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A high level assessment of Gold Fields’ 2010 integrated report

Following the release of the King III Discussion Paper on Integrated Reporting and the Integrated Report, and considering Jonathon’s involvement in drafting it, integrated reporting has become a hot topic in the Incite office. And I, like many companies in South Africa, have been trying to get my head around what it means.

As part of the process I have been looking at what companies are doing in this regard. I have just had a look at the recently released Gold Fields’ Integrated Annual Report and thought it useful to share my initial views on it.

What follows are high level observations and suggestions. I have not conducted an in depth assessment but hope that this can add to a discussion around best practice in integrated reporting. I am also learning and so would appreciate any feedback.

Saying the right things:

Our commitment to ‘sustainable gold’ is both astute risk management and responsible business practice and therefore fundamental to creating the conditions for enhanced medium- and long-term shareholder value.” Dr Mamphela Ramphele – Chair

Gold Fields is a successful company that has clearly been doing a lot to improve their sustainability performance over time, complying with regulations, putting systems in place and meeting GRI, ICMM, GC and other requirements. This is the company’s first attempt at compiling an integrated report and also coincides with a change to the reporting period. What effect this had I do not know, but overall I think the report is certainly a positive move towards effective integrated reporting.

The report says a lot of the right things at a broad level. The Chairman’s quote above is an example. Or take another example from the risk management section where the company suggests that “business sustainability – in its true sense – is essentially about the effective and integrated management of our operational, sustainability and financial risks.” This is all wonderful stuff but what does it actually mean and how is this evidenced in what the company is doing and reporting?

The impression that I get is that the company is doing a lot of great work and in many ways having a very positive impact on the societies in which it operates. But the report focuses on being “responsible” without adequately linking this to the organisation’s core strategy. Gold Fields reports that their “long-term operational and strategic performance is highly dependent upon the effective management of our social, economic, environmental and safety impacts” (p 15). But they don’t flesh this out. The link to creating and sustaining value is not made in a clear and concise way. The financial implications of material sustainability issues, for example, are not quantified.

It is therefore difficult to discern how the material sustainability issues are likely to affect the company’s growth plans and know how well placed the company is to manage these issues. I have no doubt that Gold Fields will continue to be a successful company in an era of increasing turbulence and can see that they will, wherever possible (and where required) make positive contributions to society, but it certainly isn’t going to be easy for an investor to discern this from their report.

What I liked

I liked the risk management section (p 40). Gold Fields is looking to be proactive and “pre-empt challenges”. The company reports a wide range of organisations and sources of information that inform the risk identification process. I like the reporting of how risks are integrated into the core strategy especially with regard to setting targets and performance against those targets. The impression is that the company is taking sustainability risks very seriously and their presentation of actions to mitigate risks is nice and clear.

The company is a leader in addressing the challenges of climate change and this is well reported except that the Carbon Disclosure Project CDLI (Carbon Disclosure Leadership Index) is not the JSE CDLI (my involvement in scoring companies as part of the CDP has made me very sensitive / pedantic around this issue).

Twenty four hours in the life of a Gold Fields employee (p 154) does a great job of illustrating what the company is doing to improve the lives of their employees and improve productivity.

I liked the reporting of innovative new treatment technologies that reduce the company’s impact and, through licensing, generate revenue and reduce others’ impacts. I’m sure there are other examples of this in the report but this section stood out and clearly shows, not just talks about, sustainability issues being integrated into regular business activities.

What could be improved

The word “integrated” appears a lot. Saying something is integrated is not the right way to drive home that sustainability is actually integrated. I counted 50 instances where the word “integrated” was used in the body of the document before I gave up – and that was less than a third of the way through.

The section on growing Gold Fields (p 110) does not incorporate material sustainability issues other than to comment on the importance of the company’s social licence to operate in order to grow.

The integrated approach to sustainable development at Cerro Corrona (p 162) represents sustainability as the overlapping area of three circles representing social, economic and environmental capital. In the middle is the company’s “social licence to operate.” I would rather see a clearer understanding of how economic capital is created within the social system which is dependent on the natural system. The systems are nested within each other, rather than overlapping.

There is a lack of benchmarking of performance relative to competitors. This is one of the key areas to improve the potential of the report to inform investors of how well the company is placed to manage increasing turbulence relative to competitors.

Finally, and perhaps most importantly, the report adopts somewhat of a shotgun approach to addressing all issues, impacts and informing all stakeholders. This dilutes the focus and makes it difficult to understand and assess the ability of the organisation to create and sustain value over the short, medium and long term.

My suggestion: cut some of the fluff. Avoid the shotgun approach and focus on providing only the necessary information to enable stakeholders to assess the organisation’s ability to create and sustain value is based on financial, social, economic and environmental systems and by the quality of its relationships with its stakeholders. The other information is important but rather put it on the website or deliver it to the relevant stakeholders directly.

Am I being too harsh, or not critical enough? What do you think?

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How to talk sustainability

talk and talk by nyoin.


Corporate sustainability has undoubtedly hit the mainstream. This collective awakening appears to have taken on a somewhat schizophrenic character as various people grapple with what sustainability means and how to do it.

The enormity of the challenge requires us to value every contribution people choose to make. As sustainability guru and entrepreneur Paul Hawken writes in Blessed Unrest, “When asked if I am pessimistic or optimistic about the future, my answer is always the same: If you look at the science that describes what is happening on earth today and aren’t pessimistic, you don’t have the correct data. If you meet the people in this unnamed movement and aren’t optimistic, you haven’t got a heart.”

Recognising a human tendency towards territoriality – in the sustainability game as much as in any other – we’d like to encourage a deeper dialogue between this somewhat disparate band of activists. Allow me this opportunity to do a few introductions:

Fast-lane philanthropists

Passionate and dedicated, fast-lane philanthropists seek new and creative ways to channel corporate donations towards the greater good. With billionaires like Bill Gates and Warren Buffet handing out sizeable chunks of their wealth, the new philanthropists face the significant challenge of aligning the sheer scale of contributions with the capacity of well-grounded organisations to put it to good use.

Upside: Much needed good work being done by trusts, foundations and NGOs who are the recipients of these funds.

Downside: Those who confuse philanthropy with sustainability settle for the booby prize: a small percentage of post-tax profits should not decoy us from interrogating how the money was made in the first place.

Good buzz words: good, give back, communities, hope, gift capital, CSI, previously disadvantaged, legacy.

Good-to-great greenies

Inspired by the green movement in the North, eco-enthusiasts are driving a change in how we live, shop, travel, learn – in short, everything. Open-hearted and highly networked, they forge alliances that span corporates, new agers, school teachers and designers. Backed by management gurus (like Peter Senge) and cheesy sound-bytes (‘Green is the new black’), they have successfully nudged the eco brand from doomsday depression to the win-win zone in the last year.

Upside: Highlight natural capital depletion as the fundamental concern.

Downside: Criticised for caring more about critters than about the poor, they can unwittingly sustain the perception that sustainability is primarily an issue for rich white people.

Good buzz words: green, recycle, eco-everything, carbon footprint, carbon taxes, carbon trading, post-carbon society.

Check-box champions

These folk have been labouring in global working groups for at least 20 years, producing a plethora of guidelines, governance codes and standards on social and environmental issues. Though often criticised for their globe-trotting carbon footprints rather than celebrated for their creativity, they walk a fine line between practical and tactical: warning companies of the reputational risk of non-compliance while suggesting that sustainability can be as simple as painting-by-numbers.

Upside: They have put sustainability unequivocally on the boardroom agenda.

Downside: Sustainability gets relegated to mind-numbing checkboxes, giving rise to a burgeoning band of consultants happy to do compliance for cash.

Good buzz words: ISO, SRI, CDP, GRI (and many other TLAs), liability, assurance, stakeholders, governance, risk.

Born-again brandits

These are primarily communications and marketing types, with some of SA’s trendiest ad agencies in on the mix. Having made their fortunes touting all manner of widgets at any cost, they have undergone a revelatory experience in the last two years and now seek to use their considerable talents to atone for the rampant materialism they have promoted on behalf of their clients. Witty, intelligent, supremely confident, and with access to more resources than all other groups put together, they are likely to have a significant impact on the way sustainability is defined in the future.

Upside: A welcome addition of skills and resources to the sustainability game.

Downside: Old habits die hard; they are the group most likely to encourage the burgeoning eco-materialism that continues to decoy society from the core challenge of reducing how much the rich consume.

Good buzz words: authentic, brand, heart, love, make a difference, passion, green, consciousness, change the world.

Zero-fluff zealots

Serious, single-minded, system-thinkers: zero-fluff zealots measure sustainability by the extent to which companies literally re-think their business models. Disruptive innovation is their Holy Grail: smart products or services that reverse social inequalities and resource depletion, while being catapulted to scale due to their profitability. They include social entrepreneurs of all types, a handful of visionary business leaders and ex-activists, both red and green, who have been in the game long enough to get cynical (or perhaps realistic) about the singular motivation behind business action.

Upside: Up for a serious challenge, they are effectively seeking to redefine the capitalist system and thereby redeem its useful parts.

Downside: Tendency to fundamentalism can result in them overlooking or underestimating the potential contribution of other groups.

Good buzz words: innovation, scale, leverage, life-cycle thinking, resilience, systems change, agility.

May the conversations be fun, fruitful and lead to unexpected outcomes.

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What is the full sustainability story?

Last week the business pages of the newspapers were full of reporting on the mine nationalisation debate in South Africa as Cape Town hosted the 2011 Mining Indaba. To coincide with this media focus on the mining sector, Anglo American – one of the world’s largest mining companies – put out print and billboard ads publicising its Corporate Social Investment (CSI) achievements with the strapline: ‘Real Mining. Real People. Real Difference.’

Anglo’s claims contain a range of superlatives, including:

First to offer HIV/AIDS treatment to our people
R60 billion invested in BEE transactions
Voted best corporate grant maker for eight years running
Producing close to 2.5% of South Africa’s GDP
Largest private sector employer in South Africa

The smaller print gives a link to getthefullstory.com to find out more. The site opens with an animated sequence of the turning pages of a book giving a sense of storytelling. Head shots, like those in the print ads, accompany the headlines on each double-page spread. It nicely pulls together a number of Anglo’s stories of how the company has delivered vital services in places where governments have not.

Given the size and scale of Anglo American, these initiatives are undoubtedly positive for countries like South Africa and Anglo’s 83,000 permanent employees here. At the same time there are numerous challenges to mining in environmentally and socially responsible ways, and creating value. The news this week that Chevron is being fined $8bn for contamination of the Ecuadorian Amazon is a case in point. As my colleague Jonathon writes in a recent addition of The A Magazine, a quarterly publication of Anglo American South Africa, “Although it is right to have a healthy scepticism of the sustainability pronouncements proffered by leading mining companies, it would be wrong to dismiss the important positive contribution that many of these companies are making to society and it would be mistaken to underestimate their potential in effecting a broader transition to sustainability.”

This broader transition to sustainability is what Incite strives for; our mission is to shift how business sees and applies itself to the creation of value. For mining companies “playing this transformative role will require… mining executives to appreciate the complexity and systemic nature of the sustainability challenge, and to recognise that current incremental changes towards sustainability [such as CSI are laudable but] are not sufficient” (from Jonathon’s article).

As a sustainability communications specialist I am interested in the language companies use to promote their initiatives, how truly these messages reflect what they are actually doing and how communications can encourage a shift in attitudes and behaviours. This is where communications savvy and knowing how to frame a message come in. There is a knack to telling a balanced story while not making any misleading or over exaggerated claims that will confuse people. What Anglo is presenting through its recent ad campaign is how it contributes to society and the economy which, from a sustainability point of view, is not the full story. CSI can play a role in broader sustainability strategies if done probably, but it should not be confused with sustainability.

I can see what Anglo is trying to do with the strapline ‘Real Mining. Real People. Real Difference.’ However, I think the way the message has been framed is confusing. It implies that CSI gets to the core of their business’ impact on society and makes the “real difference”. While it may certainly make a difference in some peoples’ lives, CSI will always be an add-on the business strategy and typically does little to interrogate it. To me, a real difference means a company making a fundamental change to its business models that restores or enhances nature, develops society and/ or empowers people. Anglo needs to be clear what difference it is making, accurately communicate this story and demonstrate how it fits into the bigger picture of the company’s core business and current transitions in the global economy.

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Time to get real on sustainability

A number of our clients admit to a great deal of confusion about sustainability. At this point, we know we’re in for a good engagement because such self-reflective honesty is an uncommon but powerful motivator in the business game.

That there is confusion on the topic is not surprising: on darker days I believe a whole industry has emerged to keep us confused. At the risk of losing a few friends, we have seen the business media, pricey management consultants, global gurus, the JSE, various sustainability award-givers and politicians doing the field no favours by doggedly confusing sustainability with “going green” or “being good”.

Going green?

“Going green” and “being good” are undoubtedly fine things to do; for business to confuse them with being sustainable is either uncharacteristically meek, dim or deeply cynical.

This confusion is the reason that sustainability slides continually off the Board agenda and is regarded as largely non-material by analysts. The focus is sharpened by environmental organisations rightly questioning the listing of “serious and serial offenders” as best performers on the JSE socially responsible investment (SRI) index. The real casualty, however, will be the number of companies with well-intentioned green programmes that wake up in a year or two to find they missed the learning curve.

Confusing sustainability with Corporate Social Responsibility is equivalent to mistaking your marketing message for your business strategy. They are both important but they are emphatically not the same.

Sustainability

Sustainability is a business approach that seeks to build long-run competitiveness without unduly compromising short-term profitability and cash flows. Like any business strategy, it focuses on managing risk, building brand and reputation, and driving competitiveness through efficiency and innovation.

However sustainability differs from business-as-usual in the extent to which it is informed by an appreciation of the radical transition presently underway in the global economy. This transition, driven by a global decline in natural resources, together with increasing demand and disparity in people’s access to resources, is indisputable and will be profound. It will progressively define the competitive arena. For this reason, tracking sustainability requires metrics that reflect the organisation’s capacity to operate in times of significant change. These sustainability-related competencies are an indicator of the organisation’s agility.

The King III recommendations on Integrated Reporting seek to use the Annual Reporting process to promote this understanding of sustainability. How this is analysed should be of great interest to directors and their financial stakeholders.

Corporate Social Responsibility

While sustainability is largely about shifting the business strategy to ensure enhanced competitiveness, Corporate Social Responsibility (CSR) is largely concerned with managing the impact of that strategy on society and the environment.

The distinction is evident in performance measurement which for CSR focuses on societal impact, usually framed in terms of the ‘triple bottom line’ (social, environmental, economic issues).

From a business perspective, being “green” or “good” can be used effectively as a brand differentiator. Whether it is well-intentioned or cynical doesn’t matter, as long as the claims to greater responsibility can be verified. Green products and social niceties are no guarantee, however, that the organisation appreciates the radical and innovative shifts required to ensure it remains competitive in times ahead.

Nedbank had this realisation when they broadened their focus from solar robots to interrogating their investment criteria. As a key brand element, Woolworths’ Good Business Journey is strongly focused on social responsibility indicators; linking these more overtly to internal agility may help to consolidate the journey.

The challenge of sustainable business

We are not talking philanthropy or the “right thing to do” – we are talking about an overhaul of the profit engine. An engine that gets its power by forcing society to pay its social and environmental costs has simply passed its sell-by date. Customers and successful brands will increasingly see to that.

But joining today’s sustainability leaders will require more than internalising social costs: the scale of change underway will see businesses re-designing, innovating and exploring challenging partnerships as never before. The sooner organisations begin to develop these competencies, the faster they will engage the learning curve and the better they will compete in a radically changing world. Those lulled into complacency by the present confusion are choosing to learn a little late and at considerable extra cost.

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Light where the sun doesn’t shine

It’s not a new ad, but Greenpeace’s sunshine clip (above) was recently forwarded around the Incite office refueling the debate around sustainability messaging we had last year following the launch of 10:10’s “No Pressure” viral. See that commentary here.

For some people ‘the light went out’ with Greenpeace’s cheeky energy saving viral. While others felt it was a refreshing change from NGOs’ traditionally earnest way of communicating and that the clip would appeal to newer and younger audiences.

What do you think? Is the viral too frivolous and absurd or it is fun way of delivering an important message by a well established environmental campaigning organisation?

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How sustainable are climate change solutions?

On Monday night as I stood in the queue snaking out the door of Cape Town’s independent arthouse cinema The Labia for a ticket to see the screening of US-made climate change solutions movie Carbon Nation I found myself surprised by the number of Capetonians interested in the topic. But perhaps I shouldn’t have been surprised – Cape Town offers a green lifestyle for certain segments of the population.

The film’s positioning is a refreshing take on climate change. The science is sound, it touches but does not dwell in a doom-laden way on the immense challenge, and crucially it presents lots of different examples of people (Americans) who are involved in climate-safe solutions with additional social and economic benefits.

My favourite characters profiled in the film are the one-armed cotton-farming Texan who, in his own words, has “single-handedly” (cue the cinema erupting in laughter) created one of the world’s largest windfarms which now generates not just power but regular income for local farmers and jobs for young people who previously left for larger cities. Also, the former army general who is helping the US’s Department of Defense to become more energy efficient and use sustainable power. It’s a tripple-whammy: trucks transporting fuel to army bases in the desert are targets for explosive devices, so by fitting their tents with better insulated materials that require less cooling and are powered by wind and solar power, the army is saving money, lives and diesel. In these cases the climate change solutions are socially, economically and environmentally sustainable.

Watching the film and seeing all the possibilities of wind power, solar, planted or white-washed roofs, it made me think about how Cape Town and the rest of South Africa should be taking advantage of the country’s incredibly strong winds and abundant supply of sunshine which falls exactly when power is needed for air conditioning and cooling of offices, malls, etc. I imagine others in the cinema were thinking the same thing.

After some research and with my sustainability hat on, I realise it’s not that clear cut for large-scale clean energy solutions here. There’s talk and calls for encouraging investment in renewables as outlined in this GreenTimes article. However, it’s prudent to remember there are always tradeoffs for large companies facing social and economic as well as environmental challenges that will influence the decisions they make. And the ones who truly want to be sustainable don’t take these decisions lightly.

Consider South Africa’s biggest energy providers Sasol and Eskom. Despite being inherently dirty and polluting companies with the largest carbon footprints in SA, Sasol, for example, is also the country’s biggest tax payer, employs 34,000 people and is one of the largest private sector innovators. In other words, it’s pretty vital to the South African economy not just in providing the country’s power but also for jobs and adding to economic growth.

Sasol has been committed to sustainable development for a long time and recently established a new energy unit tasked with finding ways of providing an energy mix for South Africa which isn’t wholly based on fossil fuels. This includes energy efficiency, renewables (wind and solar), carbon capture and storage (a way of taking CO2 out of the atmosphere) and low-carbon and nuclear electricity. They may not be shouting loudly about it unlike the much berated (including a spoof site by the Yes Men – hard to tell the difference, eh!) of the Chevron ‘We Agree’ marketing campaign,  but Sasol is well aware of South Africa’s energy challenges and is taking considered action.

Sasol also has the tricky task of meeting the requirements of lots of new government legislation around low-carbon development. For energy production in this country this includes an Integrated Resource Plan, SA’s Climate Change commitments (currently a Green Paper and Carbon tax discussion paper) and the government’s high level commitments that came out of COP15 in Copenhagen. The problem is that these requirements don’t link up well yet and it is not yet entirely clear what a company like Sasol needs to aim for and how it will do it. For example, Sasol’s different business units could well be significantly affected by what the government is proposing, especially the carbon tax.

These challenges and the sense of urgency for finding the best solutions for low-carbon, sustainable growth and committing to them, is a hot topic here. Editor-in-Chief of the Mail and Guardian, Nic Dawes, discusses what he made of Joseph Stiglitz’ recent lecture on climate change, the global economy and the implications for South Africa. Watch it here.

With climate change solutions there are always going to be tricky trade-offs to ensure carbon reducing initiatives are not implemented to the detriment of other sustainable development issues like job creation, economic growth and social development. Further, if a company isn’t shouting about what they’re doing about climate change it does not necessarily mean they are not taking it seriously and trying to do something about it. No wonder Van Jones was quoted in Carbon Nation as frequently being heard to sing ‘It’s not easy being green’!

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