An idea whose time has come? What's the difference, what's the value and what to expect.

1. Sustainability and Integrated Reporting
2013 – A Review
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2. The Headlines
 Sustainability has moved into the
main stream
 Sustainability boosts the bottom line
 The financial fraternity is taking
notice
 Companies commit to though goals
 Companies reap the benefit from
sustainability and integrated
reporting
 Reporting contributes to increased
internal efficiencies and become
management tools
 Companies report on increased
competitiveness brought about by
sustainability strategies
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3. An idea whose time has come
 Both companies and countries are at different levels of
understanding and implementing sustainability strategies,
processes, plans, and policies
 Emerging markets are increasingly engaging with the agenda
and, in some instances, leading
 There is a need for developing appropriate skills and
leadership across all sectors to embed sustainability issues
into strategy and operations
 Global regulations, standards and initiatives are increasing in
influence
 Regulation and reporting alone cannot ensure a sustainable
future for all - culture and leadership is key
 Engagement is critically important to ensure priority and
focus on the right drivers
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4. After Round One
 Silo reporting is still evident in
financial, sustainability,
governance and operations
sections
 A lot of information still has no
context
 Key performance indicators are
not always relevant to strategies
 Issues arising from stakeholder
engagement are not always
adequately dealt with
 Challenges that will need to be
addressed include the efficient
gathering of non-financial
information
 South African companies already
see clear benefits in adopting the
principles of Integrated Reporting
 Full implementation could take
three to five years for many
organizations
 Many companies feel the
principles of Integrated Reporting
have helped them better
understand and manage their
business
 Implementation requires
organisational change at all
levels, and is not a single event
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5. Companies are taking stock of natural capital
 Natural capital creates value through ecosystem services,
the “free” deliverables provided to business and society
by
 A healthy planet, including clean water, breathable air,
pollination, recreation, habitat, soil formation, pest control, a
liveable climate, and other things we generally take for granted
because we don’t directly pay for them.
 Companies are under increasing pressure to measure, if not manage,
their impacts on and dependence to natural capital.
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6. Sustainability becomes a matter of risk and resilience
 Companies in a world of constraints relates to the
availability of energy, water, and other resources; where
the toxicity of products or manufacturing processes
present perils all the way up the supply chain; and where
climate shifts can disrupt the availability of raw materials
and threaten the well-being of employees and customers.
 Understanding risk and sustainability meant learning a new language
and translating it into their companies’ far-flung operations.
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7. Corporate Reporting gets integrated
 Integrated reporting – i.e.
combining conventional
financial information along
with key sustainability data,
in a much more investor-
friendly way.
 Sustainability reporting is not
likely to go away —
companies have invested too
much reputational capital in
telling stories and providing
detailed information, and
stakeholders have come to
view them as a minimum
requirement of a company’s
sustainability commitment.
 But as integrated reporting
ramps up, sustainability
reports will need to provide
more detailed performance
data relevant to broader
stakeholders, insight into
what is driving changes in
metrics, and deeper
explanations of
management responses to
social, resource, and
pollution challenges
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8. Materiality becomes material for investors
 For more than 20 years, the Holy Grail for sustainable
business has been to engage investors NOW investors are
voting with their dollars and companies have no choice
but to adjust their strategy and operations to align with
investor interests.
 In 2010, the U.S. Securities & Exchange Commission (SEC) issued
guidance regarding disclosure material risks related to climate change.
 With the global push toward standardising information relevant to
investors, and the growing interest in ESG disclosure by regulatory
bodies companies will find themselves exposed to new questions and
concerns on the part of shareholders and stakeholders
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9. Companies look past their goals
 An interesting challenge has emerged for companies that
have been focusing on sustainability for a half decade or
more: What do they do after they’ve met their goals?
 Of course, no company of any size has yet claimed to be
sustainable, and is therefore “done.”
 As more companies look at their current and next set of goals
and commitments, they would do well to consider a mix of
goals that lead not just to reducing environmental harm, but to
creating solutions that help customers
reach their sustainability goals, too.
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10. The Reset Button
 Budgets Shrink, Teams Grow
 While budgets have stayed relatively small, the size of
sustainability teams at large companies continues to grow.
 The New Convergence
 The evolution toward a broader executive role to manage a
combined EHS and ESG function is elevating the strategic
nature of the role of sustainability within corporations. More
and more environmental and social issues overlap across a
company’s extended supply chain, from raw materials through
to end-of-life responsibilities for products. This increasingly
requires a single point of responsibility to coordinate these
important activities.
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11. Challenges Ahead
 In the drive for greater transparency,
companies are losing sight of the bigger
sustainability picture
 Companies are increasingly providing reliable accounts of their
sustainability programmes. However, on a global scale they are far
from delivering solutions to the most pressing sustainability
problems.
 Companies are increasingly aware of sustainability issues and
actively integrate sustainability into core business strategy and
decision-making. They are opening up and describing in detail how
they define material issues, engage stakeholders and join multi-
stakeholder initiatives. However, as they become more responsive to
the sustainability reporting guidelines and other reporting
frameworks, they are failing to adequately put their performance
into context.
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12. How can we become better?
 Innovation is the key
 A common theme of successful sustainability programmes is
innovation. These are specific business innovation approaches:
embedding sustainability into systematic innovation, applied
company-wide, disseminated to supply chains and throughout
product lifecycles, based on internal and external stakeholder
feedback.
 We can learn from the high-risk industries
 The most robust management and governance arrangements
continue to be demonstrated by the traditional ‘high-risk’ industries.
In these sectors – petroleum, mining, heavy manufacturing – the
primary corporate responsibility is to deliver the building blocks of
society and growth in a manner that is, put simply, less bad.
Although companies in these sectors are rarely invoked as models of
sustainability, many have pioneered in some of the most important
areas.
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13. Leadership challenges
 The largest companies fall short of sustainability
leadership:
 A lack of balance still pervades reporting
 Many large companies, including those who demonstrate some
advanced sustainability practices, still tend to gloss over some
significant negative social and environmental impacts.
 The most important leadership challenge facing business
today is the integration of sustainability into core
business functions. And integrating sustainability into
business is perceived to be the most important focus for
business in order to fast-forward progress on
sustainability.
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14. How far we have come
 Stakeholder engagement basics are in place
 Most companies now engage stakeholders across a variety of channels –
in particular, surveys, materiality workshops and NGO/multi-stakeholder
initiatives. Even so, genuine two-way engagement at board level is rare.
 There is a trend towards the use and reporting of indicators and
targets
 One of the key trends last year has been the growth in indicators and
targets. Most companies continue to expand the number of indicators
against which they report. While target-setting isn’t quite as impressive,
we have seen an increase in the number of companies committing to
sustainability targets.
 Take-up of web-based and interactive reports continues to grow
 Most leading reporters provide content duplicated across both their
website(s) and downloadable reports. Websites themselves are
becoming more interactive and even some downloadable PDF format
reports are interactive.
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15. Global Research – Reporting Progress
 What the best reporters did best in 2012
 Focused on real important stuff - presenting strategy, marketplace,
KPIs, risk – in a joined-up way
 Explained their business model and how sustainability contribute to
and support value creation
 Supported strategic discussion with information about the key
resources and relationships necessary to successfully deliver their
objectives
 Discussed key trends across their markets, backed up with relevant
data
 Updated their risk disclosures to reflect developments in
2011/2011. And discussed risk management frameworks and
processes.
 Gave equal billing to financial and non-financial KPIs – and
integrated both through the business review
 Explained the business case for sustainability. The very best linked
sustainability to strategy
 Reconsidered how governance is communicated
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16. Reporting Progress – Some challenges
 Telling a story - the overall quality of reporting has improved across
sectors, with more companies using reporting as an opportunity to
tell their sustainability story, rather than a compliance exercise
 Progressive disclosure - the use of digital channels to provide detail
that sits outside 'the report' is becoming more routine
 Targets - more reports feature sustainability targets, though these
are frequently too qualitative
 Assurance and standards - there's been more extensive use of
external assurance and compliance with GRI guidelines
 Stakeholder engagement - remains weak in terms of evidence of
impact and dialogue
 KPIs - clearly defined KPIs are still largely absent, and data remains
patchy
 Interactivity - there's plenty of room for improvement in online
reporting, with baffling user journeys being common practice,
signposting leaving a lot to be desired, and limited usage of online
dialogue and interactivity
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17. Where to place the focus?
 Integrated reporting is still in its infancy
 An increasing number of companies are moving towards the
integrated reporting of sustainability and financial issues. However,
this continues to be challenging for the largest companies.
 The first major hurdle is comparability. Sustainability impacts, when they
can be measured in financial terms, tend to pale in comparison to the
fiscal impacts of more traditional business drivers. More often than not, it
is difficult to determine quantitative metrics for sustainability aspects, let
alone monetary figures.
 The second hurdle is that obtaining meaningful data on non-financial
performance at the scale needed remains elusive
 Some companies have simply combined financial and non-financial
issues into one report without consideration of how these issue areas
compare in significance. Others have moved toward summary reports
and highlights of sustainability to supplement the annual financial
report. There is little consensus yet on the future shape of integrated
reporting.
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18. Challenges in specific areas
 Significant progress is perceived to have been made over
the past 20 years on sustainability reporting
 Health and safety has made the most significant progress over
the past 20 years.
 Water is one of the issues in which business has made the
least progress on over the past 20 years.
 Two other areas in which business has made the least
progress, is sustainable consumption and public policy, and
these are areas that appear to be the greatest challenges for
future progress.
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19. Going Forward
 Human rights, workers’ rights, and climate change seems
to be the priority focus of organisation’s sustainability
efforts over the next year.
 Energy management in operations is overwhelmingly
seen as the main priority in carbon reduction strategies.
 Other areas requiring focus:
 The challenges of establishing an impactful strategy, scaling up
projects globally, and gaining resource commitments from
senior management are seen as significant challenges.
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20. What stakeholders want
 More balanced reporting – reports are not a reflection of
reality
 More information on employee diversity and equality
 Not enough long term targets set
 Not enough focus on most material issues
 Approach to sustainability not clear
 Lack of accessibility of information
 Lack of satisfactory explanations for poor performance
 More information on specific sustainability programs
 Inaccuracy in reporting information
 More local information – business opportunities and impacts
 More benchmarking/comparability/explaining of data
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21. Some constraints remain - Organisational
 Time and resource (financial and human) constraints
 Lack of organisational buy-in and commitment
 Difficulties in evaluating and measuring performance
 Managing impact and risk – risk aversion
 Difficulty integrating sustainability with organisational values
and priorities
 Understanding and managing regulatory impacts
 Developing new products and services that consider / mitigate
/ reduce environmental and social impact
 Improving supply chain practices and policies
 New themes – corruption, collusion, bribery, ethics, carbon tax
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22. Contact
 Reana Rossouw
 Next Generation Consultants
 Specialists in Corporate Sustainability and Integrated Sustainability as well Social
Investment and Development
 Tel: (011) 2750315
 E-mail: rrossouw@nextgeneration.co.za
 Web: www.nextgeneration.co.za
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