> journey, as well as reaching out to those businesses who are seeking to adopt <IR> for the first time.

South Africa is in a fortunate position through its pioneering leadership on the journey towards <IR>. In the recent past, King III set the platform for companies to start producing an integrated report, on an “apply or explain basis” since March 2010. I’ve been delighted by the progress made by South African companies in the absence of a formal framework to guide them on how to produce an integrated report. South Africa is a mature reporting community, which is ably supported by an appropriate regulatory balance to allow businesses to be innovative in their approach towards <IR>.

Publications, such as this book, are vitally important to build the evidence base and contribute to the uptake of <IR>, which will ultimately lead to a better, more cohesive reporting landscape. I am looking forward to future publications that will continue to highlight best practice and allow other companies and countries to draw on South Africa’s leadership and experience.

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EDITORIAL BOARD LLOYD MACFARLANE Lloyd is the Chief Executive and founder of GSA Campbell Consulting and a Director at Alive2green. GSA Campbell provides strategy, sustainability and marketing services to corporates and SME companies. Alive2green is a leading sustainability media company that owns and operates conferences, exhibitions, handbooks, magazines and electronic media properties within the broader sector of sustainability. Lloyd has an MBA and a BSocSci and also possesses relevant qualifications and experience in reporting, marketing, assurance and strategy. Lloyd is the Editor of the Green Business Journal as well as the Sustainability and Integrated Reporting Handbook.

IAN JAMESON Ian Jameson is Senior Project Manager at IIRC and has been seconded from KPMG in South Africa. Ian was part of the <IR> team at Eskom and served on Eskomâ&#x20AC;&#x2122;s Integrated Reporting Steering Committee. Ian has a BSc (Hons) in environmental sciences (Geography) from the University of Pretoria. He served on the executive of the South African affiliate of the International Association for Impact Assessments. His honours research focussed on corporate reporting of selected companies within South Africa, which resulted in him joining Eskom in 2007. Ian was

The

responsible for the assurance of the non-financial information included in the integrated report.

Sustainability and Integrated REPORTING HANDBOOK DOUGLAS KATIVU

He was part of the core team responsible for the publication of the integrated report. He was also directly involved in obtaining executive support for Eskom joining the IIRC Pilot Programme.

South Africa Before taking up the substantive position with the organisation, Douglas served on the GRI 2014 Douglas heads the Global Reporting Initiative Focal Point South Africa responsible for advancing GRIâ&#x20AC;&#x2122;s mission in priority countries namely Ghana, Nigeria, Kenya, Mauritius and South Africa.

Stakeholder Council for five years, and the G4 Supply Chain Working Group. Douglas has more

than 10 years work experience on sustainability initiatives in Africa. He was a resource person in setting up the Corporate Responsibility Forum Liberia, and Responsible Business Initiative- DRC. Douglas was a member of the ISO 26000 Social Responsibility guidance standard expert group, country representative for Air Pollution Information Network Africa, Agribusiness Accountability Initiative Africa Forum, and Juror on the SEED Initiative for action on Sustainable Development and Green Economy. Douglas holds tertiary qualifications in Environmental Management and Applied Physics.

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CONTRIBUTORS ALEX HETHERINGTON Alex Hetherington is an independent sustainability strategist and a founding partner of carbon measurement consultancy, Carbon Calculated. Since 2008, Carbon Calculated has conducted carbon footprints, third party verification and CDP submissions for many of South Africa’s leading bluechip companies.

ALISTAIR SCHORN Alistair is a Director at Sustainability Consulting, a Gauteng-based sustainability advisory practice specialising in the fields of corporate sustainability and the green economy. Sustainability Consulting is an accredited agent and content developer for the Good Business Framework.

Alistair holds a Master’s degree in International Economics, and from 2006 to 2011, he was Head of the Emerging Economies Network at WWF, the Worldwide Fund for Nature. Prior to this he spent ten years at the South African Department of Trade and Industry, working in export and investment promotion. From 2001 to 2004, he served as Trade Commissioner at the South African Consulate General in Mumbai, India.

DR CAROL ADAMS Dr. Carol Adams CA GAICD is Director of Integrated Horizons (http://integrated-horizons.com).

Carol was involved in the development of the first AA1000 Framework (AccountAbility) and is currently a member of the Stakeholder Council of the Global Reporting Initiative and was a member of the Capitals Technical Collaboration Group for the International Integrated Reporting Council. She holds an MSc in Accounting and Finance from the London School of Economics and a PhD in international corporate reporting from the University of Glasgow. She is author of “Understanding integrated reporting: the concise guide to integrated thinking and the future of corporate reporting”.

DONALD GIBSON With his Pr.Sci.Nat (Environmental Scientist) certification and numerous other qualifications, Don Gibson’s expertise extends from sustainability and climate change to the fileds of corporate social responsibility and stakeholder engagement. Don’s writings, on a wide range of topics related to his expertise, have been published extensively. Don currently works in Johannesburg in the environmental services industry.

ERNST LIGTERINGEN Ernst Ligteringen has been the Chief Executive of Global Reporting Initiative (GRI) for over a decade.

Prior to joining GRI, Ernst worked for more than 20 years in the international development field, helping to lead a number of high-profile non-governmental and international organisations. In addition, Ernst is a member of the World Economic Forum (WEF) Global Agenda Council on the role of business, a member of the international advisory board of the ETHOS Institute of Brazil, and a council member of The International Integrated Reporting Council (IIRC), of which GRI is a founding member, and a board member of The Economics of Ecosystems and Biodiversity (TEEB).

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TRUST BALUSHI TO DELIVER WHATEVER YOUR ACCOUNTING NEEDS. ACCOUNTING | TAX | AUDITING | STRATEGY | B-BBEE VERIFICATION At Balushi Inc, we offer a host of consulting services beyond necessary accounting functions designed to help you make decisions, face changes, and transition smoothly. We’ll help your business become more efficient and successful with advice regarding business strategy, finance, risk, technology, and valuation. With our wide range of experience across industries and our commitment to knowing your business, we’ll be the advisor you can trust.

BENEFIT FROM OUR EXPERIENCE RAMPHELANE EDWARD HLAKUDI (Founder and Managing Director) has extensive experience in both the private and public sector. He has worked and partnered with different organisations including University of South Africa (UNISA), Nkonki Inc., Pricewaterhousecoopers, Auditor-General of South Africa and the United Nations.

Academic Qualifications: BCompt, BCompt (Hons) (UNISA), MDP (B-BBEE) (UNISA SBL), CPA (SA), MCom (Tax) (UP), CA (SA), RA.

RAMPHELANE EDWARD HLAKUDI Founder and Managing Director of Balushi Inc

Professional Affiliations: The South African Institute of Chartered Accountants (SAICA) The Independent Regulatory Board for Auditors (IRBA) The Institute of Internal Auditors South Africa (IIASA) The Association of BEE Verification Agencies (ABVA) Research Interest: Tax Education

14 Bureau Lane, Rentbell Towers, Suite 505, Pretoria | T: +27 12 326 0355 | C: +27 84 519 5740 F: 086 659 5971 | E: edward@balushi-accountants.co.za | www.balushi-accountants.co.za

CONTRIBUTORS JAYNE MAMMAT Jayne Mammat completed her studies at Polytechni South West, and Whitland Grammar School, both in the UK. She worked as Associate Director at Ernst & Young before moving to PwC South Africa. As Associate Director her role includes developing and delivering assurance and advisory services to clients in the fields of corporate governance, sustainable development and climate change.

JONATHON HANKS Jonathon Hanks is a founding Director of Incite. Jonathon is a member of advisory groups to the International Integrated Reporting Council (IIRC) and the South African Integrated Reporting Committee (IRC), and contributed to drafting the pioneering South African guidance document on integrated reporting. He lectures on executive programmes for the University of Cape Town, Wits and the University of Cambridge Programme for Sustainability Leadership.

KATHLEEN MYHILL-MULLER Kathleen Myhill-Muller is a Senior Facility Manager with Drake and Scull and a certified carbon footprint analyst. Kathy is involved in the development of non-financial data management systems within the built environment context.

KELLY GILMAN Kelly Gilman, a senior manager in EY’s Climate Change & Sustainability Services South African team.

Kelly is a member of the global EY working group on Integrated Reporting. She is a member of the EY working group acting as lead collaborator for the International Integrated Reporting Council’s value work stream. She is also a contributing author to the book, “Green II: Why corporate leaders need to embrace sustainability to ensure future profitability” released by the South African Institute of Chartered Accountants in August 2012.

KERRI SAVIN Kerri Savin is the Stakeholder Engagement Manager at Nedbank Group. Responsibilities, in addition to managing key aspects of the group’s engagement with stakeholders, include the integration of sustainability into Nedbank’s strategy and integrated reporting. Before joining Nedbank Group she headed the Communication Practice at Alexander Forbes Financial Services.

LOUISE GARDINER Louise is founder of First Principles Sustainability Services (www.firstprinciples.org), providing sustainability research and strategic facilitation. She has14 years of international experience in business innovation and collaborative approaches to environmental and social sustainability. Since 2005, she has been a specialist and consultant to IFC, part of the World Bank Group.

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MAKING

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Developed together with the Sustainability Institute, this comprehensive guide is available for download today at nedbankgroup.co.za. This is another milestone in our sustainability journey. nedbankgroup.co.za

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THE SUSTAINABILITY AND INTEGRATED REPORTING HANDBOOK- VOL. 1

In partnership with:

CONTRIBUTORS DR MARYNA MOHR SWART Maryna was head of department: Environmental Sciences at Tshwane University of Technology and an Environmental Advisor at the Chamber of Mines of South Africa. She has post-graduate qualifications in business management and environmental management. Maryna was a member of the UN Expert Working Group on Environmental Management Accounting. She represents South Africa on the International Standards Organisation workgroup. Maryna is co-owner and executive director of Environmental & Sustainability Solutions (ESS) consultancy.

NATALIE MATTHEWS Natalie Matthews is a Managing Executive at IQ Business, a management consulting firm. She has worked in South Africa, Switzerland and the US on consulting engagements. Natalie is a Project Management Professional (PMP®), registered Prince2® Practitioner and a Certified Process Professional Champion (CPP Champion®). She holds a BCom (Marketing Management) and Honours degree (Investment Management) from RAU. She completed her MBA at the Gordon Institute of Business Science (GIBS) in December 2012 with distinction.

NEIL MORRIS Neil is a Chartered Accountant and a Registered Auditor. He works at KPMG and has been a partner since 2007. Neil has lead KPMG’s Climate Change and Sustainability practice where he specialised in Sustainability Assurance and Climate Change advisory services. He is Chairman of the IRBA’s Sustainability Standing Committee and also the Chairman of the IIRC Assurance Technical Collaboration Group.

PAUL DRUCKMAN Paul is CEO of the IIRC. Following an entrepreneurial career in the software industry, Paul operated as a non-executive chairman and director for companies in a variety of sectors until taking over this post. Formerly a Director of the UK Financial Reporting Council; member of the City Takeover Panel; and President of the Institute of Chartered Accountants in England and Wales (ICAEW).

Other interests have included chairing The Prince’s Accounting for Sustainability Project (A4S) Executive Board.

REANA ROSSOUW Reana Rossouw is the owner of Next Generation Consultants, a leading boutique Management and business consulting firm with a wealth of experience in the business development environment. In addition, Next Generation Consultants has a solid track record with case studies and proven results of assisting numerous corporates, small and medium enterprises, government departments, family owned businesses, franchises, public benefit organisations and entrepreneurs all over South Africa, to realign their businesses for sustained growth.

SEAKLE GODSCHALK Seakle Godschalk is a professional environmental scientist with post-graduate qualifications in science and accounting. He established Environmental Services in the Department of Defence for nearly 30 years. He is a founding member and director of the Environmental Management Accounting Network Africa. As executive director of Environmental & Sustainability Solutions (ESS), he specialises in all aspects of sustainability accounting, with environmental cost modeling, environmental financial accounting and environmental auditing as his primary interests.

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Gold Fields Vision “To be the global leader in sustainable gold mining”

An adherence to transparency and sound governance are crucial pillars in Gold Fields' commitment to leadership in sustainable development. We do this using an integrated approach to reporting that examines our operational, sustainability and financial performance.

The aim of this integrated approach is to enable investors and other stakeholders – including host governments, local communities and our employees – to make a more informed assessment of the value of Gold Fields and our ability to flourish in the new growth environments of tomorrow.

A key tool in our integrated reporting approach is the Integrated Annual Review (IAR), which we first published in 2010. This move was prompted in part by corporate governance trends as captured by King III, international reporting trends, and the demands by stakeholders for information beyond the financial and operational details of our mines. These stakeholders want information on all the risks facing the company – social, operational, environmental, financial, governance – not just a narrow focus on the financial aspects of our performance.

As part of this drive for sound integrated reporting Gold Fields became a member pilot company of the International Integrated Reporting Council (IIRC) and as such has been involved in the development of the integrated reporting framework, which will be released later this year. The Gold Fields IAR seeks to incorporate key aspects of the framework so that the report is an accurate reflection of the performance and outlook of the company.

Our 2012 Integrated Annual Review received a number of awards ¡ Top rank in Ernst & Young's Excellence in Integrated Re p o r t i n g a wa rd s ( w h i c h evaluated the reports of the top 100 JSE listed companies and the top 10 state-owned entities) ¡ First place in the Top 40 JSE category of the Institute of Chartered Secretaries/JSE Annual Report Awards ¡ Runner-up in the 'Best Sustainability Reporting in the Resources Sector' category in the ACCA South Africa Sustainability Reporting Awards ¡ Winner in the PwC UK's Building Public Trust Awards in the ' O ve rs e a s awa rd : To wa rd integrated reporting' category Transparent reporting extends beyond the IAR. Other sustainability-linked disclosure awards include: ¡ Ranked joint first in the JSE Top 100 Carbon Disclosure Leadership Index (CDLI) by the global Carbon Disclosure Project (CDP). ¡ Global Reporting Initiative A+ compliance for our 2012 Integrated Annual Review ¡ Achievement of advanced level reporting under the UN Global Compact

CONTENTS 1 2 3 4 5 6

2013 New trends and patterns Sustainability and Integrated Reporting Reana Rossouw

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Creating value over time The Integrated Approach Kelly Gilman

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Integrated reporting and business competitiveness Interview Jonathon Hanks

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Mind the gap How investors and the financial sector view environmental and social sustainability Louis Gardiner

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Changing the way business is done A critical review of two South African integrated reports.

Carol Adams

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Overview of the <IR> Yearbook Published by the Albert Luthuli Centre for Responsible Leadership Alistair Schorn

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CONTENTS 7 8 9 10 11 12

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From disclosure to insight Predicting carbon management strategies of South African companies from CPD data Donald Gibson Carbon footprinting Critical to understanding manâ&#x20AC;&#x2122;s contribution to climate change Alex Hetherington Comparative advantage Using the Reporting Process to Amplify Differentiation in the Value Chain Lloyd Macfarlane

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How the IIRC held up assurance standards Interview Niel Morris

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Capacity building for sustainability and integrated reporting Maryna Mohr Swart Seakle Godschalk

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Starting with the end in mind: Integrated reporting Interview Kerri Savin

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Integrated thinking Total Impact Measurement and Management and its link to Integrated Reporting Jayne Mammat

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Stakeholder engagement Identify the voices, listen before they become screams Reana Rossouw

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Data, data everywhere The role of the facility manager in the collection of data Kathleen Myhill-Muller

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Sustainability Reporting in Small Medium Enterprises (SMEs) Is the increase in Corporate Responsibility (CR) reporting amongst SMEs a sign that they are pushing, or that they are being pushed?

Lloyd Macfarlane

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Updates and Developments: Reporting

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GRI training in South Africa

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NEW TRENDS AND PATTERNS

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2013 NEW TRENDS AND PATTERNS Sustainability and Integrated Reporting

Reana Rossouw

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NEW TRENDS AND PATTERNS

In South Africa 2013 was a watershed year as far as corporate reporting is concerned.

Although more companies are producing sustainability information in general – the impact of the mandatory Integrated Report cannot be underestimated. It seems that companies are now opting to produce only one report – the Integrated Report.

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NEW TRENDS AND PATTERNS

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rom our perspective it does not really matter what format is used, whether a formal Sustainability Report or an Integrated Report, this article focuses extensively on who reads the report. During 2013 we conducted an extensive survey amongst our clients and Reporting Training Workshops to better understand the link between reporting organisations and report readers.

This was supported by the work we conducted on behalf of our clients through stakeholder relations management processes.

Introduction

Corporate sustainability reports are targeted at and used by a wide variety of readers.

These readers can be directly involved in the business activities of the reporting company, for example as shareholders or employees, or can be external interested parties such as environmental or human rights-oriented NGOs, consumer organisations, trade unions or individual consumers.

Each of these reader groups has its own ideas about the way a company should report and about the minimum content of the report. The perspectives of readers with respect to sustainability reports are therefore far from homogenous and are strongly influenced by the reader’s specific interests, his relation with the company and the way he or she wants to make use of the information provided.

Why readers actually read sustainability reports

Our research indicates a distinction, among others, between readers that are mainly interested in the narrative parts of reports (including policy statements, descriptions of management approaches, of specific

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developments and challenges the company faces), and for those more interested in the numerical data a reporter might provide (emission figures, number of incidents, financial indicators).

In general, readers make use of the reports to improve their own understanding of specific sustainability issues related to the company.

Reports are also used by other companies, competitors and investors, who use the reports to learn about better practices they might apply to their own business and to obtain as much information as possible for their investment decisions. They use reports mainly for benchmarking their own and others’ performance.

Readers from civil society groups are less interested in this benchmarking but use the information for research and education.

Civil society readers are interested in the performance of the reporting company and its accountability towards.

At the same time, there is also a group of so-called “non-readers”: persons or organisations which, apparently have similar information needs as the above mentioned readers, but who manifest strong reasons for not reading companies’ sustainability reports. They do not agree with the way reporting takes place or do not see the added value.

For reporting companies it can be of interest to understand their reasons, in order to improve. The most important reasons of the non-readers are listed below: • A general lack of interest in the issues covered.

• A high degree of mistrust of the company’s intentions and lack of reliability of the reports.

• Reports are often hard to find, too lengthy or difficult to navigate through.

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NEW TRENDS AND PATTERNS

Readers’ expectations of future reporting

Corporate sustainability reports are targeted at and used by a wide variety of readers. These readers can be directly involved in the business activities of the reporting company or can be external interested parties

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• More direct means of communication with companies are preferred to obtain the required information.

• Important general company statements with regard to good policies and issues (for example, animal testing or the use of GMOs) are often not included in the reports, but disclosed on the website of the company, which therefore are preferred sources of information.

Sustainability reports are often found behind other sources of information like corporate websites (and third party sources, e.g. NGOs).

Other important issues to be included in these reports are the ‘water footprint’ (indicating a company’s direct and indirect water use) and ‘corruption risk’. Companies should report on all material issues, depending on their sector and activities.

Readers also want companies to report on their failures and want them to provide a good description of sustainability impact, risks and opportunities.

Other missing or not complete elements mentioned by the readers are the overall sustainability impact of the company, and a good description of risks and opportunities.

Readers expect that in the future more and also more active readers will use reports for their active decision-making. Additionally, readers expect that: • Sustainability and innovation will be linked in reports, demonstrating how process and product innovation have been used to respond to sustainability needs.

• Trust and reliability will be addressed through globally accepted standards and stronger, more relevant assurance processes, to build comparability and trust through reporting.

• Sustainability reports will be fully integrated into integrated reports and other corporate communications.

• Companies compiling integrated reports tend to make innovative use of Internet and social media.

According to readers in general, the best measures for promoting better and more widespread disclosure of sustainability performance indicators include: • A stronger legal framework for disclosure.

Sustainability reporting needs to be put on the same level as financial reporting.

The current requirements are not well specified or enforceable and companies are not disclosing all the information that is needed.

• Key stakeholders must be involved in the development of sustainability reporting standards at the multinational level (multi-stakeholder organisation with democratic internal procedures) as well as at the company level (development and improvement of sustainability reporting systems, negotiation of sustainability improvement goals and strategies etc.)

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NEW TRENDS AND PATTERNS

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• External verification of sustainability reporting must be required, to improve the credibility of sustainability information provided.

• Reporting standards on content and indicators should be defined at the international level with the goal of having all companies adopting these standards.

Although sustainability information can be sector specific or relevant to all sectors, some common indicators across all sectors could be identified according to the readers: • Corporate Governance • Proportion of independent members on the board of directors • Level of information on directors’ remuneration • Percentage of employee stock ownership • Gender equality (percentage of women in workforce, in management and in executive committee) • CO2 emissions • Safety in the workplace (e.g. frequency rate of accidents) • Waste management (production of (hazardous) waste).

Readers argue that : • Reports focus too much on good news and topics that are easy to cover • Reports tend not to detail the impact of a company’s operations (and supply chain) on issues such as poverty and job creation • Current reports often deal with isolated issues, whereas a comprehensive systematic analysis is preferable • Reports do not use common indicators, making comparability difficult • The information included in annual reports, regardless of its quality, is

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often provided too late to be useful in addressing specific problems • There is evidence to suggest that greenwashing (misleading or unclear green claims in advertising and marketing) is not an unusual practice.

Additional information requirements

• Water footprint: Water has local and global implications and is seen as a major issue; therefore, measuring and providing information on water-related risks is considered very important.

• Corruption issues: Corruption is a very delicate issue, having a significant negative impact on society and enterprises. Anti-corruption strategies need to be holistic and disclosure is only one element, alongside codes of conduct, monitoring and other measures to be implemented by authorities and enterprises.

• Use of sustainability criteria in investment decisions: whether these criteria lead to non-investment and whether these policies apply to all financial products.

• Information on business deals: what are the investments and who is proposing to finance a deal before it is made?

• Working conditions in the supply chain: workplace locations, findings of workplace investigations or social audits, corrective action plans and their results.

• A link between sustainability strategy and overall business strategy and planning, including information on risk management and resource management (physical and human), purchasing and value chain

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management, research and development, and marketing and lobbying activities. â&#x20AC;˘ Commitment to sustainability, demonstrated by a balance of good and bad news (serving trust and credibility), a thorough stakeholder engagement process and incorporation of their feedback into strategy and targets, a clear definition of targets and results with clear explanations and external verification of the provided information (assurance). â&#x20AC;˘ Actions taken to address sustainability issues, showing what actual measures are being taken by the company regarding sustainability impacts in practical terms.

Reporting companies need to provide evidence on how key sustainability impacts are addressed: operations, product development, sales and relationships with customers, investors, government and other stakeholders.

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PROFILE

Standard disclosure – How the SABS assists corporate reporting The South African Bureau of Standards (SABS) is South Africa’s national standardisation institution, and operates in support of the country’s economic and industrial policy objectives. Established in 1945, the organisation is mandated to develop, maintain and promote South Africa’s system of National Standards, promote the quality of locally manufactured products and services, and provide assessment and testing services to South African companies.

Over the past several years, in response to the growing awareness amongst South African companies of sustainability imperatives, as well as the changing face of (particularly non-financial) corporate reporting, the SABS has developed a number of standards relevant to various aspects of corporate sustainability. In most instances, these standards involve significant localisation of existing ISO (international Standardisation Organisation) or IEC (International Electrotechnical Commission) standards, to improve their relevance and applicability in the South African context.

Energy efficiency

In the field of energy efficiency, relevant standards include the South African National Standard (SANS) 941:2012, which relates to the energy efficiency of electrical and electronic apparatus. This standard relates to energy efficiency requirements and energy efficiency labelling of designated electrical and electronic items, in order to provide consumers with all relevant energy efficiency information regarding these items.

Also in the energy efficiency arena, the SANS 50001 standard regulates the measurement and verification of energy efficiency and energy savings, particularly with relation to Regulation 12 of the Tax Laws Amendment Bill of 2009. This standard describes how energy savings should be calculated and reported, and provides a vital supporting element for a range of voluntary and regulatory measures aimed at improving energy efficiency. It was developed by SABS at the request of the Department of Trade and Industry to assist industrial organisations wishing to claim tax rebates for energy savings in their operations.

PROFILE

With regard to the built environment, the SABS has developed and implemented a number of energy efficiency standards, including SANS 204 relating to energy efficiency in new buildings and SANS 10400XA, which relates to various relevant aspects of the National Building Regulations.

A final aspect of the Bureauâ&#x20AC;&#x2122;s work in the energy efficiency sphere relates to domestic and industrial water heating, which is governed by the SANS 1352 standard.

Corporate social responsibility

Given the increasing emphasis placed by all stakeholders on corporate social responsibility, the SANS 26000:2010 standard has become increasingly valuable in assisting companies in their reporting in this field. In this regard, the SABS collaborates with the Human Sciences Research Council (HSRC) and Department of Science and Technology (DST) in promoting the uptake of systems that can guide the efforts of both public and private sector entities in operating in a socially responsible manner, and in effectively reporting their efforts and achievements in this field.

Environmental responsibility

In the environmental management sphere, the SABS, through it technical committees and experts, has participated in the development of and publication of a number of international standards.

These have in turn been adopted as South African National Standards, with the most well-known being SANS 140001, relating to the implementation of environmental management systems. This standard, as well as the other members of the SANS 14000 family of standards which relate to various aspects of sound environmental management, are aimed at reflecting international environmental best practice that can be applied by all business organisations, irrespective of the sector in which they operate.

Within these various areas of activity, one of the principal objectives of the SABS in the development of appropriate National Standards, is to provide companies operating in South Africa with relevant and reliable information, which can contribute to their corporate reporting activities.

THE INTEGRATED APPROACH

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CREATING VALUE OVER TIME The Integrated Approach

Kelly Gilman

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THE INTEGRATED APPROACH

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ntegrated reporting as a concept has grown significantly over the last few years, thanks in part to the International Integrated Reporting Council’s new Integrated Reporting Framework.

The Consultation Draft, which was released in April 2013, was embraced by an overwhelming number of companies and has changed and informed the corporate reporting process considerably.

Encouragingly, South African companies are leading the way in the practical implementation of integrated reporting and most JSE listed companies have published at least two or three integrated reports to date.

The internalisation of the Consultation Draft by these companies has further crystallised the integrated reporting concepts and has made it clear that understanding an organisation’s business model is critical to understanding how an organisation creates value. However, as is often said, integrated reporting is a journey. With the guidance constantly evolving, companies have to annually evolve their integrated reports to apply the latest guidance available, especially in light of the IIRC framework.

Ernst and Young released its second annual survey on excellence in integrated reporting in July 2013, the EY Excellence in Integrated Reporting Awards. This survey identified key trends and challenges that companies are facing in integrated reporting as a whole.

One of the most positive trends identified by the Awards’ adjudicators was the diverse and innovative approaches taken by reporters in the structuring of their integrated reports. The IIRC guidance framework is principle based and allows reporters to be original and inventive in their structure

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and approach to integrated reporting. It was noted that the disclosure of who the company is and how it does business in the first few pages of the integrated report often provided key information that shareholders or stakeholders would be interested in from an integrated reporting perspective.

The increasing use of a combination of graphics, narrative and icons was also identified as a key trend that has really enhanced the user friendliness and conciseness of the reports issued.

Additionally, there is an increasing trend of website use, both for disclosing additional information (assisting companies to prepare concise reports) and for providing online tools for downloading and using information. This is a valuable development as it makes information accessible to a wider range of stakeholders.

The key challenges that the Awards’ adjudicators noted centred on the concept of integrated thinking: • Some reports appear to be combined reports rather than integrated reports (i.e. the annual financial statements are just added on to what appears to be a separate sustainability report).

• Many integrated reports do not clearly display the link between financial and non-financial (aka sustainability) issues and data.

• Many integrated reports do not clearly explain the key capitals that the company relies upon and impacts.

• Most integrated reports do not clearly disclose the key trade-offs that are being made between these key capitals.

The concept of integrated thinking is absolutely essential to integrated reporting, but it is also one of the most difficult things to get right. The <IR> Framework

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What is important to note is that integrated reporting is merely the outcome of integrated thinking, strategy, risk management and performance. The Framework is attempting to change the way organisations think and behave to consider a broader, more holistic range of issues, contexts and capitals. It is drawing organisation’s attention to the fact that they do not operate in a silo, that they are part of and integrally connected to society, the economy and the natural environment. In the words of IIRC Chairman, Mervyn King:

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defines integrated thinking as “the active consideration by an organisation of the relationships between its various operating and functional units and the capitals that the organisation uses and affects”.

Integrated thinking requires companies and the individuals controlling them to think differently – to understand that the value companies create or deplete is not just financial value; that companies through their business activities also create or deplete value for the broader economy, society and the environment.

Furthermore, that this then has a knock-on effect on the company itself. It requires companies and the individuals that control them to think holistically and to realise that everything is connected.

Integrated thinking requires recognition that sustainable value creation will only occur when there is a deep understanding that the economy that generates the profits and margins cannot continue into the future without a fully functioning society and that neither the economy nor society can continue to exist without a healthy natural environment.

Whilst the majority of companies still tend to focus on and be guided first and foremost by value understood as financial value, integrated thinking requires companies, and the individuals controlling them, to realise that sustainable value creation will require considered decision making that balances the trade-offs made between financial, economic, social and environmental impacts. Systems thinking focuses on cyclical, rather than linear “cause and effect”. Embracing a circular view helps companies realise that cutting corners or costs in the short term can come around and cost them a great deal more in the future.

THE INTEGRATED APPROACH

The world today faces two critical and interconnected dangers: financial instability and unsustainability

Both of these dangers pose threats to the livelihoods of communities across our planet- to their wealth and welfare. They are risks that have been undermanaged and under-reported for too long. The corporate reporting landscape has not kept pace with the scale of the changes that have taken place in the world economy, business and society in recent decades. Businesses and investors have a central role in making capital allocation decisions that will ultimately determine the resilience of our financial system and the success of the economy over the short, medium and long term.

Integrated reporting brings businesses and investors to the centre of this debate.

It charges them with the responsibility to communicate how they create value over time. It empowers them to create new

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tools and mind-sets that will improve the quality of decision making by businesses and investors. And, crucially, it will lead to changed behaviour, a focus on the future as well as the past and a reporting model that reflects and communicates the reality of business, its operations and its impacts in the 21st century.

Going forward, based on the guidance contained in the <IR> Framework, released by the IIRC, Ernst & Young hopes that South African companies will continue to push the boundaries, innovating their reporting and increasingly using technology as a key component of their reporting. The challenge of integrated thinking will remain, but we feel there are many companies which will rise to meet this challenge, developing and maturing along with the future of reporting.

We, together with other like-minded South African companies, realise that whilst integrated thinking is challenging, it will be key to the evolution and development of true integrated reports.

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BUSINESS COMPETITIVENESS

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INTEGRATED REPORTING AND BUSINESS COMPETITIVENESS Soraya Dean of the Australian Centre for Corporate Social Responsibility interviews Jonathon Hanks, Managing Director of Incite Sustainability

Jonothan Hanks

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BUSINESS COMPETITIVENESS

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BUSINESS COMPETITIVENESS

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SD: What do you think are

the key reforms in the recently released <IR> guidelines that will improve business reporting?

JH: The

IIRC’s recently released International <IR> Framework seeks to promote a fundamental shift in corporate reporting practice, and it has significant potential implications for both annual financial and sustainability reporting.

When looking at the reforms in the <IR> Framework, it’s useful to recognise that underpinning the shift to the integrated reporting is the recognition that current corporate reporting is generally not delivering.

For the most part, annual financial reports are not providing investors and other stakeholders with sufficient insight to enable them to make an informed assessment of the total economic value of the organisation, particularly given the increasing importance of intangible assets and the growing business impact of the changing societal context.

Similarly, many current sustainability reports are seen to suffer weaknesses: they often appear disconnected from the organisation’s financial reports, they typically provide a backward-looking review of performance, and they rarely make a sufficiently compelling link between societal challenges and the organisation’s core strategy.

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I believe that the reforms proposed in the principles-based <IR> Framework, if properly applied, can play a pivotal role in addressing these concerns, and – more importantly – could prompt a much needed shift in how companies and investors understand and approach corporate value creation.

There are several important reforms in the Framework that I think are worth highlighting: • Its explicit focus on the issue of organisational value-creation; • The strong emphasis in seeking to move away from short-termism, by seeking to assess and communicate how organisations create value over the short, medium and long term; • The very strong focus on the six capital stocks as a means of highlighting (both to investors and to reporting companies) the importance of the ‘resources and relationships’ that impact on value; • The priority given to only disclosing the ‘material’ issues, and the expectation that companies disclose at least a summary of the process used in identifying these issues; • The emphasis on seeking to promote integrated thinking within the organisation by highlighting the connectivity and interdependencies between the various factors that impact value creation; and • The move towards requiring the organisation’s governing body to be more actively engaged in the reporting process.

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I agree with Professor Mervyn King (Chair of the IIRC, and a leading proponent of <IR> both in South Africa and internationally) when he argues that integrated reporting has the potential to prompt companies to re-examine their business models and to explore new and potentially innovative opportunities in their products, services, processes and markets.

I believe, however, that for this exciting potential to be realised, it will be essential that the reporting process is not simply a compliance-driven exercise administered in comparative isolation by the company secretary or investor relations department – which I fear may be too often the case.

Instead, the process must involve the active engagement of the organisation’s governing structure in a frank and critical review of their current approach to creating value, and a willingness for them (and their investors) to move on from the current focus on optimising short-term financial performance alone, seemingly ignoring some of the broader societal issues that impact on longer-term financial success.

A more informed appreciation of the strategic impact of societal issues on business competitiveness has obvious potential benefits for sustainability reporting, ideally resulting in more focused and strategic reports that avoid the ‘tick-box’ approach that arguably characterises many current reports.

A significant potential challenge, though, with the shift to integrated reporting is the danger that some reporting organisations

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– misunderstanding the underlying intent of <IR> – may choose to do away with their separate, more detailed, sustainability reports and simply provide a summary of their sustainability performance in what, in effect, is a ‘combined report’ aimed at all of their stakeholders.

Unfortunately this tendency has already become evident amongst a few South African reporting companies, and has been compounded by the (mistaken) suggestion of certain sustainability and reporting practitioners that there is an “either/or” choice to be made between IIRC- and GRI-based reports. Ensuring that we address these misunderstandings is critical in ensuring that <IR> delivers on its potential and that it does not undermine sustainability reporting.

SD: How do you think the

Framework will be received by businesses?

JH:

I would like to hope that the <IR> Framework will be warmly welcomed by business – both by company executives, as well as by those within the companies who have responsibility for producing the annual corporate reports.

I would like to believe that both of these groups will appreciate the significant benefits of this shift, not only in terms of improving their own reporting practice, but also in terms of the broader benefits it provides in

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addressing the current myopia within the business and financial sector regarding the focus on short-termism and (arguably) the lack of appreciation of the systemic nature of current societal challenges. But to be honest I am not sure that these benefits will be sufficiently appreciated by many in business – at least not initially. I suspect that many of them will simply see the move to <IR> as a nuisance compliance issue that needs to be tolerated (if not overtly resisted) rather than embraced.

In a recent interaction with a company’s executive team, it was fascinating to see the initial deep cynicism regarding <IR>, followed by a significant shift in attitude when they recognised its intent and its potential in ensuring a more strategic and more valuable reporting process.

What I believe has become very clear is that there is a need to ensure more effective communication of what <IR> is – and what it is not.

SD: Given two years of

experience with mandatory integrated reporting in South Africa, what do you think the major challenges will be?

JH:

There are various challenges that the last few years of integrated reporting in South Africa have exposed, some of which I have hinted at already:

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Ensuring sufficient understanding of the intent of <IR> As argued earlier, there still remains considerable misunderstanding amongst many directors and commentators regarding the nature and intent of integrated reporting.

Involvement of executives early in the process is essential, to ensure their appreciation that integrated reporting is not about combining the annual report and the sustainability report into one document; nor is it about trying to address all the interests of a broad range of stakeholder groups in one report.

Being willing to let the traditional approach go, and focus on the material issues A key goal of the <IR> Framework is to produce concise, strategic, forward-looking reports, each of which are characteristics often lacking in traditional annual reports.

Making this shift, and ensuring that companies only report on the material issues – those issues that substantively affect the organisation’s ability to create value now and into the future – is still proving a challenge, with few of South Africa’s first round of integrated reports demonstrating a sufficient boldness to be brief and strategic.

While most South African companies are certainly moving towards more concise reports – and for example are leaving the details of the annual financial statements for separate (often online) reports – there is

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considerable opportunity for improvement here. Similarly, while there are some very valuable exceptions, we would like to see further progress in terms of producing more analytical, forward-looking reports.

Managing the internal politics and ensuring effective integration Another challenge is ensuring that there is effective co-ordination and integration between the different functions involved in the traditionally separate activities of annual financial and sustainability reporting.

Our recent experience with various companies across a range of sectors suggests that for many companies there has been some initial tension between the investor relations and/or finance functions on the one hand, and the sustainability and/ or corporate affairs functions on the other.

Establishing the new reporting systems and ensuring clearly assigned responsibilities for integrated reporting will require unambiguous support from company leadership informed by their understanding of the importance of crossfunctional co-ordination.

Leaving it in the hands of the investor relations department on its own, runs the risk that the traditional understanding of value creation and the historic approach to annual financial reporting, will continue to predominate, undermining the shift in approach and understanding that integrated reporting seeks to inspire.

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Ensuring effective engagement of the governing structure and using the process to interrogate strategy As I have suggested earlier, if <IR> is going to deliver on its potential then it is essential that it involves the active engagement of the organisation’s governing structure in a process that prompts them to reflect critically on how their organisation creates value over the short, medium and long-term.

An important continuing challenge is that of ensuring this level of engagement.

In our experience, we have found it hugely valuable to involve the organisation’s executive team in a frank dialogue that reflects on the organisation’s value creation process and business model, that critically considers how much value the organisation delivers (across all capital stocks), that identifies the external factors (the risks, opportunities and stakeholder perspectives) that affect its ability to deliver value, and that informs the organisation’s process of allocating assets to enhance value creation.

In asking these questions we have found that the <IR> process can be very effective in interrogating and informing the organisation’s business and sustainability strategies.

While there are some important remaining challenges I think we have seen some very valuable progress amongst South African companies over the past two years – and there are some significant lessons to be learned and shared from this experience.

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ENVIRONMENTAL AND SOCIAL SUSTAINABILITY

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MIND THE GAP Anticipating the shift in how investors and the financial sector view your company’s environmental and social sustainability

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ENVIRONMENTAL AND SOCIAL SUSTAINABILITY

Even though more investors worldwide, particularly institutional investors, now say they assess corporate environmental and social performance in their investment decisions, most companies are still unsure exactly what these key stakeholders want to know and therefore what and how to report.

Similarly, while leading banks increasingly apply environmental and social risk management in their lending practices, it remains unclear how this translates into competitive advantage for their corporate clients who boldly adopt innovative solutions to environmental and social problems.

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ENVIRONMENTAL AND SOCIAL SUSTAINABILITY

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he importance of risk management remains high in the conversation about corporate sustainability. It will likely continue to be the key focus of sustainability-driven investor activism at shareholder meetings for some time to come. Major accidents, fatalities and environmental pollution are common causes for concern. And with shareholder activism on the rise, companies are seeing more shareholders requesting special meetings with the board on the issues that concern them most. Governance and executive remuneration currently top the lists of responsible shareholder concerns, but environmental and social issues are growing in visibility.

According to Ceres, 110 sustainabilityfocused shareholder resolutions were filed with 94 US companies during 2013. Many called for board oversight of sustainability and comprehensive disclosure of data through sustainability reports. Issues of interest were climate change, greenhouse gas emissions, supply chain issues and water-related risks.Investors withdrew more than 40 of the 110 resolutions after the companies responded affirmatively to their specific requests.

That said, investor activism on sustainability issues inevitably clashes with two entrenched business realities: firstly, the majority of shareholders still want to see superior financial returns, preferably on a quarterly basis; and, secondly, company executives manage a multitude of shifting priorities to maintain their companies’ competitiveness and profitability – with environmental and social responsibility being relatively new arrivals.

Consequently, there is still resistence on the part of companies when it comes to really innovating in the sustainability space,

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even though the massive rise in integrated reporting has brought more firmly to the foreground the real risks and costs of not doing so. Part of the problem may be that the stakeholders with the most leverage, namely investors and financial institutions, don’t yet systematically demand such innovation.

It’s not surprising then that the really interesting conversation between companies and investors – the one about sustainability and business value creation – still needs to get off the ground. For instance, first-movers in this space are testing if they can improve investment returns by focusing on sustainability leaders – companies with a track record of good environmental and social management, high-level commitment, and proactive stakeholder engagement. Research by RobecoSAM, covering a ten-year period, revealed superior long-term results. This confirms academic findings which tie sustainability leadership to good management, innovation and financial outperformance.

So why isn’t sustainability being adopted more systematically as a lens to identify well-managed, innovative companies with lower business risk? Fortunately, several major shifts in the financial ecosystems of emerging markets indicate this situation may be set to change.

Banks getting serious about sustainability

Currently 79 financial institutions in 35 countries have officially adopted the Equator Principles, a financial industry benchmark for determining, assessing and managing environmental and social risk in projects.

It is estimated the Principles now apply to over 70 percent of international project

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finance debt in emerging markets. Ten African banks have adopted the Principles, including Nedbank, Standard bank, and FirstRand.

While the Principles apply to project finance above US$10 million, the community of Equator Banks are increasingly exploring ways to integrate sustainability into all aspects of how they do business, including green finance products and managing their own corporate footprints as a way to build brand visibility.

Nedbank’s journey is a powerful example. In 2005 Nedbank became the first African bank to adopt the Equator Principles.

Since then, Nedbank has rolled out a green affinity program with WWF, funded projects under South Africa‘s Renewable Energy IPP programme, actively manages its own carbon footprint, launched South Africa’s first Green Index in 2011, created the Nedbank Capital Green Mining Awards, and most recently held the first Nedbank Capital Sustainable Business Awards.

Businesses can see this trend as a signal that banks are building capacity to take a market-based approach to sustainability.

New products and screening tools will offer incentives as well as penalties to stimulate better sustainability performance by loan recipients.

Transparency is a first requirement to make this engagement between banks and companies work. So anticipate more interest from banks in the quality and details of integrated reports. As banks become more astute in assessing particular aspects of performance – such as energy, water use, waste management, and labour practices, for instance – expect to see more specific requirements in these areas. Bigger picture questions about license to operate and stakeholder support will no doubt

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take centre stage and quickly mature as a discourse.

Pension funds join the conversation

South Africa was one of the first countries to introduce a regulatory requirement for pension funds in 2012 to actively consider environmental and social risks and opportunities in their investment strategies.

New regulation 28 of the Pension Fund Act, in conjunction with the Code for Responsible Investing in South Africa (CRISA), triggered an industry wide response over the past two years to design a practical approach for pension funds.

Sustainable Returns for Pensions and Society, an initiative led by the Principal Officers Association of South Africa, the IFC, major pension funds, the Institute of Directors of South Africa, the Financial Services Board, Labour, and other key stakeholders, resulted in the publication in September 2013 of “Responsible Invesment and Ownership: a Guide for Pension Funds in South Africa”.

The guide provides a roadmap to introduce policies and systems that anticipate risk and inform proactive investment strategies.

As major investors in companies listed on the Johannesburg Stock Exchange, pension funds could therefore be set to play a much bigger role in moving South Africa’s private sector towards more responsible business practices.

South Africa’s Government Employees Pension Fund (GEPF), with 1.2 million active members and assets worth R1 trillion, already has a responsible investment policy in place and engages directly with major listed companies on ways to improve environmental, social and governance

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Reason says: integrated reporting provides transparency.

Instinct says: integrated reporting leads to a sustainable business.

Business decisions on corporate sustainability are rarely black or white.

Dynamic organisations know you need a balance of both reason and instinct in order to realise the opportunities that integrated reporting present for your business. We are Grant Thornton and it’s what we do for our clients every day.

Contact us to help unlock your potential for sustainable growth.

www.gt.co.za © 2013 Grant Thornton South Africa. All rights reserved.

Grant Thornton South Africa is a member firm of Grant Thornton International Ltd (‘Grant Thornton International’).

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performance. South Africa’s example is being closely watched by other emerging markets, and could signal a global trend.

Other parts of the financial ecosystem are also likely to follow suit.

For the most part, pension funds are still in the early stages of incorporating sustainability issues into decision making.

With policies and priorities in place, they will hand implementation to asset managers who invest on their behalf.

Businesses can therefore expect to see an increase in interest from the asset management community in a wide range of environmental and social issues prioritised by their clients.

Thanks to the naturally long-term view of institutional investors, the emphasis will be on issues that have a medium and long-term impact on investor returns, while still seeking to avoid any significant shortterm losses. As pension fund beneficiaries become more aware of sustainability, special interests may lead pension funds to seek out specific types of investments that have social and environmental benefits, such as renewable energy and affordable housing.

Companies’ integrated reports should therefore reflect a mix of: • appropriate sustainability risk management, • resource efficiency to reduce costs and dependencies; and • quantifiable positive impacts on people and the environment that can be shown to reinforce strong financial performance over the medium and long term.

Green building practices are one such example. With pension funds able to invest up to 25 percent of their assets in property, implementation of green building standards can reduce energy and water costs, improve

ENVIRONMENTAL AND SOCIAL SUSTAINABILITY

the health and well being of occupants, enhance the urban environment, and increase property value and rent premiums . From a portfolio perspective the value proposition is clear.

A major role for regulators

Another strong signal that sustainability has taken root in the financial landscape is the move by banking regulators in emerging markets to introduce national policies and incentives that promote sustainable banking.

A key factor is the creation of a level playing field to ensure banks retain their competitiveness when taking innovative steps towards a green and inclusive economy.

China introduced a national green credit policy in 2008 and technical guidelines in 2012 which now apply to all Chinese banks and include requirements related to international lendin. Bangladesh introduced a similar policy in 2011 and provides incentives to proactive banks who the meet the new standards.

In 2012, Nigerian banks collaborated with the Central Bank of Nigeria to introduce voluntary principles for sustainable banking, focusing in particular on financial inclusion and supporting women entrepreneurs.

These leading countries are part of a community of regulators who now meet annually to share their experiences in creating enabling frameworks for sustainable banking. Member countries are learning from each other and replicating successful models.

Still in early stages of testing and implementation for many countries, this trend is moving quickly. South Africa’s example in the pension fund industry and the presence of three leading Equator banks

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locally, make it well suited to adopt similar policies. Businesses can therefore expect more active participation by regulators in establishing monitoring and incentive structures to track and promote private sector sustainability. Rating agencies will assist this process by making data more easily available. Eco-labels and industry standards will become more common and nuanced to measure performance on specific aspects and help businesses position themselves in the marketplace.

Shifting the conversation

With these various trends taking shape, conversations between companies and their financial stakeholders are likely to get much more interesting in the near future.

While this may mean an additional reporting headache for companies initially, it may also quickly evolve into a more collaborative partnership between companies and their investors or lending institutions.

There is a growing spectrum of business benefits from improved sustainability, such as reducing resource costs, improving employee productivity, reducing absenteeism and staff turnover, avoiding business interruptions, strengthening relationships with suppliers, adding market share, and protecting license to operate.

The main problem is that for too long these aspects haven’t been measured and the business case hasn’t be clear.

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South Africa’s adoption of comprehensive integrated reporting opens the door to a much more informed conversation about the different ways sustainability adds value.

While comparability and consistency of data are important, the links with value creation are going to be as diverse as the companies that implement them.

Consequently, it remains for companies to tell their story of sustainability well, to articulate what they have tried and what the results have been, to explain how sustainability is a driver of their future business success, and how they are preparing for a changing climate and shifting social and economic conditions.

As more success stories of value creation surface, there’s a good chance investors and banks will be first to promote replication within and across industries and to seek out clients that demonstrate sustainability potential. Some of the questions already front of mind for conscious investors include: • Are water or energy costs significant contributors to business overheads and how is the company managing them?

• Is the company getting left behind in terms of new technology that could dramatically increase efficiencies or even change the game in terms of market position?

• Is the company treating workers fairly, maintaining high standards of health and safety, and offering fair pay?

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References

• How is the company perceived by local communities and how will this affect their license to operate?

1 • Kim, J. and Schloetzer, J.D. 2013 “Director Notes: Global Trends in Board Shareholders Engagement”, The Conference Board http://www.conference-board.org/retrievefile.cfm?filename=TCB_DN-V5N20-131. pdf&type=subsite 2 • Ceres, Aug 08, 2013 Press Release: “Investors Achieve Strong Results on Climate Change, Supply Chains, Water Risks During 2013 Proxy Season” http://www.ceres.org/press/press-releases/ investors-achieve-strong-results-on-climate-change-supply-chains-water-risks-during-2013-proxyseason#utm_source=Mondaq&utm_medium=syndication&utm_campaign=inter-article-link 3 • SAM Research, 2011, “SAM White Paper: Alpha from Sustainability” 4 • Eccles, Robert G. and Ioannou, Ioannis and Serafeim, George, 2011, “The Impact of Corporate Sustainability on Organizational Processes and Performance”, Harvard Business School Working Paper Series 12-035.

5 • Wagner, M. and Blom, J., 2011, “The reciprocal and non-linear relationship of sustainability and financial performance”. Business Ethics: A European Review, 20: 418–432 6 • Source: Equator Principles – member institutions, http://www.equator-principles.com/index.php/ members-reporting, taken on 8 April 2014 7 • Source: Nedbank Sustainability, http://www.capital.nedbank.co.za/capital/sustainability 8 • Source: www.sustainablereturns.org.za 9 • GEPF, “Responsible Investment Report” in Annual Report 2013, ww.gepf.co.za/uploads/ annualReportsUploads/11_Responsible_Investment_Report.pdf 10 • Source: Green Building Council South Africa, https://www.gbcsa.org.za/about/about-green-building/ 11 • Source: China Banking Regulatory Commission, “Notice of the CBRC on Issuing the Green Credit Guidelines” 12 • Source: Bangladesh Bank, BRPD Circular No.02, “Policy Guidelines for Green Banking”, http://www. basicbanklimited.com/files/Green_Banking_Policy_Guidelines_of_Bangladesh_Bank.pdf 13 • Source: Central Bank of Nigeria, Circular: “Implementatgio of Sustainable Banking Principles by Banks, Discount Houses and Development Finance Institutions in Nigeria, http://www.cenbank.org/out/2012/ ccd/circular-nsbp.pdf 14 • IFC, Press Release, 3 March 2014, “Second International Sustainable Banking Forum in Lagos Considers Stronger, Efficient Regulation”

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Clean, Uninterrupted and EfďŹ cient Energy...

Pipeline Gas Call Us on (031) 266 3865 for further information.

www.slg.co.za

PROFILE

SPRING LIGHT GAS The Company Spring Lights Gas (Pty) Ltd (SLG) was founded in 2002 as a BBBEE company with Sasol Gas Holdings as a minority shareholder. The company has over the last 12 years grown significantly, leading to a shareholder change in 2012, resulting in the company becoming a 100 percent black owned energy company.

SLG’s current shareholders are Kwande Energy and Zico Investments and in a true demonstration of employee advancement a portion of the shareholding of the company is held by the employees of SLG. Over the last 10 years the company has doubled in size, both in the volume of gas supplied to industry and the number of customers the company has.

The Environment

The company has since its inception been a marketer and distributor of piped gas to industrial customers in KwaZulu Natal. Its primary focus is to provide a clean environmentally friendly energy source to industry in the form of piped gas which has replaced energy sources such as HFO and coal. These have a high sulphur content in comparison, while coal produces almost double the amount of greenhouse gases as piped gas. Furthermore, the delivery of piped gas to customers is via pipeline and therefore eliminates the need for trucks which further contributes to the emission of greenhouse. The presence of SLG has been a welcome reprieve to the Durban South community which had been plagued by emissions from the local industry for decades.

SLG continues to provide a clean energy source to industry, and with 45 industrial customers, among whom there is the Sapref and Engen refineries and NCP Alcohols, and few more currently being connected, its positive impact on the environment continues to grow.

The Community

SLG has over the years invested millions in the wellbeing and development of the local communities within which we operate. Our CSI program specifically focuses on education, health and social development. SLG has over the years built and improved ECD centres, contributed to teacher training, built computer and science labs in schools. Programs like Thuthukisa ECD Teacher Training have trained 120 teachers to date through SLG’s support. The company has partnered with Edutrade and provided science lab equipment to 7 schools in KZN in the past year.

SLG furthermore provides resources to centres that continue to fight the scourge of HIV/AIDS in our communities in order to ensure maximum impact of their programs.

SLG’s other beneficiaries are KZN Blind and Deaf Society and ACTS.SLG continues to invest 1 percent of its profits in its Corporate Social Investment program every year.

The Economy

SLG has to date also invested millions in various Enterprise Development initiatives. Small enterprises are provided with much needed business training and education in order to sustainably manage and run their businesses. Furthermore, where synergies exist, suppliers are developed to become sustainable suppliers to SLG. Partnerships have been developed with institutions like BEESA and Transcend in order to ensure that SLG’s enterprise development initiatives have maximum impact and more importantly, yield sustainable enterprises that will contribute to the growth of the South African economy and job creation.

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CHANGING THE WAY BUSINESS IS DONE

A critical review of two South African integrated reports Carol Adams

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The potential of integrated reporting to drive changes in the way business does business lies in its focus on longterm strategic planning, the multiple capital concept and its potential to change how we define value. A focus on short-term financial value is increasingly being seen as bad for business, let alone society and our natural resources.

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5

C

hanging the way business leaders and their investors think is a prerequisite for real change towards social, environmental and economic sustainability.

A focus on the longer term and thinking about value in non-monetary terms, means thinking about people, relationships, knowhow and the natural environment and how they create value, rather than just what they cost or how we impact on them. And a reading of the best South African integrated reports reveals a concerted effort to think about the business differently.

It is pleasing to see reports which highlight key non-financial performance indicators, along with financial indicators right up front. For example, in Sasol’s case these include environment, safety and equity measures and, in the case of greenhouse gas emissions (only) a quantified long-term (2020) target. It is also exciting to see reports which talk about values and goals in broad terms and analyse the context in which the business is operating, its risks, including reputation risk, and opportunities.

Some of the reports available, such as Sasol’s 2013 annual integrated report, attempt to follow the IIRC’s consultation draft, but they all predate the recently released International <IR> Framework (IIRC, 2013 and Adams 2013). Yet they provide many learnings for companies new to integrated reporting.

Sasol explicitly acknowledges the link between values and behaviour: “Our shared values define what we stand for as an organisation and inform our actions and our behaviour. They determine the way in which we interpret and respond to business opportunities and challenges.”

-Sasol Annual Integrated Report 2013 p7

So what behaviours is Sasol aiming to nurture? A focus on people, relationships and long term value for those connected with the company:

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“To grow profitably, sustainably and inclusively, while delivering value to stakeholders through technology and the talent of our people in the energy and chemical markets in Southern Africa and worldwide…our common goal To make Sasol a great company that delivers long-term value to its shareholders and employees; a company that has a positive association for all stakeholders”.

-Sasol Annual Integrated Report 2013 p6

‘Sustainably’ in this case might mean both environmental sustainability and longevity:

“

We also remain acutely aware of the environmental impact of extending our operations to 2050.

We are working on initiatives to mitigate greenhouse gas and carbon dioxide (CO2) emissions as well as on those related to air quality and water stewardship.

“

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-Sasol Annual Integrated Report 2013 p27.

Social and environmental issues feature prominently in ‘top issues impacting our business’ (page 30), but neither here, nor in ‘Looking towards 2050’ (page 27) is there any mention of the carbon bubble. Should there be? Well, it has been getting quite a lot of attention, it may impact on value to investors (and employees and stakeholders) and integrated reporting requires identification of material issues and discussion of the context in which a company is operating including risks and opportunities. So, yes, I think there should be a discussion on the likelihood of a carbon bubble impacting on future value.

Sasol appears to see the fight as being with regulators.

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they fund, and they are generally mistrusted by many. Demonstrating a contribution to creating value for the societies they depend on and diligence with regard to the environmental impacts of the projects they fund is therefore critical for their long term success. The Standard Bank Group appears to do this better than many. The real proof of course comes in information about the nature of loans made.

The reader of SBG’s annual integrated report is left with the feeling that the bank sees its success as inextricably linked with its relationship to society. For example, socioeconomic development and provision of sustainable and responsible financial services are identified as material issues.

“

The bank aims to embed sustainability thinking into its business processes there are a number of determinants of materiality, including the bank’s values and accountability and responsibility for sustainable development rests with the board

“

“Risk of climate change and related policies impacting Sasol’s operations growth strategy and earnings” is identified as a regulatory risk (page 47) with possible regulatory interventions identified as carbon taxes, product carbon labelling, carbon budgets and carbon-related border tax adjustments linked to bilateral agreements.Sasol discusses efforts to reduce Greenhouse Gas emissions, but also notes it is engaging in “co-ordinated regulatory intervention” (page 47). In the context of its concern about the cost of such interventions, this would appear to mean trying to stop them, a move unlikely to be in the interests of protecting natural capital.

The report has been ranked highly (see EY, 2013) and indeed, I did get the feeling that there had been some considerable ‘integrated thinking’, demonstrated by the discussion on value, strategy and the business model. But I was left wondering if all the reported activity around reducing carbon emissions was an attempt to hide the elephant in the room (the carbon bubble) and delay regulation. Of course, I should not be surprised by this (see Adams, 2004 and Adams and Whelan, 2009), but I am disappointed to see integrated reporting used in this way.

On the positive side, Sasol has identified how each stakeholder contributes to value creation (pages 38-9) along with more commonly provided information on how they engage with each stakeholder group, what their expectations are etc. The process of determining materiality set out at the front of the report involved consulting stakeholders amongst other steps.

The Standard Bank Group (SBG) does not suffer the same perception that the nature of its business is fundamentally unsustainable, as some would have of Sasol, but banks come up against scrutiny with regard to the nature of the projects

REVIEW OF TWO INTEGRATED REPORTS

-SBG’s annual integrated report p 46.

The report includes a value added statement (page 49), information on stakeholder engagement processes and explains its approach to environmental and social risk screening. Sustainability risk is explicitly mentioned alongside other operational risks (page 90).

Another strength of the SBG report is its disclosure on remuneration of it executives.

Some are not so bold. One of the Guiding Principles of the International <IR> Framework is ‘conciseness’.

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REVIEW OF TWO INTEGRATED REPORTS

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authorship stakeholder communications integrated and sustainability reporting advisory and strategy information design and layout digital services Successful integrated and sustainability reports capitalise on the opportunity to positively communicate with stakeholders, reinforcing your brand presence, strategy and values. Sigil Design Bureau offers evocative and well-crafted graphic and information design coupled with comprehensive authorship services. Our full-time writers ensure that your message is complemented by and expressed in the designs we create.

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At around 130 (Sasol) and 180 (SBG) pages, neither report examined here can be said to fulfil that, but they contain information,

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including financial and governance information which goes beyond the Framework’s content elements.

References • Adams, C.A. (2004). The ethical, social and environmental reporting – performance portrayal gap Accounting, Auditing and Accountability Journal (Volume 17, Issue 5): 731–757.

• Adams CA (2013) Understanding Integrated Reporting: The Concise Guide to Integrated Thinking and the Future of Corporate Reporting Dō Sustainability ISBN 9781909293847.

• Adams CA and Whelan G (2009) Conceptualising future change in corporate sustainability reporting Accounting Auditing and Accountability Journal 22(1): 118–143.

• EY (2013) Excellence in Integrated Reporting Awards 2013. Download here: http://www.ey.com/ Publication/vwLUAssets/EYs_Excellence_in_Integrated_Reporting_Awards_2013/$FILE/EY%20 Excellence%20in%20Integrated%20Reporting.pdf • IIRC. (2013) International <IR> Framework. Download here: http://theiirc.org

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<IR> YEARBOOK

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OVERVIEW OF THE <IR> YEARBOOK 2013

Published by the Albert Luthuli Centre for Responsible Leadership

Alistair Schorn

The Yearbook The Albert Luthuli Centre for Responsible Leadership <IR> Yearbook 2013: current realities and future considerations Primary Author Pieter Conradie Co-authors RenĂŠ Swart & Alistair Schorn

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<IR> YEARBOOK

R

eleased in November 2013, this Yearbook contains the outcomes of a research project undertaken by the University of Pretoria’s, Albert Luthuli Centre for Responsible Leadership, into the state of integrated reporting in South Africa, with specific reference to international developments in the field. The research was conceived in the second half of 2013, when the International Integrated reporting Council (IIRC) published on its website the complete set of responses received to the Consultation Draft of the International Integrated Reporting (or “<IR>” as designated by the Council) Framework. The Framework has been under development by the IIRC since mid-2011and was published in December 2013. Please note that this article reviews the Yearbook which referred only to the Consultation Draft.

An initial analysis of the responses to the Consultation Draft very quickly determined that the document contained a wealth of information that deserved further exploration. At the same time, upon embarking on the process of further analysing the feedback received from various organisations, the researchers soon realised that the results of their analysis would need to be contextualised against current integrated reporting practice. In order to provide such context, the project was expanded to include a research process aimed at understanding the nature of current integrated reporting practices in South Africa. The principal question that the research addressed with regard to integrated reporting can be defined as follows:

“

“

Where are we now, and where is the IIRC taking us?

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<IR> YEARBOOK

RESPONSES TO <IR> CONSULTATION DRAFT (SAMPLE POPULATION) Chapter 2: Fundamental concepts Chapter 1: Overview Q5 Principles based requirements

Q1

Interaction other reports & communications

Q2

Other Comments

Q4

Q3

Q7

Q10

INTERNATIONAL <IR> FRAMEWORK Chapter 5: Preparation & presentation

Involvement of those charged with Governance

Q17

Q18

Q22

Q23

• Credibility

Q19

Other

Q21

Q6

Q20

Q24

•

Q8

•

The Capitals

Q9

•

The Business Model

Other Comments

Chapter 3: Guiding principles

Q11

Q12

•

Materiality

Q13

Q14

•

Reliability & Completeness

Overall view of the Framework

Chapter 4: Content elements Q15

Q16

Responses

57 - 66

68 - 74

78 - 110

•

•

Other Comments

Overall Comments

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Research was conducted in two phases: PHASE ONE: Key finding – Inconsistency in Stakeholder Responsiveness This phase of the research highlighted those areas of the Consultation Draft in which the JSE Top 40 companies exhibited the highest levels of inconsistency in their interpretation of a key concept.

PHASE TWO: Key finding – Conflicting interpretations on the primary audience

Phase Two of the project examined the concerns raised by different cohorts regarding the identification of providers of financial capital (investors) as the primary audience of integrated reports.

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Phase One: Company Ratings – Current Realities Against the backdrop of a growing trend of company ratings, surveys, awards etc, which has been described by some scholars as “a tsunami of accountability and transparency (Caron and Gely, 2004)” and which in many instances might well imply a glut of arguably useless information, readers of this report might reasonably question the value of yet another rating. In this regard, it is the belief of the authors that – as the administrators of the first postgraduate qualification in the field of integrated reporting in South Africa – they can offer a unique perspective on key aspects of the integrated reporting debate.

The methodology adopted for this element of the research project was aimed at providing the most comprehensive answer possible to the following research question:

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What is the current state of integrated reporting practice in South Africa?

In order to effectively answer this question, the researchers undertook an overview of the latest available integrated, annual and/or sustainability reports of the Top 40 companies on the Johannesburg Stock Exchange (by market capitalisation as at 15 October 2013). The objectives of this research were to determine the following: 1. How well the JSE Top 40 companies interpret the IIRC Consultation Draft 2. Identifiable trends when: • Comparing the JSE Top 40 companies in terms of their overall interpretation of the Consultation Draft • Comparing the JSE Top 40 companies in terms of their interpretation of specific elements of the Consultation Draft • Comparing the different sectors within the JSE Top 40 in terms of their overall interpretation of the Consultation Draft It was determined that a summative content analysis of the integrated reports of these companies was the most suitable way to analyse and rate their integrated reports. Consequently, the research process consisted of the following five steps: 1. Identification of measuring points – a list of 27 measurement points was compiled, based on the chapters and content of the IIRC’s Consultation Draft document.

2. Identification of keywords – the determined measurement points were presented to a panel of experts, who were tasked with identifying three related words or terms for inclusion in keyword searches.

The list of keywords was then compared with contemporary literature in the integrated

<IR> YEARBOOK

reporting field, including the background papers to the <IR> Consultation Draft, the AA 1000 Accountability Principles Standard and the Global Reporting Initiative’s G4 Reporting Standard. The aim of this process was to ensure maximum relevance in the final selection of keywords to be used in the analysis of the reports.

3. Measurement point weighting - each measurement point was assigned a certain weight, with the sum of these weightings equal to a value of 100. The weighting allocated to each measurement point represents its perceived importance in terms of the <IR> Framework as a whole.

4. Integrated report search – each of the JSE Top 40 companies’ integrated reports (or annual reports, where an integrated report was not prepared) were searched for the entire list of words contained in the measurement points, as well as the final keyword list. The list of keywords was also adapted to ensure that all relevant variations of the words were included in the search.

The number of occurrences of keywords across different reports was then recorded.

5. Rating of reports – a simple equation was used to determine a report’s ‘score’ per keyword, taking into account the highest and lowest number of occurrences of the keyword across the reports of the 40 companies. \This process also took into account two ‘disproportionate influencers’ which are not specifically mentioned in the Draft <IR> Framework, but which in the view of the researchers wield a disproportionate influence on the overall quality of an integrated report. These influencers were identified as firstly the overall length of each report, and secondly a company’s

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overall awareness of sustainability, as determined by a further keyword search for â&#x20AC;&#x2DC;sustainabilityâ&#x20AC;&#x2122; and other related terms.

Once the research process was completed, an analysis of outcomes took place in two distinct components. The first of these related to the overall performance of the companies, as measured by the combined score of each report against the 27 determined measuring points. The second level of analysis focused on the performance of companies against specific measuring points, with the aim of identifying areas of high performance, as well as areas that pose challenges for companies.

Early in the research process it became apparent that the chosen system of analysis (keyword searches) did not reward the quality of reports, but rather the quantity of words that complied with the search criteria.

As a result, and given the fact that the Draft <IR> Framework emphasises the principle of Conciseness in integrated reporting, it was decided to adjust the results of the keyword analysis process to reward companies equally, regardless of the size of their reports.

This was achieved by adjusting the number of words analysed in each of the 40 reports proportionately to equal the size of the report with the lowest number of words.

Following this recalculation, it became apparent that the ranking order for the company report differed substantially between the adjusted and unadjusted analyses, pointing to a strong inverse relationship between report length on the one hand and report quality on the other. In light of this outcome, further investigation was undertaken into the reports of companies within various economic sectors, in order to determine whether a similar trend exists at a sector level.

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On the whole, this sectoral analysis confirmed the inverse relationship between report length and quality (as indicated by the identified keywords).

At the same time, however, a number of companies were identified as contradicting this trend and exhibiting an increase in performance against the keywords once the length of their reports was adjusted downward. This was particularly evident in the raw materials and financial services sectors.

Apart from the relationship between report length and quality, the analysis of the reports produced by the JSE Top 40 companies against specific measurement points revealed considerable inconsistency in the understanding exhibited by the companies regarding various elements of the Draft <IR> Framework. In this regard, the researchers established an order of magnitude ranking for all the measurement points employed in the research, relating directly to the main themes contained in the Consultation Draft document.

Based upon this ranking, certain elements of the Consultation Draft appear to enjoy higher levels of consistency within the reports evaluated. In the opinion of the researchers, those issues exhibiting a higher level of consistency in the analysis process are likely to be linked to concepts that are well established within corporate reporting processes.

On the other hand, issues exhibiting low levels of consistency in their application within the reports analysed, can be viewed as representing concepts or issues that companies are somewhat more loath to report on. In this regard, it is telling that the keywords exhibiting the lowest levels of consistency in their application across

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all the reports analysed are ‘Responsible’, ‘Accountable’ and ‘Engage’.

It should be noted that the use of keyword searches as a method of investigation presents a number of important limitations – most importantly in the fact that the context in which words are used is not evaluated.

At the same time, however, an important advantage of this method is that it can be repeated consistently between different samples and with consistent results. It is therefore anticipated that this research will be repeated on an annual basis, with the benchmarks established in this report being used as a barometer to gauge the quality of future reports of the JSE Top 40 companies.

Phase 2: Future Considerations – A Thematic Analysis of Responses to the Consultation Draft of The International <IR> Framework

In this section of the report, the researchers attempted to delve deeper into the responses provided by various organisations to the Consultation Draft of the International <IR> Framework.

The principal objective of this analysis was to provide further insights into the evolution of integrated reporting, and to develop some conclusions regarding the future direction of International <IR> Framework, based on responses provided to the Consultation Draft.

The IIRC received responses to the Consultation Draft document from 359 organisations. All the responses provided by these organisations are publicly available on the IIRC website. In order to effectively analyse these responses, the researchers first divided respondents into nine separate

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cohorts, according to the primary purpose of the respondent organisations.

These cohorts were: • Accounting institutes • Big Four audit firms • Corporate governance institutions • Companies • Consultants • Investors • Other organisations * • Specific agenda organisations • Standards setting organisations * Other organisations were defined as either those that could not be categorised into one of the other cohorts, or those for which the researchers were unsure of the nature of the organisation or its primary purpose.

In-depth analysis of responses to the Consultation Draft document was undertaken from a representative sample of 64 respondents, selected in such a manner as to maintain, as far as possible, a proportional representation per cohort of the entire 359 of responses received. In certain instances, however, the researchers considered certain cohorts (namely accounting institutes, the Big Four audit firms and standards setting organisations) as highly significant to the further development of the <IR> Framework, and consequently increased their level of representation in the sample population, resulting in a corresponding decrease in the proportional representation of certain other cohorts.

The Consultation Draft contained 24 questions, relating to specific aspects of the draft <IR> Framework. The methodology for analysing the responses to these questions can be summarised as follows: 1. Analysis of responses to all 24 questions by all 64 sample respondents

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The researchers summarised the responses provided to each question, and categorised these responses according to certain recurring themes.

As a rule, between three and five categories of responses were developed for each question, while any additional comments received from sample respondents were also summarised.

2. Determination of response levels to each response theme per cohort Having established the response themes and additional comments, the level of response to each theme within the cohort was then established. This was calculated according to the number of responses for each theme, measured against the total size of the cohort.

3. Identification of questions with the highest number of responses The researchers identified those questions that elicited the highest level of responses from within the sample population, taking into account additional comments and ‘no comment’ responses. An initial figure of 75 responses in total was chosen as a minimum level to qualify for further analysis.

4. Identification of issues for further analysis The list of high-response questions provided the researchers with insights into those issues that appeared to be most significant to respondents to the Consultation Draft.

These issues were then critically analysed, in order to determine whether further analysis of the corresponding questions would effectively address the principal research question of the report.

Questions that did not meet this criterion were excluded from further analysis.

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Furthermore, in a number of instances, questions that received fewer than 75 responses, but that related to the key issues identified, were included for further analysis.

5. Substantive analysis of identified questions Having identified a final list of questions for further analysis, as determined by the key issues raised in the responses to the Consultation Draft, the researchers proceeded to analyse these questions according to four parameters – the overall level of response to these questions within the sample, the differing levels of responses between cohorts, the variance in levels of response within each cohort, and a degree of qualitative detail extracted from the responses within these cohorts.

Findings and Conclusions

The findings and conclusions that can be drawn from this phase of the research processcan be summarised as follows:

Cohort Responses to the Consultation Draft

The highest response levels were received from the Big Four audit firms, suggesting an interest (on the part of these firms) in the provision of consulting and/or assurance services, and from regulatory bodies (comprising standards setter organisations, accounting institutes and corporate governance organisations), likely on the basis that these organisations will be directly involved in its implementation.

Average response levels were received from consultants and companies, suggesting a lack of certainty regarding the potential implications of the Framework and a “wait-and-see” approach to its further development.

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Low response levels came from specific agenda organisations and other organisations, which represents a worrying phenomenon, since the role of specific agenda organisations is understood as promoting the specific inclusion of various environmental and social issues in the integrated reporting process.

Of even greater concern is the low level of responses received from investors, particularly in that providers of financial capital are perceived as the primary audience for integrated reporting.

Fundamental Concepts

The Capitals The concept of the six forms of Capital relevant to a reporting entity appears to be insufficiently defined at this stage of the Frameworkâ&#x20AC;&#x2122;s development process, with considerable uncertainty regarding the necessity of reporting on all six Capitals, particularly if organisations consider some of them not to be material to their activities.

The Business Model This concept appears to be sufficiently welldefined to allow relatively easy application by reporting entities, particularly if it remains principles-based rather than prescriptive in nature.

Further development of the outcomes for the Business Model would be particularly useful, as would clear guidance regarding the inclusion of environmental and social considerations.

Value Creation This concept is inadequately addressed in the Consultation Draft, with no direct questions on the subject. The interactions between Value Creation and the other Fundamental Concepts, as well as the most

<IR> YEARBOOK

relevant guiding principles (Materiality and Conciseness, Reliability and Completeness) are as yet not sufficiently defined.

Guiding Principles Materiality and Conciseness The Framework does not as yet appear to have developed sufficiently detailed definitions for materiality and conciseness, or adequately clear guidelines for the implementation of these principles.

The Framework makes reference to the Materiality Determination Process for integrated reporting, but does not provide detailed guidelines for its application.

Reliability and Completeness External assurance is identified as the most effective means of determining the level of reliability of an integrated report, however the Framework should further develop the links between the principles of materiality and Reliability.

The Primary Audience for Integrated Reporting

The identification of providers of financial capital as the primary audience for integrated reporting appears to be the most contentious and problematic issue in the <IR> Framework since, based on the information obtained in the thematic analysis, providers of financial capital (or investors) do not appear to be very engaged in the further development of the Framework.

This aspect of the Framework therefore carries the inherent risk of reporting entities marginalising other key stakeholder groups and the issues material to them. As a result, the Framework should seek to expand rather than limit the primary audience for integrated reporting.

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Overall Conclusions The two phases of the research examined various data sets and each yielded significant findings. The single most important finding for each phase can be described as follows:

PHASE ONE: Key finding – Inconsistency in Stakeholder Responsiveness

The primary area of inconsistency concerned the concept of Stakeholder Responsiveness, with the keywords used to represent this concept being ‘responsibility’, ‘accountability’ and ‘engage’.

PHASE TWO: Key finding – Conflicting interpretations on the primary audience

• 38% of investors agreed with the suggested primary audience of integrated reports, while 50% disagreed • Investors submitted the highest average levels of ‘no comment’ responses to the Consultation Draft questions • Investors were ranked fourth out of the nine cohorts in terms of total responses received, but sixth out of nine in terms of the level of substantive responses received.

Final Thoughts

The research appears to raise a fundamental question regarding integrated report audiences, namely: Who are we doing this for? Of all the areas addressed by the Consultation Draft, the Top 40 JSE companies displayed the lowest levels of consensus in the way they address issues of responsibility, accountability and engagement – in other words: What are our responsibilities? Who

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are we accountable to? Who should we be engaging?

The principles-based Stakeholder Responsiveness requirement reads as follows:

“

An integrated report should provide insight into the quality of the organization’s relationships with its key stakeholders and how and to what extent the organization understands, takes into account and responds to their legiti¬mate needs, interests and expectations.

“

<IR> YEARBOOK

It is worth noting that this principle does not in any way emphasise providers of financial capital.

The feedback to the Consultation Draft that was reviewed as part of this research project showed that the majority of investor groups did not perceive themselves as the primary audience for integrated reports. It would therefore appear to defy logic for reporting entities to prepare an integrated report for the specific benefit of a stakeholder group that does not unanimously perceive itself as the primary audience.

After assessing the combined findings of both research phases, the authors were in a position to outline the following worrying predica¬ment: Major South African companies who prepare integrated reports appear to be uncertain for whom they are doing it – while the investor groups who commented on the Consultation Draft are not convinced

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<IR> YEARBOOK

that they should be the primary intended audience of an integrated report.

The authors believe that integrated reporting can and should play a significant role in moving the business world toward sustainable long-term value creation. It is therefore important that the IIRC find a means to reconcile these complex contradictions in the further development of the International <IR> Framework.

METHODOLOGY

27

CONCLUSION 1

THEMES MISSING LINK CONCISENESS/BALANCE

1

5

5

SUPPORTING LITERATURE

LEADING EXPERTS

3

JSE TOP 40 RANKING

SECTORS 2

JSE TOP 40 RANKING

x y

KEYWORDS

FORMULA

THE NUMBER OF WORDS PER MEASUREMENT

x y NEW FORMULA

DIFFERENT WORD FORMS

JSE TOP 40 (2012/2013)

2

PDF SEARCH

8

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FROM DISCLOSURE TO INSIGHT

Predicting carbon management strategies of South African companies from CPD data

Donald Gibson and Natalie Matthews

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T

7

he usefulness of sustainability reporting and disclosure information and data extends beyond the analysis of individual companies. Secondary data can be analysed to deepen the knowledge of business-wide and country level strategic management and leadership practices.

With multiple carbon management activity options to choose from, companies need to select the most appropriate carbon management strategy to meet the challenges of a carbon constrained future.

Because of South Africa’s vulnerability to the impacts of climate change as a developing country and because of business’ pivotal role in addressing this urgent issue, it is important to characterise the corporate responses to climate change.

The contextual factors that influence carbon management strategy decisions need to be understood so that appropriate policy decisions are taken to encourage innovation related to climate change opportunities.

This usefulness of carbon disclosure data is exemplified by this study which analysed responses from 70 large South African listed companies to the Carbon Disclosure Project 2011 questionnaire.

The responses were text-mined to identify five carbon management activities currently practised by the companies. A cluster analysis of these activities revealed four general response strategies to climate change and carbon emission reduction pressures.

The companies were found to have a strong focus on saving energy with less focus on higher-order sustainability activities.While market capitalisation, turnover, sector and carbon commitment were shown to correlate and predict the carbon management strategy chosen by

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companies, no statistically significant link was found between carbon management strategy and corporate financial performance.

Broadening the usefulness of reporting information

Academic and practitioner research on the determinants and functions of corporate responsibility reporting is extensively described in the literature (see for example Fifka, 2013).

Indeed, disclosure and reporting on sustainability performance serve numerous functions for corporations.

Enhancing credibility and trust in the eyes of stakeholders (for example shareholders, potential investors, customers, activists, governments and communities) is one such function, and is an important objective of transparency and disclosure.

This is particularly the case where concepts like ‘social licence to operate’ or ‘legitimacy’ have recently become important factors governing the ability of corporations to create value.

An example is the extractives sector, which, as was evident from numerous presentations made by and discussions held with mining company executives at the 2014 Mining Indaba held in Cape Town, sought to defend its right to exist, as well as articulate its developmental contribution beyond that of the narrow Milton Friedman concept of the purpose of business.

Other functions include, amongst others, using reporting as a standard business management tool to understand risk exposure to global change, convince potential investors of survivability, and potential to profit from new commercial opportunities (KPMG, 2013); set goals and measure performance (GRI, 2013)

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against specific metrics and benchmark against industry peers (KPMG, 2011), and importantly to understand and manage material issues that affect the ability of the organization to achieve its goals and its impacts on society (GRI, 2013).

Yvo de Boer believes that the number of detractors of the organizational benefits of reporting is dwindling (KPMG, 2013).

However, the usefulness and benefits of sustainability reporting and disclosure extend beyond the organizational boundary and the analysis of individual companies.

Data such as those generated by the Carbon Disclosure Project (CDP) can deepen the knowledge of sectoral and countrylevel carbon management practices and strategy. This, in turn, can assist companies in adopting appropriate response strategies, informed by a deeper appreciation of the approaches of competitors and peers.

This study therefore used reporting data from the CDP to identify carbon management activities and strategies of South African companies and to investigate the determinants of the type of response strategy adopted.

Carbon management activities, strategies and company characteristics

While there is some research globally on characterizing carbon management strategies of companies, little has been conducted in developing countries (namely Pakistan and South Korea)(Lee, 2011; Jeswani et al, 2008), and none has yet been conducted in South Africa.

Previous research elsewhere has also found that company characteristics, such as size, sector and location, play an important role in the selection of carbon management strategies.

CARBON MANAGEMENT

With a dynamic policy landscape on climate change in South Africa and the intention to further price carbon through a carbon tax to be implemented in 2015, implications for company competitiveness and value creation should be leading companies to carefully consider their response strategies.

Research objectives and approach

In this context, the objectives of this research were to: • Identify the carbon management activities and strategies adopted by South African companies.

• Investigate the relationship between carbon management strategy and company characteristics (sector, size and corporate carbon commitment).

• Investigate the relationship between carbon management strategy and corporate financial performance.

• Determine whether company characteristics can predict carbon management strategies employed by a company.

The study used a similar framework to that suggested by Lee (2011), and similar to Weinhofer & Hoffmann (2010) and Sprengel and Busch (2011), whereby a company’s carbon management strategy is conceptualised by combining (using cluster analysis) the scope and level of the company’s carbon management activities (using automated content analysis).

The study identified five carbon management activities that characterize the response to climate change through analysing 70 company responses to the 2011 CDP questionnaire.

Classification and regression trees were then used to determine whether the

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combinations of various variables (in this case market capitalization, turnover, CDP disclosure score, CDP performance band, return on assets (ROA) and company sector) could be used to classify the corporate carbon management strategy of a company.

An Analysis of Variance (ANOVA) was performed to investigate the differences between carbon management strategy types in terms of the company characteristics (for example, company size, carbon commitment and financial performance).

Findings Carbon management activities

The foremost corporate carbon management activities used by large South African listed companies are: • Eco-efficiency and cost reduction – involves energy use, costs, emissions management and efficiency • Supply improvement – improvement of the supply chain including transport, retail and distribution • Process improvement – including elements of process improvement such as rec ycle, efficienc y, reduction, energy, store and costs • Product and new market-development – exploring opportunities outside the current scope, and investing in disruptive technologies • Governance and regulatory compliance – relates to governance and risk management elements, as well as regulatory compliance These activities are similar to those conducted elsewhere, with the exception of “emission reduction commitment” and “external relationship development” which did not emerge in this analysis.

Further, South African companies focus on

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“governance and regulatory compliance” activities more than companies elsewhere.

Carbon management strategies

Four key types of carbon management strategy are employed by large South African listed companies: • Governance, risk and compliance (GRC) reducers • Vertical reducers • Internal efficiency seekers • Cautious reducers *The characteristics of the four strategies are provided in Table 1.

These strategies are similar to those employed elsewhere, with the exception of “GRC reducers”. This strategy strongly incorporates “governance and regulatory compliance” activities, which as mentioned above, does not strongly appear in companies elsewhere.

It is interesting to note that “Vertical Reducers” have the highest CDP disclosure and performance scores, while “Cautious Reducers” have the lowest.

Predicting carbon management strategies

Company size, sector and carbon commitment individually influence to some degree the type of strategy adopted, while return on assets (ROA) was not found to do this.

However, different combinations of variables were tested to provide the best prediction of carbon management strategy, with the following results: • All variables (market capitalisation, revenue, ROA, company sector, carbon disclosure score and performance band) – provided 77 % prediction accuracy

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• Company variables (market capitalisation, revenue, ROA and company sector) – provided 66 % prediction accuracy • CDP-related variables as a proxy for company commitment (carbon disclosure score and performance band, as well as whether a company has emission reduction targets) – provided 66 % prediction accuracy.

Therefore, the proportion of companies’ corporate carbon strategies correctly classified based on company size, carbon commitment, company sector and corporate financial performance is greater than the proportion that would be obtained by chance (that is, 25%). Corporate carbon management strategies employed by companies can be classified based on the variables used. As combinations of variables does not seem to have been assessed previously, the findings from the current research add new information to the body of knowledge available on carbon management strategies and the contextual factors that influence the choice of management strategy.

Discussion

This study provides an empirical examination of the carbon management activities and strategies employed by the South African listed companies in the sample.

It would appear that, because of their focus on lower-order activities (that is, incremental changes to existing products and processes and not transformative strategy), managers in South African listed companies are not yet focusing on activities which could better prepare their businesses for future change and shocks (Kurapatskie & Darnall, 2012; Hart & Milstein, 2003).

As anticipated, the findings of the study verify the relationship between a company’s carbon management strategy and its size,

CARBON MANAGEMENT

particularly for the largest and smallest companies in the sample; however this link was not clear for companies sitting between these extremes. A company’s level of carbon commitment, as proxied by disclosure score and performance band allocated by the CDP, was shown to have a bearing on the type of carbon management strategy employed, as was the company’s sector.

The analysis did not find a significant relationship between carbon management strategy and corporate financial performance, and there are many reasons that this could be the case. The combination of company variables was shown to predict the carbon management strategy chosen by a company.

Implications for companies, policymakers, and investors

The results of this study have a number of important implications for companies, policymakers, investors and also for the CDP. Firstly, carbon management strategies employed by companies in developing countries (like South Africa and Pakistan for example) are in initial stages of responding to climate change (Jeswani et al., 2008).

Most companies in this context are likely to take a relatively reactive approach to climate change (Lee, 2011) as evidenced by the fact that none of the companies in this sample have a comprehensive carbon management activity focus.

Climate change issues present business risk as well as opportunities which could “completely transform existing competitive environments” (Lee, 2011, p. 44) thus companies can choose from various strategic options that are available to address the “market components related to climate change” (Lee, 2011, p. 44). Companies should therefore consider market activities, as well as political and non-market responses, while integrating climate change issues into their

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Characteristics of carbon management strategies employed by South African companies

Carbon Management Strategy

Main Activities Undertaken per Strategy

Main Sector/ Industry Group (% companies per strategy)

Governance, risk and compliance (GRC) reducers

Governance and regulatory compliance Eco-efficiency and cost reduction Supply improvement

Materials (31%) Insurance (25%) Banks (19%) Food, Beverage, Tobacco (13%)

Vertical reducers

Supply improvement Eco-efficiency and cost reduction New market and business development

Diversified Financials (29%) Capital Goods (29%) Retail (14%) Real Estate (14%) Food & Staples Retail (14%)

Internal efficiency seekers

Eco-efficiency and cost reduction Process improvement New market and business development

Materials (63%) Telecommunication (11%) Capital Goods (11%)

Cautious reducers

Process improvement Eco-efficiency and cost reduction New market and business development

Retail (19% Insurance (15%) Capital Goods (15%) Diversified Financials (11%) Materials (11%)

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% of companies

CDP Disclosure Score

CDP Performance Score

Market Capitalization (‘000)(US$) (Average)

Turnover (‘000)(US$) (Average)

Return on Assets (%) (Average)

23

78.48

4.7

28 030

11 890

11.31

11

85.90

4.9

5 230

6 116

8.92

27

81.61

4.6

10 070

5 449

13.25

39

68.45

3.0

2 428

2 409

11.74

100

78.61

4.3

11 440

6 466

11.30

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strategic management processes (Kolk and Pinkse, 2005). Secondly, policymakers can use the results of this study to understand the actual corporate responses to climate change. This understanding can help to shape policy and legal decisions. Companies in more regulated industries were found to have reduction initiatives and targets in place (for example, the materials sector) while those in less regulated industries were less structured in terms of a carbon response (for example, media).

Therefore legislation is important and is required to encourage action. However, the structure of policies should remain such that flexibility in how companies respond is available (Kolk & Pinkse, 2005).

The pending carbon tax (Clarke, 2012) is something that has started to make companies pay attention to their emissions.

The government can play a role in inducing innovation by providing incentives, increasing awareness and creating an environment which enables and fosters innovation in the area of climate change responses (Jeswani et al., 2008).

However, the success of any policies will “largely depend on the proactive response from industries” (Jeswani et al., 2008, p. 58).

Therefore, policies need to address “barriers faced by industries, which hinder adoption of low-carbon strategies” (Jeswani et al., 2008, p. 58). This study has concentrated on the largest South African listed companies which are likely to have far greater resources available that many of the companies that exist in the country.

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It could be assumed that smaller companies’ level of response to climate change would be less evolved than that of the respondents implying that much needs to be done to ensure that more businesses are working towards addressing climate change. Policy makers need to consider how to improve the general response to climate change and could consider government awareness and assistance programmes.

Third, investors can use these results, and this type of analysis, to better understand the actual responses to climate change that companies are engaged in as they have been derived from the companies’ own responses to the CDP survey, in conjunction with company sustainability reports and marketing collateral which may contain a degree of “green washing” (Delamus & Burbano, 2011).

A greater understanding will allow better informed decisions with regards to financing and investments and may advise the types of conditions which may be imposed on financing arrangements.

Acknowledgements

This article is a summary of research conducted at the Gordon Institute of Business Science, University of Pretoria in 2012. The authors are thankful for the support provided by the Carbon Disclosure Project and the National Business Initiative, who supplied the CDP 2011 database to GIBS for research purposes.

Thanks are also due to Merle Werbeloff, for her input on statistical analysis.

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References

• Clark, J. (2012). Companies to be hit by carbon tax soon. Retrieved from http://www.moneywebtax.co.za/ moneywebtax/view/moneywebtax/en/page34677?oid=65818&sn=Detail [Accessed: 19 June 2012].

• Delamus, M. A., & Burbano, V. C. (2011). The drivers of greenwashing. California Management Review, 54(1), 64 87.

• Fifka, M.S. (2013). Corporate Responsibility Reporting and its Determinants in Comparative Perspective – a Review of the Empirical Literature and a Meta-analysis. Business Strategy and the Environment 22: 1-35.

• Global Reporting Initiative (2013). G4 Sustainability Reporting Guidelines. Reporting Principles and Standard Disclosures. http://www.globalreporting.org • Hart, S. L., & Milstein, M. B. (2003). Creating sustainable value. Academy of Management Executive, 17(2), 56 67.

• Jeswani, H. K., Wehrmeyer, W., & Mulugetta, Y. (2008). How warm is the corporate response to climate change? Evidence from Pakistan and the UK. Business Strategy and the Environment, 18, 46–60.

• Kolk, A., & Pinkse, J. (2005). Business responses to climate change: Identifying emergent strategies. California Management Review, 47(3), 6–20.

• KPMG International Cooperative (2011). Corporate Sustainability. A Progress Report. http://www.kpmg. com/Global/en/IssuesAndInsights/ArticlesPublications/Documents/corporate-sustainability-v2.pdf • KPMG International Cooperative (2013). The KPMG Survey of Corporate Responsibility Reporting 2013. Executive Summary. http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/ corporate-responsibility/Documents/corporate-responsibility-reporting-survey-2013.pdf • Kurapatskie, B., & Darnall, N. (2012). Which Corporate Sustainability Activities are Associated with Greater Financial Payoffs? Business Strategy and the Environment (in press). Retrieved from http://www.papers. ssrn.com/sol3/papers.cfm?abstract_id=2118261 [Accessed: 31 October 2012].

• Lee, S. (2011). Corporate carbon strategies in responding to climate change. Business Strategy and the Environment, 21(1), 33 48.

• Sprengel, D. C., & Busch, T. (2011). Stakeholder engagement and environmental strategy: The case of climate change. Business Strategy and the Environment, 20(6), 351 364.

• Weinhofer, G., & Hoffmann, V. H (2010). Mitigating climate change: How do corporate strategies differ?

Business Strategy and the Environment, 19(2), 77–89.

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CARBON FOOTPRINTING:

CRITICAL TO UNDERSTANDING MAN’S CONTRIBUTION TO CLIMATE CHANGE Reporting trend looks set to continue

Alex Hetherington

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W

ith the Intergovernmental Panel on Climate Change (IPCC) continuing to produce updated and scientifically robust detail on the causes and impacts of climate change, there is little doubting that the issue of man-made carbon emissions will continue to be a hot topic.

The IPCC says there is 95 per cent certainty that global warming is being exacerbated by emissions from the anthropogenic (human induced) burning of fossil fuels such coal, oil and natural gas.

In its most recent report on the impacts of climate change, the IPCC predicts increased temperatures over much of the world and decreased global production of maize, rice and wheat of 25 per cent by 2050. Much of this will happen in sub-Saharan Africa.

With such attention on climate change, there is going to be increased scrutiny on those who are responsible for the emissions that cause it.

As corporate sustainability reporting matures, so too does the issue of carbon emissions and the measurement of companies’ carbon footprints (the volume of greenhouse gases emitted by a company).

So prolific has the carbon footprint become, that it can now be considered a “charismatic specie” of sustainability reporting, with international and national awards being offered for completeness and performance of companies’ carbon accounting activities.

In years gone by the measurement of carbon footprints were the preserve of the major accounting firms. Excessive pricing,

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however, opened up the market to specialist carbon footprint and carbon management companies. In recent years there have even been a number of small one-man bands offering carbon accounting services in South Africa. Newly designed software solutions are also being introduced to the market.

Of course, the levels of service, delivery and budgets vary and companies must decide on the best type of service for their needs.

What is of paramount importance in choosing a carbon footprinting firm is to ensure that the correct accounting methodologies are being deployed and that the practitioners are professionally qualified to carry out the task. At present there are two accepted methodologies.

The most widely used, internationally, is the Greenhouse Protocol that was developed by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD). This was launched in 2001, and was shortly followed by an almost identical derivative produced by the International Standards Organisation (ISO 14064-3).

Both methodologies categorise a company’s greenhouse gas emissions into three scopes, according to whether the emissions are generated by equipment that is owned by the reporting company (referred to as “direct” emissions) or whether the emissions are generated by the company’s electricity usage or other areas of its supply chain (both referred to as “indirect emissions”).

Emissions from owned equipment (Scope 1) and electricity usage (Scope 2) are mandatory reporting under both footprinting methodologies, while

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Greenhouse Gas Protocol, Scopes of Carbon Emissions

those emissions emanating from a companyâ&#x20AC;&#x2122;s supply chain (Scope 3) are voluntarily reported, although it is good practice to do so. All companies that we deal with in South Africa measure their Scope 1 and 2 emissions, as well as a certain number of categories from Scope 3.

These indirect emissions captured in the supply chain typically include business travel activities, paper usage, employee commuting, waste generation and courier services. Ironically Scope 3 emissions often take the longest to measure, due to their

complexity and data-heavy nature. Equally ironic is that most companies are able to report on business travel, which usually accounts for a small percentage of supply chain emissions.

Prudent practice would be to focus on employee commuting, or other large emitting activities in the supply chain that account for a significant portion of Scope 3 emissions.

See Nampakâ&#x20AC;&#x2122;s publically available carbon footprint that follows.

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Nampak 2012 carbon footprint 2012 Total Nampak employees covered by report Percentage Nampak employees covered by report Total square meterage of offices reported Group revenue in million rand Scope 1 direct emissions Equipment owned or controlled (eg: generators) Fuel used in forklifts Vehicle fleet Air-conditioning and refigeration gas refills and nitrous oxide Total scope 1 emissions

9 446 100 1 491 816 17 639.1 metric tonnes of CO2e 185 112.08 4 162.76 7 421.61 3 597.25 200 293.69

Scope 2 indirect emissions Purchased electricity Total scope 1 and 2 emissions Scope 3 indirect emissions Business travel in rental cars Business travel in commercial airlines Business travel in overnight accommodation Outsourced transport1 Consumption of office paper Total scope 3 emissions Total scope 1,2 and 3 emissions (GHG Protocol) Non-Kyoto protocol GHG emissions2 Total Nampak 2011 emissions CO2e (metric tonnes) Emissions per full-time employeee at (t/FTE) Emissions per metre squareed of office space (t/m2) Tonnes of CO2e per million rand revenue

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549 607.20 749 900.95 190.06 7 552.12 81.55 5 746.24 255.60 13 825.57

763 726.52 235.30 763 961.82 80.88 0.51 43.31

8

In absolute terms, South Africa is the 12th largest greenhouse gas emitter in the world â&#x20AC;&#x201C; considering the size of our economy that is an ignominious record. Driving this reality is the fact that we are heavily dependent on the use of low-grade, high emitting, dirty coal for 95 per cent of our electricity generation.

These figures are neatly reflected in how our carbon emissions are apportioned by business and industry.

As the generator of electricity, Eskom is by far the largest emitter at 228 million tonnes of carbon dioxide equivalent (the de facto measure of greenhouse gas emissions), out of a national total of 560 million tonnes per year.

South Africa cannot, however, lay the blame only on Eskom. It is, afterall, everyoneâ&#x20AC;&#x2122;s

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(business and individuals) demand for electricity that forces Eskom to generate it.

If any pressure is to be placed on Eskom it should be encouragement to adopt cleaner energy sources (renewables and gas), and wean itself from the dependence on coal.

Following Eskom, Sasol and ArcelorMittal are the next largest culprits of emissions at sixty and 11 million tonnes respectively.

For most companies, the majority of their emissions come from their electricity usage.

In many cases it is as much as eighty per cent. Hence, we are witnessing an increased focus on reducing electricity consumption as a sure way of reducing carbon emissions.

In fact, many companies have introduced targets to reduce carbon emissions that are based on a determined effort to reduce electricity consumption.

Sample of carbon reduction targets as reported in CDP South Africa 100 Climate Change Report 2013 Company

Target Activity

Target

Clicks

Scope 2 emissions

10% reduction per m2 2008-15

Illovo Sugar

Scope 1&2 emissions

10,7% absolute reduction 2010-20

Exxaro Resources

Scope 1,2 & 3 emissions

34% absolute reduction 2008-2020

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• Green Building Conference • Sustainable Energy Seminar

19 JUNE

• Transpor t and Mobilit y Seminar and Exhibition • Water Resource Seminar and Exhibition • Green Business • Responsible Tourism Dialogue

20 JUNE

• Youth in the Green Economy

21-22 JUNE • Green Home Fair

Featured Speakers

Featuring:

Dr. Elizabeth Farrelly- Sydney, Australia

Elizabeth Farrelly is a Sydney-based columnist and author who trained in architecture and philosophy, practiced in Auckland, London and Bristol, holds a PhD in urbanism from the Universit y of Sydney and is currently Associate Professor (Practice) at the Universit y of NSW Graduate School of Urbanism. As a longtime advocate of conscious urbanism, she was a keynote speaker at the 2011 Ecobuild in London and in 2012 delivered the Margaret Hendr y lecture to the Australian Institute of Landscape Architects on links bet ween feminism, urbanism and eco-consciousness.

Alberto Kalach- Mexico City, Mexico

Alber to Kalach was born in Mexico Cit y, studied architecture at the Universidad Iberoamericana, Mexico Cit y, and completed graduate studies later at Cornell Universit y in Ithaca. In 1981 he founded the firm “Taller de Arquitectura X” with Daniel Álvarez. While he continues to direct TA X, in 2002 his interests also turned to the urban planning problems of his home town, and founded the communit y “México: future cit y” (Spanish: México: ciudad futura). His lake concepts were significant in solving existing water supply problems in Mexico Cit y.

Gaetan Siew- Port Louis, Mauritius

World citizen, Gaetan Siew’s leadership and his vision of a world of sharing allows him to mobilize and inspire world leaders around a creative consensus unleashing the full potential of our resources. Past President of the International Union of Architects UIA, he travelled the world to meet international institutions and governments promoting greater solidarit y. With his in-depth understanding of men, cities and global issues, he continues his mission as CEO of the Global Creative Leadership Initiative focusing on transforming traditional knowledge into new technology.

www.sustainabilityweek.co.za

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The transparency with which companies are reporting their carbon emissions and reduction targets are largely a result of the Top 100 listed companies on the Johannesburg Stock Exchange (by market capitalisation) being requested for information from by the Carbon Disclosure Project (CDP). The CDP represents 700 over number of global investment houses that request this carbon specific information from major listed companies.

The trend will continue in South Africa as the King III Codes of Corporate Citizenship demand all listed companies to report on their non-financial performance in addition to their financial. This will place responsibility on companies to report their environmental impact and, as described earlier, this will invariably include carbon (if not all scopes, at least Scope 1 and 2).

In addition to the investor demand for measurement, so too will the introduction of any potential carbon tax regime. While it was expected that such a tax would be

CARBON FOOTPRINTING

announced in South Africa in February this year, it is still very much on the radar screen of Treasury. The Department of Environmental Affairs developing a national greenhouse gas registry to which major emitters, at least, will have to report is supporting this.

It can be confidently claimed that, as the world becomes increasingly conscientised to the causes and effects of climate change, so the demand for carbon reporting will grow. There is much detail held in a carbon footprint. It is imperative that reporters employ the services of bona fide carbon footprint analysts who can assist them in understanding the challenges of compiling the correct data and adopting the correct methodologies.

When properly understood, companies can use this information to their advantage by focussing on their high emitting areas of business and deploying appropriate targets to reduce the consumption causing the emissions, thereby invariably cutting costs and wastage.

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COMPARATIVE ADVANTAGE: Using the Reporting Process to Amplify Differentiation in the Value Chain

Lloyd Macfarlane

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DIFFERENTIATION IN THE VALUE CHAIN

Michael Porter, one of the worldâ&#x20AC;&#x2122;s most respected management theorists, argued that there are only two ways for firms to compete: by charging a lower price, or by differentiating their products or services from those of their rivals.

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T

he modern value proposition increasingly incorporates factors that are not just related to the product or the service (such as price, quality or relevance) but to factors associated with the organisation itself, such as reputation, transparency, accountability and corporate performance against sustainability targets, for example.

Companies that have embarked on a sustainability journey can use the reporting process to distinguish themselves in the value chain by targeting and marketing points of differentiation.

social, governance or empowerment (SA) credentials. Far more opportunities for brand and company differentiation are emerging in the value chain.

Differentiation â&#x20AC;&#x201C; Product, Service and Company

Some of the forces/ circumstances in which differentiation is more likely to occur:

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Forces and pressures are usually responsible for innovation and creativity. If there is no need to change, re-package or improve then there is unlikely to be much differentiation.

â&#x20AC;&#x153;

Resistance drives innovation

â&#x20AC;&#x153;

Companies spend time and money trying to differentiate their offerings under the abovementioned headings, in order to be more attractive to their target markets.

Differentiation is a basic economic principal that promotes competitiveness, and one that has been focussed on by many of the classic theorists, such as Edward Chamberlin (Theory of Monopolistic Competition, 1933).

Customers make purchases based on the value propositions presented by their suppliers. A value proposition (in this context) is quite simply the unique value offering that the customer will receive from a transaction (as compared to value propositions from others).

A number of factors go into the assessment of value and in the first instance the product or service is usually assessed for relevance (or usefulness), desirability, price and quality. However, the product or service is delivered by a company whose profile is of increasing importance in the procurement process. This means that the assessment of value is being broadened to include factors that relate to environmental,

Drivers of differentiation

Mature markets or sectors:

Companies in mature markets or sectors are more evolved and value propositions are more similar, so there is a greater need for differentiation, particularly with service providers that have less opportunity for tangible innovation.

Take established cellular service providers for example - call costs and network coverage of competing companies can be almost identical and yet these companies spend millions letting you know how different they are by building a corporate identity that you can relate to. Conversely, in new markets or new sectors (and in good economic times) less differentiation is apparent - there is less need for differentiation when there is no threat from competition.

Economically stressed markets:

When margins are tight and procurement budgets have been cut, buyers look more

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closely at the value proposition and sellers tend to increase levels of innovation and differentiation. The world has been on a tough economic treadmill since the collapse of the financial markets in 2008/9 and this has seen the emergence of new ideas and not surprisingly corporate sustainability has enjoyed prominence in this regard.

Regulated markets or sectors:

Regulation or supply chain policies can elicit forced (e.g. tax or incentive) or voluntary (e.g. reporting) responses from suppliers.

Government can use incentives to speed up change and perhaps the best example of this is carbon taxation which will be introduced in South Africa in January 2016.

Carbon tax will see the need for more measurement and management of carbon across value chains and this will bring about procurement policies that require suppliers to measure their carbon footprint. These policies may further evolve to specify an acceptable range of carbon emissions per unit of output or per square metre of operations in any given sector, for example.

Supply Chain Sustainability

The real power of the economy lies in procurement. The quantity and availability of products and services is directly affected by demand and because demand is affected by supply chain/procurement policies, the supply chain can be a most powerful agent of change.

Companies are introducing sustainability into their supply chains not only because it’s the right thing to do, or because they are under pressure to do so, but because they see the value of doing so in the context of their medium to long term strategies.

The United Nations Global Compact (UNGC) is encouraging corporate leadership

DIFFERENTIATION IN THE VALUE CHAIN

in this regard and many businesses use the ten UNGC principles to inform their supply chain policies. Similarly, the recently launched Global Reporting Initiative (GRI) G4 Guidelines contain much emphasis on supply chain sustainability, traceability and chain of custody.

The next big opportunity supply chain differentiation

The most significant recent step up in corporate sustainability is the increased emphasis being placed on sustainability in the supply chain.

Procurement policies that encourage and even enforce certain key sustainability principles can meaningfully affect markets and should be noted by suppliers looking for opportunities to differentiate.

Importantly, supply chain policies take a closer look at indicators relating to companies and not simply their products or services.

This is placing more emphasis on environmental, social and governance issues and represents an exciting new opportunity for differentiation for those companies that are first to move.

Risk, reputation and leadership

Large customers are auditing suppliers using various criteria, but generally these audits will seek to establish: • Whether there are any risks in an association, based on how the supplier’s business is conducted.

• Whether the supplier has a reputation that could cause any harm.

• Whether the supplier’s reputation could add value • Whether there are any examples of leadership that could be amplified for mutual advantage.

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Sustainable since 1853...

1853...and now proud publishers of eBooks Juta and Company is the oldest publishing house in South Africa, and may well be South Africa’s oldest, unlisted public company in existence today. Remarkably, the company remains true to its initial intent to service education and information requirements, and for 160 years Juta and Company has been especially associated with Law, Education and Academic publishing.

At Juta, not only do we focus strategically on the long-term sustainability of the company, but we acknowledge our role in and responsibility to the sustainable development of South African education in the interest of economic prosperity, social upliftment and care for our environment.

As a publisher we are inevitably concerned with sourcing environmentally friendly paper and we recycle paper to ensure sustainability of resources and minimise our carbon footprint.

Our concerted shift towards electronic delivery of information goes some way to addressing this. However, it is our intention to analyse our practices and value chain thoroughly to enable us to build a comprehensive Reduction of Environmental Impact Plan.

By continually addressing issues that impact on Juta’s performance, the educational improvement and economic prosperity of the country, social upliftment of South Africa’s people and care for our environment, we ensure Juta’s relevance, longevity, legitimacy and long-term sustainability.

FOR MORE INFORMATION, PLEASE CONTACT: Juta Customer Services Tel.: 021 659 2300 | Fax: 021 659 2360 | E-mail: cserv@juta.co.za

www.juta.co.za THE SUSTAINABILITY AND INTEGRATED REPORTING HANDBOOK- VOL. 1 94

AND COMPANY LTD

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DIFFERENTIATION IN THE VALUE CHAIN

Figure 1: Supply chain forces

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Supply Chain Differentiation – Strategic Approach Sustainability plan Any random approach to differentiating under sustainability indicators is unlikely to succeed in the medium to long term. This is mostly because customers are beginning to use sustainability frameworks and systems to determine a holistic and materialitybased set of procurement indicators in their supply chains.

Therefore, an authentic approach must be driven by a sustainability plan that includes clear statements of objective and vision, where these have been informed by a process of identification and assessment of material issues for the company.

Sustainability reporting

Companies are increasing the degree to which they report on sustainability in their supply chains. They are reporting on the sustainability impacts of their suppliers and on the influence that they have had in changing the sustainability performance of their suppliers.

This means that an opportunity exists for suppliers (and potential suppliers) to: • Target (or report on) internal interventions that will be acknowledged by customers as meaningful to report on.

• Package sustainability information for large customers and other stakeholders.

• Strategically target key customers and new prospects using this information.

• An authentic sustainability/integrated reporting process will adhere to certain principles that are important in the

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identification of real opportunities for performance and therefore differentiation. The process of identifying and reporting on material indicators, particularly if inculcated in functional centres, will: • Highlight data for comparison with competitors • Highlight opportunities for intervention and performance management • Establish targets, which can form the basis of future differentiation

Internal capacity and stakeholder engagement

Key stakeholders are engaged by various employees in various ways. Many of these engagements can be opportunities for communication of the company’s primary points of differentiation.

It is therefore necessary that key employees in functional centres of the business are familiar with the terms and tenets of corporate sustainability, the company’s sustainability plan and the role that they can play in the strategic approach.

Building this capacity in the organisation is important to the success of the overall plan.

Sales and marketing

Any sales and marketing plan should incorporate a customer needs analysis.

As the needs and the requirements of the customer begin changing to incorporate sustainability indicators, it is important for suppliers to be ahead of this process.

This is only really possible with an engagement process that elicits information that can be used to for innovation and

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differentiation. This engagement process will ensure that targeted areas of differentiation are aligned with customer requirements.

After the requirements are known, a marketing plan should consistently reinforce messages that are directed at the

DIFFERENTIATION IN THE VALUE CHAIN

establishment of the desired ‘profile’ for the company. A multi-media approach can be effective to leverage packaged information to establish a desirable corporate image – one that is aligned with the ideals and requirements of the targeted customer.

Figure 2: Supplier driven sustainability strategy

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DIFFERENTIATION IN THE VALUE CHAIN

Sustainability and/or integrated reporting should inform the Sales and marketing strategy A credible sustainability or integrated reporting process will inherently incorporate important principles such as target setting, materiality, stakeholder engagement and management approach. The reporting process can itself be a sustainability planning system and should be used to target points of differentiation.

â&#x20AC;&#x153;

The reporting process teaches us to differentiate and the report allows us to talk about it.

â&#x20AC;&#x153;

One of the outputs of the reporting process is the report, which can be a most valuable tool for companies that have identified supply chain opportunities with their current or prospective customers.

A side-effect of mandatory reporting is that companies develop a compliance driven mindset to sustainability and this prevents them from incorporating their reporting process into a sales and marketing strategy. It is a tragedy if companies believe that the culmination of the reporting process is the report.

Rather, the report should inject new content into a tactical marketing and engagement process that is directed at the achievement of differentiation and comparative advantage in the sector.

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We believe that corporate sustainability …

• should be relevant and appropriate to the context of the organisation • should drive comparative advantage and return on objective • should be simple, effective and inexpensive to implement We believe that this is achievable if …

• key employees know what sustainability means and how it relates to their work • an outward looking sustainability strategy drives differentiation and reputation • the organisation knows how to leverage its position for competitive advantage

The corporate sustainability tool that is a platform for employee and reputation development, behaviour change and competitive advantage.

• Build capacity in the organisation by training key employees about the principles and practices of corporate sustainability.

• Leverage differentiation in order to achieve competitive advantage.

• Develop and manage reputation by building and marketing an Online Sustainability Profile.

• Use the Framework process to develop a Global Reporting Initiative (GRI) Sustainability Report which can be widely used in the company’s value chain.

The Good Business Framework combines an online and personal interface in order to target measurable outcomes: • Empowering key decision makers in your organisation • Identifying risks and opportunities • Marketing and media exposure

www.goodbusinessframework.com/about info@gsacampbell.com 0861.777 669

ASSURANCE

10

HOW THE IIRC UPHELD ASSURANCE STANDARDS

Neil Morris, Chairman of the IIRC Assurance Technical Collaboration Group is interviewed by Lloyd Macfarlane on the group’s involvement with IIRC <IR> Framework.

Interview

LM: Which stakeholders are LM: What was the purpose involved in the IIRC Assurance Technical Collaboration Group?

NM: Our technical collaboration group

is an international group that comprises regulatory and professional bodies for auditors, a broad range of assurance practitioners, academics, preparers and included participation of IIRC staff.

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of the group’s involvement with <IR> and what will be some of the outputs of the group?

NM:

Our purpose was to identify critical issues with respect to assurance matters related to <IR>, possible approaches to dealing with such issues, and the pros and cons of possible approaches. We intend to release a paper that will frame the debate; but it is not within the remit

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of the IIRC to develop assurance standards or methodologies. The paper is in its final stages of processing comments before the IIRC will take it through its internal approval processes and post it on the IIRC website.

The paper will include discussions on: • Suitability of criteria; • Existing auditing or assurance standards that might be applicable; • Whether assurance should relate to the process of preparing an integrated report or to the integrated report itself; • Levels of assurance that might be provided; and • The use of the work of others.

Although the paper itself is not finalised, draft versions of the paper stimulated debate that managed to nudge the Framework in some key areas that will make it more suitable from an assurance perspective.

ASSURANCE

basis that it is unnecessary, burdensome or cost-ineffective.

It is clear that as more decisions are based on information included in integrated reports, assurance will become more important to both the users of integrated reports and to preparers including those charged with governance. We expect assurance will be led by market demand but more work needs to be done to fully understand market needs.

Although assurance over discrete sections is achievable now, for example over sections of sustainability information or financial information, this will become more difficult to achieve as the information is presented in a more integrated manner focusing on investor value, rather than a simple combination of existing information.

LM: The group also asked LM: Respondents to the

consultation draft were asked whether assurance should be obtained over the integrated report as a whole, or just specific aspects of the report.

Can you provide us with some feedback on that?

NM:

Approximately 74% of 359 respondents to the consultation draft answered this question. Almost 60% agreed it should cover the entire report.

21% believed that specific aspects of the report should be assured, while 6% disagreed with obtaining assurance on the

respondents to comment on whether they feel that the Framework provides suitable criteria for an assurance engagement. What feedback did you receive from this question?

NM:

Only 18% of respondents provided feedback on this question, of which 50% were unsure about whether the Framework constitutes suitable criteria while 29% disagreed or provided major qualifications regarding the suitability of the Framework.

Our group has debated this topic at length as meeting the definitions of suitable

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criteria is a pre-requisite for performing an assurance engagement.

Not everyone agrees if the final Framework meets the definitions of suitable criteria for the purposes of assurance; especially because the extent of judgment required when applying the principles may result in inconsistent application in similar circumstances by similar qualified preparers.

LM: It would appear that

the <IR> Framework does not yet have suitable criteria like other frameworks do. Is this an issue?

NM:

I accept that the Framework does not meet the definition of suitable criteria to the extent that other established frameworks such as IFRS does; however I donâ&#x20AC;&#x2122;t believe that this represents a barrier to providing assurance.

The IR Framework provides sufficient guidance to enable an entityâ&#x20AC;&#x2122;s management to prepare a report and together with clear and detailed disclosure of their application of the Framework should allow users to understand the report content and how information has been measured or evaluated.

LM: Did the technical

collaboration group have any difficulty with assurance standards? If so, how did the group overcome those difficulties?

ASSURANCE

NM:

Our group evaluated assurance standards being applied from around the world and there was no single standard that currently addresses all of the <IR> assurance challenges. Although a combined assurance approach, using various standards and different levels of assurance may be helpful to preparers and those charged with governance to corroborate their assertions, it will be difficult for users to understand.

Development of an <IR> specific assurance standard will take time and as I mentioned earlier, we need to fully understand market needs before such an exercise is undertaken. ISAE 3000 (Revised) which is applicable to a broad range of assurance practitioners, not just professional accountants in public practice is probably the standard we will see being used while the debate continues.

LM: Will there be a

requirement for a new level or type of assurance in the medium term?

NM:

The assurance practitionerâ&#x20AC;&#x2122;s depth a breadth of understanding of the entity, its strategy and the environment in which operates will need to be greater than ever before along with the professional judgment required to execute an assurance engagement over an integrated report.

A single independent opinion providing users with external assurance on the content of an integrated report is the optimal assurance solution for <IR> but this may be out of our reach in the short-term.

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CAPACITY BUILDING

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CAPACITY BUILDING FOR SUSTAINABILITY AND INTEGRATED REPORTING

Maryna Mรถhr-Swart and Seakle Godschalk

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CAPACITY BUILDING

Sustainability, although a commonly used term, may not be fully understood by all people inside organisations. Service providers and stakeholders of organisations may also be grappling with the concept and how it links back to them. If organisations regard sustainability as part of their strategic and operational management, and recognise that sustainability contributes to the organisationâ&#x20AC;&#x2122;s impacts on society and the environment, capacity building must be deemed a high priority activity.

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CAPACITY BUILDING

C

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apacity building is a common thread when looking at successful organisations. Dr Laurie Bassi, the CEO of the US consultancy McBassi & Company, amplifies this in her book “Good Company: Business Success in the Worthiness Era” and discusses learning and capacity building and a proven strategy for individual and organisational performance.

Bassi studied the correlation between corporate training investments and stock market performance and found that companies with strong commitments to training attained a positive change in market value whereas companies with comparatively weaker commitments to training experienced a decline. It is, therefore, evident that training and capacity building must play a central role in implementing sustainability in organisations.

Sustainability is another context in which to facilitate knowledge transfer and organisational excellence. It provides a new way of viewing organisations, including internal business ecosystems and the communities in which they operate.

Sustainability or integrated reporting is the vehicle to communicate how factors, which are labelled under the umbrella of sustainability, affect the organisation, its stakeholders and the environment.

Sustainability communication should not be limited to a brief mention in an organisation’s value statement or occasional article in the media. Organisations must also inform stakeholders about their sustainability accomplishments, and failures, by means of different internal and external reports, including their sustainability and/ or integrated reports. Reporting, other than financial reports, might not come naturally for many organisations and capacity building in this regard is, therefore, essential.

Providing targeted and relevant capacity building helps organisations,

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their stakeholders or service providers understand the differences between financial and sustainability reporting.

Focused sustainability/integrated reporting training assists organisations to understand the reporting process, who the role players are and what their responsibilities entail.

The training creates an in depth understanding of the specific steps in the reporting process, the imperatives and benefits thereof, and highlights the roles of top and middle management in the process.

It equips the reporting team with skills and knowledge to manage the reporting process and understand the importance of proper functional information systems within the organisation. Stakeholder engagement and materiality, two critical phases during the reporting process, must also be addressed to assist the organisation to perform these activities more efficiently.

Capacity building for sustainability and integrated reporting is not limited to reporting organisations, but should also be expanded to include stakeholders to equip them with the understanding of sustainability principles and their role in the process. Stakeholders will then be able to make informed inputs into the process and assist the organisation in understanding their expectations and concerns.

Service providers should also undergo training and capacity building for sustainability and integrated reporting in order to assist reporting organisations in a professional and meaningful way. Assurance service providers and the organisation’s reporting team should understand the requirements of the principles of sustainability and/or integrated reporting in order to empower them to assure the report, or assist the reporting company to be ready for assurance. Government role players should be equipped to play their rightful role as regulators in the reporting space.

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CAPACITY BUILDING

The question could be asked: what is the profile of participants that should be trained on sustainability and integrated reporting?

The obvious answer would be: sustainability and integrated report coordinators. In reality, the profile of participants receiving training is much more diverse. Table 1 provides an analysis of participants in sustainability/ integrated reporting training conducted

by ESS.

Table 1 Broad category of participants

% of total participants

Sustainability, SD, sustainability/integrated reporting

13.13

Environmental, climate change, carbon management

12.92

Board member, executive, CEO, manager, company secretary

12.50

CFO, financial, auditing

8.96

Corporate/external/public affairs, communications, public relations

8.96

Students

5.24

Occupational health and safety

5.00

Social/community affairs

4.38

CSR/CSI

4.17

Academic

2.92

Stakeholder relations, customer services

2.50

Human resources

2.29

Project management

2.07

Other

14.79

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Any colour, as long as it’s green Konica Minolta South Africa believes that technological innovation is the driving force to achieve sustainable business development with minimised environmental impact, with the core factors to consider being the reduction of energy consumption, a decrease in print and paper volume, and the avoidance of printout waste. By utilising the correct technology and functionality the environmental footprint and the total cost of ownership of office devices can be reduced.

All Konica Minolta office devices are developed and manufactured with the objective of continually reducing environmental impact at all stages of the product lifecycle. In its product development, Konica Minolta sets specific environmental standards and only releases products that surpass these.

Simitri HD, Konica Minolta’s own polymerised toner, plays a key role in the energy efficiency of Konica Minolta office equipment, as polymerisation greatly reduces environmental impact, generating as much as 40 percent less CO2 during production. In addition Simitri HD requires a lower fusing temperature. Both aspects contribute greatly to reducing the amount of energy used and the related CO2 emission. At the same time, biomass, the plant based resource used in Konica Minolta’s toner, is CO2-neutral during recycling and further reduces the carbon footprint.

Not only is Konica Minolta’s product range focused on minimising the environmental impact, but it is also embedded into the company’s culture.

As part of its carbon neutral strategy, established in 2007, Konica Minolta South Africa works closely with South Africa’s national greening and food gardening social enterprise, Food & Trees for Africa (FTFA), and has so far donated over 18,500 fruit and indigenous trees to schools and communities across the country as well as 4,600 bamboo plants.

Through this work, the company has offset and adhered to the Greenhouse Gas (GHG) Protocol’s direct and indirect emissions, which are categorised into three broad scopes: Scope 1 - All direct GHG emissions, such as fuel usage; Scope 2 - Indirect GHG emissions from consumption of purchased electricity, heat or steam; and Scope 3 - Other indirect emissions, such as business travel, and more.

Taking accountability for its carbon footprint has earned Konica Minolta South Africa the status of ‘Carbon Neutral’ for the 2013 financial year, as certified by the Carbon Protocol of South Africa. for more information please visit www.kmsa.com/Home/Sustainability 0800 bizhub (249482)

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What stands out from this analysis is that a relatively high proportion of participation is from senior management and boards. This is indeed encouraging as it shows that senior management is taking sustainability and integrated reporting seriously.

CAPACITY BUILDING

Another question that begs attention is: which types of organisations can benefit from this training? Table 2 gives an analysis of the types of organisations that sent participants to courses on sustainability/ integrated reporting conducted by ESS.

Table 2 Type of organisation

South Africa 71

Zimbabwe Nigeria Kenya Inhouse

34

22

134

58.3

Consultancies

43

2

1

46

20.0

NGOs

7

5

7

1

21

9.1

Government/ 5 Regulator

3

1

9

3.9

1

1

8

3.5

1

1

8

3.5

4

1.7

Commercial companies

Academic

5

Media Total

1

6

Audit firms

3

1

4

4 132

49

In South Africa, the lack of audit firms in the sample can probably be ascribed to the fact that they prefer training by training providers specialising in accounting to which audit firms would naturally have a closer affinity.

The high number of consultancies in South Africa reflects the very active market for sustainability reporting whereas this is less developed in other African countries.

Remarkable is the high percentage of NGOs participating in this training, in Zimbabwe and Nigeria more so than in South Africa. This seems to reflect the value NGOs increasingly attach to using

35

6

8

Total %

230

sustainability/integrated reporting for increasing their transparency and providing potential funders with an account of not only their financial performance but also their economic, social and environmental performance. The interest by media groups in Nigeria is another encouraging trend.

Capacity building can take the form of different programmes. Unlike compliance training, which can be rote and tedious, sustainability reporting training is inspiring and can be fun. People who genuinely want to learn more about the reporting process are willing to go out of their way

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to seek good training providers and training opportunities.

The basic starting block is raising awareness about sustainability concepts and how it leads to reporting. Providing targeted awareness programmes help employees understand how key sustainability principles apply to their specific job functions and enable them to see opportunities and take actions that contribute to the overall sustainability strategy of the organisation.

The next form of capacity building is functional training. This assists specific functions within the organisation to relate to sustainability reporting and enables them to understand why and how relevant information must be gathered and presented.

Functional training also helps with defining specific roles within the reporting process. Advanced functional training should be available for people who want to become specialists in a specific part or activity of the reporting process, for example stakeholder engagement or the materiality process.

Mentoring and coaching play important roles in capacity building. Training often provides attendees the theoretical background and is limited to practical examples. In reality this is not enough â&#x20AC;&#x201C; to successfully implement the theory and produce a good sustainability or integrated report needs a helping hand by your side.

Mentors assist sustainability and integrated report coordinators during the reporting process and lead them in the right direction to ultimately be able to produce the organisationâ&#x20AC;&#x2122;s report on their own.

Coaching can also form part of assisting the

CAPACITY BUILDING

report coordinators; however, coaches are less involved during the reporting process.

Finally, it is important to look at what needs to be trained. As mentioned already the basic introduction to sustainability and sustainability and integrated reporting is necessary to ensure that everyone on the reporting team and in the reporting organisation understand the concepts and definitions. Briefings to top and middle management must also be available as managers often do not have the time available to attend a two or three day course.

The more formal training programmes will include the sustainability reporting process, integrated reporting concepts and principles, performance indicators, stakeholder engagement, materiality as well as what assurance entails and the organisationâ&#x20AC;&#x2122;s readiness for assurance.

Capacity building and training, therefore, foster knowledge transfer, giving rise to further development and innovation, efficiency and competitive insight.

The increasing complexity of organisations and the sustainability drivers directing strategies are forcing organisations to take investing in capacity building and training seriously. The difference between good organisations and excellent organisations will, therefore, be found in ensuring that managers, employees and stakeholders are better positioned for the future.

If organisations want to excel in new competitive environments and be able to present results in sustainability and integrated reports, they simply need to start building the relevant capacity and start investing in focused training.

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NEDBANK INTERVIEW

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STARTING WITH THE END IN MIND

A STORY OF INTEGRATED REPORTING Kerri Savin, Group Stakeholder Engagement Manager for Nedbank, is interviewed by Lloyd Macfarlane, about the group’s integrated reporting journey

LM:

Nedbank Group has over the past number of years achieved a number of industry awards for its Annual Reports and recently for its Integrated Reports. This is clearly an area of importance for the group – why?

KS:

The recommendations of King III placed the imperative for integrated reporting firmly at the top of the priority lists

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of most organisations. At the time, Nedbank’s internal reporting and management processes already called for and reported on the integration of certain data to enable better management decisions.

That is not, of course, to say that integrated reporting has been easy for Nedbank but, the formalisation of integrated reporting was the logical next stage in a journey that began for the bank in the mid-2000s.

LM:

Reporting was at that time generally concerned with

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PROFILE

ITHABISENG ENVIRONMENTAL CONSULTANTS Ithabiseng Environmental Consulting (IEC) CC is a 100% black owned company that was established in 2009. IEC CC was registered in September 2009 by a sole founder/managing director, Ms N. Mokubetsi, who has developed expertise on a broad spectrum of environmental disciplines during past years while working for various National, Provincial and Local Government environmental entities and consulting companies. IEC has gained experience over the past 10 years on a broad spectrum of Environmental consulting disciplines and project management, providing a range of environmental services cutting across various sectors. The company has grown from SMME to a multi-disciplinary consulting firm, with offices in Pretoria, and branches in Zeerust & Rustenburg in the North West Province and in Kuruman in Northern Cape.

SERVICES OFFERED

• Ithabiseng Environmental Consultants offer a pool of environmental expertise to our clients in order to meet their authorization, implementation, and monitoring needs, they are as follows: • Environmental impact assessment • Environmental management programme reports • Environmental management system • Public involvement (we are experienced in liaison with stakeholders and regulatory authorities) • Environmental reporting • Mining right, permits and prospecting applicants, licencing • Air quality management, licensing permitting and monitoring • Environmental management plans compilation and amendment • Environmental auditing • Water use licence applications • Development and planning of environmental policies • International environmental obligations and review of international treaties and conventions.

CONTACT DETAILS

4 Voortrekker Street, Office No. 3 Postal address: House No 6A Otto Street Zeerust , New Complex North West Province, 2865 Zeerust, 2865 Office No: 021 9944 763 Cell No: 078 214 3538 Reg No: 2009/171096/23 Fax: 086 547 3440 Income Tax: 9750383151 Email: nmokubetsi@gmail.com or Nthabiseng@ithabisengithabiseng.co.za www.ithabisengenvironmental.co.za

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financial information, and I imagine this was particularly the case for the banking sector. How did the group navigate the incorporation of environmental, social and governance performance into the reporting process?

KS:

Yes, that was the norm back then, however Nedbank was in some respects already ahead of some organisations in terms of its recognition of the integrated nature of economic, social, environmental and cultural sustainability and the impact that they have on value creation.

The direction of the group’s reporting over this period was altered fundamentally, as it has become increasingly aligned with the strategic focus on integrated, sustainable success.

Throughout this paradigm shift, however, one aspect of the group’s reporting has remained consistent – it all starts with the end in mind. Or, at least, the end user, our stakeholders to whom we are accountable.

The point is that attempting to deliver integrated reporting merely as a means of ticking off another check box on an ever-growing compliance to-do list is an approach that is doomed to failure.

The relative success of Nedbank’s integrated reporting efforts in recent years has been a direct result of our commitment to keeping in mind why we produce reports in the first place - so that they include meaningful information that will be read and understood by our stakeholders, but also a reflection of how we manage our business and make decisions that influence them.

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LM:

I’m sure that many of Nedbank’s stakeholders are adept at interpreting financial information and they are used to reading this information in a particular format. There are however many other stakeholder groups for whom this kind of reporting would be confusing, even irrelevant. How do you achieve a balance in the way that you report to your various stakeholder groups?

KS:

Yes, in order to be considered ‘integrated’ a report should offer readers insight into the ability of the organisation to create and sustain value in the short, medium and long term. But equally importantly, it needs to do this in a way that makes the information and evidence as presented easily accessible to those readers. Not all long-term investors are financial gurus or experts on the banking industry. In Nedbank’s experience, it’s this requirement to meet stakeholders where they are ‘at’ makes the achievement of truly integrated reporting an even more challenging undertaking, particularly in a country as economically and socially diverse as South Africa.

LM:

Reporting is of course a process but tell us a little about the history of Nedbank integrated reporting, as it pertains to the development of the report itself?

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KS:

Yes, for Nedbank, the concept of integrated reporting extends beyond the production of an annual integrated report. In 2004, Nedbank produced its first self-standing Sustainability Report. This presented the groupâ&#x20AC;&#x2122;s strategies, successes and challenges in terms of meeting its social, environmental and cultural responsibilities.

Over time, however, the amount of duplication between the Sustainability and the Annual reports being produced and the increased integration of reporting throughout the group saw the move to a single report in 2010 supported by more in depth detail for specific stakeholders online. This was the first public indication of the integrated reporting destination we wished to reach.

The most recent integrated report, reflecting the 2013 Nedbank value story, was a further progression in that direction, and allowed management and the reporting team to further refine its report offering to include the requirements of the International Integrated Reporting Framework. However it did once again highlight the extent to which the road to truly successful integrated reporting is littered with challenges.

LM:

What are some these challenges and how are you navigating your way through them?

KS:

Nedbank aims to align with world class integrated reporting requirements. But if the past years have taught us anything, it is that this is not always immediately possible, as mentioned before, if you want a report that meets the needs of your stakeholders they often do not align to global standards as fast

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as organisations anticipate. Report length seems to be another area that generates much discussion in integrated reporting reviews. While some proponents subscribe to the notion that the ideal integrated report should restrict itself to a certain number of pages, as yet to be defined, and in practice, this takes time, and numerous attempts, to achieve an accepted goal.

Again, given that readers need time to acclimatise to changing reporting structures, Nedbank supports an incremental approach. Having all the information your stakeholders want remains more important than shoehorning your report into a predetermined number of pages. That said, Nedbank remains committed to eventually achieving both.

This will no doubt be through a combination of print and electronic media but, once again, reaching this level of combined media reporting is pointless if your readers and stakeholders have not yet attained a suitable level of comfort with or resources for accessing information across various media.

Effective executive management involvement, as with all key on-going business execution, in the reporting process is imperative. For Nedbank the principles of integrated reporting have been easy to implement.

Thatâ&#x20AC;&#x2122;s because the way the bank does business is fundamentally built around integrated strategic planning, an integrated vision that strives to be the most admired and meet the requirements of all stakeholders, a long-established commitment to regular and ongoing internal and external reporting and communication, and performance evaluation that integrates the much spoke about six capitals (financial, manufactured, human, social, natural and intellectual), although we do not refer to them in these terms in our reporting.

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LM: How difficult has it been

to apply for and implement a mandate from Board level? Has this been one of the challenges?

KS:

The group makes comprehensive material information available regarding the organisation, its strategies, governance, performance, and prospects in a way that reflects its sustainability leadership position.

So there was no need for a specific mandate from the Board to ensure that Nedbank’s reporting demonstrated this. They are however key to the momentum we have achieved in integrating our reporting.

As a financial services organisation, a hurdle en route to integrated reporting excellence is the need for systems that accurately measure and capture nonfinancial services data. By definition banks are good with numbers and financial reporting is engrained in everything that is undertaken. Measuring things outside of this paradigm takes time and practice.

The parameters of the non-financial data measures are also evolving as we better understand what metrics aide in attaining and measuring out strategic intent and this helps us to message the integrated story.

NEDBANK INTERVIEW

integrated reporting has been immensely rewarding, both for the team members responsible for the report and the organisation as a whole. In many ways, the integrated reporting requirement has served as a catalyst for even greater sustainable integration and collaboration in all areas of the business.

By changing the way we communicate with our stakeholders, Nedbank has reinforced the importance of a unified vision, strategy and business approach for itself. In Nedbank’s federally structured organisation, where distinct business units exist to meet the varied needs of clients, this unity is invaluable.

The rigorous process of integrated reporting has also enhanced the communication of focusing the employees of the organisation on the future, and the important part they have to play in creating it. Traditional financial reporting was generally backward looking and fell within the domain of the finance department.

Integrated reporting gives everyone in the business the opportunity to tell a part of the Nedbank story – and simply knowing that they do seems to prompt them to be more proactive in ensuring they have their own story to tell in driving and delivering on the Nedbank strategic intent.

LM:

Where to from here?

I imagine that the business case for integrated reporting has been proved over The ongoing challenge, for all in and over again for the group. Nedbank, is to make sure it’s a story that the Tell us a little about some of the bank’s stakeholders want to read and that rewards? the integrated report sets out all the facts

LM:

KS:

KS: Yes, for all the difficulties mentioned above, the process of refining Nedbank’s

required by long term investors in particular to satisfy themselves that Nedbank is indeed an organisation that delivers on its promise to Make Things Happen.

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F

or South Africa, there is an imperative for growth and development. This is captured in the extract taken from the National Development Plan (NDP) report: Vision for 2030.

“

While we have made some progress in reducing poverty, poverty is still pervasive and we have made insufficient progress in reducing inequality. Millions of people remain unemployed and many working households live close to the poverty line…

The national plan has to attack the blight of poverty and exclusion, and nurture economic growth at the same time, creating a virtuous cycle of expanding opportunities, building capabilities, reducing poverty, involving communities in their own development, all leading to rising living standards.

“

-National Development plan (2011), National Planning Commission, p1-2

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Despite the need for growth - to sustain livelihoods, maintain employment and promote wellbeing – there is increasing recognition that this growth cannot come at any cost. Governments and broader society are looking for ‘good growth’, which creates value for all stakeholders and is sustainable over the long term. Of course, the business sector is a central role-player in achieving such ‘good growth’, but the business models of the past have shown themselves to be inadequate. New business models are needed and measuring and managing impact is essential for organisations to increase the value they create for their stakeholders.

There is growing recognition that an organisation’s ability to create value and long-term success is dependent on a broader range of issues than financial performance. Broader sustainability issues shape the way that businesses can operate and create value, as illustrated in Figure 1.

In light of this, management teams need to provide clear, unambiguous performance information beyond their annual financial activities. Stakeholders want to know what will impact on a business’s ability to create value and destroy it i.e. to know about the external drivers affecting the business, their approach to governance and managing risks, and how their business model operates.

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Figure 1: A full picture of business impact PwC. 2013.

Measuring and managing total impact: A new language for business decisions, p23

However, this refined approach to business management and reporting is not without its challenges. At present, there is relatively high focus and commitment of effort on financial aspects of a business, but a potential lack of strategic focus. Information shared in external reporting tends to remain separate from internal management information, and sustainable development is still often a stand-alone process, more

focused on annual reporting than the way in which business is managed.

For an organisation to be able to report in an integrated way on environmental, social and economic issues, it needs to ensure that it manages these issues in an integrated way throughout the company on a daily basis.

This approach needs to start at the top with boards and management teams identifying environmental, social and economic risks

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and opportunities across the value chain and ensuring that they are effectively managed in the organisation. Leadership needs to ensure that key risks, opportunities and issues are integrated into the organisation’s decision-making and operating processes.

They also need to ensure that the business manages the data and information to feed into its reports. Critically, they must then help to make decisions based on future - rather than on past - performance, helping to build a more resilient organisation. The mainstreaming of sustainable development within an organisation is explored further in PwC’s annual Resilient Companies Survey (2012, 2013).

The Integrated Reporting (IR) Framework by the International Integrated Reporting Council (IIRC) is a principles-based framework to help organisations communicate value creation over time. It is designed to assist business with reporting its value creation process (external drivers, governance, risk management and business model, amongst other key aspects).

It also encourages business to take note of the outcomes and impacts of their activities, rather than only the traditional measures of inputs and outputs. In a recent survey with PwC, chief executives acknowledge that businesses will make better long term decisions if they consider their company’s environmental and social footprints alongside financial impacts, but that very few are using data about their total impact for this purpose because of a lack of information.

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In response to addressing the challenge of achieving ‘good growth’, PwC has developed a total impact framework called Total Impact Measurement & Management (TIMM) that puts a value on the social, environmental, economic and tax impacts of a business so management can compare the total impacts of their strategies and investment choices and make informed trade-offs.

It puts a value on outcomes and impacts as well as inputs and outputs to present the full picture, the total impact. This framework for decision making gives business leaders the data they need to make informed choices about the strategic decisions they face (Figure 2). There is no requirement to report the outcomes externally – the framework is designed to be used for internal purposes or to supply the data needed for reporting.

The TIMM framework was launched at the UN’s Millennium Development Goal Innovation Forum in New York, in September 2013, which urged business to do more to measure and report on their social and environmental footprint so as to become more accountable for their actions. The basic premise behind both TIMM and Integrated Reporting are the same: to understand what is important to business’s longevity and long term profits. While Integrated Reporting is more externally focused to support reporting to stakeholders, TIMM is more internally orientated to support decision making. Both highlight and support business in thinking holistically across their value chain and thus are mutually supportive.

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Figure 2: A fresh addition to business decision making and reporting PwC. 2013. Measuring and managing total impact: A new language for business decisions p11

TIMM is a flexible framework that can be applied at a product, project, regional or enterprise level.

The model does not prioritise, for example, community benefits over financial return, or vice versa - it measures all the impacts, and allows management to optimise their decisions. There are several tools and methodologies available to measure impact; each with its own advantages and disadvantages.

The best fit depends on the applicable circumstances and often tools can (or should) be combined. In all cases, a thorough analysis of the value chain is essential. Below are a few examples of tools and methodologies available (this list is not exhaustive):

Social • Difference-in-differences analysis • Social return on investment (SROI) • Input-output modelling

Economic • Economic impact analysis • Economic modelling and data simulation • Return on investment (ROI)

Environmental • Welfare economics • Environmental profit and loss/ natural capital accounting

Fiscal • Total tax contribution • Country-by-country reporting

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TIMM is summarised in four words: Total Impact Measurement and Management (TIMM) Total means a holistic view, taking into account social, environmental, fiscal and economic factors. Impact means understanding not just the output of your activities, but both the positive and negative effects your organisation has on society.

Measurement requires quantifying impact and expressing it in a language management understand – money. Lastly, Management means using the information obtained to optimise decision making, manage risks and increase positive-impact decision making.

Application of TIMM within a business is three-fold (as described in Figure 3):

• The management team and board will develop a deep understanding of their business model and impact; • More informed and effective decisions can be made; and • Performance in the short and long term can be maximised.

The TIMM framework has been applied by some leading businesses, and while adding robustness to their decision making processes, these case studies have also allowed for the TIMM framework to be tested and refined.

These case studies highlight how effective the approach can be in a variety of sectors and questions.

Figure 3: Why TIMM? PwC. 2013. Measuring and managing total impact – strengthening business decisions for business leaders, p10.

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Banking in Africa – Assessing social and economic impact A well-functioning banking system plays a fundamental role in driving economic growth, but the financial crisis led to a sharp decline in public trust in the industry and many continue to question the role banks should play in society.

To evaluate, demonstrate and identify ways to strengthen the value Standard Chartered creates for the markets in which it operates, the bank has commissioned a series of independent socio-economic impact studies.

In Bangladesh, for example, the bank supports, directly and indirectly, 1.5% of the country’s GDP and some 655,000 jobs, and is one of the country’s most important tax payers. It also supports more than 13% of Bangladesh’s trade with the world through trade finance.

The assessments have combined quantitative and qualitative analysis to create a picture of Standard Chartered’s impact in these countries. The quantitative assessment has used the well-established Social Accounting Matrix (SAM) to quantify both the impacts of Standard Chartered’s direct operations as well as those associated with the financing that the bank provides. This was complemented by a qualitative assessment of the bank’s other contributions, including its trade services, financial innovation and development of expertise.

The information gained from these studies is helping Standard Chartered to enhance its contribution to these economies and promote sustainable business development by focusing its core skills, products and services. For example in Ghana, one barrier to SME lending was the lack of technical skills in accounting

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and other business operations. Standard Chartered has since partnered with PwC to provide ongoing technical assistance to SMEs in Ghana.

Energy - Decision making about development options

Scottish Hydro Electric (SHE) Transmission is currently building a new 400-kilovolt transmission line in Scotland. At present there is no approach to help assess the value of the full range of impacts, including consent conditions, of a new transmission line. Through the use of our TIMM framework, PwC has worked with SHE Transmission to develop a range of methods to measure and value all material social, economic, environmental and fiscal impacts in the UK resulting from the construction of the transmission line.

The project is now in the process of estimating the value of the line’s impact on areas such as visual amenity, cultural heritage, traffic, land use and waste, as well as considering taxes paid and the contributions to local and national GDP. This approach will help SHE Transmission to communicate more effectively to stakeholders how planning choices and consent conditions affect the impact of the transmission line, including any trade-offs generated.

By building a transparent and quantitative framework, SHE Transmission will be able to revolutionise the way that social, economic and environmental impacts are considered when planning and implementing future projects. This will not only add value to the business, but also value for society. The TIMM framework has been developed over the last three years by PwC in cooperation with the firm’s clients. This framework is seen as evolving and PwC request that others aim to use and improve the approach over time.

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“

The impact measurement and management framework developed by PwC is a huge step forward in assisting companies in thinking on an integrated basis and enabling them to do business in the 21st century. It also helps to change mindsets to take a holistic perspective and move towards Integrated Reporting.

“

-Prof Mervyn King SC, Chairman International Integrated Reporting Council PwC. 2013. Measuring and managing total impact: A new language for business decisions, p2.

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References • Accountingtoday.com. 2013. U.N. Encourages Corporate Sustainability Reporting. Article by Micheal Cohan. 31 May 2013. Available at: http://www.accountingtoday.com/debits_credits/UN-EncouragesCorporate-Sustainability-Reporting-66973-1.html • Baxter, M. 2013. Today’s reporting changes pave way for more strategic action on environment.

IEMA, 1 October 2013. Available at: http://www.businessgreen.com/bg/opinion/2297631/ todays-reporting-changes-pave-way-for-more-strategic-action-on-environment • BusinessBrief, 2013. Growth at any cost is over. Article by Jayne Mammatt. BusinessBrief, December 2013/January 2014: Management. p20.

• BusinessGreen, 2013. CEOs: environmental and social data helps companies make better decisions. 25 September 2013. Available at: http://www.businessgreen.com/bg/news/2296556/ ceos-environmental-and-social-data-helps-companies-make-better-decisions • BusinessGreen. 2013. Managing total impact will improve your company’s decisions. Article by Malcolm Preston. 2 October 2013. Available at: http://www.businessgreen.com/bg/opinion/2297641/ managing-total-impact-will-improve-your-companys-decisions • PwC. 2013. “Brave and open-minded”: Innovating to meet demand. Interview with Malcolm Preston and Mark O’Sullivan. 29 October 2013. Available at: http://www.pwc.com/gx/en/audit-services/ corporate-reporting/publications/world-watch/articles/2013-q3/innovating-to-meet-demand.jhtml • PwC. 2013. Measuring total impact: A new language for business decisions. Background Research Paper, Submitted to the High Level Panel on the Post-2015 Development Agenda. May 2013. Available at: http://www.post2015hlp.org/wp-content/uploads/2013/05/PwC_Measuring-total-impact-A-newlanguage-for-business-decisions.pdf • PwC. 2013. Integrated thinking – more relevant, more joined-up. Interview with Alan McGill and Mark O’Sullivan. 6 December 2013. Available at: http://pwc.blogs.com/sustainability/2013/12/integratedthinking-more-relevant-more-joined-up.html • PwC. 2013. Measuring and managing total impact: A new language for business decisions.

Pricewaterhouse Coopers Thought Leadership Report. Available at: http://www.pwc.com/gx/en/ sustainability/publications/total-impact-measurement-management/assets/pwc-timm-report.pdf • PwC. 2013. Measuring and managing total impact – strengthening business decisions for business leaders. Available at: • http://www.pwc.com/gx/en/sustainability/publications/total-impact-measurement-management/ assets/pwc-timm-for-ceos.pdf • PwC. 2013. Resilient companies survey, Second edition. Hitting a plateau. Pricewaterhouse Coopers Thought Leadership Report. Available at: http://www.pwc.co.za/en_ZA/za/assets/pdf/resilientcompanies-survey-2013.pdf • The Broker Online. Measuring and managing societal impact. Article by Linda Midgely. 29 October 2013. Available at: http://www.thebrokeronline.eu/Articles/Measuring-and-managing-societal-impact

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PROFILE

1. Please tell us about your business in a general sense. What does Ntumba Inc specialise in?

Ntumba Inc is a 100% Black Owned Auditing, Advisory, Accounting and Information systems Firm established in the year 2001. The company offers the following services: • Auditing • Financial Accounting • Business Consulting and Advisory & Information Systems

2. You say you are a 100 percent black-owned professional services company. How rare is this in South Africa today? Are there other 100 percent black-owned companies in the industry?

Generally, there is still a shortage of Black Owned professional services companies in SA. So I would still say that in South Africa today after 20 years of democracy, the industry is still short of supply of Black Owned Auditing Firms. Yes there are other Black owned firms in the industry but still a handful, the number is not where in my view is supposed to be.

3. What is your key market, and how do you go about addressing that market?

Key market of Ntumba Inc Is very wide, ranging from the Private Sector, Government and Non Government Organisations, Parastatals and Trade Unions. Addressing the market, I would say it start by us selling our services using different methods like tendering, registering on respective databases and word of mouth referrals. Once we have secured the business, we ensure that we deliver high quality and professional services that assure us of repeat business.

4. Please tell us more about your client base. Who are your major clients and what services do you offer them?

As indicated above, our clientele is wide, ranging from Government and Non-Government Orgs, Private Sector, and Parastatals e.t.c. We have done work for inter-alia: • Railway Safety Regulator • Limpopo Dep. Health • SABC • Construction CETA • Mpumalanga Economic Growth Agency • B3 Group • MICT SETA • Vimba Group Holdings • National Union of Mine Workers • South African Chemical Workers Union • South African National Defence Force, PPC Cement & Sentech LTD

5. How have you gone about growing your client base since your company’s inception?

We are continuously developing and implementing solid strategy which entails, strong marketing visibility out there eg. Sponsoring a number of community based projects, participating in corporate events and continuous staff training to provide high quality services to clients in order to guarantee repeat business. We further develop strategic partnerships in a form of consortium business relations.

PROFILE

6. You say you are committed to building long-term relationships with your clients.

What structures do you put in place to achieve this objective?

Lasting relationships with our clients are developed and maintained through investing in Customer Relationship Management System (CRM), Recruiting best available talent and continuously train our staff and clients for skills transfer.

7. You describe your services as “tailor-made”. Please explain what this means. In what way, do you tailor-make your services for specific clients?

We provide a client’s focused service. Each client has own unique needs and it becomes important that before jumping into providing solutions, analysing the client’s requirements specifically designed to address client’s requirements, is crucial.

8. Do you think that BEE in South Africa is alive and healthy? What remains to be done to ensure we reach our BEE goals?

Yes, BEE is alive and healthy in SA. Our democracy is still young (20 years). What remains to be done is to ensure we reach our BEE goals, is for all players involved to work together (i.e. Government and Business) in ensuring the success of BEE goals. There should be severe penalties for people who make it their mission to bypass or frustrate the processes of BEE. Monitoring and Evaluation of BEE Compliance should be tightened.

9. What leadership qualities are necessary, in your view, in order to successfully run a company such as Ntumba?

Leadership qualities in my view to successfully run a company such as Ntumba include the following: • Ambitious and visionary leadership armed with a Plan; • Investment in Human Capital • Leaving in advanced technological era, so as a leader, you should take advantage of technology and stick to your principles: Integrity, Objectivity, Independence and professional competence and due care is our principles.

10. What are Ntumba’s aims for the future? How do you intend to grow the company?

We have developed “Smart Billion 2020 Strategy” where the firm should be generating over R1 billion turnover by year 2020. The strategy is our blue print which details exactly how we plan to achieve the goals and objectives we have set for ourselves. We are also very passionate about developing and nurturing the young talent for sustainability of our firm, we invest in Corporate Social Investment programmes, amongst others: Bergville Community Builders (BCB) where we provide career Guidance in both financial and non financial help to over 40 high schools in and around Bergville (KZN) as well as assisting “Professionals Making A Difference” who also provide career guidance to the schools in Katlehong in the East Rand (Gauteng).

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Annual reports have a very distinct audience â&#x20AC;&#x201C; shareholders. There is no confusion as to who the readers are, and therefore, no confusion to what the content should cover. Sustainability reports, on the other hand, are an entirely different ball game.

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O

rganisations frequently ask themselves: why do we report? If we report because we have to, the issue of writing specific content, appropriate to specific readers is irrelevant.

Fortunately, the majority of organisations have moved passed the compliance hurdle, and instead realise that a sustainability report is a critical window into the organisation’s future. If done well, a sustainability report should highlight the organisation’s ability to create wealth for society as a whole, and not only for financial stakeholders. The sustainability report is the vote of confidence that society needs to assure itself that a favourite brand or service is ‘good’ and ‘ethical’, respectful of the environment and considerate to people.

This leads to the second question:

“

“

Who is ‘society’?

To whom do we actually report?

Often, stakeholders do not read or give feedback on sustainability reports, because organisations focus on unrelated issues and do not consider the interests and expectations of their specific stakeholder groups. In other words, they do not fully capitalise on the link between materiality and stakeholder inclusiveness, and therefore they fail to link stakeholder interests and expectations to the actual content in their reports. Furthermore, they do not link stakeholders’ expectations to internal priorities and strategies.

In addition, more often than not, organisations simply ignore external voices – as listening to them may force a change in focus, products or services, and require innovation and participative management.

It is extremely challenging to identify and address stakeholder expectations through thorough engagement. Translating these expectations into a

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user-friendly report, can be even more so.

It is therefore understandable that some organisations limit their engagement to the bare minimum to prevent opening the proverbial can of worms.

Identify the voices

Organisations have been on the reporting journey for more than twenty years and apply extensive financial resources and human capital to develop sustainability reports.

Regardless, there is still little consensus on who the primary audience is, or whether there is, or should be a primary audience for that matter – similar to the primary audience of an annual report. Thus, the crucial question remains unanswered: who reads sustainability reports, and for what purpose?

Of course, reporting organisations do not have the luxury of ignoring this question altogether and they have to make some decision about whom they write for.

Without this clarity it is impossible to determine the content and the depth of a sustainability report and which of the issues that organisations identify through stakeholder engagement, should be reflected in the report.

As it stands today, many organisations tend to prioritise different audiences. In a sense, the diversity of audiences is a very natural consequence of reporting on sustainability issues. Sustainability is an inclusive concept that addresses the impacts of business on a very wide range of stakeholders.

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While it may be tempting to seek a priority audience because of the clarity it brings, it does not reflect the diversified nature of sustainability. Sustainability issues are just too diverse, and the social and environmental impact of an organisation just too wide. The absence of a single audience is therefore not only natural, it is preferable.

Other organisations favour a sustainability report that addresses social, economic and environmental issues for a very wide integrated audience. In an attempt to still report, but without the level of detail that will result in business upheaval, these organisations opt for the “dear stakeholder” route.

Because of the lack of clarity of whom organisations should report for, they tend to report as inclusive as possible for all audiences with the aim that some of the content will be meaningful and add value. This approach may lack conviction – organisations have to pin down the audiences for their sustainability reports.

Not doing so, deters them from the benefits of reporting, and nullifies the long (often painful) process of engagement.

Whichever approach organisations follow – diversified but targeted or broad and integrated – they all lament the fact that few people, in any cluster of readers, look closely at their reports.

This once again begs the question of whether a single, interested priority audience for sustainability reports will emerge – highly unlikely!

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Listen with intent: It does however, not mean that organisations can simply avoid a priority audience.

Organisations need to adopt tailored approaches to reach and engage material stakeholders more directly.

This means that extensive engagement needs to happen at a personal, on-theground level.

Organisations need to precede their sustainability reports with detailed prioritisation of their stakeholders, and these stakeholdersâ&#x20AC;&#x2122; specific expectations on an ongoing basis.

At the same time, they should embrace diversity in their reporting models and reflect content for a broader, general audience. This way they will reach multiple audiences that reflect the broad range of parties interested in the overall sustainability agenda, while addressing priority issues at a more direct level. Should any issue escalate in importance due to national or global interest or suddenly hit the mainstream media, organisations should immediately prioritise that issue and deepen their direct stakeholder engagement.

If need be, they should respond with a customised, issue-specific mini report aimed at the resulting priority audience.

This highlights the fact that priority audiences are relative and subjective and will change according to micro- and macro organisational influencers. Organisations therefore need to be sufficiently sensitive and responsive to avoid being perceived

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as deaf to the pleas of society. One mechanism that companies have used to remain sensitive and responsive to micro- and macro stakeholder issues is a global level stakeholder panel that advises on the content of the report. Shifting key stakeholders from report audience to report co-creator is likely to bring mutual benefit.

Engaging for long-term prosperity and success:

Despite the acclaimed value of stakeholder engagement, it is still often dubbed the stepchild of the sustainability reporting process. Organisations approach it shallowly or, simply overlook it. This is inevitably an approach that opens the door to numerous business risks.

Sustainability reports should reflect meaningful interaction and engagement with stakeholders across all spectrums of the business. A solid, authentic sustainability report is always backed up by a solid, authentic stakeholder engagement process.

Successful stakeholder engagement is the â&#x20AC;&#x153;behind the scenesâ&#x20AC;? process that unlocks a wealth of business intelligence. Response to this intelligence reflects in the business strategy, and ultimately leads to better performance.

Organisations that turn their heads, and keep their ears shut to the external voices of their stakeholders, especially when these escalate to priority audiences, will only hear when screams threaten their very existence.

Unfortunately, it will then be too late.

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DATA, DATA EVERYWHERE

BUT WHO IS THE PERSON BEST EQUIPPED TO COLLECT IT?

Kathleen Myhill-Muller

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If ever there was a perfect time for Facility Managers to make a difference to the collection of data for sustainability reporting the “eureka” moment has arrived!

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A

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s Mandela once said, “I believe that South Africa is the most beautiful place on earth. Admittedly, I am biased, but when you combine the natural beauty of South Africa with the friendliness and cultural diversity of our people, and the fact that the region is a haven for Africa’s most splendid wildlife, then I think even the most scrupulous critic would agree that we have been blessed with a truly wonderful land.” http://www.wwf.org.za/?9664/Mandelaslegacy-lives-on-through-conservation. Adam Gordon, p28; para2; of the book Future Savvy (2009); states that “future influencing organisations are typically those with a social, political or environmental agenda. They will evaluate trends and anticipate outcomes in light of the interests they represent or the broader interests of society and humanity and attempt to influence the evolution of events on behalf of these interests”.

A sustainability officer’s dream wish is to have inspiration from the very top of a future savvy organisation. Further down is an example of by-in from top management to inspire eco-innovation in an African context.

B Mophatlane the CEO of Business Connexion, South Africa’s leading IT Services Provider states in the 2013 Annual report to shareholders; “Business Connexion has embraced the green revolution and is extremely conscious of environmental sustainability.

Rather than paying lip service to sustainability, we have taken an extremely practical approach to monitoring and reducing our water and electricity usage, making the most efficient use of our existing buildings and fostering a culture of awareness across our staff” (5) The key word in the paragraph above for an eco-beginner is to take a “practical approach”. Environmental sustainability data sourcing, capturing, together with monthly and year on year information trend analysis, is a vital contributor to a company’s integrated report. If ever there has been a perfect time for facility managers to make a difference in the role they play in influencing the future, the moment has arrived as Africa remains behind it European counterparts in its environmental journey.

Fig 1: Examples of data trends over time that could be analysed for decision making purposes. (Courtesy BCX Group captured by DSFM)

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Therefore, embrace the practical proactive role of creating systems to collect data, measure and manage corporate performance in order to provide a logical process for prioritising efforts.

To this end Facility Managers are assured to produce good business value without over taxing resources needed for other business critical tasks. The onerous task of gathering relevant data, by employees already overloaded with their day to day deliverables, is often the derailer to collecting sufficient data for getting momentum towards starting any sustainability programme. Without data no system, whether automated or not will be useless. One cannot manage what one cannot MEASURE. To get started, Facility Managers need to comb through “material aspects” specific to the business sector client account they are familiar with. GRI-G4 (2013) Implementation guide states that “Material aspects (DMA) are those that reflect the organization’s significant economic, environmental and social impacts; or substantively influence the assessments and decisions of stakeholders.”(8) Apply global evaluation criteria to determine which material aspects deserve attention and which do not.

Those specific material aspects considered significantly important to the

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sustainability of an organisation now and in the future.

Each company will have its own unique viewpoint of material aspects to report on. Listed companies will refer to GRI-G4 guidelines available on https://www. globalreporting.org/reporting/g4/Pages/ default.aspx. GRI actually recommends that first time reporting organizations use the G4 Guidelines, even if they do not fulfil the requirements of the ‘in accordance’ options in the first reporting cycles. “Preparing a sustainability report using the guidelines is an interactive process”.(8) To start collecting data Facility Managers may focus on productivity efficiencies, legal compliance, governance and high risk issues as well as low hanging fruit, that lead to financial savings that may have the added advantages for supplier contract and tender renewal decisions.

After these have been addressed, achievement can be concentrated on those environmental issues considered of lower importance but can be valuable in motivating the financial approval in daily operational business cases; for example: Biodiversity and the safe removal of bees; the benefit of high velocity blowers to replace paper hungry and waste generating hand towel dispensers; and the replacement of polystyrene cups with ceramic cups.

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And then what...

There is so much information and data to collate, but I am so busy, I wonder how I will have time to put it all together?

But with all the recent changes in compliance and best practice, what should I be putting in there?

“I need to brief my agency on my integrated/ sustainability report for this year”, says the client I am not a good writer.

I wish I could use a business writer with a knowledge of integrated reports to write my report for me.

Sound Familiar?

Print or web?

Or both? What medium would best serve my company to get our message out?

...Then you partner with Bastion Graphics The current corporate reporting market in South Africa is requiring companies (listed and unlisted) to apply their minds to the essence of integrated and sustainability reporting.

To many though, this remains a mine-field of do’s and don’ts. That’s where we come in…With 32 years experience in corporate reporting, Bastion Graphics has evolved to become one of the leaders in the integrated and sustainability reporting fields.

We serve this niche market with knowledge and passion, guiding and assisting clients from the very beginning of their process to the delivery of the final product.

With our corporate office in Rosebank, Johannesburg and 25 dedicated and talented employees, we offer a comprehensive service which includes awardwinning design and production, Powerpoint, SENS and related investor services, writing and editing, as well as integrated web solutions.

BASTION GRAPHICS YOUR PREFERRED PARTNER IN INTEGRATED REPORTING Contact: rodney@bastion.bz Tel: +27 11 7785800

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Manual hand paper dispensers

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High velocity warm air driers

Advantages Advantages • No additional electrical usage.

• Environmentally friendly to trees and • Equipment is cost effective to rent but landfill sites double ply paper is expensive to procure. • More economical on the organisations budget over the long run.

• More efficient in drying hands.

Disadvantages • Paper wastage: People tend to like paper • Less administration, as no consumable so that they can wipe their shoes, hand orders are needed. bags, open the washroom doors, fix their • No continual replenishment of empty dispensers, so cleaners can focus on makeup.

• Administration intensive for consumable hygiene in the offices.

• No temptation to pilfer paper or use for ordering and stock control. other purposes.

• Environmentally unfriendly in the use of paper consumables made from virgin • Washrooms are kept litter free: more paper. hygienic.

• Waste generating: • Waste disposal is minimized.

• one ton of paper consumes 17 trees • one ton of paper consumes three cubic Disadvantages meters of landfill • High CAPEX outlay.

• Hand towels take weeks possibly • Initial installation cost is high. months to decompose in Landfills. This is • Lead time of six weeks to two months dependent upon the prevailing climatic to delivery. conditions(water content and heat).

• Noise pollution element.

• One ton of paper production pollutes 75 • Paper Companies have “planted the 600 litres of water”. myth about germ” into the consumer’s mind about germs, which is not factual.

(Calculated on usage every 50 seconds for (Calculated on usage every 50 seconds for an 8 hour day, using ONE sheet of paper) an 8 hour day) 1 Hand Dry - R0.10c

50 seconds dry - R0.03c

Per hour - R6.52c

Per hour - R2.20c

Per day - R52.16c

Per day - R17.6c

Table 1: A Decision making eco viability analysis example. * Adapted from http://www.hurricanedry. co.za/paper-vs-hand-dryers.php

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Depending on the business sector a company falls within, it does not have taken on all environmental sustainability material aspects of which there are numerous for consideration in GRI-G4. Focusing on business sector specific material aspects is the key to accomplishment of valid data to be communicated in an integrated report be they positive or negative.

Attractive morsels of business value are in the reach of Facility Managers. Attractive enough to support the data mining mission of those who have not ventured into analysing reporting data as yet.

By utilising the skill of a facility manager to devote time and experience to this effort; enhanced by utilising a practical excel to word generated report may be all the company needs initially for its stakeholders.

Facility managers should not feel intimidated by expensive building management systems and not be embarrassed by starting off with a simple practical excel spread sheet.

With ongoing data collection improvements and budgeted financial resources, the numerous automated systems currently available will facilitate the smarter way to work.

The business case for reporting environmental data should be mandatory.

Terry Owen on pg. 3 of the January 2014 edition of JFM Magazine highlights 14 points for Facility Managers to ponder for 2014. Many of these would be valuable in enhancing ones professional reputation via environmental reporting to make real changes in the way information is • Experience is gained by “doing” even if it means frustration by the lack of enthusiasm from others initially. A

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•

•

•

•

•

• •

•

•

baseline is essential to serve as a future platform for decisions to be made.

Know the CEO well as pilot projects will be encouraged within the company if your reputation is sound and the CEO has bought into the sustainability concept.

Go out of your way with HR as you will require buy in from all departments within your circle of influence to gather data. Monthly collaboration across buildings will be to your advantage.

Environmental issues are an opportunity to draw upon the reporter’s ability to be innovative. Now is the time for facility management to “shift the inner place from which they historically operated” (4) Loc 73 and become an essential partner to companies throughout Africa who need this scarce skill.

Get to know and understand data management by initially setting up your own data capturing systems. Attend the various short courses available to qualify as a carbon foot print analyst to gain personal credibility.

Institute a benchmarking system from a baseline year and track improvements year on year.

Familiarise oneself with the movement towards green buildingsBy contributing to the companies’ integrated report you will be seen as an asset to the organisation. Traction will be gained by the annual submission of this valuable information to company stake holders.

Brush up on your management skills as you will have to deal with stakeholders in and outside of your circle of influence.

Become a super salesperson in the communication of environmental issues.

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With networking and experience, the value of environmental sustainability reporting will become more apparent to management.

The justification and a more sophisticated approach thereto should follow in the normal course of business as benefits are realised.

Sustainability reporting with good financial growth and added environmental and social focus will without doubt, make a business stronger and more competitive.

It can be an enabler of improved risk management, compliancy, productivity, and credibility.

It will assist business avoid many problems of the past, seize new opportunities for the future, and become the essence of the company that continues to be sustainable in good times and in bad. The Facility Manager, who makes a serious effort to implement a

practical system to measure environmental data, will find the effort well worth the investment of time. Remember initially the system does not have to be complicated or costly.

The question often asked is where to get the latest emission factors to work out a carbon footprint impact? Emission factors used to calculate the kg CO2 e can be found from various sources but the Carbon Smart, DEFRA information is very easy to understand and apply.

These emission factors are suitable for use by UK based organisations of all sizes, and for international organisations reporting on UK operations and can be found at www. ukconversionfactorscarbonsmart.co.uk/.

As science improves, emission factors change so organisations should restate their carbon footprint, across each relevant historic reporting period, including the base year, to compensate for this change and make future reporting comparable.

The benefit of re-baselining all the information according to DEFRA is :

“

Failure to re-baseline will result in a large drop in emissions for the new reporting year compared to previous reporting years; this will result in false interpretation as an emissions reduction and inconsistent reporting.

“

• Network by attending breakfast seminars on sustainability topics and chat via social media to other Facility Managers.

• Become familiar with the energy costs for all buildings under your control and use this information to the business’ advantage.

• Familiarise yourself on all the legalities that enhance your facility management function in regards to SANS regulations, OSHSA guidelines, GRI reporting guidelines and ISO standards that corroborate the environmental reporting benefits.

• Discuss with line management that your environmental reporting is understood and agreed between yourself and management. This will enable you to leverage resources and time to achieve your sustainability reporting goals.

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This will ensure that reporting is consistent and comparable year-on-year.

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Organisations should clarify the reason for the contradiction from previous reports to ensure transparency for stakeholders.

Such a statement might read, “Our carbon footprint has been restated for all years in order to account for material changes to the conversion factors provided by Defra for company reporting purposes”.

For further information on re-baselining please refer to Carbon Smart- Defra’s ‘environmental reporting guidelines’, or the guidance provided by ‘WBCSD/ WRI GHG Protocol’.

It is very important to remember that listed companies will have to change their integrated reports to incorporate GRI-G4 by the end of 2015.

Conclusion

Developing sustainability strategies is an important challenge. Implementation is an even more vital aspect with the acquisition of data in a collaborative and accurate format being essential.

Companies are incorporating an environmental and social section in tenders and request for proposals as these are interlinked. This information is used for decision making purposes for organisations to use as competitiveness advantage to gain contracts.

Facility Management is the most logical strategic partner to facilitate the green economy within the supply value chain.

Now is the time to embrace the global reporting standards in order for the profession to be viewed much more than a group of people who need to make sure the waste is taken out of site, the lights are kept on, albeit energy efficient lights, and everything else in the building is functioning properly. Jump at the chance

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to move the full integration of social and environmental considerations into day-today facility operations where the impacts of an organisations products and services can be monitored and corrected.(4) Loc 1166 Be mindful of the positive contribution one Facility Manager is able to make to an organisation.

But, collectively they can serve a global contribution of multidimensional, cyclical information with high presence and awareness. (4)(Loc 533) Information can be continually shared and improved upon. In the words of William R, Blackburn,

“

The quality of results produced by any system depends on the quality of awareness from which people in the system operate.

“

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(4)(Loc 314).

With the inspiration of Nelson Mandela’s quotation in the Introduction, may all current and future Facility Managers in Africa be inspired to live in harmony with nature”.

Carpe diem;- seize the day; and make 2014 the year to gain experience in GRI-G4. As cited by Peter.M.Senge; “In the long run, the only sustainable source of competitive edge is your organisation’s ability to learn faster than its competitors”.

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References

• Epstein Marc J. (2008). Making Sustainability Work. Best practices in managing and measuring corporate social, environmental and economic impacts. Greenleaf publishing limited. Printed in United States of America (ISBN-13:9781906093051).

• Esty Daniel and Winston Andrews (2006 and 2009) Green to gold. How smart companies use environmental strategy to innovate, create value and build competitive advantage. Wiley publishers New York. (ISBN 978-0-470-39374-1) • Gordon Adam.(2009). Future Savvy. Identifying trends to make better decisions, manage uncertainty and profit from change. AMACOM. Printed in the United states of America. (ISBN 10:0-8144-0912-1).

• William R, Blackburn. The Sustainability Handbook.(2007).The complete management guide to achieving Social, Economic and Environmental responsibility. Earthscan publishers. (ISBN-13:978-1-84407-495-2).

• B Mophatlane Chief Executive Officers Report to shareholders 2013 Annual report (31 August 2013)p30. (Verbal permission given 16-01-2014) http://www.bcx.co.za/about_us/we_care/ sustainability_and_bbbee/ • Scharmer, Otto and Kaufer,Katrin First Edition ( 2013) Leading from the emerging future from Ego-System to Eco-System Economics. Applying theory U to transforming business, society, and self. Berrett-Koehler Publishers, Inc San Franciso a BK Currents book. www.bkconnections.com • Senge Peter M. Fifth Discipline. The Art and Practice of The Learning Organisation(1990,2006); Random House Business Books. ISBN 9781905211203 • https://g4.globalreporting.org/introduction/how-to-use-guidelines/Pages/default.aspx.

• http://www.wwf.org.za/?9664/Mandelas-legacy-lives-on-through-conservation • http://www.ukconversionfactorscarbonsmart.co.uk/.

• http://www.hurricanedry.co.za/paper-vs-hand-dryers.php • Owen Terry. JFM Magazine; January 2014 edition. (pg. 3)

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RUNNING WITH THE BIG DOGS

SUSTAINABILITY REPORTING IN SMALL MEDIUM ENTERPRISES (SMES)

Is the increase in Corporate Responsibility (CR) reporting amongst SMEs a sign that they are pushing, or that they are being pushed?

Lloyd Macfarlane

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he growth in CR reporting is now a trend that looks certain to be maintained, particularly as reporting principles are increasingly consolidated and the benefits of reporting are more widely documented. CR reporting has been more prevalent in larger companies and has in many instances been driven by compliance. However the benefits of an authentic reporting process include many that are beyond the scope of compliance and related increasingly to comparative advantage through efficiencies, reputation and innovation. Society would like more companies to report and there is new pressure for SMEs to be more aligned with reporting and particularly procurement trends that are being set by big business.

Some SMEs will report because of this pressure and some will do so because it ‘is the right thing to do,’ however many are already reporting because they are looking for that new opportunity to establish advantage in their sector.

The winds of change

According to a study conducted by the Global Reporting Initiative (GRI), over the last 7 years, there has been a notable increase in CR reporting in SMEs and it seems that although off to a slow start, small companies are beginning to show interest in joining the same disclosure revolution as their larger counterparts.

The major reporting frameworks are increasingly focussing on ‘supply chain sustainability’, which will undoubtedly contribute to an increase in reporting amongst suppliers that fall into the SME category. This factor alone should be the major catalyst for real growth in SME reporting over the next few years and will for some be a force of compliance and for

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others a force based in the attractiveness of comparative advantage.

The question is this; can SMEs expect to reap the same rewards as large companies?

The challenges for SMEs

The process of Sustainability reporting can often require a significant investment in terms of time and money, which puts larger companies at an advantage as they typically have more resources to dedicate to tracking and recording of relevant data. As a result, the reporting ‘return on investment’ for SMEs becomes particularly important as reporting costs are comparatively larger.

This contributes to the explanation as to why smaller companies have been slower to respond and it is certainly an interesting topic for further analysis. As the pioneers begin to share information about their returns from sustainability interventions, managers are more confident to make decisions - because of the increasing body of case study data that is now available in the public domain.

So, are the SME reporting pioneers really benefiting?

According to two separate studies conducted by GRI and IW Financial, the simple answer to this is yes, they certainly are. In fact, GRI’s SME case study found that most small companies said that the value of the reporting process was “much greater than they had anticipated”. The study found that SMEs who began reporting were able to reap all of the rewards that are typically available to larger organisations and that, in many cases, these benefits - such as cost savings, improved focus, resilience and risk identification – are even more valuable to small businesses than they are to large ones. Overall, the facts confirmed that the

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vast majority of SMEs who engage in CR reporting are able to improve and enrich their companies from within, while also attracting investors and acquiring access to new markets and new clients.

What CR reporting could do for your SME

The reporting process gives SMEs the opportunity to grow and improve in both an internal and external capacity. Companies who engage in CR reporting are not only contributing to a better society, but also adding value to their own organisation while doing so. By simply participating in the process of reporting, organisations can: • Improve company vision and strategy • Improve management systems, internal processes and set goals • Attract, motivate and retain employees • Enhance reputation, achieve trust and attract funding • Develop transparency and dialogue with stakeholders • Achieve competitive advantage and become a ‘leader in sustainability.’

Benefits such as these are particularly valuable to SMEs because – unlike larger companies – intangible properties such as reputation and resiliency may not yet have been established by the brand and the opportunity to improve organisational strategy, attract funding, become a field leader in sustainability and gain a

competitive advantage is invaluable to a growing organisation.

Getting Started

Initially, starting the reporting process in a small business may seem a like daunting task, however, guidelines and support literature is widely (and freely) available for organisations of all sizes.

GRI has recently released a reporting booklet for SMEs which breaks the process down into 5 steps and offers simple instructions and thorough checklists for each section, making the process accessible for newcomers and novices alike.

It seems, however, that if current trends are anything to go by, the question will soon no longer be ‘can you do it?’ but rather ‘can you afford not to do it?’ Investors and potential clients are placing greater emphasis on sustainability than ever before, and the benefits that companies stand to gain by following the reporting trend – particularly if they begin early - are hard to overlook.

As a recent KPMG study on new reporting companies put it, “The leaders of companies that do not publish reports should ask themselves whether it benefits them to continue swimming against the tide or whether it puts them at risk.”

Looking at existing trends and at the bigger picture, it seems that this question is set to become as relevant for SMEs as it is for large corporations.

References • • • •

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Yelton, G. GreenBiz, March 2014: What does sustainability reporting mean for smaller companies?

KPMG Survey of Corporate Responsibility 2013, eighth edition.

IW Financial Research Group – Russell 3000 Survey Global Reporting Initiative: Small, Smart and Sustainable - Experiences of SME Reporting in Global Supply Chains (www.globalreporting.org)

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UPDATES & DEVELOPMENTS GRI Linkages The GRI G4 Sustainability Reporting Guidelines (released in May 2013) are designed to be compatible with a range of different reporting formats, and to provide organisations with a set of reporting principles and standard disclosures on strategy, profile, governance, stakeholder engagement, ethics and integrity.

During the GRI Conference last year a recurring message emerged: there cannot be one approach to sustainability reporting, and that complementary frameworks should work together.

Since the launch of the G4 Guidelines, GRI has been working with the UN Global Compact (UNGC), Carbon Disclosure Project (CDP), International Integrated Reporting Council (IIRC), and the International Organization for Standardization (ISO), to develop linkage documents that offer guidance to companies on how to jointly use different reporting and normative frameworks to guide responsible business behaviour and produce robust sustainability reports. Here is how GRI and the above mentioned companies are doing this:

GRI & UNGC Linkages

Using UNGC principles to guide sustainability strategy and actions, and the GRI G4 Guidelines to communicate progress to stakeholders – companies can achieve key, complementary goals: • Embed sustainability strategy within universal principles rooted in international standards

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• Demonstrate commitment and actions in terms of policies, processes, and disclosure • Provide stakeholders with focused, comprehensive and credible information about sustainability impacts and performance • Standardise sustainability reporting

GRI & ISO 26000 Linkages

Both ISO 26000 and the GRI G4 Guidelines have a significant overlap of topics both documents cover with the main overlap being that they both aim at improving organisations’ social responsibility and sustainability performance. By using ISO 26000 in conjunction with the GRI G4 Guidelines, reporters on sustainability have a practical set of tools to measure and report on their social responsibility performance and impacts.

Each of the core subjects in ISO 26000 includes a range of issues of social responsibility. For each issue, ISO 26000 sets forth a number of expectations concerning stakeholders’ interests under the headings “Related actions and expectations”.

For conciseness, the linkages have been made at the ISO 26000 issue level and not at the level of each action and expectation.

However, organisations that want to fully report on the implementation of any of the issues covered in ISO 26000 should carefully review each of the related actions and expectations for that issue and assess which GRI Standard Disclosures are useful for reporting against them.

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UPDATES & DEVELOPMENTS GRI & CDP Linkage Alignments can be found between the G4 Guidelines and CDP’s 2014 Climate Change Information Request. In particular, it enables reporters to use or adapt the same data to both reporting formats. GRI and CDP continue to work together to align best practice and avoid duplication of disclosure effort to ease the reporting burden for the thousands of companies that use CDP’s climate change and supply chain programs and the GRI Sustainability Reporting Guidelines. The linkages document shows how GRI’s G4 Guidelines and CDP’s climate change questions (2014) are aligned, improving the consistency and comparability of environmental data, and making corporate reporting more efficient and effective.

GRI & IIRC Linkage

GRI co-founded the (IIRC) because the future of corporate reporting is the integration of financial and sustainability strategy and results. An integrated report should be the result of an integrated strategy and an integrated reporting process. Understanding the strategic links between financial results and sustainability issues is critical for business managers, and increasingly connected to short- and long-term business success and risk management. Organisations are expected to be able to identify the material sustainability topics to monitor and manage, to ensure positive business performance.

Further linkage documents, including the IIRC’s Framework on Business and Human

Rights, are currently under development and will be announced in due course.

IIRC <IR> Framework & Pilot Program The International Integrated Reporting Framework, published in December 2013, will be used to accelerate the adoption of <IR> across the world. <IR> applies principles and concepts that are focused on bringing greater cohesion and efficiency to the reporting process, and adopting ‘integrated thinking’ as a way of breaking down internal silos and reducing duplication.

It improves the quality of information available to providers of financial capital to enable a more efficient and productive allocation of capital. Its focus on value creation, and the ‘capitals’ used by the business to create value over time, contributes towards a more financially stable global economy.

The Framework was released following extensive consultation and testing by businesses and investors in all regions of the world, including the 140 businesses and investors from 26 countries that participate in the IIRC Pilot Program. The IIRC Pilot Program underpins the development of Integrated Reporting.

The network of organisations participating in the Pilot Program have contributed to the development of the International <IR> Framework and demonstrate global leadership in this emerging field of corporate reporting.

The organisations are leading the way in evolving <IR> from a promising concept to

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a powerful practice with transformational effects not just on the way an organisation reports, but on the way it thinks and acts.

Through the Pilot Programme the principles, content and practical application of <IR> have been developed, and are being tried and tested by businesses and investors. It will run until September 2014.

The purpose of the Framework is to establish Guiding Principles and Content Elements that govern the overall content of an integrated report, and to explain the fundamental concepts that underpin them.

New Framework from CDSB

CDSB’s climate change reporting framework is a voluntary reporting framework designed to elicit climate change-related information of value to investors. Created in line with the objectives of financial reporting and rules on non-financial reporting, the climate change reporting framework seeks to filter out what is required to understand how climate change affects a company’s financial performance.

CDSB’s climate change reporting framework is designed for use by companies in making disclosures in, or linked to, their mainstream financial reports about the risks and opportunities that climate change presents to their strategy, financial performance and condition. CDSB’s intention is that disclosures that comply with the climate change reporting framework

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will be of value to investors. Designed in line with the objectives of financial reporting and rules on non-financial reporting, the climate change reporting framework seeks to filter out what is required to understand how climate change affects a company’s financial performance. The climate change reporting framework, launched in September 2010, has been welcomed as “essential” for consensus building, greater comparability, consistency, transparency and simplicity in climate change reporting.

The climate change reporting framework adopts and relies on relevant provisions of existing standards and practices, including the Greenhouse Gas Protocol and International Financial Reporting Standards as well as reflecting developments in regulatory and voluntary reporting and carbon trading rules.

The Framework is “standard-ready” for adoption by regulators contemplating the introduction or development of climate change disclosure practices.

CDSB’s approach to developing the climate change reporting framework has been to consolidate and complement, but not necessarily to duplicate, those shared characteristics in order to help standardise climate change-related disclosure in mainstream financial reports.

The climate change reporting framework therefore draws on international regulatory developments and supports and enhances

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UPDATES & DEVELOPMENTS

the work of CDSB’s Board members and recognized standard setters.

CDP Climate Change Report

Last year Carbon Disclosure Project (CDP) passed a significant landmark of 400ppm of carbon dioxide in the atmosphere and are rapidly heading towards 450ppm, accepted by many governments as the upper limit to avoid dangerous climate change. CDP’s climate change programme is an investorled initiative to accelerate company action on carbon emission reductions and energy efficiency initiatives.

In 2013, CDP acted on behalf of 722 institutional investors (CDP signatories) representing US$87 trillion in assets. In 2013, the seventh CDP report analysing South African companies’ response to climate change and carbon emissions was published. The CDP Climate Change Report was written by Incite in partnership with the National Business Initiative (NBI).

The report provides a concise analysis of the South African company responses to the CDP information request that was sent to the 100 largest JSE listed companies by market capitalisation.

The report showed the following: • South African companies again demonstrate leadership in their commitment to transparency, their improvements in disclosure, and

the voluntary adoption of emission reduction targets. The South Africa 100 CDP response rate of 83% once again ranks South Africa as the second highest internationally by geographic region. The high response rate has been accompanied by improvements in disclosure across most sectors and indicators, as well as an increase in the number of companies that have voluntarily adopted emissions reduction targets.

• Despite the encouraging disclosure improvement and voluntar y commitments, company actions are not resulting in significant emissions reductions – and there remains great variation in performance between and within sectors. While total reported Scope 1 and 2 emissions have decreased slightly on 2012 emissions, the level of reduction falls short of national and global policy expectations. Most of the reductions are being made in the energyintensive Minerals & Energy sector, with almost all other sectors showing an increase in emissions.

• Companies are generally not reporting and addressing the most material emissions across their value chains.

With the introduction of final, clear guidelines on Scope 3 reporting from the Greenhouse Gas Protocol, it will be desirable to see this changing over time.

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PROFILE

GRI TRAINING IN SOUTH AFRICA

S

outh Africa is one of around 100 countries that now have certified GRI Training Partners who are able to run GRI certified courses and modules. The GRI Certified Training Course introduces GRI and the five phases of the GRI sustainability reporting process.

The training consists of the following: Sustainability context and introduction to GRI • Prepare: Plan your GRI sustainability reporting process • Connect: Dialogue with stakeholders • Define: Focus your efforts • Monitor: Build your report • Report: Check and communicate

The effectiveness of the training program is analysed by GRI based on the following – • The feedback from every participant who attends the training is collected and upon the completion of the questionnaire, the GRI certificates are sent to the participants • The quality control activities for the Training Partners is done through external consultants to evaluate the effectiveness of the course • In the past a questionnaire was sent to all the past participants of the training program and the feedback was collected to evaluate the training effectiveness in relation to the organizations becoming

PROFILE

ready to report. A report “Impact Analysis for GRI’s Certified Training Program” is available on the GRI website www. globalreporting.org GRI also offers introductory training workshops on sustainability reporting.

There are currently two GRI Training Partners in South Africa, the South African Institute of Chartered Accountants (SAICA) and Environment & Sustainability Solutions (ESS). Both SAICA and ESS training courses are GRI certified and participants receive an internationally recognised certificate from GRI on successful completion of the course. GRI is also expanding the network of certified training partners in Africa. The organization opened a call for training partners covering 17 sub- Saharan Africa countries.

For further information please contact: GRI Focal Point, South Africa Douglas Kativu kativu@globalreporting.org +27 (11) 459 1913

SAICA Leigh Roberts +27 11 621 6600 saica@saica.co.za LeighR@saica.co.za

ESS Maryna Mohr Swart +27 (0) 82 395 7582 maryna@ess-sustainability.co.za Seakle Godschalk +27 (0) 82 395 7582 seakle@ess-sustainability.co.za

PROFILE

BARCLAYS AFRICA CITIZENSHIP AND INTEGRATED REPORTING At Barclays Africa, we exist for the purpose of helping people achieve their ambitions – in the right way. We balance our stakeholder’s needs across the short and long term and our activities drive mutually reinforcing outcomes across our stakeholders. Our performance is measured through our balanced scorecard: Customer & Client, Colleague, Citizenship, Conduct and Company.

Our citizenship approach requires that we take decisions which, in the long term, reflect the needs of our customers and clients, shareholders, colleagues and the communities in which we operate.

Citizenship is organised into three areas: the way we do business; contributing to growth and supporting our communities. We have an evolving set of commitments which we aim to deliver by the end of 2015. One commitment is that we aim to be market-leading on transparency – being as open as possible about how we do business with consistent engagement and clear disclosure for our stakeholders.

Our integrated report suite, published annually, serves as the foundation of our communication with stakeholders. Through these reports, we provide commentary on our strategy, governance as well as our performance against our balanced scorecard. As a South African company listed on the JSE, our primary focus is on South African regulatory reporting requirements, including the Companies Act, No 71 of 2008, the Banks Act, No 94 of 1990, the JSE Limited Listings Requirements and the King Code of Governance 2009 (King III). A number of additional international reporting frameworks influence our disclosures such as: the GRI G4 guidelines; the AccountAbility AA1000 sustainability principles; and the International Integrated Reporting Framework.

Our material issues take into account our operating environment, current performance and stakeholder feedback gathered throughout the year. Our executive management and Board deem these issues to be those that most influence our ability to successfully execute our strategy; manage the risks we face and how we create value.

Additional disclosures relevant to special interest groups, including our full financial and risk disclosures, as well as our environmental, citizenship and BEE reviews, can be found online at: www.reports.barclaysafrica.com

INDEX OF ADVERTISERS COMPANY

PAGE 3

Avis Rent A Car Balushi Inc

12

BASF Holdings South Africa (Pty) Ltd

78

Bastian Graphics

142

Barclays

158

Durban Investment and Promotions Agency

40-41 151

Eco Afribuild

68-69

Exxaro Funani Environmental Management Solutions

32

Gold Fields

16

Good Business Framework

99

Gordon Institute of Business Science

104

Grant Thornton Verification Services

46

IDC

OBC

Ithabiseng Environmental Consulting

116

Juta Books and Company (Pty) Ltd Konica Minolta South Africa

94 110 100-101

Muffin Consulting

14; 80

Nedbank Ltd

130-131

Ntumba Inc RM Law

IBC

Shepstone & Wylie

112

Sigil Design Bureau

56

South African Bureau of Standards

26-27

Spring Lights Gas

50-51

Standard Bank (Pty) Ltd

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Routledge Modise combines with Hogan Lovells Global law firm Hogan Lovells has combined with Routledge Modise, one of South Africa’s most highly regarded law firms.

Hogan Lovells helps corporations, financial institutions, and governmental entities across the spectrum of their critical business and legal issues globally and locally. We have over 2,500 lawyers operating out of more than 40 offices in the United States, Europe, Latin America, the Middle East, and Asia.

We offer our clients an exceptional, high quality transatlantic capability, with extensive reach into the world’s commercial and financial centres with distinctive strengths in the areas of government regulatory, litigation and arbitration, corporate, finance, and intellectual property law.

“Both Routledge Modise and Hogan Lovells have proven track records, and this is a merger of expertise and knowledge to ensure that we continue to offer our clients the very best legal services. We have found that we share the same values and approach, providing creative legal and business solutions for our clients with the highest professional standards,” said Lavery Modise, former-Chairman of Routledge Modise and now Chairman of Hogan Lovells in Johannesburg.

“This combination will benefit our clients as it will enable us to meet their evolving needs.”

Approximately 2,500 lawyers / 40+ offices / 25 countries

www.hoganlovells.com “Hogan Lovells” is an international legal practice that includes Hogan Lovells International LLP, Hogan Lovells US LLP and their affiliated businesses. www.hoganlovells.com © Hogan Lovells 2014. All rights reserved.

Standard Bank – A leader in Integrated and Sustainability Reporting

to consistently present a balanced and succinct analysis of our strategy, performance and prospects by focusing on the primary challenges and developments that we believe influence the achievement of our strategic objectives, and thus our ability to remain commercially viable and socially relevant to the communities and countries in which we operate.

Standard Bank is accountable to a broad Standard Bank also issues a comprehensive range of stakeholders – from shareholders, sustainability report, which follows the Global analysts and regulators, to employees, clients, Reporting Initiative (GRI) Sustainability customers and members of the public. We Reporting Guidelines and the GRI Financial recognise that different stakeholders have Services Sector Supplement. different information needs. Investors and We are an industry leader in both integrated analysts might be focused on our bottom and sustainability reporting. Our first annual line, the public may want to assess our integrated report, which covered 2010, was environmental impacts and the extent to which ranked fifth in the country in EY’s 2011 we give back to communities through our Excellence in Corporate Reporting awards, corporate social responsibility programmes, which are based on a review of the Top 100 while our staff may focus on whether or not companies listed on the Johannesburg Stock we have lived up to our aspirations of being an Exchange. Our 2011 report was ranked in employer of choice. thewith Top 10 of EY’s2Excellence in Integrated Hogan Lovells is the only major law firm in South Africa a LEVEL B-BBEE accreditation.

The King III Report in South Africa Reporting awards. Our 2012 integrated report “For years wethat have nurturedincorporate and mentored our staff to independent and recommends companies wasdevelop recognised as the bestthinkers for a financial decision makers, equip themperformance to become leaders. We have revised our overall. policiesEY and fullythat it both financial andto non-financial institution, and third noted embraced empowerment accelerate thepresented transformation process within the firm. measures in their long-termstrategies corporateto strategy. a well-articulated business model As a result wecompanies are now the only major lawthat firm with aclearly LEVELlinked 2 B-BEEE rating, and proudly so.”

It encourages to publish reports to income statement impacts provide a brief yet comprehensive overview and risk metrics with a clear explanation of the Lavery Modise, Chairman - Hogan Lovells, Johannesburg of their performance against key issues. These impact of the economic environment on nonintegrated reports are intended to enhance financial variables. transparency, and provide relevant information Our sustainability report has also received to stakeholders. They typically include acclaim in recent years. Our 2010 sustainability information on company strategy, financial report was runner up for the financial sector in performance, employees, governance, corporate the 2011 ACCA South Africa Awards. In 2012, social responsibility and sustainability. our 2011 report won the best sustainability The innovation in integrated reporting, which reporting award in the financial sector category. was driven by King III, has been echoed in other Our annual reports enable us to demonstrate parts of the world and is driving a change in the where we’re doing well, and how we plan to way companies report. The focus is on those do better. They enable our stakeholders to issues that either shape or enable the company hold us accountable for our performance. And to deliver its strategy and meet the performance they provide us with a valuable opportunity expectations of shareholders. Stakeholders want to connect with the people we serve, and to to see how a company’s leaders have considered communicate how we’re achieving our vision of the impact of socio-economic and environmental being Africa’s leading bank. issues on current financial performance, and the impact those issues might have in future.

Standard Bank’s integrated reports cover our operations in South Africa, the rest of Africa and the rest of the world. They are the result of the combined efforts of many people in the Authorised financial services and registered credit provider (NCRCP15).

The Standard Bank of South Africa Limited (Reg. No. 1962/000738/06). SBSA 6403 – 11/13 group, across various business areas. We aim

To lead the way, is to embrace change