Sustainability and Integrated Reporting Handbook vol2

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Sustainability and and Integrated Sustainability Integrated Reporting REPORTING HANDBOOK Handbook South Africa

South 2015 Africa 2014

REPOR TING ISBN 978062061001-8

ISSN 0251-998X



770251 998807 780620 610018



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Sustainability and Integrated REPORTING HANDBOOK South Africa VOLUME 2 2014


EDITOR Lloyd Macfarlane


EDITORIAL BOARD Lloyd Macfarlane Douglas Kativu Ian Jameson

PROOF READER Dylan Oosthuizen

CONTRIBUTORS Alistair Schorn, Amy Marshall, Angus Ryan, Charmane Russel, Clive Lotter, Dan Sonnenberg, Maryna Mohr Swart, James Brice, Joel Houdet, Lloyd Macfarlane, Michele Mackey, Pieter Conradie, Reana Rossouw, Ronel Buys, Santhuri Naicker, Seakle Godschalk, Yvette Lange LAYOUT & DESIGN & PRODUCTION Nicole Kenny CONTENT MANAGER Christine King MARKETING MANAGER Nabilah Hassen-Bardien



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

ISBN No: 978 0 620 45240 3. Volume 2 - 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 affected the size of certain published images and/or diagrams in this publication. For larger PDF versions of these images please contact the Publisher.




Living green Konica Minolta South Africa believes that environmental sustainability centres around our responsibility to reduce our carbon footprint today for the sake of future generations; promoting business practices that balance the interests of people, the planet, and profitability. All our office devices are developed and manufactured with the objective of continually reducing environmental impact at all stages of the product lifecycle. But it does not end there. 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.

As part of our 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 23,500 fruit and indigenous trees to schools and communities across the country as well as 4,600 bamboo plants. Taking accountability for its carbon footprint has earned Konica Minolta South Africa the status of ‘Carbon Neutral’ for two consecutive financial years, as certified by the Carbon Protocol of South Africa. At Konica Minolta South Africa, we champion in-house ‘reduce, reuse, recycle’ projects. By recycling our waste internally, less than a third ends up in landfill sites. We are now launching a complete toner recycling initiative, with every part of the toner bottle, toner cartridge and imaging unit being recycled.

At Konica Minolta South Africa, being green is part of our DNA. For more information please visit 0800 bizhub (249482)



here have been a number of developments in corporate reporting over the last 18 months with many organisations now having implemented the GRI G4 Guidelines and/or the <IR> Framework. The obvious question should now be: Have these developments had an impact on the effectiveness, quality and or quantity of the sustainability and/or integrated reporting process? Some low level reporting research conducted by GSA Campbell towards the end of 2014 has provided some interesting insights. Has integrated reporting increased effectiveness? Our sense is that the answer is probably yes. The number of Integrated Reports applying the <IR> Framework has grown and many of these reports are demonstrating a truly integrated approach to reporting. Effectiveness has most likely increased, if only because investors and shareholders are now more exposed to sustainability data, which is being presented in a more concise and accessible format. What about quality? The research showed that a large number of companies previously reporting on energy consumption (for example) in their Sustainability Reports were no longer doing so in their Integrated Reports. It’s difficult to believe that these companies did not regard energy as a material issue in the South African context, and so one has to ask whether there might be some important reporting gaps emerging that could be attributed to the convergence of reporting ‘systems’. Companies making use of the GRI G4 Guidelines appeared to demonstrate a substantial approach to materiality. Has the number of reporting organisations increased? The research suggested that within the South African region the number of sustainability reports produced has dropped, but probably because sustainability data is now included in the JSE mandated Integrated Report. However, our impression was that the aggregate number of sustainability and integrated reports produced has increased.

Lloyd Macfarlane Editor

This second volume of the Sustainability and Integrated Reporting Handbook carries an article that provides much more analysis of current reporting trends, as well as many other high quality contributions from thought leaders in the reporting space. We are sincerely grateful to all the editorial contributors that have shared their knowledge, experiences and opinions in this second volume. We are also grateful to those companies that have advertised in this volume - this continues to allow for free circulation of the Handbook to key reporting stakeholders. My personal thanks must go to Douglas Kativu (GRI Focal Point, South Africa and Africa) and to Ian Jameson (IIRC, South Africa and Africa) who have provided guidance and support on the Editorial Board. They have graciously contributed their time and have assisted with distribution. Please provide us with your feedback, or engage with us on social media. We look forward to continuing the dialogue with you.

Sincerely Lloyd Macfarlane



Applying intellectual capital for a value-added client experience Although we have lived with, and sometimes pioneered, the concept of integrated reporting in South Africa, the approach is constantly evolving. Current emphasis on relevance, IT support for <IR> and a sustainable value matrix are just some of the issues companies are dealing with.

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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

• To deliver content that is as accurate, balanced and as independent as possible. • To be fair and inclusive in the process of soliciting and selecting content.

For further information please contact the Editor.

BEYOND PACKAGING At Mpact, we go beyond the ordinary, everyday functional aspect of packaging. For us, packaging is about our passion for exceeding the unique needs of each customer; it’s about being smarter in our approach to exceptional, lightweight packaging design and it’s about being sustainable and environmentally aware in doing what is best for our planet. But mostly, it’s about integrity and forging relationships, ensuring we deliver on our promises and that our customers’ brands remain competitive. We think beyond packaging; just a smarter way of doing business.

Mpact is proud to be included in the JSE’s Socially Responsible Investment (SRI) Index since 2014 and continues to enhance its reporting on sustainability issues.


Michael Meehan Chief Executive Global Reporting Initiative


outh Africa has led the way in acknowledging the critical role transparency and accountability play in fostering sustainable economic growth, with the integration of non-financial and financial considerations playing a central role. The King Report on Corporate Governance and its legacy have given integrated thinking a true foothold in the region. As the world’s largest and most widely-used standard for sustainability reporting, GRI is supportive of integrated reporting as it develops as an important and necessary innovation. Though this concept is in the early stages of evolution, GRI has been involved since its inception, when we co-convened the International Integrated Reporting Council (IIRC). As such, it is our responsibility to continue to further the advancement of integrated thinking in reporting. GRI believes that integrated reporting should incorporate robust sustainability metrics, developed based on a multi-stakeholder approach, alongside, and equal to, financial metrics, to provide information users with a broad perspective on risk. At GRI, we are working with reporters in our network to connect current sustainability reporting practice with the value of integrated thinking, as championed by IIRC and others. The value of reporting isn’t in the report itself - it lies in the process of reporting that enables organizations to understand and communicate their commitments to crucial sustainability issues such as anti-corruption, human rights, climate change, and many others that have a direct impact on long-term corporate value. Regardless of whether this process leads to a sustainability, combined or integrated report, this strategic exercise creates a more complete picture of organizational impacts and performance. Leading South African organizations already recognize the value of this approach and GRI is proud to be at the center of this movement with numerous organizations in the region. I am hopeful this handbook will be a useful contribution to the evolution of integrated thinking and reporting in South Africa and beyond.



A Sustainable Approach to Development Wesizwe Platinum is a public company incorporated in the Republic of South Africa with its shares listed on the JSE Limited. Wesizwe, through its whollyowned subsidiary Bakubung Minerals (Pty). The main focus of Wesizwe is the successful development of our flagship project, the Bakubung Platinum Mine. The mine is located on the Western Limb of the Bushveld Igneous Complex, north of the City of Rustenburg in the North West Province. Directly north of the Bakubung Platinum Mine is the community of Ledig, home to around 17 000 residents.


smaller companies and to also provide dedicated resources to support them to deliver a good service. This work is still ongoing.

akubung Platinum Mine received its mining right in 2009 and officially launched in July 2011 by awarding the shaft sinking contract to Aveng Grinaker-LTA. The first five years of the mine’s life will be focused primarily on capital construction undertaken by contractors and subcontractors. Wesizwe has ensured that in its approach to Sustainability it creates shared value for both the company and its host community. This was done from the beginning of the mining through Social Labour Plans, even though the mine only started with mine development and construction in July 2011. It’s SLP starting in 2008 focused its projects on infrastructure, education, skills development, SMMEs development and access to water. Education and Skills development

Access to water

learners, and focused teaching and learning methods in classrooms for teachers. The company looked at creating opportunities for youth that had finished school by providing post matric support for learners looking to improve their results, ABET for community members, portable skills, learnerships and bursary opportunities. The focus on education also allowed for the company to create a talent pool for some of the LED projects and also for the mine development. SMME development

The educational project was done in partnership with DOE and focused on improving the learning environment in all local schools through: construction of ablution blocks, refurbishing classrooms, working in partnership with READ to improve literacy and numeracy amongst

The company has provided support to local SMMEs in the form of training as well as mentorship. This came about as a result of the challenges the company experienced in terms of providing opportunities to local SMMEs. Challenges ranged from lack of capacity, lack of relevant documentation or certification, ability to compile documents for tendering, planning and scheduling, budgeting and overall financial management as well safety and quality management. This forced the company to work quite closely with these

For more information on Wesizwe Platinum Limited, and the Bakubung Platinum Mine project, visit our website -

Working with Moses Kotane Municipality, and Maseve the company is working on a water infrastructure project that will allow for residents of the local community to get access to water. This project is a long term solution for the water challenges in the local community, and the project will cost the three partners an estimated amount of R22milllion to complete. In the meantime Wesizwe has placed 35 water tanks within the community and fills up the water tanks twice daily to ensure residents continue to get access to water. Wesizwe understands that mining in its nature is not sustainable but can create and contribute sustainable value for its shareholders and communities for the duration of the life of mine. Therefore it is imperative that as we evolve our strategy we ensure that we also look beyond life of mine to leave a lasting legacy for the host communities of Ledig and Phatsima.


Paul Druckman Chief Executive International Integrated Reporting Council


number of forces at work in the world are combining to highlight the power and relevance of Integrated Reporting <IR>. There is a recognized need globally to back movements, such as <IR>, that promote financial stability and sustainable development. Much can be achieved if investment decisions are made on the basis of long-term value creation, especially if corporate behaviour is aligned to this aim. And as business take up of <IR> increases, this is becomingly increasingly evident. When the International <IR> Framework was released in December 2013, <IR> caught the imagination of businesses, investors, regulators, standard setters, the accountancy profession and NGOs world over. Fast forward 18 months and the Framework has been downloaded by 47,000 people, with more than 1,000 businesses globally starting to use the principles of <IR> to help shape their strategy and business models, their risk management and how they communicate the complex and interconnected nature of their operations. Regulators and other bodies are thinking along similar lines. Regulators in countries such as Japan, India and the UK, are among those taking a greater interest in <IR> as a route towards achieving more cohesive reporting and financial stability. The IIRC is now working in the international arena to encourage such bodies to create the conditions for <IR> to flourish. The pace and scale of <IR> adoption is increasing as businesses become aware of its benefits. Publications such as this book will help organizations when they take the next step and start their <IR> journey. South Africa is in a unique position of leadership in the corporate reporting field. Added to this, 2014 saw the endorsement by the Integrated Reporting Committee of South Africa of the Framework as the best tool for approaching Integrated Reporting, and I am delighted that South African businesses have been able to use this to get the most out of their adoption of <IR>. Businesses now look to South Africa for examples, experiences, and insight when they embark on the journey towards <IR>, giving South Africa the opportunity to support the development of <IR> in Africa and beyond. <IR> can achieve greater transparency of material information and present a clearer value creation story, meaning businesses can build and sustain trust not only in their own companies, but also in the capital markets as a whole.





Grant Thornton report

Less than half of South African businesses The findings make for interesting reading are seriously considering switching to green considering the widespread issues that energy sources despite their overwhelming have plagued the country power and water dependence on reliable power and water supply ability. Among the most serious recent developments were a double digit increase in supply to sustain their growth strategy. That’s according to the Grant Thornton electricity tariffs for 2015; continuous power 2014 International Business Report (IBR) shortages; energy supplier Eskom’s financial entitled “Sustainability: Changing the debate crises; and the delay in bringing the Medupi in emerging markets” which surveyed 2500 power station online. In addition a recent water Advertorial from Grant Thornton companies in 34 economies and highlighted supply crisis in urban centres of Gauteng all that South African businesses trying to use points to further concerns relating to the For: Sustainability Handbook sustainable technologies to reduce operating securing of a reliable water supply. costs will face a number challenges.for SA business Loshni–Naidoo for Sustainability Sustainability not aof priority GrantDirector Thornton report the2015 IBR survey the supply of energy was at Grant Thornton Johannesburg said the 21 In April identified as crucial for growth among 85% of challenges facing the energy and water Less than half of South African businesses seriously considering switching to green energy sources South African businesses. However onlyare 43% supply would result in substantial increases to despitethat theirthey overwhelming dependence on reliable and water to sustainand theirthis growth stated would endeavour to switch to power operational costssupply for companies further strategy.efficient alternatives. energy emphasises the importance for businesses to Of the companies surveyed, 74% said the look at sustainable alternatives. That’s according to the Grant Thornton 2014 International Business Report (IBR) entitled availability of raw materials, particularly water, markets” “Even which though we are saying the reliability “Sustainability: Changing the debate in emerging surveyed 2500 companies in 34 was vital to growth and 63% said they would concerns are very high on the list from a South economies and highlighted that South African businesses trying to use sustainable technologies to consider whether it came from sustainable African perspective we are not seeing many reduce operating costs will face a number of challenges. resources. companies switching,” said Naidoo. In the IBR survey the supply of energy was identified as crucial for growth among 85% of South African businesses. However only 43% stated that they would endeavour to switch to energy efficient alternatives.

Of the companies surveyed, 74% said the availability of raw materials, particularly water, was vital to growth and 63% said they would consider whether it came from sustainable resources.



The findings make for interesting reading considering the widespread issues that have plagued the


Naidoo said while there had been a shift towards better monitoring and efficient consumption of key resources, such as the widespread corporate buy-in for reducing carbon emissions, the awareness for water and energy supply alternatives had not been as vociferous. “The report findings do however provide a case for government to incentivise businesses to make the transition to a lower carbon footprint and greener economy,” she said. The IBR report also revealed that business leaders in emerging markets were more focused on the sustainability of their operations compared with their peers in developed markets. Some 76% of the surveyed African business leaders, 72% of the Latin American ones and 67% of the South East Asian ones said the cost of energy was important to their growth strategy over the next 12 months, compared to just over half of Europe. Reliability of energy was also seen as being critical. Businesses in Africa and Eastern Europe cited energy availability as extremely important. As much as 71% of African businesses and 71% of Eastern European businesses cited that energy supply was vital to their growth strategy.

South Africa is one of the main respondents in the report from Africa, being among the largest three economies on the continent. It recognises the need for reliable sources of energy. The report found that South Africa and other African and emerging market countries were too reliant on traditional non-renewable energy sources like coal. This dependence continues while European and North American countries have and continue to shift to green renewable energy sources. Read more about Grant Thornton’s IBR Sustainability report by downloading the full PDF here: articles/sustainability-changing-the-debate-inemerging-markets/

For more information contact Loshni Naidoo Director Sustainability & Integrated Reporting Grant Thornton Johannesburg T +27 (0)10 590 7200 E

Grant Thornton Sustainability & Integrated Reporting Services The sustainability services team at Grant Thornton Johannesburg offers organisations simple and strategic solutions to sustainability management, reporting and assurance. We have the ability and expertise to help you unlock value at every stage of your company’s sustainability journey, from developing your sustainability strategy to reporting on its progress. Contact us to help unlock your potential for growth. | +27 (0)10 590-7200 © 2015 Grant Thornton South Africa. All rights reserved. Grant Thornton South Africa is a member firm of Grant Thornton International Ltd.



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

DOUGLAS KATIVU Douglas heads the Global Reporting Initiative Focal Point South Africa responsible for advancing GRI’s mission in priority countries namely Ghana, Nigeria, Kenya, Mauritius and South Africa. Before taking up the substantive position with the organisation, Douglas served on the GRI 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.



CONTRIBUTORS ALISTAIR SCHORN Alistair is the Managing Director of Sustainability Consulting and an Associate with GSA Campbell Consulting, He is a Faculty Associate at the University of Pretoria’s Albert Luthuli Centre for Responsible Leadership, an external Research Supervisor in the MBA Programme at the Gordon Institute of Business Science (GIBS), and a member of the Adjudication Panel for the Eskom eta Awards for Energy Efficiency. Alistair holds a Masters degree in International Economics, and has researched and written extensively on a variety of subjects including the Green Economy, integrated and sustainability reporting, and corporate sustainability across a number of industry sectors.

AMY MARSHALL Amy is an inter-disciplinary consultant in the field of sustainable development, dedicated to making a difference through her work, with specialist expertise in consulting, renewable energy, food security and climate change. In 2012, Amy joined Camco Clean Energy, where she has worked on complex projects assisting diverse clients with climate finance project identification, sustainability strategies, renewable energy advisory work, GHG emissions profiles, carbon foot printing and climate change policy advisory work. Amy holds an MSc in Environment, Science and Society from University College London (UCL) in addition to a first class Honours degree in Geography and an undergraduate BA (LLB).

ANGUS RYAN Angus is a Business Sustainability Strategist and expert in the waste sector, with GCX Africa. He has developed an interest and passion in the Environmental sustainability sector, by studying further on subjects such as Carbon, Executive Sustainability, Carbon Footprinting and Global Reporting Initiative (GRI). He has held roles in national waste companies, where he was responsible for implementing the requirements of IWMP’s and SAWIS registration. He has developed and implemented waste management strategies, compliant processes and integrated these into companies overall sustainable business strategies. He holds a Bachelor of Physical Education Degree, and an Honours Degree in Biokinetics. .

CHARMANE RUSSELL Charmane Russell heads up investor relations and communications agency, Russell & Associates, which she founded in 1999. The agency offers strategic counsel on communication and reporting strategies and gives expert advice on integrated, financial and sustainability reporting. The company focuses on the resources sector with clients in SA and abroad, and has produced recognized integrated and sustainability reports for numerous clients including AngloGold Ashanti, Mondi, Harmony Gold, Kumba Iron Ore, Anglo American Platinum, Northam Platinum and Sibanye, among others. Charmane has a BA, and MBL, and has participated in a number of courses at Harvard Business School.



The Ecological Impact of glasswool Insulation Under the United Nations Framework Convention on Climate Change (UNFCCC) and its Kyoto Protocol, South Africa committed to contributing its fair share to global greenhouse gas (GHG) mitigation efforts. South Africa has committed itself to an emissions trajectory that peaks at 34% below a “Business as Usual� trajectory in 2020 and 40% in 2025. It is critical that average global temperatures do not rise above 2 degrees Celsius from pre-industrial levels in order to avoid the most severe social and environmental consequences. Each Built-in ton of Isover glass wool insulation helps us save 6 tons of CO2 every year. The discarded waste glass by industry & households is turned by ISOVER into a valuable raw material. ISOVER glass wool consists by about 80% of recycled waste glass. The other ingredients such as quartz sand, soda ash and limestone are virtually inexhaustible resources. The use of glass wool does not only help meet the Kyoto target but also realize energy-efficient living all around the globe. Just consider: The production of 1 ton of glass wool releases about 0.8 tons of CO2. The annual CO2 savin g that can be realized by building in glasswool amounts to as much as 6 tons. Assuming a useful life of 50 years, we can thus save up to 300 tons of CO2. And this is 375 times as much as the CO2 emission caused by production.

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CONTRIBUTORS CLIVE LOTTER Integrated and sustainability reporting consultant, Clive Lotter offers an end-to-end advisory and writing service for corporate reports. In the past two years he has written numerous GRI G4 and IIRC <IR> framework “six capitals” reports, based on current best practice. Clive is an accredited editor, a thought leadership columnist on corporate reporting and prepares business proposals for projects such as solar power plants. Over the past 19 years Clive has written or edited innumerable annual reports for corporations in every sector of industry. Clive is the chairman of the Southern African Freelancers’ Association (SAFREA) and a member of the Professional Editors’ Group (PEG).

DAN SONNENBERG Dan’s experience over the past two decades has been hunted and gathered while trying to understand how people live in relation to their environment. Focussed by his ecological background and a committed interest in the land and its people, this experience is deployed assisting clients in the development and execution of sustainable development strategies, particularly for companies in the extractive sector. In developing these strategies, Dan emphasises the importance of clarity of thought, conciseness of speech and prose, and simplicity of execution. While Africa is a key focus for him, Dan’s knowledge of other territories is growing, for example the Middle East. His adventurous temperament is useful in kick-starting projects in remote regions; this spirit is useful in the boardroom too.

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 that helped develop the IFAC International Guidance Document on EMA. She represents South Africa on the International Standards Organisation workgroup for the development of an international standard on Material Flow Cost Accounting under the ISO 14 000 series. Maryna is currently co-owner and executive director of Environmental & Sustainability Solutions (ESS) consultancy.

JAMES BRICE James Brice is the founder and Managing Director of Environmental Business Strategies (EBS), the leading pan African sustainability adviser to institutional investors. His 20 years’ experience spans almost every sector of business and every global Environmental, Social and Corporate Governance (ESG) standard. Prior to starting EBS, Brice established and oversaw the Sustainability and Integrated Reporting services for Grant Thornton from 2009 to 2012. This was preceded by a three-year period as Senior Vice President of Marsh Environmental Services (MES). Brice holds a holds a B.Sc. in Chemical Engineering and a Masters degree in Environmental & Civil Engineering.



CONTRIBUTORS JOEL HOUDET Joël is an expert on corporate natural capital accounting, valuation and reporting including the drafting of the Natural Capital Protocol and several work streams of the Intergovernmental Platform on Biodiversity and Ecosystem Services (IPBES). He holds a PhD in Management Sciences from AgroParisTech (France), a Masters in Practicing Accounting from Monash University (Australia) and a Bachelor of Sciences from Rhodes University (South Africa). He manages Integrated Sustainability Services, a consulting firm based in Johannesburg, where he has acquired more than 4 years of experience in sustainability reporting, biodiversity offsetting, cost-benefit analysis, economic impact assessments, and independent reviews.

MICHÈLE MACKEY Michèle Mackey is Director at Envisage Investor and Corporate Relations. Her qualifications include a BA Hons (German), BA Hons (Translation) and MA (Dunelm). Michele has 11 years’ investor relations experience, the major portion of which has been gained at Envisage. She started her career as a junior analyst at Commerzbank Securities London (retail equities) and was later a corporate researcher for Business Monitor International (BMI) London.

PIETER CONRADIE Pieter is the Programme Director: Integrated Reporting at the University of Pretoria. He is a chartered accountant by training and he is currently studying towards his Masters in the field of Responsible Leadership. He previously worked as a teacher, accountant, auditor and management consultant a variety of Public and Private sector organisations.

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 sustainable business development. Reana’s areas of expertise are in creating and implementing strategies and brands for innovation; growth and sustainability. This is aligned with the vision of Next Generation Consultants - to significantly contribute to the continuous economic transformation of South Africa through the work they do – and to do it in an economically, socially and environmentally responsible way.



CONTRIBUTORS RONEL BUYS Ronel Buys is an associate director in the Accounting Consulting Services division at PwC where she specialises in International Financial Reporting Standards (IFRS) and Integrated Reporting. Ronel is a qualified Chartered Accountant (CA(SA)) and a member of the Chartered Institute of Management Accountants (ACMA). She has contributed to a number of corporate reporting publications. In 2012 she moved to the Accounting Consulting Services division in Brussels where she worked on International Financial Reporting Standards (IFRS) as well as Integrated Reporting assignments.

SANTHURI NAICKER Santhuri is the coordinator and leader for the Global GHG Inventories strategy team. At Camco, she has worked on various projects, including the Carbon Disclosure Project, Water Disclosure Project, CDP Supply Chain, Clean Development Mechanism, GHG Emissions Analyses, development of the Carbon Calculator and Sustainable Development and Renewable Energy research. Santhuri holds a BSc Hons in Environmental Science and has completed her training in ‘Fundamentals of Energy Management’. She is currently studying for her MSc in Energy from the Heriot Watt University, Edinburgh.

SEAKLE GODSCHALK Seakle Godschalk is a professional environmental scientist with post-graduate qualifications in science and accounting. He established and headed 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.

YVETTE LANGE Yvette is an Associate Director within the PwC Sustainability and Integrated Reporting team. Yvette is a qualified Chartered Accountant and Certified Internal Auditor with expertise in control assurance & analysis, risk management, governance, integrated reporting and nonfinancial assurance & advisory. Prior to joining the Sustainability and Integrated Reporting team as a Manager, Yvette was part of the PwC Governance, Risk & Compliance team where she gained specific key expertise in Internal Audit and the Consumer and Industrial Products & Services and Public Sector industries.




Review of 2014 Sustainability Reporting trends and forecast for 2015 Reana Rossouw



GRI G4: Comparability, Materiality and Sustainability Context Alistair Schorn


Integrated reporting on natural capital Joel Houdet and Pieter Conradie


Trends in Integrated Reporting Ronel Buys and Yvette lange


How responsible disclosure drives responsible investment Michèle Mackey


Improving sustainability performance along the supply chain/ value chain through sustainability reporting Maryna Mohr Swart and Seakle Godschalk


Sustainable value Clive Lotter


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Audit • Tax • Accounting B-BBEE Verification

You will be hard pressed to find a better balance of experience, knowledge and innovative enthusiasm Tuffias Sandberg KSi provides a wide range of services that span: Auditing, Tax, Company Secretarial, Accounting & Payroll, Independent Reviews, Compilations, B-BBEE Verifications, Corporate Consulting & General Business Advisory Services, Due Diligence Examinations & Forensic Investigations, Estate planning & Administration of Deceased Estates, Exchange Control, JSE Listing Requirements and JSE Reporting Accountants, Sustainability & Integrated Reporting Greenstone Hill Office Park, Building No 8 Emerald Boulevard, Greenstone Hill Ext 22, Edenvale Tel: +27 11 524 9700

CONTENTS 8 9 10 11 12 13 14

Creating shared value (CSV) in the African context Charmane Russel


The value of effective stakeholder engagement in integrated and sustainability reporting Reana Rossouw


The correlation between financial and non-financial performance James Brice


Value propositions Lloyd Macfarlane


Encouragong a two-phase approach to supply chain reporting Santhuri Naicker and Amy Marshall


The progression of CSR to CSV Angus Ryan


Why reporting hasn’t saved the world and probably never will Dan Sonnenberg





Reana Rossouw




aking sustainability reporting the expected practice, would increase the number of reporting companies, enhance the volume and quality of data available, raise awareness about sustainability issues among investors and the public, and generally ensure a more level playing field.” Companies are increasingly required to provide a transparent and fair valuation to all interested parties of their performance on social, economic, environmental and governance aspects. They are also expected to illustrate and validate their contributions to and impact on the overall sustainability of local and global economies. Investors, consumers and other stakeholders are becoming better informed and more critical about how economic value is created and/ or destroyed. They are also more acutely aware that value is no longer just a factor of fiscal inputs and outputs. A company’s sustainability report is, more than ever, seen as a critical and indispensable tool through which to communicate, transparently to all stakeholders, their impact on the economy, society and the environment. A sustainability report is not just a report that is produced at the end of a reporting period from data collected from internal sources, but rather an output of the sustainability reporting process that starts with integration of sustainability principles into business strategies. The Global Reporting Initiative (GRI) has published their Sustainability Reporting Guidelines G4 in May 2013. “The aim of G4...was simple: To help reporters prepare sustainability reports that matter, to ensure that Sustainability Reports contain valuable information about the organization’s most critical sustainability-related issues, and make such sustainability reporting standard practice.” It is still too early to accurately assess whether the quantity and quality of


reports in South Africa, and globally, have improved as a result of G4. However, Next Generation Consultants have identified a number of interesting trends from studying and evaluating sustainability reports as well as reviewing other information sources over the past 12 months. This article explores some of the current trends in sustainability reporting and provides an outlook for 2015.

2014 Trends in Sustainability Reporting The Good News

Trend 1: GRI G4 Guidelines More companies are explaining their material issues and risks, ‘how they determined their material issues and risks’, ‘where these material issues and risks occur’ and how they derived the content of their sustainability reports. This is an indication that more companies are using the GRI G4 guidelines more explicitly to produce their sustainability reports. Trend 2: Supply Chains In 2013 – 2014, companies started reporting on material issues in their supply chain for the first time. While the number of companies reporting on these issues is still small, they have at least started to identify and describe the material issues (as well as risks and opportunities) in their supply chains and how they are planning to improve reporting on these in future. Trend 3: Comparability The ability and need to compare Sustainability Reports in terms of quality, content and materiality is becoming a reality. This year alone saw at least eight industry reports highlighting the most material issues per sector e.g. the construction sector, the transport and retail sectors, etc. Comparability provides stakeholders



with the opportunity to compare “apples with apples” when looking at different companies’ sustainability reports within a sector. Additionally, globally, high-impact sectors such as Aluminium, Oil and Gas, etc. produced sector reports that deliver insight into core material issues for all stakeholders. Trend 4: Increased Reporting The rate of sustainability reporting amongst the G250 (250 of the Fortune Global 500 companies) increased from 35 % in 1999 to 93 % in 2013 with an overall increase in all continents. The overall quality of reports has also improved. These improvements could be ascribed to a number of factors, e.i. • Companies are starting to understand the value of sustainability reporting in the context of e.g. providing better information to investors and demonstrating the interrelated and interconnected nature of non-financial issues (e.g. public policy, labour relationships, community impacts, brand and customer satisfaction) and long term financial performance. • Some countries have introduced sustainability reporting requirements in their policy frameworks, thus increasing the implementation, consideration and production of sustainability reports. • South Africa has also seen an increase in the quality and quantity of sustainability reports produced by companies, even though it is by no means a compulsory requirement. Trend 5: Sustainability Process More and more companies are realizing that a sustainability report is not a document produced at the end of a reporting period or financial year, but that sustainability reporting is a continuous process that starts with integration of sustainability principles into business strategies.


The process requires companies to: • Determine what is relevant to a business and what is material for investors to make a fair assessment of potential value creation and, therefore, influence the investment decision. • Evaluate the interconnectedness and relationships between economic, environmental and social aspects of the business. • Understand and consider how to present comparable information that indicates progress (performance targets and indicators) towards greater sustainability over time to stakeholders. • Ensure they present clear, accurate and reliable information in a format that is relevant to each stakeholder group’s reasonable expectations and specific information requirements. Trend 6: Subscription to Norms and Standards There is an increase world-wide (and in South Africa) in the number of companies that subscribe to and adopt various international frameworks, most notably The UN Global Compact, the Organization for Economic Cooperation and Development (OECD) Guidelines for Multinational Enterprises and the Universal Declaration of Human Rights, the Global Reporting Initiative (GRI) and the Corporate Sustainability Reporting Coalition (CSRC). This is a clear indication that companies are becoming more committed to sustainability reporting and to producing better quality reports that are aligned to international norms and standards. Trend 7: Business Size Smaller companies are increasingly starting to adopt sustainability reporting voluntarily as standard business practice. This is driven by the need to enhance their own credibility




3M EMBRACES SUSTAINABILITY It is expected there will be more than 9 billion people on the planet by 2050. Balancing how we address the environmental and economic factors with the personal needs of individuals and their communities becomes increasingly important -- and increasingly challenging. But 3M takes this in their innovative stride. “Social and environmental stewardship is core to the sustainability of our business and our vision for growth: 3M Technology Advancing Every Company, 3M Products Enhancing Every Home, 3M Innovation Improving Every Life.” said Ismail Mapara, 3M South Africa’s Managing Director. 3M supports education programmes that reach more than 7.6 million young people each year through innovative giving in education, community and environmental programmes … and has been doing so for decades. In 2014 for their worldwide energy conservation efforts, 3M earned the U.S. Environmental Protection Agency’s ENERGY STAR® award. This was the 10th consecutive year 3M received the honor, an industry first. They were also once again listed on the Dow Jones Sustainability Index. The company has launched new products with sustainability advantages including: energy-efficient films for tablets, Post-it® Greener Notes, 3M™ Novec™ Engineered Fluids, Scotch-Brite® Greener Clean Heavy Duty Scrub Sponge and Scour Pad, 3M™ Littmann® Classic III™ Stethoscope, 3M Petrifilm™ - Rapid Yeast and Mould, 3M™ Floor Pads with Recycled Content and that’s just a small taste of what this innovative company has contributed to Social Sustainability. • Safety and health products factoring comfort, attractive design, integrated


design and ergonomics which helps ensure personal safety and health. • Scotch-Brite® Greener Clean products address environmental waste by using waste fibers from tequila production, and farmers realise a new form of income by selling what was once considered waste! 3M is known for its commitment to innovation. “We’re innovative in HOW we invent — seeking out ways to improve our processes. Moreover, we share our best practices in an effort to pay it forward.” says Mapara Starting with technology and culminating with the improvement of every life, 3M are committed to driving a growing business while supporting the personal growth of everyone on the planet. Learn more about 3M’s creative solutions to the world’s problems at

Post-it® Greener Notes


Scotch-Brite® Greener Clean Scourers made from waste fibres of the Tequila Plant


in the market place, as well as to remain competative suppliers to multi-national companies. These multi-nationals expect their suppliers to report on all sustainability aspects of their businesses.

The Bad News

Trend 8: Communication to Stakeholders While more companies than before are producing sustainability reports, not all of them communicate the content thereof to the relevant stakeholder groups. These companies believe that ‘stakeholders who are interested will find out for themselves’. They, therefore, make little or no real effort to share their sustainability journey. These same companies report that ‘nobody reads our reports’. Companies need to ensure that each stakeholder group is aware of the contents of the report and that access is provided in the right format per stakeholder group, e.g. in electronic or printed format, or tailored to specific stakeholder groups. Trend 9: Most Material Issues Many companies still focus on too many ‘non-material matters’ at the cost of issues that are critical to the future survival of their companies. This leads to “cluttering” sustainability reports with unnecessary irrelevant information and the exclusion of information that may be critical for decision making by e.g. investors. “ An integral part of the GRI framework is the implementation of a rigorous materiality process to determine and report content and select indicators for disclosure. What is material for one business or sector may not necessarily be (as) material for another business or sector. Companies, therefore, need to identify what is material in the context of their own business and/or sector and only report on these.


Trend 10: Performance vs Sustainability Many companies report on performance aspects that do not address real sustainability issues. Further it is noticeable that sustainability reporting on specific performance indicators does not illustrate significant changes year on year and companies, mostly, still fail to explain why performance targets are being missed. In many cases, these performance targets are set by the company itself. It is critical, therefore, that companies analyze and understand what they need to report on to illustrate their grasp of the long term sustainability issues of their businesses. Trend 11: What is Impact? ‘Impact’ is still misunderstood by many companies. While some companies attempted to define their most material issues (generally a list of issues), very few companies are able to explain both the positive and the negative impacts that their activities have on society, the environment and the economy. This shows that companies still look at reporting as an overview of activities of the past year and that they do not understand the purpose of sustainability reporting, i.e. to account, transparently, for either the contribution or enhancement of positive economic impact, and or negative and detrimental impact on the environment. Trend 12: Meaningful Stakeholder Engagement In 2014, many companies missed the opportunity to report meaningfully on stakeholder engagement. These companies continued to publish tables listing identified stakeholders and general methods of engagement. This information does not illustrate for example: • How stakeholders were identified




• How stakeholder expectations were extracted • How material issues were prioritized • How the company responded to stakeholders expectations or priorities • The commitment of the company to deliver to these stakeholder expectations Meaningful stakeholder engagement as part of the sustainability reporting process, therefore, still needs to be adopted more broadly. Trend 13: Human Rights Very few companies are yet considering issues related to human rights. While there is an increase globally in the adoption of global standards, e.g. the United Nations Global Compact and Universal Declaration on Human Rights, companies still fail to monitor, measure and report on any negative human rights aspects of their operations, or those of their suppliers. Industries that most notably do not report on these impacts include the mining, oil and gas and extractive industries. Some industries have not even yet identified what they deem to be human rights issues or what they consider human rights risks or opportunities. Going forward, companies need to come to grips with the real risks in their different operational regions/ geographic contexts, industry contexts and legal contexts. Trend 14: Integration Companies still fail to indicate or explain the link between sustainability and core business activities, and they have not yet made the transition to measuring business performance through balancing the three pillars of sustainability, i.e. economic, social & community and environmental impacts. These companies are unable to develop a company-specific business case or identify


the right business priorities that will contribute to greater future sustainability of their businesses. Trend 15: Governance Although the GRI G4 guidelines have been extended significantly in this aspect, too few companies understood the importance of these reporting requirements in 2014. Many companies either chose to only report on the GRI G4 Core option, which has minimal governance reporting requirements, or they failed the completeness test in reporting fully, even on minimal disclosure requirements.

Outlook for 2015

A number of opportunities exist for companies to improve their sustainability reporting in 2015. Some of the key opportunities that Next Generation Consultants have identified include the following. Growth of Integrated Reporting It is unfortunate that there is an apparent growth in integrated reporting at the expense of sustainability reporting (particularly in South Africa). It is important for companies to understand how investment portfolios are managed and communicated to investors and shareholders, through both integrated and sustainability reports. In addition, they need to understand that both forms of reporting are essential, and that the sustainability reporting and integrated reporting processes should run in parallel, as there are overlaps in the stakeholders consulted and the data utilized to develop the reports. Reporting within companies is still typically performed by financial divisions and, because integrated reporting is aimed at ‘providers of capital’ i.e. the financial market, these stakeholders are deemed





more important than other stakeholders. Further, traditional forms of reporting regarded non-financial issues or aspects of the business as ‘soft’ issues that are not relevant or important to the financial market. In many cases, sustainability reporting still lags behind as companies lack the processes and systems to measure key performance indicators across a variety of business aspects such as water, energy, social and community or even environmental and human capital. The Value of Sustainability Reporting Considering the value of sustainability reporting, companies will do well to realize that producing a sustainability report is neither a marketing activity nor only relevant to external stakeholders. The real value of sustainability reporting lies in turning it into an internal management tool that guides the day to day activities within the organisation. Capacity Building Companies can improve their competitive advantage through implementing robust sustainability reporting processes. In order to achieve this, companies need to: • Invest in creating greater awareness of the importance of a sustainable business and sustainability reporting amongst their staff • Development internal knowledge and skills in sustainability management and sustainability reporting • Create platforms for mentorship and coaching to build capacity within companies and sectors • Contribute to the mainstreaming of high quality sustainability practices and reporting.


The Importance of Sustainability Both Up and Downstream Consumers have voted with their wallets and indicated that they are interested in understanding a company’s impact on society/the environment whether it be positive or negative. Customers and consumers are, therefore, becoming more aware of what companies do to mitigate their impact, or how they plan to leverage resources, develop new products and services or enter new markets. They want to have easy access to information so that they can respond and make informed decisions. Companies also need to understand that their reporting boundaries should include suppliers. Suppliers cannot function without the companies they supply to. Their own sustainability is ultimately dependent on the sustainability of their clients. Therefore, reporting on a company’s outputs without considering both upstream and downstream stakeholders, will influence and impact risks. Companies need to have an increased understanding of their circle of influence. By mapping their business models and value chains in their sustainability reports, companies will not only allow internal and external stakeholders to better understand their businesses, the reach and extent of their influence, but they will also be forced to reconsider the most material and priority issues that require attention. Systems and Tools While the demand for sustainability reporting skills and expertise is increasing, there is still a need for the development and fine-tuning of sustainability reporting tools. Software that supports the sustainability reporting process is a growing industry and needs to provide reporting organisations



with support for various reporting frameworks that is aligned to the relevant industry specific standards, requirements and norms. These tools should support the integration of financial data (especially from legacy systems) as well as sustainability data from various other information sources. Where previous generations of software mainly focused on environmental or economic data, the newer generation of tools need to incorporate additional social, human rights, health & safety and product responsibility data as well as needing to make provision for the integration of carbon footprint and offset data and supply chain data, amongst others.


There can be no doubt that sustainability and sustainability reporting are key and critical to the future of a company. Sustainability


is all about the future and sustainability reports were never, and will never be, about a historic context. Companies can gain a significant competitive advantage through developing and implementing sustainability reporting processes that are concluded annually with a high-quality sustainability report that provides the right information to the right stakeholders, in the right format. The sustainability report should provide more information on the strategies and direction of a company, as well as insights into how the company will become more sustainable in the future. Even though the future is uncertain, stakeholders, particularly the financial sector - which is of critical importance to producers of sustainability reports - are increasingly interested in reading, understanding and knowing about the future value creation process, activities and priorities of a company.

References • accessed 1 Oct 2014. • • The KPMG Survey Of Corporate Responsibility Reporting 2013…accessed 1 Oct 2014. • Sustainability — what matters? Governance & Accountability Institute, com/fileadmin/user_upload/Reports/G_A_sustainability_-_what_matters_-FULL_REPORT.pdf. •



The fuTure ain’T whaT iT used To be... And neITher Are emergIng mArkeTS Jon duncan Head of SuStainability ReSeaRcH and engagement, old mutual inveStment gRoup

Sustainability pundits might argue that the US major league baseball player Yogi Berra, who coined the phrase “The future ain’t what it used to be”, was a far-seeing hippy and that he knew way back in the 1980s that our vision of the future needed some rearranging. In the same decade, the now famous Brutland Commission defined sustainability as “meeting the needs of today’s generations without compromising the ability of future generations to meet their needs”. As far as definitions go it’s relatively young, especially when compared to the much older interpretation of investment, which is generally understood as putting “money” into an asset with the expectation of capital appreciation, dividends, and/or interest earnings. Combining these two ideas is the challenge of sustainable investing. On the face of it, the most obvious conflict here is the issue of time frames. Sustainability requires a multi-year, perhaps even multi-decade, time horizon, while investors are increasingly short term, often demanding investment returns over a three-month period. Such is the disparity here that some argue that to reconcile these divergent time horizons requires a review of how a market economy measures the health and vibrancy of a nation in terms of growth.

“The BruTland Commission defined susTainaBiliTy as ‘meeTing The needs of Today’s generaTions wiThouT Compromising The aBiliTy of fuTure generaTions To meeT Their needs’.”

One of the main measures of economic health is gross domestic product (gdP) in absolute terms, or gdP per capita as a relative measure. This unit of measure, while instructive, is problematic since it does not effectively account for the cost of externalities. As a result, long-term systemic risks to prosperity such as pollution, social inequality and health, for example, are not effectively “priced” into this growth model. Without mechanisms to reflect these negative unpriced externalities, our ability to steer the economy onto a sustainable path is seriously compromised. It’s like driving a car that overheats and has no temperature gauge! Consider the challenge of externalities in the case where a company’s products cause costly ill health. Without the costs associated with the resultant ill health being “priced”, the company is free to make profits at the expense of the consumer. Our economic system comes to the rescue in this instance when healthcare insurers or governments begin to absorb these costs. At that point mechanisms are found to price the risk, tax it (such

as sin taxes) or limit market access (age restrictions and availability). however, introducing the price of externalities into the market is no easy task and one that is usually accompanied by lengthy and costly legal battles over issues such as the science of causality, individual rights, and informed choice. It is fair to say that it is the right of profit makers, within the current rules of our economic system, to fight any moves to price externalities.

“The ConCepT ThaT we are in faCT planTing The seeds of our own desTruCTion is a Curious one ThaT presenTs invesTors wiTh a Conundrum.”

notwithstanding debates about the validity of science and government inaction, the perception of many global business leaders is that sustainability risks are on the rise and that they constitute significant risks to the economy. The World economic Forum (WeF)’s global risks Perception Survey asks respondents to name their top five risks out of a list of 31 risks. Interestingly, or perhaps gloomily, seven of the top 10 risks (see page 3) from the 9th edition of the survey are easily identified as sustainability risks, many of which exist as unpriced externalities. world eConomiC forum’s gloBal risks perCepTion survey 1. Fiscal crises in key economies 2. Structurally high unemployment/ underemployment 3. Water crises 4. Severe income disparity 5. Failure of climate change mitigation and adaptation 6. greater incidence of extreme weather events (e.g. floods, storms, fires) 7. global governance failure 8. Food crises 9. Failure of a major financial mechanism/ institution 10. Profound political and social instability Source: global risks Perception Survey 2013 - 2014 note: From a list of 31 risks, survey respondents were asked to identify the five they are most concerned about.

What is important about this list is that these risks are perceived as having significant impacts on the stability of long-term economic growth. Furthermore, a review of the survey results from the past five years seems to imply that business leaders are slowly waking up to the idea that it is the very same externalities generated by our current economic growth model that threaten our ability to generate stable long-term growth. The concept that we are in fact planting the seeds of our own destruction is a curious one that presents investors with a conundrum. The recent decision by the mexican government to significantly tax junk food and sugary drinks illustrates this investment conundrum well. In 2013 the Un Food and Agricultural Organisation indicated that 33% of adults and almost 10% of children in mexico are obese. One of the primary causes of obesity is the excessive consumption of foods high in sugar, fats and salts. With an already huge, and increasing, national healthcare burden the government has stepped in to deal with this externality. From an investment perspective, the story was well covered, with many analysts quantifying the negative impacts on food producers, as well as the opportunity set around nutritious foods/ natural sweeteners. In the long run investors in the food sector will have to make a call on which producers to back. With enhanced disclosure becoming the norm, for those pursuing a sustainable investment approach, this is becoming an easier call to make. Investors can coast along and try to anticipate how and when investee companies will be required to internalise the cost of externalities – downside risk approach – or they can look to the opportunity set that emerges from looking at the world through a sustainability lens. The World Business Council for Sustainable development has indicated that the market for solution providers in the low carbon energy, water, sustainable food, education, healthcare

“ConneCTing The doTs BeTween The invesTmenTs we make Today and The fuTure world we will live in is possiBly one of The more vexing Challenges faCing The invesTmenT indusTry as a whole.�

and natural resources sectors could be between US$2 and US$10 trillion annually by 2050. Focusing on this opportunity set is, in essence, what sustainable investing is about, making investments in assets that contribute to building a long-term socially equitable, ecologically stable and economically vibrant society, while at the same time minimising externalities. Sustainable investing has some way to go before it too becomes a mainstream investment style. key to this is a need for cohesive action across the full spectrum of the investment value chain: from issuers, asset managers and capital providers to exchanges and regulators. much of the early efforts in this arena have been captured under the banner of responsible Investment (rI) and codified through initiatives such as the United nationssupported Principles for responsible Investment (PrI), and locally through the Code for responsible Investing in South Africa (CrISA).

These initiatives are important as they raise the profile of long-term environmental, social and governance (eSg) risks. however, rI efforts should not be conflated with offering investors direct exposure to core sustainability growth themes. In the context of South Africa, the government’s national development Plan provides a useful framework for understanding what the building blocks of a long-term sustainable economy are. From an investment perspective, getting exposure to these key themes, however, requires investors to look beyond the listed equity market into the alternative investment and fixed income arenas, both of which offer access to themes such as low carbon energy, education and affordable housing. Connecting the dots between the investments we make today and the future world we will live in is possibly one of the more vexing challenges facing the investment industry as a whole. marrying the science of sustainability with the art of investing (or perhaps vice versa) may well be one of the means to do so.

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Comparability, Materiality and Sustainability Context

Alistair Schorn




he release of the GRI’s G4 Reporting Guidelines in May 2013, has resulted in a significant degree of debate regarding various aspects of these Guidelines, particularly in terms of the differences between G3 and G4. One of the most striking elements of the G4 structure is its considerably elevated focus on the principle of materiality. In the G4 Guidelines, Material Aspects (or issues) are defined as those that reflect an organisation’s significant economic, environmental and social impacts; or that substantively influence the assessments and decisions of stakeholders. Furthermore, the Guidelines state that, in order to determine whether an Aspect is material, qualitative analysis, quantitative assessment and discussion are required. In this regard, the G4 Guidelines do appear to define the Materiality determination process in a relatively comprehensive manner, referring as they do to four steps in this process, namely Identification, Prioritisation, Validation and Review. Each of these steps is required (and relatively comprehensively defined) under the G4’s heading of the Process for Defining Report Content. In the execution of these steps, the Guidelines also appear to require reporting entities to consider the Principles for Defining Report Content, namely, Materiality, Stakeholder Inclusiveness, Sustainability Context, Completeness and Balance. Within the G4 Guidelines, the increased level of focus on the issue of Materiality would, on the surface, appear to be a desirable development as reporting entities that apply a rigorous Materiality determination process should find themselves in a position to effectively identify the most relevant issues on which to report. At the same time, it would equally appear that the G4’s Materiality focus might


run the risk of reducing Comparability, as the unique nature of each reporting entity is likely to result in them identifying a somewhat unique set of material issues. One of the inherent dangers in this highly Materiality-focused structure, of course, lies in the fact that self-defined Materiality can prove highly detrimental to comprehensive and accurate reporting and to the use of such reporting as a tool to evaluate the true overall sustainability impact of a reporting entity. This is because it provides these reporting entities with an opportunity to select and report on those indicators that reflect most positively on them, and to avoid those issues in which their performance is possibly less than exemplary. This danger is potentially reinforced by the structure of the G4 Guidelines, which unlike its predecessor, does not determine a minimum number of performance indicators, or a sub-minimum of indicators in various categories (economic, environmental or social) against which companies should report. The natural counterpoint to these risks would of course appear to lie in the Principles for Defining Report. The effective application of these principles, and in particular the principle of Stakeholder Inclusiveness, should serve to deliver a report that provides a balanced view of the reporting entity. It can safely be assumed that a comprehensive list of stakeholders, each of which is fully engaged in the reporting process, will not be satisfied with a report that falls short of accurately reflecting their views and concerns regarding the reporting entity and its impacts. At the same time, however, this process remains dependent upon the effective incorporation of these principles, and in particular the most outward-looking of these, namely Stakeholder Inclusiveness, into the activities of a reporting entity.



Furthermore, the development of an inclusive list of stakeholders is of course no guarantee of an effective process of engagement with these stakeholder groups. Moving on to the issue of Comparability, it would appear that, in spite of the seemingly mutually reinforcing nature of the Principles and Process for Defining Report Content, critics of the GRI, and in particular of the G4 Guidelines (McElroy 2013, Thurm and de Ruiter 2014) consider the focus on Materiality as significantly compromising a number of other sustainability reporting principles, most notably that of Comparability. Comparability is not included amongst the Principles for Defining Report Content, but is instead mentioned as one of the G4’s Principles for Defining Report Quality. Under this heading, the primary emphasis would appear to be on the ability to compare the current performance of a reporting organisation against its past performance in a particular sphere, with comparability against the performance of similar organisations being relegated to a secondary level of importance. In this regard, the GRI G4 Implementation Manual states that “Comparisons between organisations require sensitivity to factors such as differences in organisational size, geographic influences, and other considerations that may affect the relative performance of an organisation. When necessary, report preparers should consider providing context that helps report users understand the factors that may contribute to differences in performance between organisations”. This relative lack of emphasis on comparability between reporting organisations would appear to be a key element of the criticism that has been directed towards the G4 Guidelines, particularly in the absence of any minimum level of reporting against performance


standards. With regard to this issue, Thurm and de Ruiter (2014) state that “we really doubt that consistency in reporting can be delivered in a way that comparability will at all become realistic with the current indicator set”. At first glance, however, an analysis of the G4 Guidelines would suggest that the structure of the Guidelines do lend themselves to a degree of comparability between reporting entities, particularly with regard to the Standard Disclosures (or Profile Disclosures, as these were known in the G3.1 Guidelines). Within these Standard Disclosures, it would appear that the G4 seeks to significantly improve the levels of disclosure required of reporting entities, particularly in areas such as Material Aspects and Boundaries, and Stakeholder Engagement (as discussed above), as well as in the area of Governance. Furthermore, this comparability appears to be significantly increased in circumstances in which reporting entities choose to prepare a report in accordance with the G4 Comprehensive level of disclosure. In light of the concerns raised regarding the potential that exists within the G4 for damaging trade-offs between the principles of Materiality and Comparability, one potential means by which this issue might be resolved, is through the effective application of the principle of Sustainability Context. As one of the Principles for Defining Report Content, Sustainability Context is defined in the G4 Guidelines as follows: “The report should present the organisation’s performance in the wider context of sustainability. Information on performance should be placed in context. The underlying question of sustainability reporting is how an organisation contributes, or aims to contribute in the future, to the improvement or deterioration of economic, environmental





and social conditions, developments, and trends at the local, regional or global level. Reporting only on trends in individual performance (or the efficiency of the organisation), fails to respond to this underlying question. Reports should therefore seek to present performance in relation to broader concepts of sustainability. This involves discussing the performance of the organisation in the context of the limits and demands placed on environmental or social resources at the sector, local, regional, or global level”. As an aside, the issue of Sustainability Context has been identified by various critics as an area in which the GRI has, in the past, failed to deliver an effective structure against which reporting entities should benchmark their reporting efforts. In this regard, McElroy (2013) in particular has provided some targeted criticism of the efforts of the GRI in this area, stating that “On the one hand, it (the GRI) properly advocates for the inclusion of sustainability context in corporate reports, while on the other it completely fails to provide guidance for how to do so, as if the inclusion of context in reporting is discretionary. As a consequence, most GRI-compliant reports are entirely context-free, and therefore do not disclose sustainability performance at all, including the ones to which GRI has historically bestowed A+ ratings”. He further expresses the opinion that the G4 Guidelines effectively leave the principle of Sustainability Context in its “prior state of disrepair”. Whether or not one agrees with this opinion, it would certainly appear that within the structure of the G4 Guidelines; 1) the possibility exists for trade-offs to occur between the principles of Materiality and Comparability; and 2) the principle of Sustainability Context, despite existing criticisms of its development and application


by the GRI, can potentially assist in resolving these trade-offs. It would further appear that an effective and practical application of the principle of Sustainability Context would require reporting entities to consider and report in a comprehensive fashion on national, regional or sectoral considerations that impact their activities, whether directly or indirectly. This would equally seem to align with the opinion expressed by Thurm and de Ruiter (2014) when they state that “... the dilemma between focusing on materiality on the one hand, and delivering comparable information on the other, can’t be solved without micro-macro-based indicators”. At an elementary level, and in a reporting context, such micro-macro-based indicators might be defined as indicators of the performance of a reporting entity in a particular sphere (at micro-level), in circumstances where such performance needs to be evaluated in a national, regional or industry context (at macro-level). In South Africa, a number of examples of national or industry realities can be readily identified, including those related to labour market inflexibility and wage demands, energy supply constraints, skills development or corporate social investment, to name but a few. The existence of these realities, and the potential that they exhibit for widespread social and economic impacts, would suggest that all reporting entities within the country should be taking these issues into account, to a greater or lesser degree as appropriate, in the preparation of any reports aligned to the G4. A highly topical example at present might comprise reporting in the field of energy consumption, in light of the electricity supply constraints currently facing the South African economy and population. Effective reporting in this area



would appear to require that any reporting entity, and in particular one operating in an energy-intensive sector, should be reporting in detail on issues related to its energy consumption levels, in both absolute terms and in terms of intensity metrics (such as energy consumption in terms of annual turnover, number of employees or other relevant denominators). Failure to do so would appear to imply that such a reporting entity runs a considerable risk, in terms of potential for accusations of failing to accurately account for and report on an issue that is clearly material to its operations. In this example, the importance of considering a national context issue, such as energy supply constraints, is of course logical and intuitive and, as a result, the issue should almost certainly be included amongst the Material Aspects of the vast majority of South African reporting entities. Unfortunately, however, the same cannot be said for a myriad of less obvious sustainability-related issues, in which national context is often critical, but which at


the same time are sometimes conspicuous in their absence from even GRI-aligned Sustainability Reports. With regard to the reporting principles of Comparability, Materiality and Sustainability Context, however, and the interplay between these principles within the G4 Guidelines, it would appear that as a general rule, the process of materiality determination, if effectively implemented, can ensure that an appropriate balance is maintained between the seemingly contrasting principles of Materiality and Comparability. It would further appear that, in spite of criticism from various quarters regarding the G4 Reporting Guidelines, in circumstances in which reporting entities can successfully develop a stakeholder inclusive, materialitydriven reporting model, which effectively considers national, regional and industry contexts as appropriate, they can be confident of producing a high-quality G4 report in which the principles of Materiality, Comparability and Sustainability Context can effectively coexist.


• Global Reporting Initiative. (2013). G4 Sustainability Reporting Guidelines. Reporting Principles and Standard Disclosures. Available from: Accessed 7 April 2015. • Global Reporting Initiative. (2013). G4 Sustainability Reporting Guidelines. Implementation Manual. Available from: Accessed 7 April 2015. • McElroy, M. (2013). Has the GRI consigned itself to irrelevance? GreenBiz. 22 May 2013. Available from: Accessed 7 April 2015. • Thurm, R. and de Ruiter, N. (2014). Comparability of sustainability information – slaughtered on the altar of materiality? A/HEAD/ahead. 27 May 2014. Available from: https://aheadahead.wordpress. com/tag/gri-g4/ Accessed 7 April 2015.




GREEN CONNECTION The Green Connection Initiative, with the Green Star System (GSS) at its core, is to help customers easily identify eco-responsible papers Paper sourcing and usage is a key component in a comprehensive Corporate and Social Responsibility (CSR) strategy: through a responsible paper sourcing and usage policy, enterprises can demonstrate their commitment to conducting business responsibly. Antalis, Europe’s leading paper merchant, has developed its Green Connection Initiative with the Green Star System (GSS) at its core, which attributes a number of stars to each paper product according to its environmental credentials allowing customers to easily make informed, responsible choices. Why the Green Star System? Antalis chose the Green Star System due to its universally-recognised point of reference as the indicator of the different levels of ecoresponsibility. By ranking papers from zero to five green stars, even those unfamiliar with this ecological certification, can easily understand the system and identify the most environmentally-friendly products. A Rigorous System Definitions underpinning the system are based on exhaustive information and stringent requirements regarding the origin of the wood fibres and the paper manufacturing process:

Manufacturing process: For a product to be defined as eco-responsible, the mills that produce the paper must carry either ISO 14001 certification (based on a framework for the development of an environmental management system – EMS - and the supporting audit programme) or the EU Ecolabel (lifecycle based approach).(See the full GSS graph at the end of the release). As part of its Green Connection initiative, Antalis has developed a number of additional tools and solutions which aim to promote environmental excellence amongst all the stakeholders in the paper industry and to defend the industry as a responsible, sustainable economic player. These include • “Did you know?”video • Green White Paper • Green Brochure • Environmental ECO calculator About Antalis Antalis forms part of Antalis International operating in 44 countries worldwide. In SA it employs 360 people, operating in seven sales and warehousing facilities throughout Southern Africa as well as an export arm that services Sub-Saharan Africa. For further information, go to:

Origin of the fibre: For a product to be ecoresponsible the wood fibres must either be FSC®/PEFC™ certified or at least 50% recycled from post-consumer waste with the remaining in line with FSC® or PEFC™ standards.














hat natural capital values should my company disclose within its integrated report? This is a good question to ask for anyone working in a company which is starting its integrated reporting journey. The Integrated Reporting Framework (<IR> FW) does not define the concept of value within the context of the different forms of capital and is silent on the importance of arriving at this definition before embarking on the process of determining materiality. Yet, the potential for integrated reporting to be successful depends, to a large extent, on the quality of the existing sustainability reporting and its comparability with the financial reporting with which it is to be integrated. Combining sustainability and financial information requires care, as these two very different strands of accounting and reporting are at very different stages of development.

What is Natural Capital? Why is it important to business?

Natural capital can be defined as the stock of biotic (e.g. fauna, flora) and abiotic resources (e.g. air, water, land, soil) from which businesses and their stakeholders can derive benefits. All businesses depend, directly or indirectly, on natural capital as well as impact on it. These impacts and dependencies on natural capital may generate risks and opportunities for business. These risks may be classified in five broad categories, namely operational, legal and regulatory, marketing and product, reputational and financial. For instance, many mining companies rely on access to water for mineral extraction and processing. Changes in rainfall patterns




coupled with increasing pressures on water resources can generate unreliable water supply to mining companies. In addition, their water emissions may further impact on the water resources, which may generate reputational problems (e.g. community complaints) and potential fines if pollution thresholds or limits are not complied with.

What do we mean by value? What are the different value perspectives for natural capital?

In management, business value includes all forms of value that underpin the success of the firm in the long run. Business value expands the concept of value of the firm beyond shareholder value to include other forms of value, such as employee value, customer value, supplier value, and societal value. Many of these forms of value may not directly be measured in monetary terms. In business, valuation of natural capital relates to expressing the importance, or worth, of natural capital dependencies and/or impacts to businesses and/or their stakeholders. The choice of the type of value(s) to disclose, whether in qualitative, quantitative and/or monetary terms, depends to a large extent on the value system(s) of stakeholders and their perception of the role and performance of the organisation. Historically, a company’s externalities have had little or no impact on its reputation or risk profile. For this reason, positive and negative externalities have been largely excluded from the measurement of corporate value. But perceptions are progressively changing. Both internal and external stakeholders are increasingly aware that business activities may generate negative or positive externalities on stakeholders when they impact or use Natural Capital (NC). On the other hand, businesses can also incur


positive or negative externalities when their stakeholders use or impact NC, such as when an upstream water user negatively impacts on water quantity and quality which is routinely used by a brewery downstream.

How do reporting organisations disclose their material natural capital issues and their associated performance?

To date, three main distinct natural capital reporting approaches have been used to disclose natural capital dependencies and / or impacts to external stakeholders. Each is based on a specific value perspective which is contingent on specific metrics and types of Key performance Indicators (KPI). They include: • Environmental Financial Reporting (EFR): This involves disclosing the financial value of tangible natural capital events generating material assets, revenues, liabilities and/or expenses for the reporting organisation. For instance, BP released its group income statement for the fourth quarter of 2010 with a pre-tax charge of US$40.9 billion related to the Deepwater Horizon oil spill, which included US$17.7 billion of costs effectively incurred for 2010. • Extra-Financial Environmental Reporting (EFER): This relates to conventional Sustainability Reporting done annually by many companies as per the guidelines of the Global Reporting Initiative. Natural capital values used are typically expressed in non-monetary quantitative terms over the reporting period (comparing between years), for instance in terms of resource use (e.g. materials and energy consumed) or air emissions (e.g. carbon and sulphur emissions). • T he Disclosure of Environmental Externalities (DEE): This reporting



approach is being done by an increasing, yet still small, number of companies, with PUMA’s 2010 Environment Profit & Loss Statement being the most publicised. PUMA disclosed the external costs to society (i.e. externalities expressed in monetary terms) of the natural capital impacts (e.g. air emissions, water use, waste generation, land use change) of its whole supply chain, up to Tier 4 suppliers.

What is the best approach for integrated reporting?

There is no single, best approach to natural capital impact and dependency disclosure within the scope of integrated reporting. For stakeholders to make informed decisions, the whole continuum of values, from qualitative to monetary (including both financial and externality values), may be useful or appropriate for his or her intended purpose(s). In other words, the three aforementioned reporting approaches are complementary, as they each tell a part of the whole story. For stakeholders to understand the benefits and costs of a company’s past, present and future natural capital dependencies, impacts and endeavours (i.e. the way in which natural capital affects value creation in its broad sense), the reporting entity would need to disclose: • Material natural capital dependencies and impacts in non-monetary biophysical units (EFER approach); • The financial impacts of its material natural capital dependencies and impacts (EFR approach); • The economic costs and benefits of its natural capital dependencies and impacts with respect to stakeholders and/or society at large (i.e. its positive and/or negative externalities), and • How, and at what costs, it is going to reach its future sustainability targets (as


per IR Framework’s future orientation), for instance, in terms of expected reductions in natural capital impacts, improved efficiency in using natural capital, reductions in negative externalities and/ or increases in positive externalities. The importance of disclosing different natural capital values within the scope of integrated reporting is thus emphasised. However, from that perspective, it is critical to understand that, though reducing natural capital impacts or using natural capital more efficiently, it may lead to a reduction in negative externalities, the actual expenses incurred by the company in doing so does not amount to the value of the externality. This is because a negative externality represents a cost that has been incurred by someone different to the reporting organisation which caused it and for which the latter is not liable for. Indeed, internalising externalities does not mean that the business pays for the external costs or that it receives payments for its positive external impact. It involves company or stakeholder activities which reduce or eliminate the source or cause of the externality. While this may generate financial impactions for the company or stakeholder (revenues or assets, expenses or liabilities), their monetary amounts are different from the value of the externality. For instance, the social costs of greenhouse gas (GHG) emissions are very different (i.e. much higher) from the expenses or liabilities incurred by the company when it purchased GHG offset credits to become carbon neutral. There are, thus, no clear causal relationships between external costs and the costs of actions to reduce or eliminate external costs. This means that careful management of external costs may result in material external cost reductions without having to invest a material financial amount in the initiative.




How an innovative, holistic approach can help your business

Ronel Buys and Yvette Lange




o remain at the forefront of reporting developments, South African companies cannot be content to only prepare an integrated report. South African companies are still seen as pioneers in integrated reporting, as companies listed on the Johannesburg Stock Exchange (JSE) have been preparing integrated reports since 2009. Executives across the globe have realised that there is a strong business case for integrated reporting and many organisations are quite far advanced in incorporating integrated thinking into business as usual. The benefit of integrated reporting is clearly not only in the report itself, but in the level of coordination and holistic understanding necessary to assemble it – the true value only materialises when management understands and appreciates the impact the organisation has on, and the value it adds, to all its stakeholders. As members of the PwC Corporate Reporting and Sustainability have been involved What investors wteams, ant to kwe now:

in benchmarking surveys of South African as well as global International Integrated Reporting Council (IIRC) pilot companies. There are some notably common reporting themes and a few areas to watch out for.

Conciseness paradox

The first common theme is the ‘conciseness paradox’. There has been a focus in the last year by organisations to reduce the level of immaterial information in the integrated report. The risk is that integrated reports appear to favour good news, at the expense of telling a balanced story. The problem with being too concise while promoting only the increases and positive outcomes is that the report loses credibility with its readers. In a recent PwC global investor survey, a question about ‘what investors want to know’ provided some interesting insight into the type of information they are expecting to see in an integrated report. This provides some guidance to reporters on what type of information to focus on when preparing

What investors want to know Forward-­‐looking information The next common theme relates to the lack of forward-­‐looking information. Most South African and South African Top 40 IIRC pilot companies global organisations still focus on historic information and provide specific targets for the next year and aspirations for the near term. This is demonstrated by the fact that only 44% of South African Discuss future market trends 44% 39% companies discuss future market trends compared to 39% of IIRC pilot companies included in the surveys.

Discuss future viability of 28%


resources Rarely are the International <IR> Framework’s principles of future orientation, stakeholder relationships and materiality applied to describe expected market trends, opportunities and risks, insights into medium-­‐ and long-­‐term strategic priorities and discussion around ey dependencies information on Discussion of kforward-looking resources and relationships (capitals) and how they’re managed. Discussion of forward-­‐looking information



Discuss future market trends


IIRC pilot companies 39%


the integrated report, while keeping the narrative concise.

Forward-looking information

The next common theme relates to the lack of forward-looking information. Most South African and global organisations still focus on historic information and provide specific targets for the next year and aspirations for the near term. This is demonstrated by the fact that only 44% of South African companies discuss future market trends compared to 39% of IIRC pilot companies included in the surveys. Rarely are the International <IR> Framework’s principles of future orientation, stakeholder relationships and materiality applied to describe expected market trends, opportunities and risks, insights into medium- and long-term strategic priorities and discussion around key dependencies on resources and relationships (capitals) and how they’re managed.

Joined-up reporting

Integrated reporting is about moving to a more aligned understanding of the interplay between financial and nonfinancial factors. There is now evidence that suggests companies with superior performance in their corporate social responsibility strategies leads to better access to finance. They may also be valued more highly by investors. Why? Strong


performance can improve relationships with internal and external stakeholders, reducing costs for oversight and incentives. It also makes companies more transparent and accountable – both desirable qualities for investors. Reporting has come a long way since the combined report, which included essentially stand-alone financial, sustainability and governance reports thrown together into one report. There is still some room for improvement though. A report that does not create clear connections between the critical elements of the <IR> framework may be a tell-tale sign of a lack of integrated thinking. There is a clear trend of connecting typical sections such as strategy and business model in the report, while other sections such as governance and risk management are often left orphaned. The business model was integrated into other sections of the report in 77% of South African, while 46% did the same with strategy.

Innovative integrated thinking

Companies that pursue integrated reporting as a way to better communicate their strategy and how they create value, realise that it requires a change in the way they work. We like to say that integrated reporting fosters integrated thinking –a holistic and forward-looking understanding of the business. Companies that practise

South African Top 40

IIRC pilot companies

Integrate business model 77% into other reporting


Base reporting on strategic 46% themes


Level of joined-up reporting





integrated thinking consider and then communicate how megatrends and other external drivers impact strategy, how non-financial factors relate to financial performance, and how those relationships may change in the future. It is encouraging that more organisations are reporting non-financial key performance indicators. Non-financial measures are often discussed in high-level narrative, which investors have indicated does not instil trust in the ability of management to monitor its performance. The challenge is for organisations to consider which nonfinancial indicators drive the future financial performance of the organisation and how these indicators can be measured reliably. The biggest reporting challenges and areas for innovative reporting lie in quantifying and reporting on the trade-off between resources and relationships and in exploring and reporting on the impact the organisation’s activities have on the key resources and relationships outside its own operations. For example, some leading companies quantify the financial value of their key social and environmental impacts. Translating non-financial factors into a common monetary currency can help track and compare performance over time. It is important to prioritise the data that best supports your company’s key value creation

themes, as effective integrated reports are concise and focused. A true commitment to this wider reporting agenda can be seen when key performance indicators, both financial and non-financial, are linked to the remuneration of management. It is evident from the surveys that this remains a challenge for most companies. South African organisations are considered to be pioneers in integrated reporting, but reporting alone is not enough. There is clear opportunity for organisations to be innovative in how they identify and track financial and non-financial measures of success. Organisations should continue to think holistically about their business by embedding integrated thinking into business as usual. Integrated reporting takes time. Successful companies develop roadmaps for where they want to be in three, five, and even ten years. To achieve fully-integrated reporting, your value creation story should be supported and reflected in your company’s mission statement, strategy, KPIs and targets. Any discussion of risks and opportunities should focus on the main themes of the narrative. Your financial and non-financial systems and processes should be aligned and/or combined. And to be confident in the quality of your report, you should eventually integrate non-financial data with your financial reporting process.

South African Top 40 Align KPIs with remuneration 31%

IIRC pilot companies 17% Alignment of KPIs with remuneration





References • PwC, 2014, Learning from early adopters of integrated reporting – Five themes to drive improvement. Available from: learning-early-adopters-integrated-reporting.jhtml [31/03/205]. • PwC, 2014, Value creation: The journey continues – A survey of JSE Top 40 companies’ integrated reports. Available from: [31/03/2015]. • PwC, 2014, Corporate performance: what do investors want to know. Available from: http:// assets/pwc-investor-survey-ir-september2014.pdf [31/3/2015]. • PwC, 2014, Ten minutes on integrated reporting. Available from: en_US/us/10minutes/assets/pwc-10minutes-integrated-reporting.pdf [31/3/2015].



You can read and download all the Annual Reports that we have published since 2004/2005 at

RESPONSIBILITY. TRUST. PURPOSE. How can the business community generate growth and maintain good business values, while overcoming today’s risks and financial challenges? Through our work with large corporates and entrepreneurs, our commitment to greater market transparency and our engagement in shaping the global economy, Mazars fully contributes to the G20 objectives to better regulate the financial system and restore confidence.




We believe responsibility, trust and purpose are key to proper governance and advancing society as a whole. Business values are evolving for good. Mazars has joined the debate - have you? Visit to explore how the business has changed and can better serve society.

Detailed information available on Contact your nearest Mazars office on 0861 MAZARS


Michèle Mackey




ollowing the global consumer trend towards all that is good, green and natural (accompanied by a willingness to pay a premium to be savvy), the investor community is being increasingly motivated by investments that offer the socially responsible upside. To wit, 71% of private investors surveyed in Morgan Stanley’s 2015 ‘Sustainable Signals’ survey* were keenly interested in sustainable investing, with two-thirds expecting it to become more prevalent over the next five years as an investment criterion. More women than men and 84% of Millennials – people born between the early 1980s and 2000s – will incontrovertibly factor sustainability into their investment decisions. (While many of the Millennials may not yet be investors, they are the future market. Their lifestyle choices reflect their ethos as they choose to live, work and shop ‘sustainably’ or with an ethical consideration and moral conscience for the world around them.) Further to wit, this trend is not limited to you and I. The sustainable investment market in institutions across Europe, the United States, Canada, Australia, Asia and Japan grew 61% between 2012 and 2014, from US $13.3 trillion to US $21.4 trillion. Assets under management of responsible investors have risen from 21.5% to 30.2% of the total professionally managed assets across these regions. The financial crisis of 2008 and beyond is driving this trend of sustainable investing (seeking investments which deliver competitive financial returns while driving positive environmental and social impact). Shareholders have become more active and vocal to protect their investments and more demanding of their investees in terms of risk control, transparent disclosure and impacts on the world at large, all with a longer term


view. Plus there is the spotlight on the futility of short-term profit taking, as shown by the financial crisis. As Professor George Serafeim of Harvard Business School says: “Being able to collect, analyse, and integrate environmental and social data in investment analysis is an emerging field which can give opportunities for constructing portfolios with better risk/return profiles” and institutions know this. The adoption of “Stewardship Codes” the world over reflects this trend. South Africa has the Code for Responsible Investing in South Africa (CRISA); the UK Stewardship Code, revised in 2012, guides British institutional investors; the UN-supported Principles for Responsible Investment (PRI) is widely followed; and in September 2014 the European Union hopped on board with its first law requiring disclosure of non-financial information by large companies, forcing institutions to take heed of this. The pension fund market, of which moral investments are demanded by the mere fact of dealing with other people’s life savings, is following suit. In South Africa, Regulation 28 requires pension funds to consider all material issues – including ESG factors – in managing their investments. Put simply, investors have moved from exclusionary, profit driven mandates to full engagement in investee corporate strategy. We – they – were on the outside looking in, and then mainly at profit. Now we and they want to be inside the decisions. This demands improved communication between companies and their shareholders

So, what should you be saying? And how?

Making available reliable sustainability data is your quickest route to responsible investment capital. In a 2014 global survey of 163 investors, analysts, and portfolio



managers, commissioned by Ernst & Young (EY) it was clearly evident that non-financial information is increasingly being used to inform decision-making on investments and in fact is regarded as “a good benchmark for risk”. Highlighting this, two-thirds of investors surveyed by EY conduct some kind of evaluation of the non-financial information - either through a structured evaluation or other processes (based on the UNPRI or other relevant guideline), or by relying on their own judgment. In this regard integrated reporting is the most effective tool. Integrated reporting enables investors to develop a better understanding of strategy and the longer-term objectives of a company. It also positions materiality as key, which is what investors want according to the EY survey. This helps investors take a


longer-term view on risks and opportunities when making capital allocation decisions. Global Reporting Initiative (GRI)’s G4 Guidelines and the International Integrated Reporting Council (IIRC) Integrated Reporting Framework are good guides in disclosure that will reach the investors of tomorrow.

The bottom line (is not the bottom line)

So, it would seem that to build trust, the cornerstone of any investment by any investor, you need an integrated strategy that recognises that profit will only attract capital if people and planet are taken care of in achieving it. Therefore as a company seeking capital, you’d best tell your providers of capital all about how. Integrated reporting is here, and here to stay.

References • Global Sustainable Investment Review 2014, a collaboration between members of the Global Sustainable Investment Alliance and the Japan Social Investment Forum. • Sustainable Signals – The Individual Investor Perspective, Morgan Stanley Institute of Sustainable Investing, February 2015. • The Evolution of Corporate Reporting for Integrated Performance, OECD, Richard Baron, 25 June 2014. • Tomorrow’s Investment Rules: A Global Survey, Ernst & Young, 2014.




WSP | PARSONS BRINCKERHOFF WSP and Parsons Brinckerhoff have combined and are now one of the world’s leading engineering professional services consulting firms. We bring together our 32,000 staff, based in more than 500 offices, across 39 countries to provide engineering and multidisciplinary services in a vast array of industry sectors, with a focus on technical excellence and client service. In Africa, our 900 strong team offers expertise that covers land remediation to urban planning, engineering iconic buildings to designing sustainable transport networks, and developing the manufacturing plants of the future to providing sustainability services for new and existing buildings. Operating from South Africa, our specialist skills backed by a global reach make us the provider of choice – whatever the challenge might be.

What we do We bring together engineers, technicians, scientists, architects and environmental experts with wide-ranging backgrounds and complementary skills, who are united by pride in their work and passion for providing innovative solutions to clients’ problems. We have four main divisions in the kinds of services we offer. These are Transport & Infrastructure, Property, Industrial and Environment & Energy. Each division provides services across the built and natural environment, for example in aviation, retail, healthcare, mining, energy and natural resources, education, government, infrastructure, and agriculture. We strive to be a solution-driven advisor with outstanding expertise that is the first choice for clients, partners and employees. For WSP, sustainable development is nonnegotiable. We ensure that the solutions we provide our clients will stand the test of time, offering the best possible results for their business and for the environment. Our our sustainability experts serve our clients by creating buildings that are eco-friendly.


Passionate about sustainability WSP’s sustainability consultants form part of our Property team and provide sustainability consultancy services in different sectors of the built environment. We are Africa’s leading provider of sustainability advice, a Gold Founding Member of the Green Building Council of SA and author of the Gallons Per Flush (GPF) Green Building Guide for Low Cost Medium Density Housing document. Over the past 11 years our team has worked on over 50 diverse projects. We have been awarded 118 Green Stars for different sustainability services in new and existing buildings and the interior of buildings. We are proud of our 100% success rate with Green Star certifications. WSP | Parsons Brinckerhoff is concerned about climate change and the effects it is having on the Earth. Buildings contribute about 50% of the world’s greenhouse gas pollution output, and this is why we work towards creating buildings that are sustainable. We aim to create green buildings with the future in mind. Simultaneously we’re creating sustainable businesses for our clients.






Our track record We are proud of continuously pushing the boundaries of sustainable design in South Africa and Africa. The head office of petroleum company, BP Southern Africa, in Cape Town was the first modern green building in South Africa that our sustainability consulting team worked on. In creating a culture of green buildings, we aim to implement systems that reduce energy use significantly, use natural ventilation and have a rain water capture system that waters the plants and flushes the toilets. What we’ve achieved as a sustainability consultant: • Green Star SA office ‘Design’ certification • Green Star SA office ‘As Built’ certification • Green Star SA retail ‘Design’ certification • Green Star SA office ‘As Built’ 5 stars • Green Star SA office ‘Design’ 6 stars • The first Green Star SA existing building performance star rating in Gauteng

Our Awards • Mail and Guardian – Greening the future awards • SAPOA Commercial Office Development : Sage VIP Menlyn Maine

American School

American School

American School


• ETA Awards – Innovation: Vodafone Site Solution Innovation Centre • SAPOA – Overall Green Award: Nedbank Head Office Phase II • SAPOA Innovation Excellence: AngloGold Ashanti Head Office • SAPOA Best office development: BP in Africa Head Office

Our projects • Vodafone Innovation Centre – South Africa • FNB Windhoek – Namibia • Ernst & Young head office and Eris Buildings – South Africa • Wangari Maathai Institute – Kenya • Forbach Retail Centre – Mauritius

Contact: Alison Groves PO Box 98867, Sloane Park, 2152 Tel: +27 11 300 6171, Fax: +27(0) 11 361 1301 Email: Portside: Photographer Raphael Helman, courtesy DHK AISJ: Photographer: Stephen O’Raw, courtesy of GLH Architects & Terra Ether Architects




Seakle Godschalk and Maryna Mรถhr-Swart


A sustainable supply chain benefits our business by mitigating risks associated with producing and delivering our products and services to our customers. It also creates opportunities to develop closer ties with suppliers in the long-term interest of the company.


– Erik Engstrom, Chief Executive Officer, Reed Elsevier



Sustainability Sustainability has become an important priority for many businesses across the globe over the last few decades. Leading companies have recognised that successful sustainability performance translates to successful business performance. More and more small and medium businesses, including suppliers, also follow this route, although, due to their nature, they may take different approaches to achieving the same goals. Sustainability means much more than reducing greenhouse gas emissions or improving energy efficiency. It addresses the socio-economic impacts the organisation has on its stakeholders. It also means businesses becoming more involved in their local communities and setting long-term goals that go beyond the next quarter’s financial results. Prudent use of natural resources and reduction of waste and emissions are integral to sustainability thinking. A sustainable company lives in harmony with its physical and social environment and earns its social license to operate. Embedding sustainability in an organisation is effected by good governance, effective stakeholder engagement and identification and management of its material sustainability issues.

of the supply chain are the product flow, the information flow and the finances flow. SCM involves coordinating and integrating these flows both within and among companies. Traditionally, a value chain is described as a set of activities that an organisation carries out to create value for its customers. This is the full range of activities — including design, production, marketing and distribution — businesses go through to bring a product or service from conception to delivery. This perspective uses the value chain primarily as internal activities. Recently a broader perspective of value chain is followed embracing all business processes from suppliers to consumers. Value chain management is, therefore, the integration of demand, supply and value decisions using strategy, planning and operational processes along the whole value chain. Today’s organisations have become extremely complex. For a variety of reasons, such as globalisation, the pressures of competitive forces have enhanced product changes, supercharged by shortening product and technology development lifecycles. Managing value chains in such a highly dynamic economic environment has become critical for the survival and growth of organisations.

Supply Chain/ Value Chain

A supply chain is a network of organisations that are involved, through upstream and downstream linkages, in the different processes and activities that produce value in the form of products and services in the hands of the ultimate customer or consumer. Supply chain management (SCM) is the oversight of materials, information, and finances as they move in a process from supplier to manufacturer to wholesaler to retailer to consumer. The three main flows


Source: Vitosh Academy

Similarities and differences between a Supply Chain and a Value Chain A supply chain and a value chain are complementary views of an extended



organisation, with integrated business processes enabling the flows of products and services in one direction, and of value as represented by demand and cash flow in the other. Both chains overlay the same network of companies. Both are made up of companies that interact to provide goods and services. Supply chains, however, usually describe the downstream flow of goods and supplies from the source to the customer. Value flows the other way. The customer is the source of value, and value flows from the customer, in the form of demand, to the supplier. That flow of demand, sometimes


referred to as a “demand chain”, is manifested in the flows of orders and cash that parallel the flow of value, and flow in the opposite direction to the flow of supply. The primary difference between a supply chain and a value chain is a fundamental shift in focus from the supply base to the customer. Supply chains focus upstream on integrating supplier and producer processes, improving efficiency and reducing waste, while value chains focus downstream, on creating value in the eyes of the customer. For the purpose of this article, the term supply chain will include the concept of value chain.





• Employment • Wages • Preferential procurement

• • • • • •

• Labour relations • Working conditions • Health and safety • Child labour • Discrimination • Grievance mechanisms • Community interactions

• Anti-corruption • Anti-fraud • Regulatory compliance • Conflicts of interest • Corporate governance

Material use Water use Energy use Emissions Waste Environmental laws and regulations

Supply Chain Alignment Business Sustainability: • • • • •

Environmental Impact Social Responsibility Economic Stability Health and Safety Stakeholder Interests

Sustainable Supply Chain Management Risk Management

Supply Chain Management: • • • • •

Cost Reduction Process Efficiency Asset Utilization Service Reliability Inventory Optimisation

Examples of sustainability issues that could be addressed in SCs:





Sustainability in a Supply Chain Supply chain sustainability is the management of environmental, social and economic impacts, and the encouragement of good governance practices, among all organisations in the supply chain. The objective of supply chain sustainability is to create, protect and grow long-term environmental, social and economic value for all stakeholders involved in bringing products and services to market. There are numerous reasons why companies start a supply chain sustainability journey. Primary among them is to ensure compliance with legislation and to adhere to and support international principles for sustainable business conduct. In addition, companies are increasingly taking actions that result in better social, economic and environmental impacts because society expects this and because there are business benefits to doing so. By managing and seeking to improve sustainability performance and good governance throughout supply chains, companies act in their own interests, the interests of their stakeholders and the interests of society at large.

Public Reporting In The Supply Chain

Public reporting can be a tool to stimulate and enhance sustainability and transparency in the supply chain. It also demonstrates the management of environmental and social impacts and the assurance of good governance in the supply chain to both internal and external stakeholders. Sustainability reporting is a way for companies to communicate to stakeholders how they manage their sustainability issues. While this takes different forms such as stand-alone reports, online reporting, and integrated sustainability and financial reports, the objectives are


to measure and disclose organisational performance towards the goal of sustainable development. Sustainability reporting is a logical step after having implemented a supply chain sustainability approach. As the reporting process requires companies to consider their progress against goals and to be transparent to internal and external stakeholders, it will help to improve the organisation’s performance. Supply chain reporting is when sustainability reporting by organisations in the supply chain is coordinated, or aligned, to a larger or lesser extent. This can, for example, take place where a larger organisation encourages its suppliers to publish sustainability reports to reflect common sustainability values. Benefits Of Supply Chain Reporting Managing of, and reporting on, sustainability issues in the supply chain benefits all organisations in the supply chain irrespective of size and where in the supply chain they operate. • Source of best practices that can inspire others and provide a benchmark for analysis of sustainability performance • Self-evaluation and continuous improvement in the process of implementing the sustainability principles • Benchmark ing and assessing sustainability performance with respect to legislation, norms, codes, performance standards, and voluntary initiatives • Demonstrating how the organisations influence and are influenced by expectations about sustainable development • Responding to the demands of society. In addition to these common benefits, there are also some specific benefits for the larger organisation which focus on the final quality of the product:



• Sustainable and profitable production by continuous improvement of production • Stable relationship with suppliers • Involvement by suppliers in the production process, by suggesting changes or improvements that benefit the company and enable it to create competitive advantages • Promoting its image and reputation • Decreasing the risk of malpractice complaints. Benefits for companies that make up the supply chain: • Increase of long-term contracts • Financial stability which allows accurate planning of the work strategy • Increased productivity • Priority of contracts against bids from other suppliers, if included in a program of continuous improvement promoted by the larger company • Access to training programs at reduced cost • Improvement of the internal management of the supplier. Challenges With Reporting In The Supply Chain The management of, and reporting on, sustainability issues in the supply chain also poses challenges. This is exacerbated if there is a significant difference in size and power relationship between organisations in the supply chain. Lack of capacity and knowledge Suppliers often do not have dedicated staff for sustainability management, or process improvement, as staff generally has to fulfil various roles within the management structure. Linked to that is a lack of knowledge and understanding of sustainability and sustainability reporting.


Lack of funding Due to their small size, suppliers generally lack funding for additional tasks such as sustainability performance assessments or for the costs involved with sustainability reporting. Perceptions regarding time costs and other resources needed in the process may lead to resistance. Lack of information systems, information and tools Suppliers generally do not have sophisticated information systems to provide information that is necessary for a sustainability performance assessment. Suppliers often do not keep detailed records of production processes and the use of resources. Available information may not be sufficient for implementing sustainability management and reporting. Competitive issues If sustainability performance would be made known along the supply chain, suppliers may have a concern that their intellectual property or commercially sensitive information may be compromised. Competitors may also benefit from the process. Business case A lack of awareness of the business benefits of the applying sustainability management and reporting in the supply chain may lead to scepticism about the process. Suppliers may be less able to reap the potential benefits from a supply chain sustainability reporting project. Lack of trust Suppliers may have a concern that a process which is initiated by a larger member of the supply chain may be intended to benefit the larger organisation disproportionally.



on the



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Short term perspective Due to the need to commercially survive in a climate of intense competition and resource scarcity, the focus of suppliers tends to be more short-term as opposed to a longer term perspective that is necessary for considering sustainability management.

equal basis. This may include government funding, donor funding or funding by the larger organization as part of a supplier development programme. During the process transfer of knowledge to the supplier should take place to ensure capacity building for continued implementation.

Guidelines for successful implementation of sustainability management and reporting in the supply chain

Trust A relationship of personal trust should be established between the larger organisation and the suppliers before embarking on sustainability management and reporting in the supply chain.

The following guidelines may help to overcome the challenges suppliers face when participating in sustainability management and reporting in the supply chain. Business Benefits and management Buy-In The management of the suppliers should be exposed to other examples where sustainability management and reporting were implemented successfully and where clear benefits were visible. This should facilitate management buy-in. Resources Resources, including funds and technical expertise, should be made available to the suppliers so that they can participate on an

Implementation Option to improve sustainability performance with low hanging fruit should be implemented as soon as possible and the results thereof measured. The outcomes of sustainability management should be communicated to all relevant role-players in the supply chain so as to reinforce commitment for continued implementation. Implementing sustainability management and reporting in the supply chain can result in significant benefits for all organisations in the supply chain. This approach may also result in certain challenges. Implementing the above guidelines could help to overcome these challenges.

References • M. Porter. Competitive Advantage, Creating and Sustaining Superior Performance. The Free Press, New York, 1985. • Andrew Feller, Dr. Dan Shunk, and Dr. Tom Callarman. Value Chains vs Supply Chains. 2006. • The business and its supply chain: a management alternative. United Nations Global Compact Network Spain. January 2009. • Supply Chain Sustainability: A Practical Guide for Continuous Improvement. United Nations Global Compact Office and Business for Social Responsibility. 2010. • SMEs Set Their Sights on Sustainability: Case Studies of Small and Medium-sized Enterprises (SMEs) from the UK, US and Canada. CICA, AICPA, CIMA publication. September 2011. • Managing CSR Issues In The Supply Chain: Understanding Corporate Social Responsibility (CSR) issues in sourcing & procurement in Uganda, The CSR Consultative Group. Kampala, Uganda. December 2014.== THE SUSTAINABILITY AND INTEGRATED REPORTING HANDBOOK- VOL.2


SUSTAINABLE VALUE Making integrated reports real

Clive Lotter




cross the world, corporations are accepting that integrated and sustainability reporting is how they should communicate annually with shareholders and their other stakeholders. But then, how exactly this should be done is frustrating and unclear. Guidelines do exist for this incoming reporting trend, but the problem is putting these into practice in a manner that makes as much sense to management and shareholders as other stakeholders. Up to 80% of the ‘integrated reports’ released today are anything but – except for the Integrated Report title printed on the front cover. Fortunately, some of the world’s foremost thinkers in these disciplines are now charting the way. In June 2013 the Global Reporting Initiative (GRI) launched the G4 version of its sustainability reporting guidelines. G4 emphasises the actual materiality of sustainability indicators to companies, so to avert ‘tick box’ complying with as many indicators as possible. Six months later, the IIRC’s integrated reporting <IR> framework (December 2013) set out the principles through which integrated reports should be prepared, but this framework is rather fuzzy on how these principles are put into practice. Along with the Sustainability Accounting Standards Board (SASB) sectorspecific guidelines being developed in the USA, corporations are now spoilt for choice, which brings its own poser. Which frameworks do reporting organisations use, and how can these be merged to deliver an integrated report that seamlessly includes sustainability issues? Once again the Harvard Business School has tackled these vexing questions. Robert Eccles, Michael Krzus and Sydney Ribot had published the seminal “One Report” in 2010, which introduced the concept of integrated reporting to the corporate mainstream. In their latest publication, “The Integrated


Reporting Movement”, the authors offer practical methods for enabling companies to establish their material issues and to link these in a value-adding way to their perceived sustainability issues. They propose that the company leadership should apply its collective mind to drawing up a Statement of Significant Audiences and Materiality as the first step to assembling an authentic integrated report. The statement should provide a clear view of how the company has assessed its key environmental, social and governance (ESG) risks and opportunities at that time. With this statement in place, the company then goes through a process of creating a Sustainable Value Matrix (SVM). This exercise should identify and prioritise management’s findings into a definitive strategy for integrating operational needs with sustainability impacts. These two instruments provide the guidance to shape an integrated report that correctly leverages the <IR> framework and identifies the optional GRI, SASB or Carbon Disclosure Project (CDP) indicators to be included.

Statement of Significant Audiences and Materiality

This may be the bravest statement company boards will ever publish, by acknowledging which stakeholders and what issues they judge as most important to the company. Those boards that fudge this exercise by promising ‘all things to all people’ will show up as being uninformed or devious. It will also taint the consequent integrated report. For boards that grasp this opportunity to seize the high ground, there are strategic advantages. A company issuing an authentic Statement of Significant Audiences and Materiality demonstrates confidence, maturity and transparency, while gaining respect – if not immediate popularity. In time, real trust will follow. The statement creates a baseline for meaningful engagement with



the company’s investors and stakeholders in a manner that can drive innovation. All interests cannot realistically be equal, but they are debatable and negotiable. Drawing up this statement will be unusual territory for most managements and they may fear a backlash, but it puts meat onto the bones of integrated reporting principles. By taking a firm position in this structured manner, the board confirms its authority, its intrinsic understanding of the company and the realities in which the entity operates. It also cuts through the fog of confused messaging that characterises many so-called integrated and sustainability reports today. Eccles, Kzrus and Ribot do not prescribe how the statement should be laid out, as these will differ from sector to sector. In essence, a Statement of Significant Audiences and Materiality will contain the following generic elements: Audiences These will include the shareholders, potential investors, the company’s business model and innovation, society and communities, the environment, human capital, customers, leadership and governance. Issues and interests Identify and list these for each audience, preferably by using the indicators offered by recognised frameworks such as the GRI or SASB. Decide on a weighting for each issue/interest. Show where some interests may conflict with others. Decide on materiality This is the crunch evaluation exercise, probably in a workshop format, through which certain audiences and issues will emerge as being more material than others. Factor in risks, opportunities and strategies. Where possible link to KPIs, or introduce new KPIs as a result.


List the audiences and issues in order of materiality Now compile the actual statement that lists the audiences and issues the company has decided are most relevant to it at this juncture. Include a note stating that audiences and issues will probably rise or sink in priority over time. Board sign-off The board must ratify this statement. Investors and stakeholders alike may well question the board’s assumptions, but this will be after the integrated report is published. These interchanges will guide the board’s reasoning when preparing the next year’s statement.

The Sustainable Value Matrix

Many reporting companies are familiar with the Materiality Matrix, which has been used for some years to identify the key issues included in their reports. In their book, Eccles, Kzrus and Ribot state that this traditional materiality tool is outdated, as the matters it raises are only from the perspective of the entity doing the exercise. The X and Y axes in the standard materiality matrix are utilised exclusively to plot company issues, while Eccles and his co-writers now allocate the Y-axis to the stakeholder side of the materiality picture. This allows perceived stakeholder issues to be clearly plotted in conjunction with company objectives. It clears up a materiality grey area that I’ve seen for myself. Management teams, when conducting their materiality workshops, have ended up with flawed results as they feel morally obliged to include sustainability issues where these don’t really belong. In the Sustainable Value Matrix, Eccles and his co-writers allocate the Y-axis to the material issues listed in the Statement of Significant Audiences and Materiality.





The Eccles team calls the X-axis of the Sustainable Value Matrix its “Materiality to the Firm” axis. They name the Y-axis as “Society’s Issue Significance”, which is a rather clumsy term for what Eccles considers to be “the firm’s perception of the significance of its chosen stakeholders’ interests, aggregated as Society.” The matrix contains thresholds and defined quadrants, not necessarily of equal size.  Management first decides at what position along the X-axis to place its own Materiality Threshold and where the Society’s Issue Significance boundary will lie along the Y-axis. The company will have to justify the positioning of these thresholds and boundaries. In each quadrant, management will plot its identified materialities and issues. These will be ranked in how they should be reported, stakeholder engagement required, the amount of resources committed, and the probable levels of innovation needed. The “Material Societal” quadrant contains the issues that the board has assessed as most relevant to stakeholders in terms of the company’s mission and business model. These issues should be covered in the integrated report as

the company will probably need to commit high levels of resources and stakeholder engagement. Trade-offs between company and stakeholder objectives may require innovative thinking, yet may open doors for the company to simultaneously improve its financial and sustainability performances. In its integrated report, the company should explain how it engages these societal issues in terms of its own objectives. The company places its own prioritised matters in the “Material Issues” quadrant. Obviously these are discussed in the integrated report as most significant to the company’s viability. Stakeholders should be engaged on these, as opportunities for improving the company’s sustainability may emerge. Issues plotted in the “Societal Significant Issues” cell are not considered material to the company’s objectives. Nevertheless, ignoring civil society is not prudent. By acknowledging that these issues may become important, the company can report on them on its website, or elsewhere, and decide on how to engage these stakeholders. “Potential/Developing Issues,” are topics that are not yet considered significant and

Report elsewhere (i.e. website)

Integrated reporting

Societal Significant • • •

(Y-­‐axis) Society’s Issue Significance

Material Societal

Sustainability reporting High stakeholder engagement No capital investments (but significant engagement expenses) Minor innovation

• • •

High stakeholder engagement New capital budgeting Major innovation

Society’s issue Significance Boundary↓

No Reporting Potential / Developing • • •

Minimal stakeholder engagement Minor (if any) expenses for stakeholder engagement No innovation Firm’s Issue Materiality Threshold →

Material • • •

Medium stakeholder engagement Traditional capital budgeting Moderate innovation


(X-­‐axis) Firm’s Issue Materiality

Management first decides at what position along the X-­‐axis to p THE SUSTAINABILITY AND INTEGRATED REPORTING HANDBOOKVOL. 2 lace its own Materiality Threshold

and where the Society’s Issue Significance boundary will lie along the Y-­‐axis. The company will

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7 will only distract report users from the material issues. We must be constantly aware that companies are unlikely to perfectly assess what aspects of their operations their stakeholders would consider material, while stakeholders are equally unlikely to determine the company’s most material issues. Nevertheless, this exercise is a useful start and the engagement with shareholders and stakeholders after each year’s integrated report will ideally drive all parties into a better understanding of each other’s actual issues.

Now to construct your integrated report

The Statement of Significant Audiences and Materiality and the Sustainable Value Matrix are two pioneering tools for establishing the basis of an authentic integrated report that includes the company’s most material issues and sustainability indicators. The next steps are to use the material points and society issues plotted in the matrix to select sustainability indicators from the GRI, SASB and CDP guidelines for inclusion in the report. From that sound basis, the company can then structure its integrated report along the lines of the IIRC <IR> framework.

Is the gain worth the pain?

Company managements often resent the amount of time and resources spent on their annual reporting, as the return on investment (ROI) is seldom obvious in the short term. They will also be reluctant


to knowingly expose themselves to the criticism implicit in using these tools. There has to be clear benefits from sticking out their corporate necks in this way. Yes, the rewards are real: • By stating its evaluated position upfront, management establishes the high ground for realistic engagement with all stakeholders. This will reassure shareholders and investors who don’t how to get to grips with sustainability issues, while other stakeholders can engage management constructively. • The company can benefit from an effective feedback loop between all parties that identifies market and societal trends early, so that necessary change and innovation can be implemented quickly. • Just by working through these tools, the company can genuinely identify its most material issues and feed these into business strategy, planning and risk management. The process of setting key performance indicators (KPIs), and reporting against these, will drive performance in the areas most fundamental to the business. We have entered a world in which trust in the integrity and transparency of a corporation is becoming as valued as its ability to consistently deliver profits. Using these tools can help companies earn the shareholder and stakeholder trust that will keep them viable.

References • ‘The Integrated Reporting Movement: Meaning, Momentum, Motives, and Materiality’, by R. Eccles, M. Krzus, and S. Ribot, 2014. John Wiley & Sons, Inc. • ‘The Role of the Corporation in Society: An Alternative View and Opportunities for Future Research’, by George Serafeim, May 27, 2013. Harvard University - Harvard Business School. • ‘Preparing an integrated report: A practical guide’, by Mike Krzus, June 2014. Mike Krzus Consulting. • ‘Audience and Materiality for CV MENA’, by Tim Youmans, June 11, 2014. Researcher - Harvard Business School. Presented at the InterContinental Hotel, Abu Dhabi, United Arab Emirates.



CREATING SHARED VALUE (CSV) IN THE AFRICAN CONTEXT What is CSV, and what it is not? And what is the relevance of GRI?

Charmane Russell




t sometimes appears unavoidable, but the world of corporate reporting is ‘littered with (statements) of good intentions’, with almost every company claiming in its annual, integrated and sustainable development report that it is ‘creating value’, or ‘sharing the benefits’, or being on a ‘journey or pathway to sustainable development’. As corporate reporting continues to evolve, and as integrated reporting becomes mainstream and even mandatory, this reporting lexicon has evolved to include concepts such as integrated thinking, materiality and – latterly – creating and sharing value. It’s sad, not because these are not the sort of concepts we should be thinking about or concepts that companies and others shouldn’t be seeking to aspire to. It’s sad because these concepts are often glibly trotted out without being true reflections of corporate strategy, and without truly being understood. For me, the use of ‘creating shared value’ is one of those corporate catchphrases, one of those shibboleths that risk being used in the same way that ‘sustainable development’ has become a catch-all for all that companies deem to be their ‘good works’.

So, what is creating shared value?

In the opening lines of their seminal paper, Creating Shared Value, Michael Porter and Mark Kramer, comment that “The capitalist system is under siege. In recent years, business increasingly has been viewed as a major cause of social, environmental, and economic problems. Companies are widely perceived to be prospering at the expense of the broader community.” (Porter & Kramer. Jan-Feb 2011. pp4). Porter and Kramer argue that countering this misconception lies in the principle of shared value, “which involves creating


economic value in a way that also creates value for society by addressing its needs and challenges”, and as “a new way to achieve economic success. It is not on the margin of what companies do, but at the centre” Porter and Kramer. Jan-Feb 2011. pp4.) The two authors clearly differentiate between shared value and social responsibility, philanthropy and even sustainability. They contend that there are three ways in which companies can create shared value opportunities (Porter & Kramer. Jan-Feb 2011. pp7): • by reconceiving products and markets • by redefining productivity in the value chain • by enabling local cluster development Key to their argument is that the creation of shared value (CSV) requires the simultaneous advancement of economic and social conditions in the communities in which companies operate, where CSV is integral to profit maximisation and not external to it. That does not mean that philanthropy, or corporate social investments, or sustainable development or fair-trade initiatives do not play a role. They do, but they are not – Porter and Kramer contend – going to bring about a fundamental change in how society conducts its business or its affairs and how business fits into society. So, while donations running into millions of rands made by South African corporates every year are notable and worthy, they do not necessarily create shared value. Nor, I am afraid, do companies’ endeavours to meet and exceed compliance targets in respect of social and environmental imperatives, whether regulatory (such as the Mining Charter) or voluntary (such as the Equator Principles). These are corporate social investment initiatives that simply mitigate risk or enhance corporate reputations.



Among the examples used by Porter and Kramer (Porter & Kramer. Jan-Feb 2011. pp5.) to explain the difference, is a so-called ‘fair trade’ engagement, in which companies pay a higher, ‘fair’ price for the same goods and services and, in return, are certified as a ‘fair trade’ company. While these objectives are laudable and may, in fact, create a differentiated product in the marketplace along with an enhanced reputation, this is not CSV. For CSV to occur there needs to be a significant economic difference in the value chain – a difference through which both parties benefit materially. The example here would be enhanced collaboration between the growers and the customer to improve the quality and yield of production, possibly through technology inputs or expertise, and which may then also deliver an environmental spin-off. Paying higher prices for improved products, that then yield an improved economic outcome for all parties, is CSV. Clearly, then, CSV is not about sharing or distributing value, nor is it about personal or company values, both ideas that companies sometimes report. We need to be realistic though: According to Porter and Kramer, “not all societal problems can be solved through shared value solutions. But shared value offers corporations the opportunity to utilize their skills, resources, and management capability to lead social progress in ways that even the best-intentioned governmental and social sector organizations can rarely match.” (Porter & Kramer. Jan-Feb 2011. Pp17.)

Taking a closer look – CSV in the South African resources sector

In looking at the extractive industries sector, with which I am most familiar, it would seem on the surface to be unlikely that the exploitation of non-renewable resources


could deliver or create CSV. In my view, it is indeed in this sector that CSV is most relevant, rather than the conversations around sustainability in their purest forms. In his foreword of a report entitled Extracting with purpose – Creating shared value in the oil and gas and mining sectors’ companies and communities, Porter notes that “extractives companies are a major source of income and economic growth. Oil and gas and mining operators, suppliers, and related supporting industries represent an estimated five percent of global gross domestic product. Three of the world’s ten largest companies are extractives companies. Although companies in this sector have had a decidedly mixed record on social and environmental issues, they have helped create more vibrant economic development, new businesses, new jobs and opportunities for professional growth, reductions in the disease burden, and more effective government’”(Porter, ME, Oct 2014. Pp2). And, while the entire purpose of the company may not be a CSV endeavour, certain parts of the companies’ operations and objectives may indeed be achieving this. In Porter’s analysis, extractives companies are moving to CSV both directly and indirectly. (Porter, ME, Oct 2014. Pp3). I hope to capture some of these exciting examples below and, of course, there are many, many more:

Examples of CSV in the African extractives industry

AngloGold Ashanti’s Malaria Control Programme AngloGold Ashanti’s malaria control programme, initiated at the Obuasi mine in Ghana in 2005, is an excellent example of CSV. AngloGold Ashanti is a global gold mining company, headquartered in South Africa.





The malaria control programme has been hugely effective and efficient, has fully embraced the community in which the company operates and has been mutually beneficial to the company and community. Some of the direct and measurable benefits include a reduced burden of malaria in the community, increased school attendance and reputational enhancement. More directly for the company, the programme has contributed to reduced absenteeism at the mine, increased productivity and reduced the cost of malaria medication to employees and their dependants. More than that, AngloGold Ashanti’s intention has been to use this reservoir of expertise for the benefit of all the people of Ghana and other west African countries, not only the communities in which the company operates. To give some indication of the extent of the problem: Malaria remains the most significant public health threat to AngloGold Ashanti operations in Ghana, Mali, Guinea and Tanzania; around 300 to 500 million people worldwide are infected annually, resulting in deaths of around 1 million people each year. Malaria accounts for 90% of deaths in Africa – predominantly of children under the age of five years and of pregnant woman. These facts are startling: Prior to the introduction of the programme, the Obuasi Mine hospital saw on average 6,800 malaria patients per month. Of these, 2,500 were mine employees form a workforce of 8,000 people. With an average of three days off per patient this equates to 7,500 shifts lost per month. This, coupled with the slow work rate during recuperation, resulted in a major loss in production. Further, the monthly cost of medication for treatment was in excess of USD $55 500. The company’s malaria control programme aimed to reduce the incidence of malaria by


50% in two years and incorporated the four means of prevention: • Kill adult mosquitoes through Indoor Residual spraying • Prevent mosquitoes from biting (Nets, screening, repellents) • Prevent mosquito breeding (Larvicide, environment management) • And the provision of anti-malarial drugs Significant successes have been achieved, including a 76% decline in malaria cases since 2005, with average monthly shifts lost declining to 90 in 2012, the sixth year of the intervention. By this time 139 000 mine and community structures (approx. 36 000 houses) had been sprayed and 28 jobs created for community members. The programme received international recognition and was awarded the Global Business Coalition – “Business Excellence” Award and two Pan African Health Awards. The programme has now been extended to the company’s operations in Guinea, Tanzania, Mali, and the Democratic Republic of Congo. Critical factors in AngloGold Ashanti’s programme are the partnerships with the Ghana Health Service, the National Malaria Control Programme (NMCP) and the local Obuasi Municipal Assembly coupled with the benevolent approval of the Ministry of Health. A Private Sector Malaria Control Programme would be impossible without the support and consent of the National Government and NMCP – using Insecticides and involving the public must have the approval of the Ministry of Health and also the Environmental Protection Agency. An important issue has been the alignment with Ghana’s National Malaria Plan. Based on the success of this programme, Global Fund to Fight AIDS, TB and Malaria (GFATM) Ghana is the recipient of a USD$130 million grant for a Malaria Control



Programme focused on indoor residual spraying over a period of five years. The grant is based on the Obuasi model and is being implemented by AngloGold Ashanti, the first time a private sector entity has applied for and received such funding. In total, 3 800 jobs will be created in targeted communities. This is, unarguably, CSV. • Source: Company Reports

Sibanye’s methane project Methane, a naturally occurring odourless and colourless gas, is intersected during underground gold mining operations in the Free State goldfields. The gas is potentially hazardous and needs to be safely removed from the environment. Sibanye, needing and intending to seek alternative sources of energy (in order to mitigate the risk of climate change and to be less reliant on the national utility over the long term) has developed a viable, cost-effective, innovative and reliable source of power in the capture and destruction of methane at its Beatrix operation. (South’s Africa’s national power utility is currently unable to meet its offtake obligations, and is unlikely to be able to do so in the foreseeable future. Coupled with this, Eskom has announced +25% tariff increases in the coming years). The R54 million Beatrix methane project began officially on 28 July 2006 when the operation entered into an agreement with carbon and climate change advisory firm, Promethium Carbon, for project administration and approvals. The system was designed and built to extract and flare, on surface, 400l/s of methane gas from identified sealed-off working areas at the Beatrix South section. The flare was commissioned on 21 May 2011, extracting an initial 50l/s of methane gas. As at 31 December 2014, 195l/s of methane gas was being extracted from underground and flared.


As methane is a potent greenhouse gas, which contributes to global warming and climate change at a rate 25 times higher than carbon dioxide, the Beatrix project was eligible to register under the Clean Development Mechanism (CDM) of the Kyoto Protocol to the United Nations Framework Convention on Climate Change (UNFCCC) in 2011 to earn certified emission reductions or carbon credits. The project generated 25 151 (2013: 45 194) carbon credits in 2014. Sibanye is the world’s first gold mining company to trade in certified emission reductions at a market value of €0.16 each. It was also registered under the Voluntary Carbon Standard for the reduction of greenhouse gases on 13 March 2013 and 9,643 voluntary carbon units (VCUs) were issued on 5 September 2013. The VCUs were held in Sibanye’s Markit Registry account and transferred to the VCU buyer’s account (Nedbank) on 7 November 2013. The income generated from the 9 643 VCUs, in this once-off deal, amounted to R323 084. The Markit Registry allows account holders to manage all their global carbon, water and biodiversity credits in a centralised, financial markets-based registry system. It manages environmental portfolios, and provides support for existing and emerging environmental programmes and markets. The volume of methane destroyed since commissioning the Beatrix Project to 31 December 2014, including the main flare as well as the borehole flares, is 10.9 million cubic metres. A total of 164,201 equivalent tons of carbon dioxide (tCO2e) was destroyed between July 2011 and the end of December 2014. The project has not yet reached its full capacity of 400l/s as secondary sealing, needed to ensure that the migration of methane is contained, is only due to be completed in May 2015.





Among the positive impacts of this project, revenue generated from the sale of carbon credits contributes to foreign reserve earnings for South Africa. It also advances clean power generation by reducing reliance on coal-based electricity and associated harmful greenhouse gases. In addition, the project has created employment – during construction and operation – and it has facilitated skills development in a much safer working environment. Beatrix currently generates 1MW of power (constrained by the flow and quality of methane). • Source: Company reports

Is GRI relevant in CSV?

It is no accident, I believe, that those companies who support, and have reported in line with, GRI are those that are at the forefront of CSV. Authors, Pfitzer, Bockstette and Mike Stamp in an article in Harvard Business Review entitled, Innovating for Shared Value, (Pfitzer et al. Sept 2013. Pp5) note that “Companies seeking to deliver scalable social and business benefits need to be able to monitor their progress. No universal system for doing this exists yet” The authors refer to the Sustainability Accounting Standards Board’s attempts to create industry-based standards that will allow investors and other stakeholders to compare firms’ environmental and social impacts, as well as the framework for reporting on value creation developed by the International Integrated Reporting Council.” It is here that I believe GRI, and particularly G4, fits in. GRI in its earlier form has, I believe, assisted reporting companies in this socalled reporting journey. In many cases, as companies have sought to comply with reporting standards, so they have integrated broader social, environmental and economic parameters into their strategic planning, risk


mitigation and, ultimately, reporting. It has been – I believe – a case of the reporting tail wagging the corporate strategy dog. The approach embodied in G4, focussing as it does on materiality, takes this reporting template so much further and assists in understanding what is and what isn’t important to the company and its stakeholders (identified gaps that can be addressed for mutual benefit) and assists in setting benchmarks and providing for reporting on incremental progress. The fundamental principles, that ensure a balanced and consistent approach, apply. That said, simply by reporting in line with GRI does not reflect a company’s performance in delivering CSV. And, without a direct link to the economic sustainability of the business – implicit within the IIRC’s framework – can this reporting be truly meaningful? In a report by Porter, Hills, Pfitzer, Patscheke and Hawkins on Measuring Shared Value How to Unlock Value by Linking Social and Business Results, the authors note that “Even the companies that are most advanced in pursuing shared value today lack the data they need to optimize its results. Companies cannot know the extent to which they are creating shared value if they do not measure their progress on social objectives and, importantly, the degree to which social performance improves economic value for the business. When companies do not understand or rigorously track the interdependency between social and business results, they miss important opportunities for innovation, growth, and social impact at scale” (Porter et al June 2011. pp 2). And herein, I suggest, lies an opportunity for the convergence of GRI and the IIRC in many ways. In the authors’ words: “Despite the widespread embrace of the shared



value concept, however, the tools to put this concept into practice are still in their infancy. In particular, a new framework for measurement that focuses on the interaction between business and social results is among the most important tools to drive shared value in practice.” (Porter et al June 2011. pp 1). In the report, Measuring Shared Value How to Unlock Value by Linking Social and Business Results, the authors note that ‘the shared value measurement requires an iterative process that is integrated with business strategy, not a one-time or periodic effort separate from measuring business performance. An integrated shared value strategy and measurement process includes four steps (see diagram below). Strategic priorities inform the focus and extent of


shared value measurement; the data and insights from shared value measurement inform refinement of the shared value strategy. This ongoing feedback loop is one of shared value measurement’s central benefits – providing a roadmap for understanding and unlocking further shared value creation.” (Porter et al. June 2011. Pp 4). Key steps in the process are: • Identifying the social issues to target (akin to the GRI materiality process). • Make the business case (akin to the IIRC business model development). • Track progress (based on GRI parameters). • Measure results and use insights to unlock new value. This task, should, I believe, be the focus of the GRI guidelines of the future.

References • Pfitzer, M, Bockstette, V & Stamp, M. Sept 2013. Innovating for Shared Value. Harvard Business Review reprint. Pp1-9. • Porter, MW & Kramer, MR. January-February 2011. Creating shared value. Harvard Business Review reprint. Pp1-17. • Porter, ME, Hills, G, Pfitzer, M, Patscheke, S & Hawkins, E. June 2011. Measuring Shared Value: How to Unlock Value by Linking Social and Business Results. FSG, Cambridge, Mass. Pp 1-20. • Porter, ME (foreward) October 2014. Extracting with Purpose - Creating Shared Value in the Oil and Gas and Mining Sectors’ Companies and Communities. FSG, Cambridge, Mass. Pp1-64.




GREEN PRODUCTIVITY What clients get out of our intervention? Productivity SA will facilitate Green Kaizen Projects on client company premises – to empower enterprises to execute Green Productivity Projects by themselves, and establish a Green Discipline to ensure a constant attention to the impact on the enterprise’s environment and to save costs stemming from green issues. Green Project Themes • Measure & improve our Carbon Footprint • Measure & improve our Water Footprint • Measure & improve our Chemical Footprint • Measure & improve our Plastic Footprint • Measure & improve our Paper Footprint • Measure & improve our Human Energy Footprint To get one started and to develop an understanding of Green Productivity actions we will demonstrate and discuss Model Green Workplaces / Tips for Greening / Case Studies about Green Practices: • Brother Printers’ 5 R principles in practice (Reuse Reduce Recycle Refuse Redesign) • Tips for Reducing Energy Usage and Carbon emissions in industry • Renewable energy for Carbon footprint reduction – So-En Co. Ltd • Reducing Carbon Footprints of Canteens • Rand Water’s Water Wise tips for saving water • Short guide to Rainwater harvesting • Ecola Plastics Solar water heating • Treating Waste Water


• Procecces for preventing Endocrine Disrupting Chemicals (EDCs) from reaching the environment • Recycling Plastic Waste into useful products • Plastic converted into oil- Recycle Energy Co. Ltd • Eliminate impact of Waste on environment • Tips for creating a Paperless business Productivity SA will use the Green Kaizen Project Framework for facilitating projects. It is a very useful tool and helps to execute Green Projects, and to explain ( to management and other stakeholders) simply and with impact: • The specific Green Problem that the team wants to address • The Root Causes of the problem as determined by the team • The Actions planned, how much it will cost, and actions taken by the team to solve the root causes of the Green Problem • The Direct / Immediate Results of the actions • The Impact of the actions on the company’s Carbon, Water or Chemical Footprint, as well as impact on costs etc. Contact Productivity SA, Peet JJ Dorfling: Workplace Challenge Programme Regional Project Manager, Gauteng e-mail address: Telephone: +27 (0) 11 848 5381 Cell phone: +27 (0) 84 464 7102


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Reana Rossouw




ustainability Reports are aimed at illustrating and communicating the outcomes of “measuring, disclosing, and being accountable to internal and external stakeholders for organisational performance towards the goal of sustainable development.” The IIRC states that communication about value creation to stakeholders should be included in corporate reporting. According to the IIRC, the purpose of an Integrated Report is to communicate mainly to a company’s financial stakeholders, i.e. shareholders or providers of capital, how the organisation creates long term value. It recognises that the integrated report is also a key source of information for various internal and external stakeholders. The IIRC’s guiding principles on integrated reporting assert that the integrated report should provide information on the relationships with its material stakeholders. Both integrated reports and sustainable reports are high quality reports that disclose an organisation’s most material and relevant issues to their most material stakeholders. These reports require concentrated stakeholder engagement that would allow a company to provide and communicate accurate and transparent information about the long term viability of the company. There are two key principles that govern the quality of a company’s sustainability or integrated reports: 1) stakeholder inclusiveness and 2) materiality.

Stakeholder Inclusiveness

Stakeholder inclusiveness refers to stakeholder engagement to the extent that it generates a better understanding of stakeholder perspectives on key issues, and builds relationships towards more tangible business value creation. Ultimately, companies become more sustainable through understanding stakeholder rights,


needs and expectations, integrating their inputs, measuring and monitoring activities and then providing feedback to these stakeholders on progress (value creation) over time. Therefore, stakeholder engagement needs to be treated as a core part of corporate responsibility and sustainability, as it provides crucial input to business strategy and management of reputational risk. “Reporting should fit into a broader process for setting organisational strategy, implementing action plans, and assessing outcomes. Reporting enables a robust assessment of the organisation’s performance, and can support continuous improvement in performance over time. It also serves as a tool for engaging with stakeholders and securing useful input to organisational processes”.


Materiality includes matters that are significant to a company’s activities. Materiality takes into account substantial economic, environmental and social factors in addition to financial factors. By determining its most material issues, a company can clarify and confirm the strategic themes that drive the long-term success of the business (sustainability), ascertain the most significant risks and opportunities, and manage the expectations and priorities of its stakeholders. Materiality identification provides a company with a competitive advantage, enabling the generation of business intelligence and knowledge, assists with the anticipation and management of change and, of course, influences the company’s strategic direction, management priorities and, therefore, its performance over time, thus contributing to a more sustainable future. Enabling informed decision-making and avoiding or reducing risks, ultimately contributes to



a more stable environment for society and business, and develops and expands market opportunities. The link between stakeholder inclusiveness and materiality is undeniable, as stakeholders assist in the identification and prioritisation of material issues.

Selecting Stakeholders

Increasingly, issues that are important to society e.g. water scarcity, cultural preser vation, health, education, environmental protection, and climate change are becoming critical factors for companies to consider strategically and address operationally. Shareholders, investment partners, boards and executives will always need to know what is in the best interest of the company’s financial performance, but prioritising issues based on a company’s financial needs will become less effective if these fail to also reflect society’s rights, needs and expectations. The only way that companies can address this enigma effectively is to engage the stakeholders that are impacted by their operations and balance this through engagement with financial stakeholders. Stakeholders should not be lumped together in homogenous groups. They should be separated into groupings such as internal stakeholders and external stakeholders or directly or indirectly impacted/affected stakeholders or even primary/secondary or tertiary stakeholder groups. Of course, these stakeholder groups will vary from year to year as the most material issues are identified and prioritised year after year. Additionally, stakeholder groupings should also reflect potential impact on company’s performance, potential risk, opportunities, operational and strategic alignment. Engaging the right stakeholders in the right way will ultimately result in on-going learning about and improvement of the organisation,


as it provides in-depth knowledge and understanding about specific sustainability and business topics and challenges.

Stakeholder Engagement Process

Stakeholder engagement is not a onceoff annual intervention, but a continuous process and comes in many forms. This insight creates the need for a well-defined stakeholder management process and approach. Many companies struggle with marrying the concepts of stakeholder engagement and reporting. Traditional forms of reporting are based on the manipulation of static information to convey desired messages at particular intervals, e.g. annually through the Annual Financial Report. Quality sustainability and integrated reports, however, should be the outcomes of continuous engagement processes that include planning, information gathering, consultation, collaboration, collation, alignment, execution, measurement, monitoring, priority assessment and communication. Key principles to determine the appropriate stakeholders include an understanding of: • The rights, needs and expectations of stakeholder groups. • The impacts of the company’s activities on stakeholders – positive and negative. • The risks emanating from the company’s activities. • The most critical and prioritised issues that need to be addressed per stakeholder group. • The most appropriate and effective strategies which will contribute to achieving business objectives while addressing stakeholders requirements. • Measurement, monitoring and reporting on stakeholders expectations and priorities, and company commitment





and performance in response to stakeholder expectations. For each stakeholder engagement, objectives need to be set and formats selected e.g. private meeting, roundtable discussions or stakeholder panels etc. A company needs to ensure that the engagement approaches used provide meaningful and relevant data. Research techniques that get real insights, even in situations where people are inclined to lie, or where their aspirational statements don’t meet their actions, or where they have raised issues previously – such as grievance and complaints lines – can be interesting starting points for more creative and proactive stakeholder discussions. Furthermore, a clear distinction between normal company communication activities (such as investor relations, government relations, industrial relations, etc) and company communication channels (such as advertising and marketing) with various customer groups (such as suppliers, consumers, employees) needs to be made. Engagement for reporting on specific material issues is far removed from daily/ regular communication with stakeholder groups.

Levels of Stakeholder Engagement

Stakeholders have the ability to influence the success or failure of a company at various levels. The level to which each stakeholder should be engaged will depend on the potential risk and impact of the stakeholder on the company and vice versa. Corporate governance systems are becoming more responsive and aligned to stakeholder interests, and companies are going beyond engagement to develop collaborative partnerships with stakeholders. To be effective and fair, governance systems


should have the capacity to respond to differences in power and access to resources between and within stakeholder groups. Engaging with stakeholders, and using their inputs for decision-making, is fundamental to understanding financial risks and managing sustainably. For this reason, social investment indices, such as the Dow Jones Sustainability Index and the JSE-SRI Index, give more weight to stakeholder engagement than to any other social impact measure.

Feedback to Stakeholders

Historically, companies’ feedback to shareholders was mainly based on financial indicators. Now, triple bottom line indicators, and the relative weighting of each indicator in decision making, have become critical for companies to articulate. Currently, measurement of stakeholder engagement used in standards, guidelines and performance assessments relies on the existence of processes and policies for engagement. However, the need for more sophisticated measures of engagement e.g. that measure the degree of “embeddedness” of stakeholder engagement in business strategy processes and systems, are becoming more critical. It is in this regard that accountability and responsibility for stakeholder responsiveness in the South African context is assigned as a function of the Social and Ethics Board Committee. Communication to stakeholders (or disclosure) must relate to the topics of interest to stakeholders as well as the key performance indicators that will illustrate impact and progress and provide decision making data in a meaningful format. Stakeholder feedback, through sustainability and integrated reports, needs to show how companies determined what to focus on (materiality), what to include and exclude (stakeholder inclusiveness) and



how content was accumulated (stakeholder responsiveness). Stakeholders should be clear on the organisation’s progress on its sustainability journey, its future plans and its performance target commitments. Key guiding principles for Stakeholder Reporting include: • Transparency - clarity about intentions, actions and impacts • Authenticity - committing and executing on core values and principles • Measurement - how impacts will be measured, monitored and reported • Engagement - providing options for stakeholders/communities to contribute and participate. Deciding how information will be disclosed to stakeholders will, therefore, depend on what stakeholders would like to know (and read in sustainability and integrated reports) and how the presented information will be used in their own decision-making process about the company.

Stakeholder Engagement for Integrated and Sustainability Reporting

The content of a sustainability report needs to reflect an organisation’s most significant economic, environmental and social impacts, challenges, risks and opportunities, as well as the issues that substantively influence stakeholders’ decisions about the future sustainability


of the organisation. The materiality principle prioritises economic, social and environmental issues in terms of business sustainability and informs stakeholders’ decisions. What is material to the financial stakeholders and shareholders is no longer the only lens that determines a company’s most material issues. All stakeholders of a company should have a voice. Therefore, there is a significant overlap between stakeholder inputs for sustainability reporting and integrated reporting. It only makes sense to combine the stakeholder processes for both reports. Viewing stakeholder engagement as a key strategic activity feeding into reporting is fast becoming the norm.


Smart stakeholder engagement equips companies with stakeholder buy-in and collaboration. Proactive engagement enables companies to create competitive advantage and informs strategies, policies, decision-making processes, accountability and ultimately sustainability. Through engagement, companies can proactively identify complex problems and act on them before they become crises, eliminating the risk of reputational damage. The insights from well-managed stakeholder engagements will benefit both sustainability reporting and integrated reporting. It, therefore, creates strong linkages between the two forms of reporting.

References • Global Reporting Initiative - Sustainability Reporting Guidelines 2013. • The International Integrated Reporting Council - Basis for Inclusions International <IR> Framework 2013. • Global Reporting Initiative - Sustainability Reporting Guidelines 2013.




James Brice




ith six of the highest growth economies in the world, Africa is a magnet for international investors looking to match their high returns in Africa with making a meaningful impact on global poverty levels. It is surprising then that the uptake of social and environmental rating systems in African markets has not been higher. James Brice, CEO of Environmental Business Strategies (EBS), discusses why this might actually be a good thing. Emerging markets, by definition, are such because: • There is a significant opportunity to make a difference (i.e. there is a high social, environmental or governance need) • These opportunities tend to be low hanging fruit with low opportunity costs, short payback periods and high intangible value • Revenues are generated by consumer growth at the bottom, or close to the bottom, of the pyramid (i.e. the almost poor). Our hypothesis is that this correlation presents a strategic opportunity for companies operating in emerging markets. Making a profit at the bottom of the pyramid needs to be done responsibly, and ideally, should improve the lives of the customers if the organisation wishes to make a profit in the long run. Based on the above, we would have expected the majority of companies operating in Africa to measure their social impact as actively as they do their financial returns. But this is hardly ever the case. Of the 700 due diligence and strategic engagements we have performed across the continent in the last decade, for both


private and unlisted equity, not a single company has invested in measuring, quantifying and correlating their impact to financial returns. In other words, in the minds of almost every executive on the continent, making a difference has not been linked to making profit. Even the most mature reporters in South Africa do not provide any form of correlation from the GRI data back to financials. And as far as users go, most asset managers do not even pay attention to this data. As a result, most reporting entities generate a policytype statement or a generic value-add statement around taxes paid, jobs created, gender equality, non-discrimination and basic governance requirements. What is stranger, is that there are many systems, which have been widely adopted, to assist companies in measuring and reporting their impact. Globally, 67% of listed organisations use the Global Reporting Initiative (GRI) as their reporting standard and the United Nations’ Principles of Responsible Investment (UNPRI) has over 1 100 signatories. The GRI recommends over 90 sustainability indicators to record the performance of a company. Most corporates in Africa – let alone SMEs – find this number unachievable. Many view the GRI’s new G4 standards as unnecessarily cumbersome and increasingly expensive. Our observation is that it is precisely the adherence to prescribed systems such as GRI that has resulted in a lack of creativity in establishing a meaningful link between nonfinancial and financial performance. It is the same as the old adage: a compliance mindset results in the bare minimum being done. What we found works best is discarding prescribed standards and, rather, focusing on what is meaningful to investors. By adopting




a customised approach to determining materiality, namely determining a select few parameters that are material to the business’s financial performance, but also its impact, the reporting company is able to communicate its linkages much more thoroughly, rather than trying to adopt a broad-based approach to 90-plus parameters. Our rule of thumb is that the company should not report on more than five to ten non-financial parameters. Most importantly, companies need to know what they want their report to do i.e.: • What questions they want their investors to answer, and • Having received the information from their Integrated Report, what investment or decisions they are expected to make i.e. do they need more capital, more patience, voting on a particular issue, etc. The whole reporting process is meant to guide the reporting company in adopting or developing systems that provide investors with relevant information at that point in time. Thus, customisation is always unavoidable and we would suggest it begins as early as possible in the reporting process. Our advice to organisations is to rather spend their time and energy on understanding the correlations between financial returns and impact to make sure their double bottom-lines are not mutually exclusive, and then focus on understanding those correlations very well, rather than trying to measure 90-plus parameters. They need to focus on what they want to communicate through their outcome reporting, rather than trying to comply with somebody else’s set of standards.

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Accurately measuring the impact business has on communities and the environment is a notoriously tricky business. Relatively few South African enterprises are in the position of being able to pinpoint with precision how many jobs they have created or how much money low-income communities are earning as a direct result of their activities. Few can reliably track the CO2 emissions on any given trip from the vehicles that their suppliers or service providers use, or calculate the carbon load of each processing plant. That being said, the rationale behind integrated reporting was never to complicate reporting on business operations. It was rather created to encourage integrated corporate strategies driven toward the development of truly sustainable businesses which are conscious of the negative impact their operations have on communities. While businesses should have implemented business strategies which comply with these new reporting standards, the question remains as to how many are complying, and how many are paying the fines instead. REDISA (the Recycling and Economic Development Initiative of South Africa), as


gazetted by the Department of Environmental Affairs, has developed the environment in which a new tyre recycling industry can function, and succeed – resulting in an increase of job creation opportunities countrywide. While REDISA’s core role is to create job opportunities and support SMMEs, it does so by cleaning up the environment of waste tyres through the development of a new tyre recycling industry. Our business is to turn waste into worth, and specifically the millions of tyres that are scrapped as waste in South Africa every year. Tyre manufacturers and importers pay REDISA a waste management fee to handle their tyre recovery and recycling liability for them, and understandably expect us to account for this. REDISA’s role is unusual in as much as is the gazetted REDISA Plan, one of the auditing and reporting requirements is that the Plan will be audited in terms of the management of legacy stockpiles and the reduction of the carbon footprint of waste tyres. Reducing carbon emissions is one of the necessary requirements of change in our global economy. At REDISA when we talk about sustainability, we don’t only focus on reducing carbon emissions– we also think about our


CASE STUDY impact on other natural resources and how we can increase the life cycle of some of these resources. While many companies might be impacting the communities in which they operate, or reducing their carbon emissions for example, reporting adequately is not always easy. In meeting these expectations, technology has been REDISA’s greatest ally, as it has assisted us to track each tyre that enters the market because of the REDISA Plan, and ensure that it does not end up on a landfill or burnt in uncontrolled environments. Technology, especially mobile technology, is woven into each and every part of our business, giving us a single, coherent view of our social, environmental and economic footprint. From the landfills and rubbish dumps across South Africa where waste pickers salvage discarded tyres to the depots where they deposit them and the processing plants that recycle them, the facts and figures are at our fingertips at any given time. In a little over a year, we are able to say that REDISA has meant a 11 403 reduction on carbon emissions. In addition, REDISA has made remarkable progress in South Africa in

creating jobs and developing small businesses by turning waste into worth. From 1 December 2013 to the end of November 2014, REDISA has created 1604 jobs. REDISA is currently collecting tyres from 1458 (over 80%) dealers, and as the Plan continues in its five year rollout, more dealers and collection points will be collected nationwide. In addition, 156 SMME business operations are working with REDISA as per the Plan and rollout, with many more to come. REDISA is committed to achieving its goal of creating 10 000 jobs as set with the Plan. By applying our technology and strategy for sustainable business in waste tyre management, we have managed the risk to the environment from waste tyres; we have provided jobs to entrepreneurs; we invested in long-term skills and academic research. This didn’t happen until REDISA was created. We look forward to continuing to work with our partners in government, business and trade unions, as well as consumers and NGOs, as we build a more sustainable, efficient and longterm circular economy for South Africa and beyond.

Please visit for more information.




Lloyd Macfarlane




magine if your business was a supplier to that large customer that you’ve been calling on for two years now. Just a slice of that business might double your turnover, and yet something is preventing you from breaking through. What is it that your company is not offering? In attempting to answer this question SMEs should examine the forces at play in the corporate environment. Sustainability and integrated reporting are driving changes in the way that large companies procure goods and services. Customers want suppliers that are aligned with their own values and sustainability objectives - suppliers are generally assessed on the strength of their value proposition. SMEs can position themselves advantageously if they develop their own sustainability profile in alignment with internationally recognised standards and frameworks. A sustainability report can provide the SME with a platform for demonstrating alignment and points of differentiation.


A value proposition is a promise of value to be delivered and acknowledged, and a belief from the customer that value will be delivered and experienced. Value, in this context, is the measure of benefit provided for the price paid, and depending on whether your company is an existing supplier or a potential supplier, the customer has an experience of value or a perception of value, or a combination of both.


One of the challenges for vendors trying to pitch for new business is that there has not yet been any experience of value by the customer – they have not yet experienced good prices, quality or service for example. The customer must therefore make a purchasing decision based on the strength of perception and references, which may then be supported by a service level agreement (SLA). The SLA provides some comfort for the customer around hard issues, such as price, quality, deadlines and even levels of service, but there are important softer issues that are often not described in any agreement and sometimes not even raised in communications – issues that inform the customer’s perceptions of your business, or the extent to which your company’s values are aligned with their own. The drivers of value (and the perception of value) can be divided into two categories:




NAKED DRIVERS We call this first group the Naked Drivers because they are difficult to hide – they exist for all to see. These drivers have less to do with perception and more to do with fact, or experience. They also relate mostly to the product or service offered: Purpose The product or service either does or does not do what is required by the customer. Quality The product or service is assessed against certain quality requirements - facts, benchmarks, standards – all measurable. Price The price/rate is also usually an indisputable fact - what a product or service costs is what it costs Service You cannot tell a customer how they experienced your levels of service or retrospectively change their experience of service. PERCEPTION DRIVERS Perception drivers relate to the vendor company’s ‘profile’. Buyers will form perceptions that are not necessarily based on their own direct experience of the vendor company but rather on how that company is presented to them directly or via the media. There can be many perception drivers, however those mentioned below are in our view both manageable and meaningful – they can contribute to a perception of value and can therefore enhance or undermine a value proposition. These drivers are also closely linked to many indicators or principles contained in the GRI Guidelines. Is the vendor company.


Transparent and accountable Does the company disclose information relating to its performance under economic, environmental, social and governance indicators and is it being openly transparent to key stakeholder groups. Does the organisation take responsibility for its activities, operations and its impacts as well as for the role that it plays in creating a sustainable environment and a sustainable society? Current and relevant Is the company up to date in terms of its ‘thinking’ and is it implementing new policies that reflect the modern business landscape. Being current means having an understanding of how new products and services are developing, and keeping up to date with trends. By being relevant in context, a company shows that it understands the needs of its customers’ in a changing socio-economic environment. Progressive and innovative Can the company be regarded as innovative? Is it continuously developing new ways to provide products and services or more effective variations of existing products and services? What is the regularity with which products and services are being updated or developed as needs and market requirements change? Present and interested This driver refers to the visibility of a company’s brand and its people. Is the company perceived to be present in the right circles and touching base frequently enough, and in the right way, with its key stakeholder groups? A business will appear to be present and interested if it is seen to be participating in events and discussions within its industry sector or if it is providing thought leadership. How many



relevant industry memberships does the organisation hold and are its representatives in attendance? Accessible and responsive Is there a perception that representatives of this company are accessible to me when needed? Does this accessibility apply for all key stakeholder groups? More importantly, is the organisation responsive to the issues raised by stakeholders – will I feel that my voice is heard and that action will be taken? This driver is perhaps best demonstrated with a negative example: think for a minute about what your perceptions might be of a company whose call centre doesn’t answer your call for 15 minutes, and then fails to address your query sufficiently. How easy is it for me as a customer to reach the person that can assist me, or to find the information that I need? The business needs to be accessible to key stakeholders that have something to say about the company’s performance. And once they are engaging with the company, it should respond to their communications and correspondences. A sustainability report that makes use of the GRI Guidelines is more likely to ensure that the presentation of profile information is aligned with the customers’ requirements. The reporting process should also then provide an opportunity for the company to drive perceptions, as above.


The compliance mentality The primary driver of sustainability reporting over the years has been compliance and whilst this has contributed to levels of corporate transparency and accountability, it hasn’t necessarily instilled a desire to explore the business case opportunities inherent in the reporting process – organisations often


report because they have to, not because they want to. The ‘business case’ mentality There are two ways in which the reporting process can facilitate returns on investment/ objective: 1. It can trigger interventions that result in resource efficiency, risk avoidance and knowledge management – functional centre relevance: operations and management 2. It can provide the platform for differentiation, reputation development and competitive advantage in the value chain – functional centre relevance – sales, marketing and communications Large organisations face increasing pressure to extend the boundary of their reporting to the supply chain, and this has resulted in the adoption of procurement policies and objectives that give preference to sustainable suppliers. Like a proud parent the large company is dying to brag about its role in selecting or even influencing sustainability in its supply chain. Instead of seeing this as just another hoop to jump through (compliance mentality), suppliers should be celebrating the opportunity to create more space between themselves and their competitors (business case mentality). A first step for the supplier might be to embark on a simple but authentic reporting process of their own. A second step would then be to focus on changing the perceptions of the company under key headings – changing the value proposition.


SMEs that are interested in differentiating themselves in the value chain can apply the following steps:





STEP 1: PERCEPTION GAP ANALYSIS The Perception Gap Analysis is used to establish the extent to which a company is effectively managing perceptions that can impact the value proposition. List the perception indicators and then ask questions about each one: (Figure 1)

In doing this exercise, the organisation does not need to consider or adopt every single indicator in the frameworks - the focus should however at least be on material issues. Identify your business’s material issues, by using the materiality process recommended by the frameworks.

Perception gap analysis In order to conduct the gap analysis the company needs to make use of a reporting framework such as the Global Reporting Initiative (GRI) G4 Guidelines and/or the Integrated Reporting <IR> Framework. For example: • Reporting in general, and the principle of balance in information relates very strongly to being TRANSPARENT AND ACCOUNTABLE • The principle of materiality would relate very strongly to being CURRENT AND RELEVANT. • The principles of value creation and shared value relate to being PROGRESSIVE AND INNOVATIVE. • Indictors that relate to memberships in industry organisations, or industry awards relate to being PRESENT AND INTERESTED. • The principle of shared value relates also to being ACCESSIBLE AND RESPONSIVE.

STEP 2: MARKET ANALYSIS Specific and general market issues Identify the specific market as the small circle and the general market as the larger circle.


General issue: Wood as a building substrate Specific issue: Wooden doors and window frames

This process helps the company to establish its relevant context. It helps to understand what stories should be told. In the above example stories about the qualities of the products should be complimented by

How is the company positively influencing the perceptions of key stakeholder groups?

Which sustainability policies, principles and indicators are applicable? GRI/<IR>

What can we do to enhance perceptions?

What can we do to enhance perceptions? Current and relevant Progressive and innovative Present and interested Accessible and responsive Figure 1: Perception Gap Analysis




stories that relate to the inherent qualities of wood as a building substrate. Market analysis The company needs to understand whose perceptions it wants to change – its target markets. It then needs to understand what these markets have in common and how best to engage them. (Figure 2). After going through step 1 and 2, compile a sustainability report using indictors that are material to your business. Include stories and statements that address the perception drivers above. Make sure that you include information that would be valuable for your target markets to know about. STEP 3: INTEGRATE YOUR REPORT FOR MAXIMUM EFFECT It is now time to put your sustainability report to work. The report itself is not the destination – its effective use internally and externally is the ultimate goal. Package information from the report Select, summarise and package information that can have specific application in marketing, communication, advertising, sales and social media. Identify what should be included and what should be left out, but make sure that the information is directed at reinforcing the value proposition.



Provide training for the sales and marketing team Make sure that the sales team understands the content of the sustainability report and how it relates to their presentation of the company to new and existing customers. Help the team to incorporate messaging and information in sales brochures and materials that reinforces perceptions of value. Explain how they can focus on points of differentiation between the company and its competitors. Monitor and include Set up feedback mechanisms that allow customers to engage around content in the report. Monitor feedback and fine tune your messaging to address issues emanating from the feedback. Keep up to date with how your competitors are presenting themselves and modify your own strategy if necessary. Keep all outward looking employees included and up to date on the development of the strategy and remain interested in how they are applying the strategy in their daily activities. Changing perceptions can take time and a value proposition can evolve over many months. Provided that the strategy is relevant, focused and authentic it should result in measurable results. Embrace the business case!

Demographic information

Psychographic information

Effective communication platforms

Large retailers and distributors Large construction companies Large construction companies Building contractors Home owners Figure 2: Market Analysis







any companies are reporting on direct emissions (Scope 1), indirect emissions from purchased grid-based electricity (Scope 2) and a limited range of indirect emissions (Scope 3), such as waste generation and water consumption. Scope 3 reporting provides insight into the emissions that result from a company’s supply chain, particularly emissions from service providers and suppliers. Through our ongoing interaction with clients from various sectors, including mining, manufacturing, hospitality and aviation, it has become apparent that there is a key gap in Scope 3 emissions reporting, in particular with regard to the supply chain. While it is essential to monitor and manage Scope 1 and 2 emissions closely, as these are often the dominant source of emissions, Scope 3 emissions are indicative of supply chain relationships. A comprehensive analysis of Scope 3 includes understanding the connections with local suppliers, communities, as well as the larger network of suppliers that make up the company’s provision of services and supplies. Supply chain emissions include emissions that relate to the extraction and transport of raw material from suppliers, through to transport emissions resulting from the distribution of products and services. This type of analysis is known as a Life-Cycle Assessment (LCA) and is able to provide companies with a holistic understanding of the emissions profile of a single unit of the product offered by the business. This intensity metric can be compared amongst various companies within a sector for the purposes of benchmarking and comparative analysis. The improvement of a business’s intensity metrics can mean lower carbon emissions


and a reduced cost base, which can result in a more competitive and sustainable product. A comprehensive Scope 3 profile allows for data to inform a complete LCA. Complete LCA reporting involves identifying and quantifying the emissions related to all activities that are involved in providing the service or product, also known as ‘upstream activities’, as well as understanding the end of life impacts of a service or product, known as ‘downstream activities’. This is critical for understanding and investing in more sustainable approaches, beyond the business as usual model. Monitoring of Scope 3 creates an accurate emissions profile to determine which suppliers or service providers are carbon intensive, affording companies the opportunity to critically challenge their supply chain to reduce emissions, or seek alternative suppliers with a lower emissions profile. By challenging the supply chain, or seeking lower carbon alternatives, companies are effectively sourcing more sustainable resources. The consequences of this approach are to indirectly encourage increased sustainability practices throughout their supply chain while directly increasing the sustainability of their own business. Due to the fact that limited emphasis is placed on comprehensive Scope 3 quantification, businesses are often unaware of the future impacts that this may place on their sustainability. Taking the above proactive approach to supply chain management, in terms of Scope 3 reporting measures, places businesses in a better position to: • mitigate impacts of future carbon pricing, • adapt to changes in resources availability,



• take advantage of opportunities for sourcing better services and products, • fine-tune their sustainability strategies to ensure they realise tangible competitive advantages. A two-phase approach to supply chain reporting is encouraged in order to gain a competitive advantage while, at the same time, ensuring long-term sustainability. The immediate approach calls for annual LCA reporting with the longer-term view advocating the genuine incorporation of the results of supply chain reporting into the company’s core strategy. This calls for companies to integrate and connect their business and sustainability strategies in such a way that they are able to proactively mitigate any future risks to the company’s future growth which may be associated with climate change. Currently, GHG reporting fulfils a specific role in terms of addressing the short-term requirements for a company in terms of annual reporting and investor relations. With increasing climate change impacts, resource instability and a changing associated policy environment, an accounting approach that provides a longer-term view is now urgently required.

Phase 1: Incorporate LCAs into regular GHG reporting activities

Investigating upstream activities requires a company to look at the natural resources used in providing a service, or supplying a product, and to understand the operations of a supplier, including types of fuels used in vehicles or energy resources


combusted. In comparison, investigating downstream activities leads to a more complete understanding of the end-oflife impact of the product, such as the social, environmental and economic costs associated with recycling, landfill disposal, disassembly of assets and the safe disposal of toxic wastes. Increased interactions between a supplier/service provider and their client (the business) allows for both companies to: • improve efficiencies both in upstream and downstream activities, specifically a transition towards a zero waste regime • compete with sector based benchmarks or intensity metrics • develop a more sustainable business model Annual LCAs, on an on-going basis, can inform a trend analysis of upstream and downstream activities which can be used to track emission intensities from various suppliers, thereby ascertaining emission increases over time which are indicative of the increased carbon costs associated with these suppliers. These costs are a direct result of the environmental or socioeconomic levies that have been imposed on carbon intensive activities, such as private, heavy-duty transport, combustion of carbon intensive fuels, hazardous impacts on surrounding communities and waste disposal. The financial costs incurred in relation to carbon intensive activities are likely to increase due to the projected price associated with carbon emissions. As other regulations are passed into law, the social, and environmental implications associated





with these activities are also likely to be translated into financial costs. Furthermore, these costs will be passed along the supply chain to ensuing clients. While the carbon costs associated with sustainable resources are much lower, the sustainable resource may be more expensive from a price perspective, due to factors such as low economies of scale in the short-term. However, using a life-cycle perspective, it becomes apparent that a sustainable resource may, in fact, be more affordable in the long-term due to the lower inherent costs, such as carbon, associated with the resource. Deciding on a service or product based on the long-term sustainability of the product, rather than the immediate cost, is a strategic climate response and one that needs to be central to the future business model of any company. The proposed approach allows companies to make informed decisions about which suppliers to use, as well as to gauge ahead of time, which resources may require alternative procurement strategies.

Phase 2: LCA as a long-term sustainable approach

As many natural resources become increasingly affected by climate change, companies need to decide not if, but when, to integrate their sustainability strategy into their core business model. Where a company is dependent on a natural resource, that may become unsustainable in terms of its true future value or costs from an economic, social and environmental perspective, the continuing utilisation of that resource may eventually


result in a decline in profitability. While a GHG footprint might provide a snapshot of the company’s service providers, thereby indicating the most convenient and affordable options, the LCA takes into consideration a longer-term approach, specifically whether the sustainability and quality of the resources used will result in a competitive product or service. Monitoring LCA emissions linked to specific resources can allow for planning ahead of time where a resource is becoming unsustainable, for whatever reason. However, simply changing procurement strategies may not be sufficient. More companies need to become aware of the pending status of the natural resources they use most in their operations. Using a bottom-up approach to GHG reporting allows for a more accurate and in-depth profile of a product to be presented, as well as its current and future costs from a broader value perspective. This in turn allows companies to use this information to better integrate sustainability into their core business model, thereby providing a more competitive product or service.

An example of this is demonstrated below

Company A chooses to source from a supplier in country X, due to the affordable nature of mass produced products rather than on the emissions profile determined by the LCA. The supplier used by Company A will have a larger emissions profile due to the distances travelled and type of fuel used for the product to reach Company A. Company B chooses to source from a



local supplier due to the accessibility and sustainability of the resource, identified by a lower LCA. The emissions profile for the local supplier will be lower due to the proximity of the resource as well as the less carbon intensive fuel source required for transport of the product to Company B. Over time, it may become uneconomical to source from country X once this resource become scarce and more expensive due to accrued carbon associated costs, which requires Company A to change their procurement strategy. Depending on the time frame within which this occurs, there may not be an affordable option available elsewhere. This outcome would have added cost implications for Company A as they are forced to use a more expensive resource which reduces their competitive advantage. Company A’s short-term vision has required them to change their procurement strategy abruptly which may force them to rely on a product that is produced in an unsustainable manner, but is the only option, or potentially the only affordable option, remaining. This would have a negative impact in terms of consumer perception, potentially making their product less competitive in this regard. Consumers are increasingly becoming active in supporting locally manufactured goods and services, not only from a patriotic viewpoint, but also from a green economy perspective. Established SMMEs who have harnessed their expertise from international experiences have been able to supply and provide services that have previously only been accessible internationally. Products and services that


can be grown, manufactured or provided by local communities, supported by Corporate Social Investment (CSI) and Broad-Based Black Economic Empowerment (BBBEE) programmes in industrial corporations, have been founded on sustainable resources. The positive impacts and implications of these linkages become increasingly clearer when a comprehensive LCA is implemented and analysed.


This article advocates a two-phase approach to GHG emissions reporting to assist companies in achieving long-term supply chain sustainability. The first phase promotes annual LCA analysis to be included as part of annual reporting. This enables companies to better position themselves to make informed decisions regarding supply chain choices, which is important in a world of diminishing natural resources and where climate change plays an active role. However, simply developing a sustainability strategy from this data is not sufficient. The second phase of the approach calls for the integration of sustainability strategies into the core business model of the company so that resource and supply constraints are appropriately anticipated. This pre-emptive approach ensures that future supplies will be secured from sources with lower associated carbon costs, resulting in lower emissions intensity metrics, further harnessing product intensity as a sales tool. This will be specifically valuable from a green economy perspective, where the competition has not planned for such eventualities.



THE PROGRESSION OF CSR TO CSV Where corporate responsibility came from and where it should be going

Angus Ryan




n today’s modern times, we see how society can play a significant role in the impact of an organisation’s brand and profile. Through the advent of the multitude avenues of social media, we have heard voices becoming significantly louder, and whether for right or wrong reasons…heard! The Occupy Wall Street protest began on 17th September 2011 in Zuccotti Park New York City, close to Wall Street. Here, protesters demonstrated to big corporations that they did not agree with issues such as economic and social inequality, corruption and big businesses influence on government. But what was key here, is that this small minority were not going to go away, wanted to be heard and to contribute! Thus, it becomes necessary to find a way to forge a strong link with society, so that their needs and challenges are understood, and then tackled in a manner which delivers on economic profitability, whilst ensuring good standing as an organisation. This is no longer simply a function of Corporate Social Responsibility (CSR), but rather

Creating Shared Value (CSV). Joel Bakan, in his book “The Corporation - 2004”, refers to CSR as being business leaders’ ‘new creed’. It is a self-conscious approach to changing the perception of the Corporations ultimate vision from profit at all costs, to being inclusive of societies concerns. Thus, CSR is limited in what it can deliver on, if the intention is to create systemic social engagement and sustainable solutions. So, what avenue needs to be progressed upon to be that socially and environmentally accountable business?

What is the Drive Behind The Progression

Corporate Social Responsibility (CSR) has evolved into a more meaningful mantra of what has been termed Creating Shared Value (CSV). But what does that mean, and is it important? Well, Porter and Kramer (The Big Idea, 2011 – Harvard Business Review) believed that it was, and that CSR was limited in what it could achieve when one



Seen as a Cost Centre within a Businesses

Visualise social problems as market opportunities


Innovation Driver

Grudge Donation – discretionary act

Strengthen brand position

Photo Opportunity (magazine)

Develop loyalty

Be involved in social issues

Address social issues as finding innovative opportunities

Be involved in social issues Is integrated within core structure of a Not typically integrated within a business business model Table 1(Porter & Kramer, 2011)





considered the disconnection between business and society. They stated that economic value would be created by creating social value which addresses the needs, and challenges, of the society around ones-self. This meant a change in approach, from simply being a ‘grudge’ contribution to society without actually having to become involved (CSR), to one of seeking to becoming involved in the community, to understand where the value can be gained for all, and shared. This now becomes the point where a business tries to address the social issues with a business model. In essence, they paved the way for the principles and fundamentals of CSR to progress towards the all-encompassing approach of CSV. In terms of the differences between CSR and CSV, Table 1(Porter & Kramer, 2011) summarises this. Creating Shared Value means that policies and strategies need to create value by combining: • Increasing economic profit • Increasing value for society • Increasing competitiveness

Dating back centuries, to whether it was the Roman Empire, or the Medieval Feudal System, and later the Industrial Revolution, we see the simplistic designs of capitalism being the single factor in functioning and determining of business policies and philosophies. At the end of World War I, in America there was a growing swell of support for government to play a more active role in how corporations needed to act and treat their staff. Goodyear, under the leadership of Paul W. Litchfield (presided over the company for 32 years) believed that equality and cooperation between capitalists and workers, was essential for capitalism to survive. It was his efforts that embedded CSR in Goodyear, and this played a significant role in its future success. It was adverse public opinion in the 1930’s which lead to CSR again being a focal point for business in America. This was due to the fact that society saw the greed and contempt shown by business towards workers, as being a cause of the Great Depression.

BUT... Porter and Kramer (2006) also make the point that the social value must be defined with respect to relative costs. Thus, the success and effectiveness of the social engagement and outcomes must be measured in relation to financial returns.


A Historical Look at Business

The reason that CSR actually evolved was to address the increasing pressure, which was being mounted from society as a whole. No longer could the leaders of industry simply see society as a tool which was dispensable, yet necessary, for the success and profitability of the business.




According to Spitzeck & Chapman (2012), it was in the 1980’s that the concept of Shared Value with respect to corporate cultures, was first introduced. It started to become a presence which looked to align the purpose and objectives of a business, with that of its employees. Porter and Kramer (2006) began the move towards viewing and referring to CSR in a strategic manner, i.e. Strategic CSR. CSR approaches had, until then, been disconnected from the business strategy, and thus were limited in their potential yield. The limitations were, simplistically, that it caused business to work against society, and secondly that it saw CSR as generic, and not related to the business strategy. Whilst it may have been encouraging that CSR was now recognised, and an identified material concern to business, it still fell short of what it promised to deliver on. Bakan (2004) argues that, whilst there is this expressed shift in creed and concern, the corporation still remains “designed to valorize self-­‐ interest and invalidate moral concern”. In 2011, Porter and Kramer (2011), then labelled the progression as Creating Shared Value. CREATING SHARED VALUE IN SIMPLE TERMS In simplistic terms, the progression to CSV from CSR can be characterised in the following analogy: • CSR o A business gets involved in a local community next to their factory o They donate once a year to an event for the community o Management are available for a photo opportunity for the media o The company reports on this in their annual report o Metaphorically speaking, they simply pass their donations across their 3m high wall • CSV o A business engages with the local community o They establish a stakeholder platform to understand what challenges the community faces o The identify opportunities to meet these challenges by applying the principles of Envisaged Future and Whole Systems Thinking o The company now becomes target-­‐driven with the community to meet the challenges they face o They live this shared value approach o Metaphorically speaking, they have demolished the walls and the community is part of the company

According to Spitzeck & Chapman (2012), it was in the 1980’s that the concept of Shared Value with respect to corporate cultures, was first introduced. It started to become a presence which looked to align the purpose and objectives of a business, with that of its employees. Porter and Kramer (2006) began the move towards viewing and referring to CSR in a strategic manner, i.e. Strategic CSR. CSR approaches had, until then, been disconnected from the business strategy, and thus were limited in their potential



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yield. The limitations were, simplistically, that it caused business to work against society, and secondly that it saw CSR as generic, and not related to the business strategy. Whilst it may have been encouraging that CSR was now recognised, and an identified material concern to business, it still fell short of what it promised to deliver on. Bakan (2004) argues that, whilst there is this expressed shift in creed and concern, the corporation still remains “designed to valorize self-interest and invalidate moral concern”. In 2011, Porter and Kramer (2011), then labelled the progression as Creating Shared Value.

• Metaphorically speaking, they simply pass their donations across their 3m high wall.

In simplistic terms, the progression to CSV from CSR can be characterised in the following analogy:

CSV • A business engages with the local community • They establish a stakeholder platform to understand what challenges the community faces • The identify opportunities to meet these challenges by applying the principles of Envisaged Future and Whole Systems Thinking • The company now becomes targetdriven with the community to meet the challenges they face • They live this shared value approach • Metaphorically speaking, they have demolished the walls and the community is part of the company.

CSR • A business gets involved in a local community next to their factory • They donate once a year to an event for the community • Management are available for a photo opportunity for the media • The company reports on this in their annual report

Business now has the opportunity to make the progressive step towards understanding the concept of CSV, and how to translate it into the tangible operational inputs required in their respective business sectors. The business case for translating CSV into practical steps, as outlined by Porter and Kramer (2011), is summarised in the three basic steps below:

Creating Shared Value in Simple Terms

Reconceiving products & markets


Redefine Producivity in Value Chain


Build Supportive Business Clusters at Company’s locations


There is, naturally, a greater level of understanding which will be required than simply illustrated, and therein lies the opportunity to engage with the experts in this sector.

Case Study

Within the South African business environment, Sun International has taken the decision to embrace the concept of Shared Value, and look to embed it into the daily culture. They place significant importance on engaging with the local communities, neighbours, to understand their relevant needs and challenges, and understand how their operations may impact the stakeholders. Management of Sun International have driven the philosophy of incorporating local communities (in addition to the physical environment) into delivering services through their supply chain. In particular, Sun City has a policy which seeks to contract businesses from within the local community and business environment, before seeking services elsewhere. In instances where services are procured from businesses outside of the local community, the contractors are encouraged to engage and work with the local businesses, as much as possible. Other examples of companies embracing the CSV approach include Unilever, The Coca Cola Company, Johnson & Johnson, Tetra Pak, Nestle, Google, Wal-Mart, Nestle, Intel and IBM.

Business And The River

A metaphorical analogy to consider, as we look to understand the value of CSV, with the innovative systems thinking of Symbiosis and Biomimicry, is to describe “Business and the River”. Business is the fishermen, who stand on the edge of the river looking to extract all that they can, with a limited


respect for their impact and influence on the river. For them, the river is a source to provide them with what they require to be a ‘profitable’ fishermen. The river is society and the environmental landscape within which it exists. The river is, thus, at the mercy of the ‘elements’ of nature. The river is also affected by the behaviour patterns of the fishermen (policies, strategies and action plans from a business), and this can be both positive and negative. So how does this illustrate a relationship to distinguish between CSR and CSV? • The river’s ability to deliver and provide is not restricted to the physical locations which the fishermen can see. The ability to deliver is determined by a far more complex ‘ecosystem’ of symbiotic relationships, such as the catchment basin, upstream human and other external impacts, rainfall, tributary impacts. • Do the fishermen know what these impacts and challenges are? • What are the fishermen doing to fully understand the causal effects of these impacts on the river? • Do the fishermen have a strategic thinking process to see how they may ‘work with the river, to mitigate these potential impacts? • Have the fishermen considered what will happen if the river can no longer provide them with fish? (perhaps one of the biggest questions to consider) To answer these questions, the strategic process of CSV will look to understand what the fishermens’ (business’s) impacts are on the river (society), and what the overall challenges are that it faces. With this understanding, action plans and strategies can be developed, which will provide an Envisaged Future which will deliver on economic and social sustainable




profitability. And don’t forget, as in the case of the river, society has in most cases “been-there-before” business (fishermen) ever arrived.


For a long time, whilst CSR was becoming more prevalent, it was merely a transient aspect of business, which could be watered down when needed, or brought out for a ‘photo-shoot’ when the time was right. But what did it mean, and how effective was CSR in real terms with respect to making a difference to the community? CSV now had the underling thinking and approach to take it to the next step. Cat Stevens used the words… “from the moment I could talk, I was ordered to listen”. So, I ask the question, from the moment societies are engaged, are they ordered to listen? Or can they let their voices be heard? Are they able to contribute to the success of business, or be seen only as a material component for the business to maximise?


Porter and Kramer (2011) clearly refer to the acceptance of capitalism as being critical in meeting human needs and building wealth. But businesses’ historically narrow view, that a one-directional instructive relationship with society is needed, has to be changed. The full potential of a business from an economic, market differentiator and social point of view has a far greater potential, by incorporating and understanding society’s challenges and needs. Business needs to continue that progression from being a charitable donor, to that of a social collaborator. When one considers the significant steps that are being taken by progressive businesses in the world, it is highly encouraging to see that we are, indeed, progressing from the original CSR-restrictive approach to that of Creating Shared Value within our local social environmental. So, CSV is the exciting, positive opportunity to engage with your own business to grow and deliver on economic grounds.

References • The Corporation – Joe Bakan, 2004. • Occupy Wall Street ( • Corporate Social Responsibility and Creating Shared Value: What’s the Difference? (May 14, 2014) – Carol Moore (Heifer International). • The Harvard Review - “The Big Ideas: Creating Shared Value (2011)” - Michael Porter and Mark Kramer. • Creating shared value as a differentiation strategy – the example of BASF in Brazil (Heiko Spitzeck and Sonia Chapman – 2012). • Porter, M.E. and Kramer, M.R. (2006), ‘‘Strategy and society: the link between competitive advantage and corporate social responsibility’’, Harvard Business Review. • Milton Friedman, “The Social Responsibility of Business is to Increase Its Profits,” New York Times Magazine, (1970).




Dan Sonnenburg




he gap is narrowing, I admit, but the energy expended in producing a report far exceeds the energy expended in reading it and applying the knowledge. Until such time as this equation (see below) is balanced and tips the other way, this type of reporting will not fulfil its intended objectives. The equation is as follows: 100(energy invested into producing report)= energy expended reading & using report information You’re thinking that the author is an insolent upstart. You’re right. But stop and think about integrated reporting, nonfinancial reporting, whatever terminology you use, and what conclusions do you draw? The problem with reporting is that there is (and has been) weak demand for it. No market can be sustained with oversupply and under-demand. There is one major reason for the weak demand and that is that the majority of those responsible for managing our money are not interested in the information. It, therefore, has almost no bearing on how investment decisions are made. This is a systemic fault (which harmonises with human behavioural proclivities such as gluttony) and addressing this (changing the system) is a task of monumental dimensions whose dénouement will play out in hundreds if not a couple of thousand years. But this we all know. What hasn’t been interrogated properly is the role of reporting as it is in maintaining the status quo. One would expect that poor demand for report content would send a message and the system would adjust correspondingly. Yet, this is important, because of the importance accorded to reporting by a range of high profile people and institutions,


reporting as we know it continues to cruise along as is. The influence of these people and institutions prevents the reporters from introspection and thus from making the necessary adjustments and improvements. My point is that reporting is stale. The fear of not producing one, the fear of not taking risks, the fear of being the sheep that zigged while the rest zagged prevents reporters from assessing what it is they’re doing and why, and thus from doing something different, from innovating, from understanding the real meaning of the Global Reporting Initiative (GRI), for example. We need to look at whether the reports we are all part of in one way or another contain anything of value. We should be asking ourselves whether those (like the people who manage our money), whom we wish would use our reports, would find anything useful in them. The question we should be asking ourselves of the companies we work in or with is whether we, personally, would invest in these companies based on the content of their reports. My guess is that we wouldn’t. A significant improvement in reporting will come about when companies set their own reporting agendas instead of being governed by an astrology of exogenous factors. By this I mean companies come to understand what integrated reporting means, what the GRI means, and then determine how and what they want to disclose. Those who fail to reflect and integrate should be punished (by investors); those who do so rewarded. And then, way off in the future, we really need to look at the foundations of our systems and societies. Wealth accumulation, consumption and exaggerated resource use are all unsustainable. One day, the quality of our reporting will, paradoxically, not matter.



We are a world-class company, based in Sandton, the business hub of South Africa. We offer integrated talent solutions to clients nationally and in subSaharan Africa. Staffed by people with many years of experience in the search and human resources field, Talent Africa is proudly BEE compliant with 40% of the shareholding belonging to wholly BEE-owned entities. OUR SERVICE OFFERINGS INCLUDE: Executive Search, Selection of Specialised Skills, Board Services, Assessment of Human Capital, Competency Modelling & Coaching Services







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Wesizwe Platinum Limited




EVERYONE CAN WIN REDISA turns waste into worth through a ‘win­win’ approach that creates employment, enables businesses and helps the environment. It’s a sustainable waste stream solution that connects all stakeholders via a circular economy and an award­winning Waste Tyre Management Plan. It has already made a difference – 80% of all registered tyres dealers have been serviced and 105% of jobs target reached for 2014. Our target is to create a total of 10 000 jobs by the end of 2017.

Many South Africans have already benefitted from the plan ... Johanna Baleng (REDISA Mossel Bay Depot Manager) “It’s the first time I have been given such a big opportunity, in spite of my lack of education, and I would like to say thank you to REDISA.” Lebohang Felepe (REDISA Transporter) “I believe in the REDISA Plan and the difference it will make.”

Sithandile Ngxangxa (REDISA bursary recipient) “I received a bursary from REDISA to do my Masters in Analytical Chemistry.”

If you think of the success this plan has already achieved, imagine the potential it has for the South African community and economy in the future.


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Stanley Mangoegape (REDISA Midrand Depot Manager) “Working with REDISA has changed my circumstances and given me a new lease on life. They gave me an TM opportunity when no­one else would.”

Moving Forward

Assurance that matters Sustainability and Integrated Reporting Services Contact us on 082 788 4169