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South African businesses missing out on the efficiency benefits of integrated reporting, a year into the mandate, according to CarbonSystems

The bigger picture
Integrated reporting, mandatory in South Africa for the last year, presents businesses with an unprecedented opportunity to understand and stamp out poor use of resources. So whyare the majority of companies no further on with the practice, asks Karl Campbell, managing director, South Africa, at CarbonSystemskarl campbell gbafmag

A year on from the introduction of a formal mandate,the majority of South African businesses are still missing out on the efficiency benefits of integrated reporting. This is because they have yet to get to grips with the discipline. As a result they are failing to exploit associated benefits in their organisations – such as the ability to rein in excessive spending on energy through enhanced visibility of cross-company resource usage.

In February Professor Mervyn King, chair of the Global Reporting Initiative, and author of the King Code on Corporate Governance, noted that only half of listed companies in South Africa had so far masteredintegrated reporting to a degree that is of value.

Integrated reporting requires that public businesses report corporate governance and sustainability metrics in addition to their yearly financial results. Each of the three criteria must now be given equal coverage to give a more rounded view of a business’s performance, looking forward as well as back, and highlighting the risks and opportunities a company faces and how they will be addressed.

Although there isn’t an official standard for integrated reporting, there are clear guidelinescompanies can follow. These have been put together by the International Integrated Reporting Council (IIRC), a heavyweight corporate reporting body whose members include representatives of the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board of America (FASB).

The IIRC has come up with a set of principleswhose goal is to ensure that the three different subjects being reported on come together in a logical way – adding genuine value for those seeking to vet a company’s overall performance.
New data demands new capabilities
After a year of grappling with the expanded accounting practice however, businesses across South Africahave realised that the demands of the new reporting regime far exceed the capacity of their existing accounting systems and associated business processes.

Many companies don’t have accurate or complete non-financial data – they are simply not recording it, or not doing so systematically and reliably. Those that have tried to achieve integrated reporting using a combination of existing accounting systems, spreadsheets and manual recording have found that the practice is fraught with risk, being labour intensive and susceptible to inaccuracy, which in turn could harm their brand.

The new integrated reporting regime requires new business processes and new software systems for reliable and consistent automated data capture, as well as broader reporting capabilities to cope with the official new demands.

Cloud lightens the load
The good news is that a new breed of software applications exists now which can automate the data capture and reporting for companies. Dedicated holistic energy, enviromental, and CSRand carbon management and reporting applications offer sophisticated data capture, analysis and reporting functionality that meet financial grade audit standards.

Better still, such capabilities are available via the cloud. Cloud-based integrated reporting solution is rapidly gaining traction both in South Africa and internationally. Here, organisations as diverse as banking group Investec and retail group Combined Motor Holdings (CMH) have implemented such solutions to bring their corporate reporting in line with IIRC requirements. CMH is already experiencing savings of R5 million a year and expects that figure to increase.

Looking laterally
That a modest investment is required makes it important that companies can think outside the box about the benefits of making the new measurements count. To ensure the business maximises its return on investment, organisations must look beyond the ‘mandate’ to what they themselves can derive from the new investments they must now make. Looking for additional ‘wins’ means aligning sustainability goals and practices with broader business strategy for example – in areas such as cost reduction, increased efficiency, business transformation, risk management and business continuity.

The mandate to collect and report on additional data about environmental performance in particular presents businesses with an opportunity to take back control over inefficient consumption of resources.The supply and cost of energy is a big issue in South Africa, so the ability to collect detailed data about its use across an organisation is a powerful enabler, allowing companies to target efficient measures and change behaviour to reduce wasteful consumption.

In addition to looking better in the company’s year-end results, reducing an organisation’s carbon footprint and its exposure to a future carbon tax, there is significant scope for direct cost savings once problem areas have been highlighted.As soon as organisations begin measuring additional aspects of their performance, such as energy efficiency, in a consistent and meaningful way, they can begin to make informed decisions about improvements in the way such resources are managed.

Needs must
With the global economy as turbulent as it is currently, it can be very difficult for businesses to prioritise strategic initiatives. Cost-cutting, enhanced productivity and meeting numerous compliance targets, including environmental sustainability goals, are likely to be high on the agenda, but with a restricted budget to apply, it’s easy for organisations to shelve their good intentions in favour of growing the business financially.

A formal change in the way businesses report on their progress against other matters besides the financial health of the organisation should help get them back on the right track.

This makes sense financially too, if it means containing waste.In terms of energy efficiency, global brands including Walmart, Target, Cisco, Campbell’s Soup, Hilton, Ford, Chrysler, General Mills and TXU Energy collectively have reported saving equivalent to hundreds of millions of Rands through initiatives such as using renewable energy, energy efficiency and recycling schemes.

In its most basic form, integrated reporting is now an official expectation, a new reporting requirement without which a business may look as though it is hiding something, or doesn’t have its act together. In its broadest application it could be a powerful business tool – shining a light on whole areas of wasteful practice that may have been costing companies dearly. It is here that businesses should direct their attention, as it is here that sustainability chimes with the needs of financial managers and the Board at large.

  • CarbonSystems is a global provider of sustainability software. Its technology helps companies manage their carbon, energy, environmental and social responsibility performance and operate more efficiently by driving cost savings in their use of energy, fuel, gas, water, waste and other environmental metrics.www.globalcarbonsystems.com