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: The Birth Of Integrated Reporting for Companies

 





Recent Gauteng Business News

The King III Code on Governance Principles calls for integrated reporting. But what exactly is this and does it mean an overhaul of how companies produce their annual reports?

Integrated reporting does not necessarily mean one report. Indeed, it doesn’t matter if a company has two or three reports, says Professor Mervyn King, the chairman of the King Committee.

“A company’s report or reports must show integrated performance, that is the financials and the impacts which the company’s business has had on the community in which it operated and on the environment. People, planet and profit are inextricably intertwined. Governance, strategy and sustainability have become inseparable.” And that is what King III is about.

The Code defines integrated reporting as a holistic and integrated representation of a company’s performance in terms of both its finance and its sustainability.

This view is integral to the business. It allows the company to be assessed in terms of its longer-term sustainability context. For instance, what plans does a soft drinks company have to ensure future water supply as we move deeper into an era of a shortage of water? No water, no soft drinks company. What plans does a wine exporter have to deal with the carbon footprint disclosure requirements increasingly required by UK supermarkets? No sales, no wine farm.

“The world today is flat, borderless and degraded. If you don’t get your strategic planning right in terms of the four capital areas – financial, environmental, social and human – the business of a company will not be sustained.”

Company directors have a duty to ensure the sustainability of the business is considered in terms of the assets of planet earth, namely air, land and water, notes King.

And with the current environmental crisis predicted to cause even greater hardship and loss than the recent financial crisis, sustainability is a big challenge for businesses.

Businesses in Africa have an even bigger challenge than their overseas counterparts. It is forecast that Africa will suffer a more severe impact of global climate change than other parts of the world. This is because the pervasive poverty makes it harder for people and governments to adapt and cope, and its people focus on agriculture.

So, company directors have to set sustainability strategies. Management has to implement sustainable business practices. Employees have to understand how and why they are conserving resources. Shareholders and investors have to ask: is the company still going to be around in a few years’ time?

Graham Terry, Head of the Office of the Executive President at the South African Institute of Chartered Accountants (SAICA) and author of the recently published book /Green: Why corporate leaders need to embrace sustainability to ensure future profitability, /says only the largest companies in South Africa currently produce sustainability reports. “The launch of King III, which is effective from 1 March 2010, will see a lot more companies either producing a sustainability report or incorporating this non-financial information into their annual report.”

The International Federation of Accountants (IFAC) does not at present stipulate how sustainability reports or non-financial information should be presented. The most widely-used format is that of the Global Reporting Initiative (GRI).

The GRI is a global body that provides guidance for organisations to disclose their sustainability performance. The reporting framework has been compiled from consultations and collaboration among business, civil society groups, labour, investors and accountants around the world.

While it may seem rather daunting to compile a sustainability report for the first time, the GRI offers good guidance. There are various levels of reports, type A, B or C (the entry level).

King III states the integrated report should have sufficient information to record how the company has both positively and negatively impacted the economic life of the community – this is often categorised as environmental, social and governance issues. King III further calls for the report to cover how the board believes it can improve the positive aspects and eradicate or reduce the negative aspects in the year ahead.

“A company will find that producing a sustainability report has all sorts of benefits. You can discover ways to save costs on electricity and water, and find new ways to deal with waste. It can offer up new business opportunities and efficiencies. And studies have shown that companies with a sustainability report are more positively regarded by external stakeholders,” says Terry.

In 2008, 48 South African companies used the GRI’s Reporting Framework for their sustainability reports.

 
 
 
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