Non-financial matters

Non-financial reporting (integrated sustainability reporting, King II) concerns the concept of sustainability that, in a business context, means the achievement of balanced and integrated economic, social and environmental performance – the triple bottom line. Both internationally and in Southern Africa there is increasing pressure on organisations to incorporate transparency and accountability at all levels into their operating principles. Non-financial issues – social and environmental performance - can no longer be regarded as secondary to financial considerations.

Since non-financial reporting is a broad topic, only the following issues will be briefly considered:

• stakeholders, social and ethical accounting, auditing and reporting
• safety, health and environment
• societal and transformation issues

Stakeholders, social and ethical accounting, auditing and reporting

Groups falling within the concept of stakeholders are:

• shareholders
• parties who contract with the company, such as customers, employees, suppliers, sub-contractors and business partners
• parties who have a non-contractual connection with the company, e.g. civic society, local communities, non-governmental organisations and other special interest groups whose concerns may include market stability, social equity and the environment
• the State as policy maker, legislator and regulator of the economy

Given this wide range of stakeholders, the King Committee endorsed the view held by the Commonwealth Association for Corporate Governance that directors, and hence boards, owe their duty to the company, and consequently are accountable to shareholders who are the owners of the company’s capital. The aspirations of other stakeholders should, however, be incorporated into an organisation’s vision, mission and core values that form the basis for its business goals and conduct.

The period since the 1994 release of the King code has been characterised by a flurry of legislation seeking to usher in greater transparency and accountability amongst companies. Legislation has been promulgated to force companies to deal with issues of transformation, conditions of employment, occupational health and employment equity.

Safety, health and the environment

Safety and health

Specific health issues vary over time and between different industries. The statistics on HIV/AIDS prevalence in Southern Africa, for instance, show that, with the current infection rate, the size and nature of regional markets is about to undergo significant change. King II recommends that companies develop a strategy to consider and deal, inter alia, with the effects of HIV/Aids on their businesses.

The Occupational Health and Safety Act, for instance, sets out a number of requirements aimed at reducing workplace accidents, fatalities and occupational health and hygiene-related incidents. Breaches of the requirements of the Occupational Health and Safety Act carry significant financial and other penalties. Some of the relevant legislation is examined in the appendix to this Guide.

Environment

Environmental and other related legislation imposes duties on companies and their directors personally. There are duties on directors:

• to take reasonable measures to prevent damage from occurring, continuing or recurring, and to minimise and rectify pollution or degradation that has already been caused
• to ensure that people who may be directly affected by a company's activities are not exposed to health and safety hazards

In terms of the National Environmental Management Act, dealt with below, although companies might not themselves cause environmental damage, they could still be held liable by association in terms of the “polluter pays” principle . This principle is already firmly entrenched in the United States and Europe.

Societal and transformation issues

South African companies with a social and ethical conscience not only promote the greater well being of society generally but also increase their chances of long-term survival. Increasingly, South African companies are seen as agents of change not only for their own benefit but also for the benefit of their stakeholders. Transformation makes good business sense, but its success depends upon a partnership between government, business, labour and society< at large. Government has contributed by creating a legislative framework aimed at achieving employment equity and skills development. The areas that need the most urgent attention and which have been specifically identified in King II are:

• to create diverse management
• black economic empowerment programmes
• empowerment programmes for women
• social investment
• human capital development

Key questions:

• Is my company aware of the non-financial matters which are relevant to its business?
• Does my company meet the applicable health and safety requirements? 
• What HIV/AIDS programme does my company have in place? 
• Is my company complying with environmental legislation? 
• Is my company associated with environmentally-unfriendly organisations? 
• Does my company have appropriate policies in place to deal with issues of employment equity and black economic empowerment? 
• How diverse is the board and the workforce of the company? Does the company harness that diversity to its best advantage? 
• What is my company doing to promote societal and transformation issues?