SA companies challenged by integrated sustainability

South African companies still have some way to go in integrating sustainability into their strategy and daily operations.

This can be read from the results of a survey conducted by professional services firm PwC.

Jayne Mammatt an Associate Director within PwC’s Sustainability and Integrated Reporting Department, says: “We live in a world in which sustainability can no longer be viewed as a ‘nice-to -have’ or a green issue managed by an isolated unit within a business. Rather, sustainability which involves managing risks and opportunities affecting long-term viability needs to be integrated into every facet of an organisation and its approach to doing business.

“There is much focus on ‘reporting’, but this is only as good as the ‘doing’ and addressing this is not without its challenges for companies today.”

PwC’s inaugural publication entitled ‘Paving the way to a sustainable future”, aims to assess how well sustainability is being embedded in the strategy, risk management and daily operations of the top 100 companies listed on the JSE. The results will provide a point of reference for subsequent research in years to come. The top 100 companies by market capitalisation, as listed on the JSE on 31 July 2012, were invited to participate in the survey. Of these, 20 companies from a broad spectrum of industries provided a complete response to all survey questions within the time frame.

A company’s definition of sustainability is dependent on its corporate values and leadership philosophies. It must also articulate what value the sustainability strategy is expected to bring directly or indirectly to the bottom line.

The results of the study show that several motivations, which are not core to the company’s strategy, still play an important role in driving the process of integrating sustainability into companies. These include corporate citizenship and reputation. To be doing and being seen to be ‘doing the right thing’ were recognised as the most significant motivators for addressing sustainability. Strategic risk, which ranked third, is central to effective integrated management in line with the philosophy contained in the Code of Governance Principles for South Africa, 2009 (King III).

The majority of companies (67%) have implemented board sponsorship of sustainability, with only a few companies applying ownership at the management or operational level. “This can be seen as a positive indication of the effective mainstreaming of sustainability, as the ‘tone at the top’ is central to determining the actions and options implemented within the company concerned,” says Mammatt.

While 71% of companies report that sustainability issues are major considerations in their organisation’s strategic discussions, the remaining 29% report that they play a less important roll. In these companies, sustainability has not been fully recognised, articulated or understood as providing an essential framework for the long-term value and viability of a business.

There seems to be an almost even split between companies that fully incorporated sustainability risk into their risk management process and those that have not yet done so. This is an area requiring major improvement and a fundamental shift in understanding.

The following factors were highlighted as key by respondents for encouraging further mainstreaming of sustainability: informed investors and analysts; access to a skilled talent base and informed customers; R&D/innovation and access to green technology; and access to the green economy.

Informed investors and analysts are ranked most critical, and despite the United Nations Principles for Responsible Investment (UN PRI) and the Code for Responsible Investing in South Africa (CRISA code), the critical scrutiny needed to drive top-level support for the mainstreaming of material sustainability risks and opportunities may still not be in the process of being asked by this category of stakeholders, says Mammatt.

Regardless of the external factors mentioned above, survey responses show that progress is being made to integrate sustainability management into business processes.

 Most companies (60%) report that their efforts to measure and respond to material sustainability issues are showing results. The remaining companies (40%) report further work needs to be completed to make their monitoring programme most effective. While the majority of respondents (70%) state that either the board or EXCO monitor and manage material key performance indicators (KPIs), the remaining respondents (30%) confirm that their responsibility is held by management at the operational level.

Of the responses received, 25% of companies report that only high-level documentation, or draft definitions and policies, have been established. These companies are yet to achieve the level of full implementation reported by the remainder of respondents (75%), who confirm that, at a minimum, definitions and policies have been implemented across their operations. The implications of not having robust definitions, policies and procedures in place are that the integrity and accuracy of key performance indicators’ data can be called into question, states the report. As a result, the use of such data for decision making by both management and external stakeholders can be undertaken with far less confidence.

 The increasing importance of dialogue regarding material sustainability issues appears to be recognised by most companies with a significant percentage (80%) confirming that a formal process for identifying and categorising their stakeholders has taken place. Most progress in understanding and integrating stakeholder feedback has taken place in the processes for external reporting, risk management, strategy and regulatory compliance. Less consideration of stakeholder concerns has been given in areas of human resources, product development and supply chain management.

Mammatt concludes: “Companies have done much work in laying the foundations of integration, but even in the most advanced organisations, there is still more to be done in embedding integrated thinking into the DNA of businesses.”

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