Sustainability to have sweeping business impact in 2012

The international framework for integrated reporting and the fourth generation GRI guidelines (G4), which both closed for comment towards the end of last year, will have far-reaching implications for business. Corporates cannot afford to set sight on compliance alone.

Corporate culture and leadership

Towards the end of 2011, global sustainability regulations, standards and initiatives intensified immensely, but mere regulation cannot make organisations sustainable nor have the desired results. Corporate culture and leadership are key to achieve true sustainability.

In my view, 2012 is the year to integrate sustainability with business strategy. Sustainability is no longer only the concern of large multinationals; it concerns all organisations. Leading businesses see sustainability as a business imperative and part of core business strategy, not just a side-line function. A critical need to develop appropriate skills and leadership to embed sustainability issues into strategy and operations will mark 2012.

Both the integrated reporting framework and the G4 guidelines will entail significant industry changes and the new reporting protocols will pose challenges and opportunities for SA business in 2012.

Most organisations only embarked on their maiden integrated report voyage in 2011. For many, it was a painful and intimidating process. Some organisations did only the bare minimum to comply, while a few trailblazers anticipated the process and experimented with the integrated concept already in 2010. We saw a few good examples, but we also saw hesitant attempts.

Pioneers saw clear benefits

I believe that the pioneers last year saw clear benefits as a result of adopting the principles of integrated reporting - they gained a clearer understanding of the key risks, resources and issues affecting the future of their business. However, the full implementation of integrated reporting could take three-to-five years for many organisations, and many will only embark on the journey this year.

It concerns me greatly though, that companies focused so little attention on stakeholder inclusiveness, a guiding principle of the GRI, the IRC and the IIRC. In 2011, integrated reports did not address stakeholder questions about organisations' future sustainability. Reports reflected very little information on how companies progressed against the improvement targets they set.

Rather, reports became thicker and more convoluted, and less concise and focused. This means there was a lack of integration between sustainability and business strategy, and the analytical part, the actual integration of the two, was still absent.

Essentially, such reports do not empower readers to reach informed decisions as they do not truly plot companies' progress on the road to sustainability.

Looking ahead

Looking ahead, a few business pointers for the 2012 sustainability reporting process are important.

We expect human rights and gender to come closer under the microscope in 2012. Initiatives such as the UN Global Compact, steered by United Nations secretary general on business and human rights Prof John Ruggie, highlight the links between human rights and business issues.

In 2012, companies will need to focus their sustainability programmes on developing materials and methodologies for detailed human rights impact assessments with a more defined human rights scope in mind.

The Accenture 2011 CEO Survey indicated that governments will provide clearer direction and support for sustainability. Corporates are therefore likely to see greater integration with governments. Prevalent trends demand that governments and non-profit organisations report on sustainability issues and be more accountable.

More transparent approach

Increasingly, clients expect their development partners, including NGOs and SMEs, to approach sustainability more transparently. I also predict a stronger emphasis on the full value chain and heightened reference to supplier relationships. It is likely that G4 will include a new section on lifecycle analysis and that the integrated reporting framework will also encompass this.

Organisations simply no longer operate as islands. An organisation's unwillingness or ignorance to report on its carbon footprint can mean a business transaction cul-de-sac further down the value chain. If suppliers apply poor human rights practices, it directly affects stakeholders' view of them. It is all interrelated.

Assurance will become a critical component of sustainability reporting, specifically in light of integrated reporting. This will have a dynamic effect on organisations. A single report necessitates external assurance for both financial and non-financial information. It will force sustainability professionals and auditors to think differently about the identification and disclosure of organisational risks.

The question of combined auditing by a single service provider raises several industry questions, specifically with regards to skill, knowledge and experience, and how auditing firms can conduct combined audits objectively.

Shorter, concise and more focused

In theory, reports should become shorter, more concise and more focused in 2012, with greater opportunity for industry-specific information and an increased emphasis on sector supplements. Information should be contextualised for readers, with geographic-specific content customised for specific audiences.

Good reports will consist of less clutter, with clear reporting against targets set in previous years, and such reports will be published in media that adhere to stakeholder inclusivity guidelines. There is thus much room for improvement.