One reason behind the popularity of sustainability reporting is that transparency not only helps companies tell their story, it also drives improvements in performance. As per the business axiom, “You can’t manage what you can’t measure.” Transparency is a currency that builds trust.
Because of this success, multiple sustainability reporting frameworks have emerged. Companies complain of an increasingly fragmented and burdensome process. Part of this discussion is whether companies should use the standards from the Global Reporting Initiative (GRI) or the Sustainability Accounting Standards Board (SASB). This is often framed as a competition; a choice between rivals.
We’re writing to set the record straight: This is a false choice.
At a time when we are confronted with existential threats such as climate change, as well as egregious issues such as human trafficking, we don’t have the time or resources to waste on such false distinctions.
Rather than being in competition, GRI and SASB are designed to fulfill different purposes for different audiences. For companies, it’s about choosing the right tool for the job.
Established in 1997, GRI developed the first corporate sustainability reporting framework. Today, GRI’s standards are used by the majority of companies reporting sustainability information. The standards are designed to provide information to a wide variety of global stakeholders ranging from civil society to investors. Consequently, the GRI standards include a very broad scope of disclosure. Typically, companies use them to develop and design their sustainability or corporate responsibility reports.
SASB, established in 2011, develops standards for the disclosure of material sustainability information to investors in mandatory filings (financial disclosures). SASB standards, available for 79 industries, identify material sustainability factors that are likely to impact financial performance.
Investors have their own unique needs, different from those of suppliers, customers, communities, interest groups and other stakeholders. They demand reliable and comparable sustainability information with clear links to financial performance. Focused on this need, SASB standards identify the subset of sustainability issues that are reasonably likely to be material to investors. In order to preserve a focus on financial materiality as well as to attain comparability among peers, SASB standards are industry specific.
Different audiences, unique needs
As you can see, GRI and SASB are intended to meet the unique needs of different audiences. The GRI standards are designed to provide information to a wide variety of stakeholders and consequently, include a very broad array of topics. SASB’s are designed to provide information to investors and consequently, focus on the subset of sustainability issues that are financially material.
As such, deciding between GRI and SASB is a false choice. Companies that produce a sustainability report also should (and in many cases must, when required by law) disclose financially material sustainability information in their mandatory financial reports, such as a 10-K. Conversely, companies that only disclose sustainability impacts that meet a financial materiality test are potentially ignoring issues critical for sustainable development.
Truly sustainable companies do both. They identify sustainability impacts that are financially material (and therefore compelled to be disclosed to investors) as well as the impacts relevant to a broader range of stakeholders. They communicate their story to investors and other stakeholders in the appropriate reporting channels and ensure consistency.
The bottom line is that the GRI and SASB standards are not mutually exclusive; they are mutually supportive. Transparency is still the best currency for creating trust among investors and other stakeholders, but companies should focus on which stakeholders need which information in which format.
The world needs corporations to understand, reflect and act on a broader range of concerns than those raised by financial stakeholders. Stakeholder concerns are often leading indicators of what may become financially material to a company in the future.
Investors need standardized, high quality information on material factors that can affect price or value. When sustainability disclosure distinguishes between that which is material to the investors (because it may affect price or value), and that which is of interest to stakeholders (because it describes company’s impacts and could affect the company trajectory in the long-term), all stakeholders benefit. SASB and GRI are designed to meet these respective needs.
Actions driven through the financial markets and actions driven through a wider range of stakeholders are important in different ways. Both SASB and GRI recognize this and we pledge to support one another in this common quest on improving corporate performance on sustainability issues.
We hope that cooperation between our organizations will further the understanding of the sustainability disclosure needs of different stakeholders and promote the harmonization of the corporate reporting landscape. It is imperative that we all work together. Companies need to better navigate the landscape of multiple frameworks and get on with the business of articulating their sustainability impacts in formats that meet their business objectives and stakeholder needs.
GRI and SASB are both here to help companies move from transparency to performance. There is no time to waste.
RESEARCH shows that South African companies are neglecting the more challenging aspects of sustainability reporting, say academics Miemie Struwig and Heidi Janse Van Rensburg, writing for The Conversation:
Sustainability reporting combines economic performance with social responsibility and environmental care. It aims to help businesses set goals. It also measures performance and manages change towards sustainability.
Many governments and stock exchanges require businesses to provide some level of sustainability reporting. This has become important because of growing social and environmental injustices, high-profile corporate scandals and the global financial crisis.
Sustainability reporting is important because poor disclosure can lead to a decline in investments for a country. Establishing a suitable sustainability reporting framework is therefore important.
South Africa is one of only a few emerging-market economies showing a significant increase in sustainability reporting. It is also the only one in Africa. Companies listed on the Johannesburg Stock Exchange have to integrate sustainability reporting with financial reporting. If they don’t they have to explain why they’re not complying.
But more needs to be done if sustainability reporting is to maintain its integrity and value. It needs to be critically assessed against international standards.
We did research on the reporting of 100 companies listed on the Johannesburg Stock Exchange. We found that the use of standards and indicators was low in the real estate and consumer services industries. Other industries fared better. Companies with international status showed a stronger tendency to use international standards. They used local requirements to a lesser extent.
Based on the results we developed a framework that companies can use to improve their sustainability reporting. The results are expected to be published soon.
Plethora of standards and indicators
There are various sustainability reporting standards and indicators. There are 17 reporting standards internationally. In addition, there are 10 categories over and above the Global Reporting Initiative’s general standard disclosure and indicators. South Africa has 12 initiatives. These are made up of mandatory requirements, voluntary guidance and initiatives put in place by the government, the local stock exchange and market regulators.
These 12 initiatives include:
– legislation such as the Black Economic Empowerment Act and the Mineral and Petroleum Resources Development Act;
– voluntary guidance. This is covered by the King Code and the Johannesburg Stock Exchange’s Social Responsibility Investment Index; and
– other initiatives such as state-owned enterprise shareholder compacts.
Some international standards focus on policy. There are others that focus on management and others on reporting standards. The key ones include:
– the Global Reporting Initiative.
The Global Reporting Initiative gives guidance on what and how to report. There are no binding requirements. It is meant to be used as a reporting standard alongside others.
The initiative groups indicators along the following lines:
-general standard disclosure. This includes governance, stakeholder engagement and ethics;
– economic, environmental and societal indicators; and
– interlinked issues that address tensions between the three pillars of traditional triple bottom line reporting. This covers planet, people and prosperity.
Our framework used the South African initiatives. We incorporated these with the international standards and the Global Reporting Initiative guidelines. We also included 10 categories of integrated indicators. These aim to address tensions between the three pillars of the traditional triple bottom line approach. An integrated approach provides a more coherent picture of business sustainability.
Based on this framework our analysis of South Africa’s top 100 listed companies showed that they were using:
– Eleven of the 12 South African requirements and initiatives. The state-owned enterprise shareholder compact was the only local initiative not used.
– Fourteen of the 17 international standards. The companies weren’t using the Core Labour Standard, Social Accountability 8000 standard and the Fair Labour Association standard.
– Only three integrated indicators.
Overall, our research showed that South African companies generally aren’t using the integrated indicators. Rather, their focus is on the triple bottom line concept. This means that the more challenging aspects of sustainability are neglected.
South African companies should move from adopting low-level compliance and conformance indicators to using more complex integrated indicators. In other words, they need to move from weak sustainability to strong sustainability.
Our proposed framework can provide business managers with a guide to comprehensive reporting on sustainability performance. It can also help strengthen a business’s commitment to sustainability.
South Africa isn’t ready to launch a carbon tax because there are insufficient alternatives to fossil fuel energy, a City of Tshwane official said.
“Ninety-five percent of our energy requirement is still very much fossil fuel-based,” Dorah Nteo, the chief sustainability specialist for the municipality, said this week. “We have not allowed the infiltration of enough renewable” power sources, she said.
A proposed carbon tax would be delayed from this year to 2016 to allow time for public consultation and the drafting of legislation, former finance minister Pravin Gordhan said in 2014. Draft legislation on the levy will be published later this year, his successor, Nhlanhla Nene, said in his budget.
Eskom is struggling to meet demand with aging plants following years of underinvestment. While the department of energy has approved 79 renewable power projects from private companies with a capacity of 5 243MW, Eskom is also building two coal-fired power plants with a potential combined output of 9 564MW.
“A carbon tax can play a role in achieving the transition to a low carbon economy and South Africa’s commitment to help in the international efforts to reduce greenhouse gas emissions,” the committee said in April.
“These commitments and aspirations should also take into account any possible negative economic and social impacts of the carbon tax.
“What has been introduced effectively is the fuel levy for your motor vehicles, rather than your broader carbon tax,” Nteo said. “That is because with cars you have a choice between big cars or small ones, there are alternatives.”
Source: The Citizen
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Given that disclosure of financial risk always has been a difficult mandate for publicly-traded companies, requesting the voluntarily disclosure of sustainability risks may seem like a nearly Sisyphean task.
Currently, the Securities and Exchange Commission, under rule 405, requires disclosure of anything considered “material” through annual or quarterly filings.
The Financial Accounting Standards Board defines materiality as “the magnitude of an omission or misstatement of accounting information that, in the light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced by the omission or misstatement.”
Accountants often rely on what is known as the 5 percent rule, meaning that if something could affect the company’s net income by 5 percent, it is material. The SEC has stated that this should just be used as a rule of thumb.
However, with the exception of some mandates on climate change and conflict minerals sourced from the eastern Democratic Republic of the Congo, sustainability disclosures largely have been omitted by SEC regulation.
Although more companies are disclosing sustainability information, there are few standards and the reporting is often vague and subjective.
The casual reader of SEC annual filings might find the concept of materiality — or the mandatory disclosure of anything vital to the investment making decision — and large-scale sustainability issues, such as fossil fuel use, climate change or massive droughts, as slightly paradoxical.
For example, for a company in the food and beverage industry, future profitability is directly linked to climate change and natural disasters, which would make those potential events material. Yet, under current SEC regulations, these factors are not deemed as material.
According to Michael Muyot, president of the sustainability analytics firm CRD Analytics, companies “will keep doing it [not disclosing sustainability information] as long as they can get away with it. I don’t know if they don’t think it’s not material.”
“It’s just that it’s so fragmented within the large corporation that there’s no central strategic accountability,” he added. “They’ll keep doing it, especially in B2B because the penalties aren’t there.”
This leaves sustainability non-profit accounting boards such as the Global Reporting Initiative (GRI), the Sustainable Accounting Standards Board (SASB) and the International Integrative Reporting Council to ask companies — at least in the U.S. — to voluntarily disclose information.
SASB was formed in 2012 with a mission to “develop and disseminate sustainability accounting standards that help public corporations disclose material, decision-useful information to investors.”
The organization specifically focuses on sustainability disclosure on SEC annual and quarterly public filings known as a 10-Ks and 10-Qs. According to Doug Park, SASB’s director of legal policy and outreach, working with companies to disclose this information on its 10-Ks provides a way to hold companies accountable for the accuracy of their disclosures.
“The company has to sign a certification saying that the information in the 10-K or 10-Q report is accurate and complete and does not misstate anything,” Park said.
“The company has to make these certifications under the Sarbanes-Oxley Act. And the penalty for making inaccurate or incomplete or misleading statements are civil penalties — in terms of fines — as well as potential criminal liability.”
While the SEC has few requirements about sustainability reporting, the SEC did propose guidelines for companies to disclose climate change information in 2010. It seems few companies actually have followed through, and it is rather left up mostly to the companies themselves to determine what event or damage from climate change is material.
According to a 2014 report by the sustainability non-profit Ceres, “41 percent of S&P 500 companies failed to address climate change in their 2013 filing.”
Ceres also scored the quality of the companies’ climate change disclosures in their 10-Ks. The organization scored the quality of disclosures in 2013 as lower than in 2011 even though the number of companies that disclosed information increased.
“I think you can only go so far with voluntary [disclosure]. Then you’re relying completely on the carrot and that could take anywhere from five to 10 years,” said Muyot. “I think the combination of both the carrot and the stick — with the regulatory stock exchange listing requirements and direct investor shareholder return reward — can be done in less than five years.”
In several countries outside the U.S., regulatory agencies mandate more disclosure of sustainability information by companies. In South Africa, the Johannesburg Stock Exchange requires all listed companies to adhere to a strict set of guidelines for sustainability disclosure.
“Regulation around the world is playing an increasing role in driving behavior change and disclosure,” said Kristen Sullivan, a partner at Deloitte and Touche LLP and head of Sustainability Reporting, Assurance and Compliance Services in the U.S. “An example would be the passage of the EU directive back early last year in 2014 that will mandate non-financial disclosure.”
In 2014, the European Union issued a directive that requires sustainability reporting for companies with over 500 employees. In 2017, over 7,000 companies in Europe will report “on environmental, social and employee-related, human rights, anti-corruption and bribery matters.”
Although the U.S. does not have mandatory disclosure policies like the EU, voluntary disclosure is becoming more prevalent. However, there is little enforcement to ensure that the information that companies are reporting on is accurate and has quality.
“In the last three to four years the numbers of companies that have been disclosing information about sustainability and sustainability efforts has been increasing,” said Park.
According to a Reuters article, “Comments by SEC Chairman Mary Jo White and Commissioner Daniel M. Gallagher indicate that the Commission does not view sustainability reporting as a priority.”
In regards to ensuring that these standards will be upheld, Muyot said, “It’s a challenge. But it’s kind of just like with sports; a $10,000 fine to LeBron James doesn’t mean anything. The fine and the penalty has to actually hurt.”
The risk of stranded assets
Some companies have been under increasing pressure to disclose sustainability information from investors in part due to increasing concerns over the risk of stranded assets.
According to the Smith School of Enterprise and the Environment at the University at Oxford, “Stranded assets are assets that have suffered from unanticipated or premature write-downs, devaluations, or conversion to liabilities and they can be caused by a variety of risks.”
The risk of assets being stranded is a particular concern for energy companies involved with fossil fuels such as oil and coal. These companies hold substantial fuel reserves, but with evolving federal regulations to meet climate change and environmental goals these reserves will become unburnable.
A study by the University College London Institute for Sustainable Resources stated that up to 80 percent of coal reserves could become unusable by 2050.
“Companies have known this for a while; they are just trying to get as much out of these assets as they can. But I think the writing is on the wall,” said Muyot.
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The carbon tax will have a serious negative impact on the goods-producing sectors of the economy, particularly mining, manufacturing and agri-processing by making the country less competitive in the global economy.
Econometrix submitted a report on the 2013 update to the Integrated Resource Plan (IRP) for Electricity, IRP 2010 to 2030.
We have updated the report and it spells out the damage the carbon tax would do to the local economy. Included in the report is comment on the futility of introducing a carbon tax or any other envisioned carbon tax-trading scheme.
The exception to this has been the US, where greater use of gas has led to a slowdown in their growth in carbon emissions.
The annual growth increase of China’s carbon emissions has been 520 million tons a year over a ten-year period compared to South Africa’s total annual carbon emissions of 440 million tons in 2013.
A saving of 20 percent in South Africa would amount to 88 million tons but India’s annual growth in carbon emissions over ten years exceeds 90 million tons a year.
Any decline in the growth of carbon emissions in China and India is unlikely in the period up to 2030 as they continue to pursue economic growth.
Furthermore, the argument regarding global warming has changed considerably over the pastfew years. The global temperature has not increased materially for more than 18 years.
Econometrix is not an expert in this field but it would appear that there are extremely strong arguments and indications that the impact of man-made global warming has been vastly exaggerated. Certainly, South Africa should not be leading the pack in curbing its own carbon emissions at substantial economic and personal cost when the rest of the world is flagrantly disregarding the same set of rules. This is particularly true when South Africa’s likely contribution to any reduction in carbon emissions will be less than measurable.
Passing on costs
A carbon tax will increase the costs of electricity and the products of many important industries. These costs will be passed on through price increases to business and consumers. Downstream business and industry will be faced with these increased costs and will in turn pass these costs on to its consumers.
Certain industries will be faced with a carbon tax of their own and in turn their increased electricity costs and carbon tax costs will also be passed on to their consumers and users of their product.
Ultimately, demand will decline as the price increases faced by consumers will reduce their disposable income. In the case of export industries trading in the global competitive market they will either face a decline in demand and/or reduced prices with resulting lower returns. In turn, imports would become more competitive and import sensitive industries would suffer.
The complex impacts of unnecessary real price increases would result in a further deterioration in the current account of the balance of payments, already at an excessively high level.
Furthermore, there would be a decline in the return on investment of the affected business and real investment would decline. At present, it is already running at below required levels capable of sustaining an acceptable economic growth rate.
Each industry would need to be examined on its merits. An example of the damage it could cause would be the motor vehicle industry. Current exports total more than R100 billion an annum and total employment exceeds 100 000. The competitive damage to this industry alone could be significant.
Econometrix has calculated the economic impacts of these effects. The carbon tax would slow gross domestic product (GDP) growth by 0.4 percent a year, resulting in a 6.5 percent reduction in the size of GDP by 2030, or R350bn, and a reduction of almost 1.4 million in the number of jobs available.
The number of dependents affected is therefore estimated at almost 5 million. This is a sizeable effect on an economy with a population estimated to be approaching 70 million by 2030.
Significantly, it will reduce the cumulative taxes collected by 2030 by R750bn due to the slower growth. It will require a large and costly bureaucracy to run this complex, cumbersome and highly inefficient tax. The reduction in taxes is likely to be greater than the net taxes that will be collected.
The argument that the tax will be neutral because this money will be funnelled back to develop the green economy must be treated with great suspicion.
There are a number of economic arguments that strongly suggest that this will not be the case.
It amounts to a tax on existing industries and effectively a subsidy for new ventures many of which are less efficient with higher cost structures.
It consequently will foster higher costs and inflation. Bureaucracy is not the best means of fostering economic efficiency.
This is the task of market forces in order to develop a more efficient and effective economy. The experience overseas supports this argument. For example, there are substantial question marks regarding the policy and Germany’s “Energiewende” is a well-documented case in point.
Electricity prices there are the highest in Europe because of the move to renewables and that the development of the new transmission grid has fallen well behind schedule resulting in localised rolling power cuts and has required substantial unforeseen investment.
As a result, certain key electricity-intensive industries are considering moving to the US.
It is worth noting that Germany is in the process of building a number of coal-fired power stations to correct the imbalance that renewables have caused for electricity supply.
Finally, carbon tax and higher prices of the large input cost increases from electricity price increases runs contrary to the country’s own beneficiation policies, where some companies are now expanding elsewhere because of the non-competitive electricity costs in this country. It is noteworthy that one of South Africa’s key global competitors, Australia, has scrapped plans to introduce such a scheme.
Damage to potential
Econometrix has recently estimated that South Africa should, with the correct policies and adequate and secure electricity growth, have a potential sustainable growth rate of GDP of 4.1 percent a year.
As a result of a number of policy issues, insufficient security of supply and non-competitive prices of electricity, the carbon tax and the switch to more costly renewables and other investment adverse policies, the sustainable GDP growth of South Africa is unlikely to exceed 2.5 percent a year .
This will have a detrimental impact on the country’s goods producing industries, particularly mining, mining beneficiation, manufacturing and its agri-processing sectors.
By 2030, this would result in GDP being R1.4 trillion less than what should be achieved, while employment levels could be roughly 5 million lower than the levels actually possible and required.
Carbon tax will play a substantial role in this poor economic performance, which will have a detrimental effect on the standard of living, unemployment and the social and political structure of South Africa.
More particularly it would make the country’s important goods-producing sector less competitive.
This will cause further structural problems for the current account of the balance of payment, which already has a substantial deficit.
In the latest global competitiveness report, out of 144 countries, South Africa has fallen to 113th in terms of its labour market efficiency, 89th on its macroeconomic environment and has fallen 11 places to 56th in the overall competitiveness index.
The carbon tax will only exacerbate these trends. Most importantly it will more than likely result in a further deterioration in South Africa’s sovereign rating with serious consequences to South Africa’s cost of capital, ability to raise capital and its ability to attract foreign investment.
Rob Jeffrey, is the managing director and senior economist of Econometrix
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Attracting and retaining investments can present myriad complexities for business, governments and local communities, as Africa’s doors of opportunity swing open ever-wider. In order to explore ways to maximise these opportunities in a manner that benefits all of Africa’s stakeholder groups, GRI is convening the Africa Regional Conference, on 12 and 13 May 2015, at the EY offices in Johannesburg, South Africa.
“Robust and transparent reporting is one of the essential means by which businesses can demonstrate their commitment to operating responsibly on the continent and across the globe”, said GRI’s Director Regional Networks and Sustainable Development, Alyson Slater. “The GRI Africa Regional Conference will bring together hundreds of experts and provide a platform for enhancing the value of sustainability reporting and encouraging greater levels of corporate disclosure and accountability.”
On 12 May, attendees can take part in half-day masterclasses that will deliver specific practical guidance on issues such as supply/value-chain reporting, stakeholder engagement, materiality, integration and the boundaries of accountability.
On 13 May, there is an exciting programme planned; with plenary sessions featuring renowned sustainability specialists and parallel tracks focused on driving economic transformation in Africa through greater transparency, as well as reporting as a source of innovation, trade and development.
For more information and to register to attend the GRI Africa Regional Conference please visit the GRI website here or you can contact GRI’s Media Relations Manager Davion Ford (email@example.com). For any additional questions or media requests, please contact either Jane Appiah-Yeboah (firstname.lastname@example.org) or Jeneth Ndlovu (email@example.com) or contact Russell & Associates on +27 11 880 3924.
Source: Just Means
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A sustainability report provides information on your company’s most important impacts – positive or negative – on the environment, society and the economy. GRI’s Sustainability Reporting Guidelines are the most widely used, comprehensive sustainability reporting standard in the world.
Your company can use these Guidelines to develop your sustainability report and in the process can generate reliable, relevant and standardized information on your sustainability impacts and performance. This information can then be used to assess opportunities and risks, and enable more informed decision-making – both within your business and among your stakeholders, such as your clients.
By developing and communicating your understanding about the connections between sustainability and your business, your company can measure its performance and manage change. This will drive improvement and innovation inside your company.
Interested in a corporate sustainability reporting workshop? Read more here.
In recent years, Small and Medium-sized Enterprises (SMEs) in various regions have begun to publish their sustainability reports. GRI has followed this movement through a number of projects since 2008. SMEs that have participated in these projects say that the value of the reporting process was much greater than they had anticipated at the beginning of the process.
They found that sustainability reporting helped them to identify their most significant issues to focus on and from there improve productivity and make cost savings. In addition, their competitiveness often improved after gaining access to new markets and new clients.
To conclude, GRI’s experience is that many SMEs believe that there is a clear connection between sustainability reporting and achieving real change within their company.
Source: GSA Campbell
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In addition to registering significant growth in the number of wine cellars calculating their carbon emissions, the South African Fruit and Wine Industry Confronting Climate Change (CCC) initiative has, over the past year, noted increased interest from other commodity groupings, such as grains and vegetables, in the initiative’s carbon emissions calculator.
“The CCC has also registered overall growth in the number of carbon emissions datasets received for its benchmarking process, as well as increased interest in the high-quality data that has been collected and reflected in the CCC benchmark reports,” says CCC project manager Anél Blignaut.
The CCC initiative, launched in 2008, focuses on agriculture, including citrus growers, wine growers and wine cellars, and aims to encourage information sharing and to ensure the availability of an on line carbon emissions calculator that growers use to accurately calculate their carbon footprint.
In calculating the agriculture sector’s carbon footprint, the user assesses several factors, including but not limited to yearly electricity consumption figures, the litres of diesel used by vehicles and equipment and the amount of fertiliser and plant protection products used. It consists of three phases in which the initiative encourages participants to calculate their carbon footprint. Phase I and II have been completed.
Phase III of the initiative, which builds on Phase II, will run until January 2017, with the CCCcontinuing to strengthen its mandate and its endeavour to promote the continued uptake of the emissions calculator, says Blignaut.
Key focus areas of Phase III include strengthening the capacity and skills across the fruit and wine industries through both technical and train-the-trainer workshops to support users in the calculation of their carbon emissions. Further support outside the workshops is also provided. Phase III also aims to strengthen the industry benchmark database across all commodities through focused regional technical workshops.
Blignaut adds that this phase also places greater emphasis on underrepresented regions to ensure that more growers participate and to support emerging farmers in being able to calculate their carbon footprint.
The CCC is also investigating the addition of a carbon sequestration calculator.
“We are working with the Department of Agriculture to adapt the existing carbon emissions calculator for mixed small-scale farmers to ensure that their needs are addressed and that they can also calculate a quality carbon footprint,” says Blignaut.
The carbon sequestration calculator will also assess several factors, such as land rehabilitation, clean technologies and soil carbon. The tool is expected to be made available by midyear.
“This will enable producers to calculate their above- and below-ground carbon stocks. As many workshop attendees are requesting whether their carbon footprint can be offset by certain activities on their farms or along their supply chains, the carbon sequestration tool will be used in conjunction with the carbon calculator to determine the net carbon emissions,” explains Blignaut.
Source: Engineering News
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By Lloyd Macfarlane
Michael Porter, one of the world’s most respected management theorists, argued that there are only two ways for firms to compete: by charging a lower price, or by differentiating their products or services from those of their rivals.
On the Reporting Calendar: Enhancing Market Competitiveness – The case for sustainability reporting and marketing | A free half-day workshop for business managers interested in taking s first step in corporate sustainability | Limited to 50 delegates | Read more here
The modern value proposition increasingly incorporates factors that are not just related to the product or the service (such as price, quality or relevance) but to factors associated with the organisation itself, such as reputation, transparency, accountability and corporate performance against sustainability targets, for example.
Companies that have embarked on a sustainability journey can use the reporting process to distinguish themselves in the value chain by targeting and marketing points of differentiation.
Differentiation – Product, Service and Company
Companies spend time and money trying to differentiate their offerings under the abovementioned [showad block=null]headings, in order to be more attractive to their target markets. Differentiation is a basic economic principal that promotes competitiveness, and one that has been focussed on by many of the classic theorists, such as Edward Chamberlin (Theory of Monopolistic Competition, 1933).
Customers make purchases based on the value propositions presented by their suppliers. A value proposition (in this context) is quite simply the unique value offering that the customer will receive from a transaction (as compared to value propositions from others).
A number of factors go into the assessment of value and in the first instance the product or service is usually assessed for relevance (or usefulness), desirability, price and quality. However, the product or service is delivered by a company whose profile is of increasing importance in the procurement process. This means that the assessment of value is being broadened to include factors that relate to environmental, social, governance or empowerment (SA) credentials. Far more opportunities for brand and company differentiation are emerging in the value chain.
Drivers of differentiation
Forces and pressures are usually responsible for innovation and creativity. If there is no need to change, re-package or improve then there is unlikely to be much differentiation.
Some of the forces/ circumstances in which differentiation is more likely to occur:
Mature markets or sectors:
Companies in mature markets or sectors are more evolved and value propositions are more similar, so there is a greater need for differentiation, particularly with service providers that have less opportunity for tangible innovation.
Take established cellular service providers for example – call costs and network coverage of competing companies can be almost identical and yet these companies spend millions letting you know how different they are by building a corporate identity that you can relate to. Conversely, in new markets or new sectors (and in good economic times) less differentiation is apparent – there is less need for differentiation when there is no threat from competition.
Economically stressed markets:
When margins are tight and procurement budgets have been cut, buyers look more closely at the value proposition and sellers tend to increase levels of innovation and differentiation. The world has been on a tough economic treadmill since the collapse of the financial markets in 2008/9 and this has seen the emergence of new ideas and not surprisingly corporate sustainability has enjoyed prominence in this regard.
Regulated markets or sectors:
Regulation or supply chain policies can elicit forced (e.g. tax or incentive) or voluntary (e.g. reporting) responses from suppliers. Government can use incentives to speed up change and perhaps the best example of this is carbon taxation which will be introduced in South Africa in January 2016.
Carbon tax will see the need for more measurement and management of carbon across value chains and this will bring about procurement policies that require suppliers to measure their carbon footprint. These policies may further evolve to specify an acceptable range of carbon emissions per unit of output or per square metre of operations in any given sector, for example.
Supply Chain Sustainability
The real power of the economy lies in procurement. The quantity and availability of products and services is directly affected by demand and because demand is affected by supply chain/procurement policies, the supply chain can be a most powerful agent of change.
Companies are introducing sustainability into their supply chains not only because it’s the right thing to do, or because they are under pressure to do so, but because they see the value of doing so in the context of their medium to long term strategies.
The United Nations Global Compact (UNGC) is encouraging corporate leadership in this regard and many businesses use the ten UNGC principles to inform their supply chain policies. Similarly, the recently launched Global Reporting Initiative (GRI) G4 Guidelines contain much emphasis on supply chain sustainability, traceability and chain of custody.
The next big opportunity – supply chain differentiation
The most significant recent step up in corporate sustainability is the increased emphasis being placed on sustainability in the supply chain.
Procurement policies that encourage and even enforce certain key sustainability principles can meaningfully affect markets and should be noted by suppliers looking for opportunities to differentiate.
Importantly, supply chain policies take a closer look at indicators relating to companies and not simply their products or services.
This is placing more emphasis on environmental, social and governance issues and represents an exciting new opportunity for differentiation for those companies that are first to move.
Risk, reputation and leadership
Large customers are auditing suppliers using various criteria, but generally these audits will seek to establish:
• Whether there are any risks in an association, based on how the supplier’s business is conducted.
• Whether the supplier has a reputation that could cause any harm.
• Whether the supplier’s reputation could add value
• Whether there are any examples of leadership that could be amplified for mutual advantage.
Supply Chain Differentiation – Strategic Approach
Any random approach to differentiating under sustainability indicators is unlikely to succeed in the medium to long term. This is mostly because customers are beginning to use sustainability frameworks and systems to determine a holistic and materiality- based set of procurement indicators in their supply chains.
Therefore, an authentic approach must be driven by a sustainability plan that includes clear statements of objective and vision, where these have been informed by a process of identification and assessment of material issues for the company.
Companies are increasing the degree to which they report on sustainability in their supply chains. They are reporting on the sustainability impacts of their suppliers and on the influence that they have had in changing the sustainability performance of their suppliers.
This means that an opportunity exists for suppliers (and potential suppliers) to:
- Target (or report on) internal interventions that will be acknowledged by customers as meaningful to report on.
- Package sustainability information for large customers and other stakeholders.
- Strategically target key customers and new prospects using this information.
- An authentic sustainability/integrated reporting process will adhere to certain principles that are important in the identification of real opportunities for performance and therefore differentiation. The process of identifying and reporting on material indicators, particularly if inculcated in functional centres, will:
• Highlight data for comparison with competitors
• Highlight opportunities for intervention and performance management
• Establish targets, which can form the basis of future differentiation
Internal capacity and stakeholder engagement
Key stakeholders are engaged by various employees in various ways. Many of these engagements can be opportunities for communication of the company’s primary points of differentiation.
It is therefore necessary that key employees in functional centres of the business are familiar with the terms and tenets of corporate sustainability, the company’s sustainability plan and the role that they can play in the strategic approach.
Building this capacity in the organisation is important to the success of the overall plan.
Sales and marketing
Any sales and marketing plan should incorporate a customer needs analysis. As the needs and the requirements of the customer begin changing to incorporate sustainability indicators, it is important for suppliers to be ahead of this process.
This is only really possible with an engagement process that elicits information that can be used to for innovation and differentiation. This engagement process will ensure that targeted areas of differentiation are aligned with customer requirements.
After the requirements are known, a marketing plan should consistently reinforce messages that are directed at the
establishment of the desired ‘profile’ for the company. A multi-media approach can be effective to leverage packaged information to establish a desirable corporate image – one that is aligned with the ideals and requirements of the targeted customer.
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Edited By Lulama Afrika
Rohitesh Dhawan suggests, in the report “Getting more out of social investment in the mining sector”, that mining companies are finding it difficult to quantify their mandated social investments. Vast sums of money are being put into infrastructure, education and training, healthcare, sports and recreation, but the mining companies are struggling to demon- strate the effectiveness of their expenditure. Social investment plans are integral to being granted mining rights, but are they achieving what they set out to? Quantity over quality could be to blame. With 52 different types of investment programmes available to the mining industry, there could be a lack of focus on priority sectors.
A recent KPMG survey suggests that many organisations struggle to demonstrate the effectiveness of their social investment expenditure. In 2013, the 10 metals, mining and engineering companies in the study had combined social investments of 1.2-billion US dollars. Although they all quantified the inputs and outputs, these were primarily in terms of volume, namely the financial contri- butions made and the number of participants in a programme. But only one of the 10 reported any quantified outcomes, suggest- ing a lack of debate over the true impact of programmes, both internally and with the communities they are serving.
The strategy in social investment
Despite growing pressure for better reporting, few mining companies publish a detailed social investment strategy. In South Africa, businesses must have a Social and Ethics Board sub-committee to govern their social investments.
For operational managers, the task of choosing a programme can be daunting. Mines are incredibly complex operations, spread across wide geographical areas. Unless a detailed business plan is in place, their money is at risk of disappearing into the black hole of “charitable donations” under the broad categories of health and safety, social welfare, education and sustainability. These investments are valuable, but rarely take into account the specific needs of the community and so it can be difficult to quantify what is actually being achieved by the investment.
Mining companies need to find a balance between the glamour events, such as school, hospital and road openings, and the practical options, such as teacher training or safe sex education. Cutting ribbons can make a big impression on the community, but doesn’t always bring the best return on capital. Training and education can potentially have a greater, long term, positive effect, but are a less obvious boost to the company’s short-term reputation than an event.
Those responsible for allocating social investment budgets need to exert a stronger influence over the organisations involved in prioritising programmes, by engaging earlier with local economic development forums and other groups, and resisting demands for vanity projects. This closer working relationship will also ensure that authorities are aware of the value being added by the social investments of the business, without them having to create awareness around this through active PR activities.
According to Dhawan, once programmes have begun, they tend to suffer from a lack of professional performance management, with ill-defined outcomes and measure- ments, and inadequate data reporting. The personnel assigned to run the initiatives may not always have the technical skills and capacity to carry out the required level of financial and operational analysis and moni- toring commensurate with a major project. With rewards often linked to activity rather than outcomes, project teams lose sight of the true project goals.
Beginning at board level, the social investment strategy has to be aligned
with local development plans as well as wider business goals, and designed to produce the maximum benefit to the target groups and the mining organisation.
Considerable research and discussions are required to uncover the optimum choices for social investment. For example, investment in local farm sourcing can cut the cost of food, resulting in a healthier, more energetic workforce, while education and counselling on alcohol and drug abuse could reduce absenteeism. It is equally important to play
a long game, avoiding quick wins in favour of deeper partnerships with the community, local businesses, non-governmental organisations (NGOs) and government.
But how do you measure something
like employee self-esteem? Sophisticated tools are available to quantify and monitor the economic and business value of social, behavioural, health, environmental and infrastructure improvements. Sometimes it comes down to a manager’s assessment
of an employee on a scale of one to 10. Patience is also needed, as some benefits can take years to materialise. An early years’ education programme will not lead to over- night change. Over time it could produce an increase in literacy, which in turn generates a long-term increase in employment rates and reduced poverty. This is why it is so important to manage the expectations of
all stakeholders, including local authorities, effectively, in order to create a realistic idea of timeframes and outcomes.
Finally, it is important to communicate the concept and the results of shared value
to the board, investors and stakeholders, including project partners, using a combination of quantitative and qualitative information to tell the story. At a macro level, all parties will want to see how any achievements are improving the local economy and environment. By treating social investment like any other commercial initiative, companies can demonstrate the return for every rand spent, identify under-performing programmes and reinforce relationships with community stakeholders and partner organisations.
For mining and other industries, creating value for society must be a top strategic priority—whether it is seen as simply a cost of doing business or by looking at it as an opportunity for growth. Simply investing more money, or outsourcing it to someone else, is not the answer. Leaders need to be personally invested in seeing the business create value for communities and apply the same rigour to these investments as one would to “mainstream” investments.
Source: Green Economy Journal
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