Corporate sustainability should be about strategic value creation, rather than just a statement of values, and the integrated reporting framework could assist companies in seeing environmental, social and governance (ESG) as central to strategy, according to Jonathon Hanks, a South African sustainability expert.
“The thing is that many companies’ sustainability reports tend to focus on managing negative impacts, rather than increasing social value and they’re not for the most part core to strategy,” said Hanks. “It should be about value creation, rather than values. That’s the key element. Unfortunately, it’s not an approach that enough companies follow.”
The integrated reporting (IR) framework proposed by the International Integrated Reporting Council (IIRC) places ESG disclosures into the main body of financial disclosures, which would put sustainability into the heart of how companies approach corporate strategy. Hanks is member of a working group of the IIRC.
“The thing we’re trying to get with the next thing we’re trying to get with IR is a strategic reflection of how organisations create value now and in the future,” Hanks said. “For many companies , currently the reports are almost devoid of real societal context. What we’re trying to do is have a more nuanced view on how they create value.”
Hanks is the director of Incite Sustainability, which is a strategic consultancy and advocacy group that advises South African companies. He has more than 20 years’ experience in sustainability.
South Africa provides a model and a case study to how companies approach sustainability reporting. Companies listed on Johannesburg Stock Exchange (JSE) are now responsible for producing an integrated financial report that recognizes their impact on the environment and society and related reputational issues, or explaining why they are not reporting that information. The JSE in 2010 adopted standards requiring an if-not, why-not approach to integrated sustainability reporting. Hanks is a member of the Working Group of the South African Integrated Reporting Committee and contributed to drafting the IRC’s discussion paper on integrated reporting.
Whilst this is the second financial year that listed companies are producing integrated reports, Hanks noted that the results are “mixed” and that some companies are still publishing “combined” reports – i.e., accounts in which sustainability metrics are published separate to the financial accounts.
“Not all companies I think are actually producing integrated reports in the full sense,” he said. “They are also not being held to account if they don’t produce the. For those who have done them, the performance has been mixed. Some are showing creative thinking, but I’m afraid that many are producing combined reports. The key challenge is to get companies engaged in the process to interrogate the issues. They see this as a nuisance factor and the mainstream accounting profession does not always appreciate the issues.”
Hanks also notes that investors – particularly institutional investors also need to get involved to prod their invested companies to comply with standards.
Hanks will discuss these themes at a series of seminars in several cities in Australia in May. The two-day programs are held in conjunction with the Australian Centre for Corporate Social Responsibility.