This is why South African companies need to improve their sustainability reporting

Sustainability reporting combines economic performance with social responsibility and environmental care. It aims to help businesses set goals. It also measures performance and manages change towards sustainability.

Many governments and stock exchanges require businesses to provide some level of sustainability reporting. This has become important because of growing social and environmental injustices, high-profile corporate scandals and the global financial crisis.

Sustainability reporting is important because poor disclosure can lead to a decline in investments for a country. Establishing a suitable sustainability reporting framework is therefore important.

South Africa is one of only a few emerging-market economies showing a significant increase in sustainability reporting. It is also the only one in Africa. Companies listed on the Johannesburg Stock Exchange have to integrate sustainability reporting with financial reporting. If they don’t they have to explain why they’re not complying.

But more needs to be done if sustainability reporting is to maintain its integrity and value. It needs to be critically assessed against international standards.

We did research on the reporting of 100 companies listed on the Johannesburg Stock Exchange. We found that the use of standards and indicators was low in the real estate and consumer services industries. Other industries fared better. Companies with international status showed a stronger tendency to use international standards. They used local requirements to a lesser extent.

Based on the results we developed a framework that companies can use to improve their sustainability reporting. The results are expected to be published soon.

Plethora of standards and indicators

There are various sustainability reporting standards and indicators. There are 17 reporting standards internationally. In addition, there are 10 categories over and above the Global Reporting Initiative’s general standard disclosure and indicators. South Africa has 12 initiatives. These are made up of mandatory requirements, voluntary guidance and initiatives put in place by the government, the local stock exchange and market regulators.

These 12 initiatives include:

- legislation such as the Black Economic Empowerment Act and the Mineral and Petroleum Resources Development Act;

- voluntary guidance. This is covered by the King Code and the Johannesburg Stock Exchange’s Social Responsibility Investment Index; and

- other initiatives such as state-owned enterprise shareholder compacts.

Some international standards focus on policy. There are others that focus on management and others on reporting standards. The key ones include:

- the United Nations Global Compact and Organisation for Economic Cooperation and Development guidelines;

- the International Labour Organisation and United Nations guiding principles on business and human rights; and

- the Global Reporting Initiative.

The Global Reporting Initiative gives guidance on what and how to report. There are no binding requirements. It is meant to be used as a reporting standard alongside others.

The initiative groups indicators along the following lines:

- general standard disclosure. This includes governance, stakeholder engagement and ethics;

- economic, environmental and societal indicators; and

- interlinked issues that address tensions between the three pillars of traditional triple bottom line reporting. This covers planet, people and prosperity.

New framework

Our framework used the South African initiatives. We incorporated these with the international standards and the Global Reporting Initiative guidelines. We also included 10 categories of integrated indicators. These aim to address tensions between the three pillars of the traditional triple bottom line approach. An integrated approach provides a more coherent picture of business sustainability.

Based on this framework our analysis of South Africa’s top 100 listed companies showed that they were using:

- Eleven of the 12 South African requirements and initiatives. The state-owned enterprise shareholder compact was the only local initiative not used.

- Fourteen of the 17 international standards. The companies weren’t using the Core Labour Standard, Social Accountability 8000 standard and the Fair Labour Association standard.

- Only three integrated indicators.

Overall, our research showed that South African companies generally aren’t using the integrated indicators. Rather, their focus is on the triple bottom line concept. This means that the more challenging aspects of sustainability are neglected.

South African companies should move from adopting low-level compliance and conformance indicators to using more complex integrated indicators. In other words, they need to move from weak sustainability to strong sustainability.

Our proposed framework can provide business managers with a guide to comprehensive reporting on sustainability performance. It can also help strengthen a business’s commitment to sustainability.