Integrated Sustainability Reporting and Assurance

1. Integrated Sustainability Reporting and Assurance CIS Conference – Corporate Governance September 2009

2. Overview … see the wood for the trees • Sustainability reporting and assurance – ‘The trees’: some highlights & lowlights • Integrated sustainability reporting and assurance: ‘The wood’ • Key challenges • Innovative ideas • Where to from here?

3. Current Sustainability Reporting - highlights (1) • Excellence in Sustainability Reporting (2008) • 47% ranked as excellent or good • 16% marked as perfunctory (2007: 25%) • Best reports compete well globally • Increased commitment to sustainability • Increased effectiveness of communication • Increased quality of reporting • Increased levels of trust and reliability

4. Current Sustainability Reporting - highlights (2) • Corporate Register Reporting State of Play (2008) • Reporting across all sizes of company has grown • “No slowdown” in 2008: just over 500 first time reports • Tracked and registered 3100 reports • Just over 1000 produced a ‘GRI report’ • Trend towards combining non-financial information with annual financial reporting • “The best are integrating them fully”

5. Current Sustainability Reporting- lowlights (1) • Excellence in Sustainability Reporting (2008) • Poor link between sustainability and business • Reduction of volume/length of reports is a result of omission rather than materiality principle or stakeholder focus • Difficult to gain understanding of full impact, performance against benchmarks or management of indirect (value chain) impacts • Lack of transparency on processes to ensure completeness, validity and accuracy of information

6. Current Sustainability Reporting - lowlights (2) • GRI (G3) & JSE reporting criteria are critical, but issues must be still become part of organisations’ DNA • Majority of reports do not deal with the issues identified by stakeholders, and do not contain information on processes to determine materiality • Study of 30 large global companies in 3 industries, shows much of the information is: • not material • not assured • not comparable • providing favourable, rather than balanced reporting.

7. Current Sustainability Reporting - assurance (international) (1) • Around 30% (900 reports) included an assurance statement in 2008 (CR Reporting Awards) • Three major provider types – Accountants “Big 4” (40%), Certification Bodies (25%) and Specialist Consultancies (24%) • Quality of the assurance statements based on key elements: • Reference to standardised approaches and levels of assurance • Specific declarations (e.g. stated audience) • Methodology • Provider recommendations and opinions • Assurance conclusion • The choice of assurance provider affects which key elements are included in resulting assurance statements

8. Current Sustainability Reporting - assurance (international) (2) (CR Reporting Awards ’08 p31)

9. Current Sustainability Reporting- assurance (local) • 82 of the 399 South African reports involved used GRI (G3) (SustainabilityServices.com, 2009) • Of these, 29 (35%) companies sought external assurance, & 21 (72%) of these reports assured by the “Big 4” • 14 (48%) are from the Mining & Minerals sector, while 3 (10%) are from the Banking & Finance Services • Majority sought ‘Type 2’ assurance • Assurance used to increase the level of credibility over the report, and is valued for the internal benefit of testing the accuracy & reliability of systems & processes in place

10. “A key challenge for leadership is to make sustainability issues mainstream: the leadership must integrate strategy, sustainability and control (integrated governance), and establish the values and ethics that underpin sustainable practices. Governance, strategy and sustainability have become inseparable” KING III (2009:13)

11. ‘Integrated sustainability reporting and assurance’? (1) • King III Chapter 6 • Principle 6.1 … ‘effective communication with stakeholders’ • Principle 6.2 … ‘focussed on substance over form’ • Principle 6.3 … ‘formalised as part of the company’s reporting process’ • Principle 6.4 … ‘take place at least once a year’ • Principle 6.5 … ‘should have independent assurance’

12. ‘Integrated sustainability reporting and assurance”? (2) • More about themanagement than the reporting • of business strategy/systems w.r.t. sustainability issues • of company values and culture • of information • of gaps and shortcomings in performance • Requires long-term processes of monitoring (data collection, analysis) and stakeholder engagement (internal, external) • Does not mean “combined” to financial information in annual report – the report is one outcome of the longer-term process • Targets need to be set for all aspects, and trade-offs between aspects should be considered

13. ‘Integrated sustainability reporting and assurance”? (3) • Best practice case study: Integration Nova Nordisk A/S • Discusses financial, social and environmental performance • Contains consolidated financial and non-financial statements • Non-financial statements included: • Overview • Indicators and targets • Accounting policies for non-financial data • Notes • Economic stakeholder model • Two assurance statements

14. ChallengesSome key observations (1) ASSURANCE“credibility generating mechanism” • Assurance method • Separate assurance processes and statements for financial and sustainability information vs. • Integrated, Multi-disciplinary audit team • Assurance model • Expert panels and/or Expert commentary • Stakeholder panels • Internal Audit • External Audit (AA1000AS; ISAE 3000) – single or multiple organisations

15. ChallengesSome key observations (2) CONTENT“reporting on the thorny issues well” • Ensuring a holistic picture (aggregation; growth vs. longevity of the business) • Ensuring materiality • Achieving balanced reporting • Allowing comparison within sectors / industries • Taking responsibility for performance and potential/actual impacts throughout the value chain

16. “The development of such future sustainability reporting will be meaningful, credible, comparable information about the key drivers of overall business success, taking into account of external impacts of the organisation. Each company is on a journey, changing over time… It’s time to properly address the real issues” Hubbard (2009:17)

17. Innovation / Learning- from financial reporting

18. Lessons from financial reporting • Tone at the top • Letters from the CEO/Chairman • Accountability for performance • Summarised, easily accessible results • Focussed on key (material) indicators and information • Performance tables within the associated text sections • Standardised measures • Comprehensive assurance • Ensures overall accuracy and reliability

19. Innovation / Learning- from public sector reporting

20. Lessons from public sector reporting • Undertaken by government departments (e.g. Environmental Affairs) • Reporting frameworks • Comprehensive structure/s for sustainability content • Allows for assessment of completeness • System-based report for decision makers • aim to provide objective, comprehensive and science-based information on conditions and trends considered important for decision-making • include issues relating to quality of human life and human-environment relationships • recognise the environment as a system that interacts with economic, policy and social systems

21. Innovation / Learning- from ISO 26000

22. Lessons from ISO 26000 • Guidance on social responsibility • Consensus on what social responsibility means • Highlights social responsibility issues that organisations need to address • Translating principles into effective actions • Refining best practices that are evolving • Understanding of “community” • Enhances a company’s tangible, long-term positive contribution • Publication in late 2010

23. Innovation / Learning- from Sustainability Science

24. Lessons from Sustainability Science • Complexity • Understanding a company in relation to the social-ecological system it exists within • Understanding the trade-offs made between social, economic and environmental material aspects of a company (i.e. real statements regarding impact & outcomes of spending) • Multi-disciplinary teams • Guidance on assembling and functioning of such teams (e.g. for integrated auditing) • Adaptive management • Understanding how to use monitoring, reporting and stakeholder engagement processes to facilitate social dialogue and mutual learning

25. Where to from here?

26. The way forward for sustainability reporting and assurance (1) • Developing reports focused on specific needs and issues in a particular context • Developing reporting maturity (Hubbard, 2009) • From – ‘What good we do for the community…’ • To – ‘How we address our negative impacts on the community, and involve the community directly in our processes…’ • Joint involvement of external and internal stakeholders with specific dialogue, for mutual learning • Aggregated reporting and standardised measures

27. The way forward for sustainability reporting and assurance (2) • Using clear performance tables which include trend information, within the body of the report • Reporting actively used by the Board of Directors (including independent directors) • Clear linkages between performance (outcome) indicators and impacts of business policies and activities/operations • Use of appropriate frameworks that highlight what information is ‘missing’ from reports

28. The way forward for sustainability reporting and assurance (3) • In summary, we are aiming for… • Use of sustainability reporting by stakeholders for active decision making • Integration of material sustainability information and impacts into business strategy, process and reporting • Assurance on report content by reputable, independent assurance providers

29. Jayne Mammattjayne.mammatt@za.ey.com+27 (0)11 772 3349