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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