According to Mervyn King, author of the King III report and its predecessors, “governance, strategy and sustainability are inseparable”, and with an increasing global focus on corporate responsibility and integrated reporting, sustainability reporting and how to effectively incorporate it into enterprise reporting practices are becoming of increasing concern to businesses.
Sustainability reporting refers to all of the information companies should report on that is related to non-financial information, including economic, social responsibility and environmental performance. This means that organisations have to focus on additional areas to the pure financial results of the past when it comes to drawing up annual reports, adding in a number of new sources for information both structured and unstructured and increasing the complexity of reporting dramatically
Integrated reporting includes sustainability as part of the annual results of companies with the aim of improving transparency to stakeholders and ensuring that the business is being run not only in a financially viable fashion but also in an environmentally, economic and socially responsible manner.
Internationally, the Global Reporting Initiative, or GRI, has produced standards for sustainability reporting, which incorporates the triple bottom line of people, planet and profit. More than 1 500 companies across various countries subscribe to these guidelines and the movement is gathering momentum as the importance of true sustainability becomes increasingly apparent.
In the local context, the Johannesburg Stock Exchange (JSE) mandates that all listed companies have to adopt the practices and guidelines as outlined by the King III report as of 1 March 2011, which means that sustainability reporting is not simply a recommendation for sound business practice, but a legal requirement that all JSE listed entities must comply with.
For non-listed companies, sustainability reporting is not mandatory but is considered to be best practice, and with the likelihood that financial reporting will be standardised, sustainability will be integrated with this and the momentum for this type of reporting in non-listed entities will increase as a result.
Aside from this, going forward sustainability is likely to become a determining factor when it comes to selecting business partners and awarding tenders, much like BEE is today. Stakeholders are demanding to be given a full understanding of the strategic governance and long term viability of an enterprise, and potential investors and partners wish to be fully informed as to the long term viability of the business on all fronts, not only financially. This means that sustainability reporting is certainly coming to the fore in modern business.
While the concept of integrated reporting is a relatively new one and there are no universally agreed standards as yet, the South African Integrated Reporting Committee (IRC) is in the process of developing a local standard, and discussion papers on the framework have been released by King, who is also the chairperson of the IRC. In the interim however, the guidelines as outlined in the King III governance code provide the most important requirements companies will be expected to comply with.
Some of the most important guidelines as outline by the King III report include the following:
. Sustainability reporting and disclosure should be integrated with the company’s financial reporting:
. The board should include commentary on the company’s financial results . The board must disclose if the company is a going concern . The integrated report should describe how the company has made its money . The board should ensure that the positive and negative impacts of the company’s operations and plans to improve the positives and eradicate or ameliorate the negatives in the financial year ahead are conveyed in the integrated report.
Some other important factors to bear in mind include the fact that sustainability reporting and disclosure should be independently assured. The general oversight and reporting of sustainability should be delegated by the board to the audit committee, and the audit committee should assist the board by reviewing the integrated report to ensure that the information contained in it is reliable and that it does not contradict the financial aspects of the report. The audit committee should also oversee the provision of assurance over sustainability issues.
The increased complexity of this type of reporting has an impact on the time and cost of reporting, and since the deadlines have not been extended for listed companies that now need to produce sustainability reporting as well as standard financial results, the process has become a fairly complicated and time consuming one.
Automating financial reporting as a whole, and incorporating a last mile reporting solution, will help to ease the burden on these organisations for future reporting, streamlining the process and greatly easing complexity.
The reality is that integrated reporting is the way of the future, and enterprises would do well to be prepared now so that they can harness the benefits of sustainability reporting and meet the changing demands of tomorrow’s business environment.