BD Insights JSE Integrated Reporting Awards (Nov 30 2021)

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BusinessDay www.businessday.co.za Tuesday 30 November 2021

INSIGHTS

CGISA/JSE INTEGRATED REPORTING AWARDS 2021 Sponsored content

‘Excellent integration’ propels PGM miner to awards top spot

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compiling the report is connectivity and consistency of information and storyline, which is why, she says, she ensures she is the central point for all input into the report. “The integrated report needs to be owned by executives, top management and the board and is not something that can be wholly delegated or outsourced,” she maintains.

Overall, this year’s reports compared favourably to previous years, says Sadie.

Royal Bafokeng Platinum named overall winner, writes Lynette Dicey

R

oyal Bafokeng Platinum is this year’s overall winner of the Chartered Governance Institute of Southern Africa (CGISA)/JSE Integrated Reporting Awards which were announced earlier this month at a virtual ceremony.

The judges commented that almost everything expected from an integrated report can be found in Royal Bafokeng Platinum’s report, with excellent integration throughout the document.

“Overall, it articulates the business models, strategies, capitals, key performance indicators, outcomes, risk mitigation and opportunities in various geographical locations in which it operates, with organisational performance

Stephen Sadie … positive bias. including indicators outlined in each of the capitals,” says Stephen Sadie, CGISA CEO. “Material issues are described in great detail and are integrated with the capitals and the Sustainable Development Goals while the report provides

insight into the nature and quality of the organisation’s relationship with its key stakeholders. In addition, it provides insight into the risks associated with each stakeholder as well as the issues the board grapples with, including the latter’s skills and experience.”

The winner of the Top 40 category is Nedbank Group, while the Mid Cap winner is Redefine Properties.

Attacq and Pan African Resources were joint winners in the Small Cap category.

In the Fledgling/AltX category, Sea Harvest took top honours, while Airports Company South Africa won the state-owned company category.

The Institute of Directors South Africa (IoDSA) was the winner of the NPO/NGO category while Safaricom won

the Regional category.

“As one might expect, the reports have placed a lot of focus on the Covid-19 pandemic and its impact on the local and global economy,” says Sadie.

“This year, reporters focused on the consequences of Covid-19 for performance and outlook, as well as providing information on actions taken to respond to the pandemic.”

Few of the integrated reports, he says, create the impression that Covid-19 has totally derailed the company. “There is still a strong focus on execution of strategy, although shifts in strategy have been necessary in some cases.”

Most reports, he revealed, had content biased towards positive results even while acknowledging a challenging year. “Post Covid-19 the positive bias could perhaps indicate a

/123RF — THEPHOTOGRAPHER2018 need for companies to demonstrate a sentiment that they can be resilient and recover. In a positive light, more reporters have started to demonstrate an integration of environmental, social and governance (ESG) factors into their strategy. Covid-19 potentially paved the way for this integration.”

In the Top 40 category judges noted that the combined assurance model is not being explained in detail and users still know little about the formal steps taken to ensure reliable reporting. At the same time financials are often still excluded from the reports.

In the Mid Cap category judges said reporters need to consider making more use of integration. Proper integration, they added, means discussing things such as the company’s strategic pillars at the hand of

the capitals and the SDGs, for example.

Report lengths were mentioned in relation to many categories by the judges who advised reporters to focus on the conciseness of reports.

“Integrated reporting preparers need to go back to the

Parmi Natesan … central point.

purpose of the integrated report — to inform stakeholders. Failing in that makes the integrated report, and all the effort that goes into it, obsolete,” they said.

The judges also noted entries need to work on better articulating value creation that is nonfinancial in nature.

Parmi Natesan, CEO of the IoDSA, says its reports have evolved significantly since they were first introduced in 2014.

“We’ve built on the integrated reporting concepts slowly over the years and then took a big leap forward in 2020 when we decided to start the report from a blank page rather than roll through previous versions.”

That decision, she says, has been a game changer as it ensured the organisation reported from scratch each year in line with the framework’s requirements.

The biggest challenges in

2021 WINNERS

Overall winner: Royal Bafokeng Platinum Top 40 Winner: Nedbank Group Top 40 Merit: Vodacom Group Mid Cap Winner: Redefine Properties Mid Cap Merit: Kumba Iron Ore Small Cap Winner (tie): Attacq and Pan African Resources Fledgling/AltX Winner: Sea Harvest Group Fledgling/AltX Merit: Sasfin Holdings State-owned Company Winner: Airports Company SA State-owned Company Merit: Development Bank of Southern Africa Pubic Sector Merit: Gautrain Management Agency Unlisted Company Merit: Fidelity Services Group NPO/NGO Winner: Institute of Directors South Africa NPO/NGO Merit: South African National Blood Service Regional Winner: Safaricom Regional Merit: Stanbic Kenya

Trends in companies’ reporting methods The judges of the CGISA/JSE Integrated Reporting Awards noted four main trends around integrated reporting this year.

These trends are focused on integrated thinking; concise and meaningful reporting; the Covid-19 pandemic; and ESG. Integrated reporting is a holistic perspective on an organisation’s ability to create, preserve or erode value for stakeholders. Although local organisations have been preparing integrated reports for some time, it is not always evident that integrated thinking is at the heart of the organisation or whether a narrow financial focus is followed in strategic decision making. Many reports, said the judges, are not fully integrated with matters such as ESG, for example, being reported on as a separate strategy.

The judges conceded that while integrated thinking is not easily measured, it can be evidenced by the consistent and integrated way all communications about an organisation are made, including in the integrated report. They describe integrated thinking as the active consideration by an organisation of the relationships between various operating and functional units and the capitals it uses or affects, adding that integrated thinking leads to integrated decision-making and actions that consider the creation, preservation or erosion of value over the short, medium and long term.

The report adds that the test for integrated thinking is whether the organisation’s holistic strategy and business model speaks to the way in which it responds to the external environment it operates in and is underpinned by its values and purpose. Done well, integrated thinking should fuel an iterative cycle of improvements to existing integrated reporting processes.

With the average length of the Top 40 integrated reports coming in at 154 pages it is perhaps not surprising that concise and meaningful reporting was the second trend picked up by this year’s judges.

Although reports continue to grow in length they are not adding significant value to the reader. Common weaknesses within integrated reports

include vague or incomplete narratives explaining how the organisation creates, preserves or erodes value, as well as reporting without being anchored with a sense of materiality.

The judges warned, however, that conciseness should not be confused with compliance and that all 19 requirements laid out within the IR Framework should be included. They added that eliminating jargon and simply writing in plain language will go a long way to cutting through the clutter of reporting.

In response to the growing length of integrated reports, the Integrated Reporting Committee of SA has produced guidance toward delivering meaningful and concise integrated reports.

WITH THE AVERAGE LENGTH OF THE INTEGRATED REPORTS COMING IN AT 154 PAGES … CONCISE AND MEANINGFUL REPORTING WAS THE SECOND TREND A lack of materiality, said the judges, can lead to reports that are onerously lengthy or incomplete. Organisations should therefore be using materiality as a central anchor to guide the nature and content that is presented within the integrated report.

The third trend is the Covid19 pandemic. The majority of companies in the JSE Top 40 acknowledged the impact of Covid-19 on strategy and on governance activities in their integrated reports. However, the focus of this disclosure was almost short term and backward looking.

“It remains critical that an organisation provides context to the impact of the pandemic on its strategy and business model, or reasons why it was not impacted,” said the judges.

The fourth trend is around ESG. Companies are increasingly under pressure to deliver benefits to society or at least to limit their detrimental impacts. A total of 79% of investors and analysts believe that how a company manages ESG risks and opportunities is a

significant factor in investors’ decision making while 82% of global investors want companies to embed ESG directly into their corporate strategy.

Conceding that the ESG landscape is complex, the judges encouraged organisations to focus on the board level view when discussing ESG matters, while providing fair, balanced and understandable information.

“ESG should ideally be integrated into all of the content elements rather than being a separate part of the report and should clearly indicate commitment and target timelines,” they said.

As ESG matters become increasingly central to the decision-making of organisations, the judges emphasised sustainability needs to meet the needs of the present without compromising the ability of future generations to meet their own needs.

The judges’ report stressed integrated reporting of the future should consider the integration of the organisation’s holistic elements to report on how the business creates value, in addition to clearly articulating its outcomes.

“Perhaps this deficiency,” said the judges’ report, “originates from a lack of integrated thinking. When an organisation aligns in value, purpose and innovation — and ESG is genuinely integrated into the strategic heart of the business — the reporting of the integrated outcomes might just come naturally to the preparer.”

Many of the changes happening in the integrated reporting space are due, in no small measure, to Professor Mervyn King, says Stephen Sadie, CEO of CGISA. “As an institution we are grateful to King for the sterling role he has played in promoting integrated reporting both in SA and around the world.”

IT REMAINS CRITICAL THAT AN ORGANISATION PROVIDES CONTEXT TO THE IMPACT OF THE PANDEMIC ON ITS STRATEGY AND BUSINESS MODEL

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BusinessDay www.businessday.co.za Tuesday 30 November 2021

NATIONAL

Unions vow to cripple Clover over wages feud

• Giwusa and Fawu, the unions leading the strike, say they represent about 5,000 workers Luyolo Mkentane

Lynley Donnelly The outcome of SA’s local government elections, which have resulted in an unprecedented number of hung councils, comes as parlous municipal finances are deemed a clear risk to service delivery.

Academics have warned of the difficult road ahead for service delivery in local government, where, even before Covid-19 hit, 163 of SA’s 257 municipalities were deemed to be in financial distress, including four of its metros — Buffalo City, Mangaung, Tshwane and Ekurhuleni.

This number has increased as the pandemic worsened existing managerial weakness, the Treasury said in the recent medium-term budget policy statement, though it is still due to release its latest update on municipal finances with updated numbers.

Disruptions: Red Poll cows graze in a field. Clover is restructuring the business, but Giwusa president Mametlwe Sebei says terms of the takeover in 2019 by the Milco consortium was that there ‘must be no retrenchments at the company until October 2022’. / Bloomberg the North West municipality. The unions said at the time the decision was reckless as it would lead to job losses in the company.

Sebei said Clover has refused to accept the workers’ wage demands, saying Covid-19 had affected its balance sheet. The pandemic destabilised the SA economy, which declined 6.4% in 2020 and led to a loss of about 1.4-million jobs.

Fawu general secretary Mayoyo Mngomezulu told Business Day that employees were given a choice to either agree to a 20% wage cut or be retrenched.

“They were given a deadline of November 26. The nonunionised workers signed the ultimatum and went back to work. But the union members refused and elected to go on strike,” he said.

“We are saying these retrenchments are illegal and we are going to fight them

through the court process. In the meantime, the strike continues.

It’s indefinite, actually.”

Sebei said workers were also unhappy that the company wanted to make working on public holidays compulsory; introduce a six-day working week (from five days), and implement a one driver, one assistant policy, instead of two assistants at present.

“Previously a driver had two assistants to help with loading and offloading trucks, now they want the driver to do two jobs: to drive the truck and also help with the loading and offloading duties,” said Sebei.

He vowed the strike, as it enters its second week, “will cripple Clover’s operations across the country”.

“It’s a matter of time before supermarkets run out of Clover’s products. I don’t think there will be any products in stores in the coming day.”

In a company statement on Monday, Clover said it had been “undergoing a national restructuring process including a Section 189 consultation process that aims to consider all possible avenues to minimise potential retrenchments”.

“The ... Commission for Conciliation, Mediation and Arbitration (CCMA) facilitated the consultation process which was run in accordance with all legal requirements and concluded on November 25 2021 with the implementation currently being finalised.”

Clover said the decision to restructure the business was not arrived at “lightly and follows a comprehensive strategic review of all aspects of the business”.

“Clover’s business has been subject to a difficult trading cycle for a number of years, where costs have generally been rising above inflation and consumer spending has been negatively

INSIGHTS: CGISA/JSE INTEGRATED REPORTING AWARDS 2021

Major shifts in integrated and sustainability reporting space The Chartered Governance Institute of Southern Africa (CGISA)/JSE Integrated Reporting Awards allow companies, irrespective of their size, to show their commitment to good corporate governance through meaningful integrated reporting.

The awards, which this year took place virtually on November 16, are by far the longest running reporting awards in southern Africa, having started in 1956. Their aim is to encourage innovation and excellence in integrated reporting in southern Africa.

They took place at an interesting time this year given that COP26 has just taken place, according to Stephen Sadie, CGISA CEO. “Never before have companies placed so much emphasis on climate change and ESG,” he says.

The pandemic gave rise to significant opportunities for organisations to consider aspects of environmental, societal and governance (ESG) matters, agrees Jayne Mammat, Sustainability and Climate Change & ESG Africa lead at PwC, the convenor of judges.

“This was particularly the case with regard to societal elements where organisations

Fraught local election outcomes bode ill for municipal finances Economics Writer

Political Writer Unions have vowed to cripple operations at SA’s biggest dairy producer Clover ahead of the busy festive season after a deadlock with management over above-inflation wage increases, retrenchments, and other conditions of employment.

The General Industries Workers Union of SA (Giwusa) and the Food and Allied Workers Union (Fawu) — both affiliates of the SA Federation of Trade Unions (Saftu) — downed tools last Monday and embarked on an indefinite strike for a wage increase of 10%.

The company initially proposed a wage increase freeze but subsequently revised its offer to 4.5%, which the unions rejected.

The 10% wage increase demand is double the 5% consumer price inflation recorded in September and October. The lowest-paid employee takes home R6,500 a month.

The leaders of Giwusa and Fawu said the two unions represented about 5,000 workers at Clover, which was delisted from the JSE after a takeover in 2019 by the Milco consortium, led by Israel’s leading manufacturer and distributor of beverages Central Bottling Company (CBC).

CBC is a privately owned international food and beverage group whose subsidiary companies serve more than 160million consumers worldwide.

Giwusa president Mametlwe Sebei told Business Day that one of the conditions competition authorities had imposed on the takeover by Milco was that there “must be no retrenchments at Clover until October 2022”.

“Now they are going against that condition and are retrenching over 1,400 workers nationally. They are also planning on closing some of their factories as well.”

Clover angered unions when it announced plans in June to relocate SA’s largest cheese maker from Lichtenburg in North West to KwaZulu-Natal due to poor service delivery in

SERVICE DELIVERY

/123RF — ARCHNOI1 sought to focus on employees, health care and suitable flexible working arrangements,” she says.

There has long been criticism of how fragmented the sustainability reporting space is globally with numerous different players adding to the reporting burden on companies.

Sadie points out that the integrated reporting landscape is shifting quite dramatically with a number of new bodies.

“The launch of the International Sustainability Standards Board (ISSB) earlier this month is a game changer.

Its sustainability standards will have the same status as, and work in conjunction with, the

IFRS Accounting Standards.”

The establishment of the ISSB takes sustainability-related financial disclosure mainstream and puts it alongside financial reporting, says Leigh Roberts, CEO of the Integrated Reporting Committee (IRC) of SA. The IRC is one of more than 20 national integrated reporting bodies established over the past decade to develop integrated reporting within each country’s local regulations and requirements. The IRC is acknowledged as the oldest and most organised of the national bodies. “This puts us in good stead because, through integrated reporting, our corporate reporting is more

advanced than many other countries. In SA, the integrated report is firmly positioned as the ‘voice’ of the board and its accountability given that it encompasses and connects the financial and nonfinancial in the context of the organisation’s external environment, strategy, governance, risks and opportunities, performance and prospects, as seen through the lens of six capitals.”

Each country will have the choice of mandating the use of the ISSB standards and fitting them with local regulations and practices. Although the IASB and ISSB will be independent, their standards will complement each other in providing information required by investors and creditors. This, says Roberts, is an acknowledgement of the importance of connecting financial and nonfinancial information in reporting.

“The new ISSB standards are themed and industry specific,” reveals Roberts, adding that future themes are likely to be biodiversity with other ESG topics to follow.

The ISSB standards will be a baseline to which local reporting requirements can be added, she says.

impacted by poor economic growth and increasing unemployment. Covid-19 has added to these pressures and created much uncertainty, specifically around the economic outlook.”

Clover said it had been engaging representative bodies regarding the annual wage review since April 2021. “On November 9 2021, Clover made a final offer of a backdated 4.5% increase in wages effective July 1 2021, but this was rejected.

Negotiations on both matters subsequently broke down and unionised employees embarked on a national strike on November 22 2021.”

The company said it had put contingencies in place to limit the affect of the industrial action on its operations. “A prolonged strike will however result in unavoidable disruptions to supply as the festive season is a traditionally high demand period.” mkentanel@businesslive.co.za

POLITICAL CONTESTATION AT THE COUNCIL LEVEL TAKES ENERGY AND FOCUS AWAY FROM THESE CRITICAL OVERSIGHT DUTIES Johann Kirsten BER director A total of 112 municipalities adopted budgets that are not fully funded in 2021/2022. They will thus be unable to meet all their financial obligations, with money owed to the SA Revenue Service (Sars), and bulk suppliers such as Eskom and water boards, “mostly ignored and neglected”, according to the Treasury.

Overdue payments owed by local government reached R73.7bn in 2020/2021, while uncollected revenues amounted to R232.8bn.

Despite these fault lines running through municipalities, they must make towns and cities work after the recent elections yielded 70 hung councils,

with no outright winner. This is the case in five of SA’s eight metros, with the exceptions of Cape Town, Buffalo City and Mangaung.

The appointment of mayors in hung metros — marked by political flip-flopping, oneupmanship and disruptions of council sittings — does not augur well for residents, as governance and decision-making is now subject to contestation and shifting political alliances.

‘ABOUT POWER’

“There is the risk of political governance failure as the result of instability which has been identified as one of the primary factors hindering service delivery in municipalities,” the Treasury said.

“Unfortunately the behaviour of the politicians and the elected councillors during their first days in office suggest that they do not have the residents of the different municipalities at heart and that everything is about power, control and money,” said Johann Kirsten, director of Stellenbosch University’s Bureau for Economic Research (BER).

“The danger is that budgets and contracts are not likely to be passed, resulting in more service delivery backlogs. There is likely to be increasing levels of interventions in the tasks of the officials and a lot of pressure on municipal managers and the CFO to award contracts to friends.”

COCKTAIL OF PROBLEMS

A BER report released in October reflected a cocktail of problems damaging service delivery at local government level, starting with urbanisation patterns.

This has left 42% of SA’s population living in its metros, straining these cities’ resources, while it is stripping smaller municipalities of their tax base. Poor financial performance is another feature, including abysmal capital investment and spending on repairs and maintenance.

The BER found that none of SA’s municipalities are meeting the necessary spending requirements to prevent supply interruptions and breakdown of infrastructure, with even the

large metros only managing to spend half the recommended amounts.

MERIT APPOINTMENTS

Other problems contributing to the crisis include debilitating supply chain management, poor revenue and debtors’ collection management, as well as a lack of in-house capacity and skills, made worse by cadre deployment, according to the BER. “The main focus of mayors and councillors should be on efforts to strengthen municipal finances and investment, with merit-based appointments and good municipal governance as a prerequisite,” said Kirsten.

“Political contestation at the council level takes energy and focus away from these critical oversight duties resulting in more bad outcomes.”

According to Kagiso Pooe, a senior lecturer at the Wits School of Governance, once the institutional plans of the past five years come to an end, every major decision such as passing budgets, developing the service delivery and budget implementation plan and integrated development plans will become sites of contestation or negotiations.

“What this will mean will depend on the level of mistrust or co-operation among the noncoalition agreement parties in the various municipalities,” he told Business Day. A “big unknown”, said Pooe, was the outlook for financially distressed municipalities such as Emfuleni local municipality and countless others in places such as North West.

The Treasury has said that 43 municipalities have been classified as “in financial and service delivery crisis” and are beyond the regular support measures offered by the government.

Pooe said that “if coalitions hold and services, revenue collection and the business environment is allowed to thrive and employment improves, this will be a welcomed development.”

But he warned, “If coalitions become uncontrollable, and disruptive elements, it will be hard to see how good financial management takes root.” donnellyl@businesslive.co.za