Sustainability and Corporate Reporting - a waltz, not a toi-toi

A reawakening in consulting prowess where needed most

For a long time, there has existed a Tower of Babel type communications gap between a company’s number-crunching financial controllers (custodians of its tangible assets) and the brand-aware CSI managers and story-tellers (custodians of its intangible assets). While a rickety bridge exists in the human resources portfolio, environmental and social dialects often get lost in translation.

Corporate reporting made its infantile first steps during the Coming of Age of the Industrial Age. With the transformation from agriculture to industry, horseback to engine, wood to metallurgy, fire to energy came the spread of Western value systems over many Continents.

The world of commerce was transformed in a very short timeframe. Electric utilities, appliance manufacturers, and communications companies proliferated. The period following Henry Ford’s first US assembly line in 1913 fast tracked the era of industrial development and social welfare.

This century, by all accounts, we are reaching the tipping point – where population growth and consumption is threatening the very system that created our social and economic wealth, backed by the environmental wealth that we have made such industrious use of up until now.

Although corporate reporting has played an invaluable role with respect to stewardship of financial capital, it focuses on a relatively narrow account of historical financial performance and of the value-creation process.

In this day and age, a firm’s physical and financial assets represent a small percentage of market value – down from 83% in 1975 to only 19% just over three decades later in 2009. Integrated Reporting is a global movement that aims to formalise the reporting on these intangible factors that cannot be explained in isolation or be given justice within traditional financial statements.

On the journey to satisfy the needs of investor, stakeholder and civil pressure to provide more encompassing reports, a patchwork of laws, regulations, standards, codes, guidance and stock exchange listing requirements have been adopted the world over.

Technology simplifies business processes and has added huge value to supply chain sophistication, but it has also rendered firms so diversified and at lateral risk that financial reports and management annotations became protracted, complex and often indecipherable scripts receptive only to the most seasoned investor and employee.

While standalone sustainability reports (issued voluntary alongside a firm’s financial report) has aided greatly in bringing a balance sheet approach to Corporate Social Responsibility and brand value, Integrated Reporting marries the stewardship of financial capital with the firm’s holistic value-creation process, including social and environmental accountability.

Little-known outside the accounting fraternity until fairly recently, Integrated Reporting today is an area of specialisation for CSI and traditional communications and investor relations firms, professional services (legal and auditing), environmental impact (incl. carbon footprinting) and independent multi-disciplinary consultancies.

In South Africa, the market for these services includes JSE-listed companies (required via the King III Codes to produce Integrated Reports) and unlisted firms in the supply chain driven by Government and industry peers to account for their financial, social and environmental performance. 

As a communications and CSI professional, my study of and entry into this field of reporting has transformed the way I view the businesses I consult to, and I approach the marriage of my writing and investigative skills in these ventures with great enjoyment. Perhaps the most interesting of the Integrated Reporting (and Assurance) processes is the stakeholder audits and quantification of social / environmental stories that form part of the process.

The Sustainable Development story: applying the 5W&H reporting principles

WHO? WHAT? WHEN? WHERE? WHY? HOW?

WHO?

In a nutshell, all of humanity – whether active or passive in our global village’s activities. As representatives of this planet, of countries, of age and social groupings, and of industries, our mere existence affects the issues facing us.

WHAT?

The implications of climate change, waste, financial crisis and poverty have converged in the collective consciousness – implicating governments, corporations and societies in the process.

WHEN?

Right now. The worldwide rise in policy revision, corporate reform and consumer behavioural change all has one objective in common: accountability; and one end-goal in mind: survival. Hence the hopeful 21^st century catchphrase: Sustainable Development – hand-in-hand with urgency, inclusivity and honesty.

WHERE?

On every level of society in just about every part of the world, the effects of unsustainable growth are evident in the domino effect of natural disasters, economic meltdown and decreased quality of life. These changes are amplified by the rising tide of social media, environmental and economic activism (e.g. WEF/Greenpeace and the Occupy movement), political uprising on most Continents and ever-increasing pressure on business across industries to act responsibly.

WHY?

Globalisation created new relationships between economies and supply chains. It sped up technological innovation and population growth, increasing consumption of our natural (water, food) and mined (energy) resources. This has ricocheted to drive prices up; availability and quality down. The ecosystems that sustain us economically and as a society are at increased risk. Our civilisation, as we know it, is young, with the first city-state established only 20 centuries ago, democracy in its infancy and the industrial age an embryo at just over a century– yet it is in this age that most risk has been taken.

“Throughout the 20^th century, we created wealth through vertically integrated corporations. Now, we create wealth through networks. We are at a turning point in human history, where the industrial age has finally run out of gas.” – Don Tapscott

HOW?

Businesses are being forced to react to these changes in order to remain successful and, in many cases, are developing new business models that recognize the need to innovate and do more with less.

My next blog will be about: Sustainability and Corporate Reporting - a waltz, not a toi-toi

AUW 2012: The power vs. the powerless

An hour (of three) into our Opening Ceremony at the African Utility Week 2012 - with fingers going blue and toes losing feeling from the cold - Eskom CEO Brian Dames took to the stage and entered into a cockle-warming exercise of national power utility PR as the aging power  - founded in 1923 when mining was in its infancy and manufacturing had not yet reached industrial levels locally - approaches its 90th birthday in March 2013.

The South African electricity industry diversification sees Eskom's role to ensure the first 49 chosen IPPs are connected to the grid, which Eskom controls, with the ultimate goal of easing the burden Eskom buckled under over the past 3 years to supply us with reliable electricity.

Last night, said Dames, power demand was projected to rise by 2000MW between 5-9pm alone - this is enough to power the entire Namibia, Botswana and more! Eskom sees 2012 as greatest peak shortfall. (We all know what THAT means this Winter - so best you blanket up.)

Quite rightly so, Dames reminded us that meeting capacity is not as much the problem as is maintaining reserves sufficient to deal with a massive 12% maintenance project through Winter - to ensure safety of plants & people and to improve performance of power stations. He mentioned that this was by far the biggest project in Eskom's history.

He quoted PWC's recently released "The Shape of Power to Come" Survey, which noted: World electricity demand is projected to increase from 17,200 TWh (terra-Watts)  in 2009 to over 31,700 TWh in 2035 - that is double what we use now! It will be driven by economic and population growth, as well as technological change and urbanisation, resulting in an increasing electrification of the world. More people will gain access to electricity and more activities and applications will be powered by electricity.

Back to local Eskom issues, Medupe's first unit - which was supposed to have been live by mid-2011 - will come online by the close of next year. Surprisingly, Dames blamed capacity within the local manufacturing industry (excluding the environmental concerns). He said that because the big SA manufacturing companies were struggling with capacity, Eskom had to intervene to get international companies to project-manage the local companies. Worrying...

An elderly gentlemen launched into a flurry of comments during Q&A's, accusing Eskom of selling out future generations in its projections made in the IRP 2010. He said that the discount rate of 10-12% that Eskom provided to the DoE ignores the renewable energy contributions and is much higher than the 5-6% maximum discount the US and Canada include in their long-term predictions. 

This man said that leaving the problem to future generations negated the whole idea behind the IRP 2010: sustainability. He criticised Eskom's strategy in establishing further coal mining operations in Limpopo and Mpumalanga, as this was done on prime agricultural land and would aid future food insecurity. Dames denied Eskom's direct involvement in the IRP 2010 planning process - this gentleman seemed to know better. Awkward moment.

Dames closed by saying that, in the next decade, new technologies in the utilities industry will be driven by: - energy supply concerns - climate change concerns - energy efficiency ambitions and - technological advancements.

The future, Dames said, will be characterised by 3 scenarios:

- decentralised grids (smart grids) IF we can solve the problem of storage;

- large-scale renewables (& grids) as in Europe; and

- a clean fossil world (powered by conventional technologies and large-scale nuclear).

Dames said he believes SA and Africa will have a hybrid system and, of course, that Eskom will still dominate, but this time working with private structures. Most interestingly (and perhaps an unintentional slip of the tongue by Mr Dames) was when he said: "Renewable energy grid price parity will occur as electricity prices continue to increase." Is that right?

Dames is also pro-nuclear and hydro-resource, but said SA needs a game-changer: gas (conventional / shale) and smarter grids are per-requisites to success. 

Dames rounded up his 2030 view: that all households will have electricity (as SA has evolved from less than 25% in 1999 to the 4millionth household that will be connected to the grid in early June). This in spite of the 2.5-3 million backlog, which has to be closed by 2022.

Finally, reflecting on energy poverty and climate change, Dames reminded us that he sits on UN Secretary-General Ban Ki-Moon's special "Energy for All" energy initiative and he sees great promise for Africa.

Yet sub-Saharan Africa currently has access to only 68GW of energy (less than Spain uses) - and this figure plummets to 28% if SA is excluded.

And 33 countries on this continent have a capacity of less than 5GW (less than Medupe alone can deliver). 

As a parting shot (in aid of positivity) let us rejoice that the extensive consumer-focused power-savings campaigns have, since 2008, led to 2000MW of electricity efficiency savings.

Next blog posting: Sustainability and corporate reporting - applying the journalistic 5-W principles in reporting.

AUW 2012: We've got the power?

FREEZING

Yesterday, my colleague Penny Goodwin and I had the pleasure, amid the chattering of teeth and beset by a constant need to reflect on weather conditions... the second day of African Utility Week at the Nasrec exhibition centre, south of Johannesburg. 

The freezing wind and total absence of heating inside the Opening Ceremony hall (which opened a half hour late) aside, we at last had the opportunity to hear from the horse's appointed spokesperson's mouth in what direction the Department of Energy (DoE) is headed in terms of SA's 'sustainable' energy mix.

MINISTER MISSING IN ACTION

With Dipuo Peters waylaid in Parliament with President Zuma amid slightly better Cape Town weather yesterday, DoE COO, Thandeka Zungu, read the Minister's speech - to her credit, with a lot of eye contact and personal anecdotes thrown in for good measure.

Coincidentally, in Parliament yesterday morning, the Minister committed to address copper theft (worth R100 million p.a.) by drawing in the SAPS through ensuring an amendment to Second-Hand Goods Act towards tougher disciplinary measures against buyers of this cable.

NUCLEAR CERTAINTY

 Surprisingly, she started her speech talking NUCLEAR - specifically to confirm that the DoE is going ahead with its plans to ramp up nuclear power capacity to 9.6GW (the equivalent of two Medupi coal power stations) by 2030 as planned – disregarding the 11.4GW figure recently quoted by her Department.The international service providers-in-waiting for the tender announcement in November best keep their pocket calculators handy!  This in accordance with SA's Integrated Resource Plan, approved just six days after the Fukushima disaster in March 2011.  

Ms Zungu said the ill-named National Nuclear Energy Executive Co-ordination Committee (NNEECC), headed up by our very own Deputy President, would oversee the nuclear programme - at this stage, it is unclear whether they have to answer to Parliament on their decisions...It is thus what role division exists between NNNEECC and NECSA the SA Nuclear Energy Corporation), which just received a further R50 million in the budget vote to be in charge of developing viable nuclear fuel cycle operations for our beloved country.

UNDER-SERVICED COMMUNITIES

She also spoke about the Integrated National Electrification Programme (INEP) – the backbone for supplying under-serviced communities, rural areas, new formal / informal urban settlements with power. 

Eskom, working with municipalities (hampered by a lack of technical and managerial skills to handle this), had nevertheless completed 220 000 connections as at January 2012.  Eskom had 42 infrastructure projects funded, mainly in KwaZulu-Natal and the Eastern Cape, while the municipalities had 45 projects funded. 

Eskom had been allocated R1.8 billion while the municipalities received R1.1 billion for 2012/13 - according to their web page. Ms Zungu's total was a R3.2 billion allocation for the coming year - but I guess R300 million is not too large an accounting err?

The worst INEP electrification backlogs exist in KZN, the Eastern Cape and Limpopo - which is being addressed by the commissioning of an additional 450,000 home solar system installations by independent service providers (mainly geysers) - 250,000 have been installed to date and the 2014 target is 1 million geysers. 

They're running into the problem, though, of recipients believing that they are receiving inferior power solutions by their malevolent government. Government is also not happy with the fact that most of these low-pressure geysers have been imported, and they'd like to see local production, which Ms Zungu said would attract Government-funded subsidies.

Further down the electrification road map, Ms Zungu reported on the recent National Electrification Indaba in Durban during March, held in line with the United Nations “Access to energy” campaign. Here, all stakeholders discussed the dilemma of having 90% of the country electrified (pun excused), as planned, by 2014. She did not mention any solutions... a 75% backlog exists in rural areas. 

There's also been an outcry from municipalities on the inequitable funding of electrification projects because Eskom got funding for the connections but municipalities did not. 

Compounding this, municipalities have to adhere to conflicting legislation. Funding is only effectively available from 1 July, meaning that they effectively have nine months to do the work unless they can get bridging finance, which in any case would put them in non-compliance with the applicable legislation. 

Obviously, the Municipal Finance Management Act 2003 procurement process needs serious review. Something Ms Zungu says is being addressed.

We have yet to ascertain the success of Project ADAM, a pilot with municipalities and Eskom  to ascertain the state of the electricity distribution industry in SA. Some systems are older than 40 years, and ADAM will prioritise which need changing and who is responsible.

She closed by saying that energy efficiency measurement was a top priority in 2012, to enable the DoE to better allocate needs and electricity supply blocks.

My next post will be on yesterday's host speaker: Brian Dames of Eskom.