ISSUE 11: NOVEMBER 2012

REVIEW The quarterly review of SUSTAINABILITY in South African business

Test the South African dream

Ferial Haffajee on strengthening the media

Is CSI a nice-to-have or a business imperative?

The case for investing in sustainability

Labour relations undermine our future

CONTENTS

FROM thE EdItOR

EditorialEdItOR: Rob Worthington-SmithCONtRIBUtORS: Cathy Duff, Nick Rockey, Rob Worthington-Smith, Carl Swart, Fatima Collins, Denise ArcherPROOFREAdING: Heather de WetPROdUCtION: Gillian MitridESIGN ANd tYPESEttING: GroundPepperPRINtING: CTP Web Printers

AdvertisingSALES: Karen PetersenAdMINIStRAtION: Vanessa Sampson

Contact detailsCAPE tOWN JOhANNESBURGTel: 021 671 1640 Tel: 011 026 1308Fax: 021 671 0119

POStAL AddRESSPO Box 36104 Glosderry, 7702

www.trialogue.co.za

©Trialogue

All rights reserved. The material in this publication may not be reproduced, stored or transmitted in any form or by any means without the prior written permission of the copyright holder. If such permission is granted, any information used in other sources must accurately reference Trialogue and the title of this publication.

disclaimerAlthough great care has been taken to ensure that all information contained in this publication is as accurate and complete as possible, Trialogue cannot accept any legal responsibility for the information given and the opinions expressed in it.

Corporate social investment: a business imperative or nicety? 4BROADER

SCOPE OF CSI

Test the dream 6SUSTAINABILITY QUIZ

Invest in long-term value, avoid short-term disasters 8INTEGRATED

REPORTING

Big stories of Q3 2012 2QUARTERLY REVIEW

The media needs strengthening on sustainability issues 10

FERIAL HAFFAJEE

INTERVIEW

When will we start caring for the long term? 12IN THE MEDIA

It is hard to deny that our society is in a mess. Paul Harris wrote a nice letter to his mates declaring that the sun will come up again, as it always has. The fact is that violence, normally a last resort, is being more and more employed to overturn inequalities existing in society. Thus, Mr. Harris, for far too many South Africans the sun has risen and set for the last time.

On the other hand, Russell Loubser is clearly not happy with the state of political affairs and told us so. This was exceptional as there is a natural fear of political backlash when it comes to commenting on political issues. But even fewer business leaders are brave enough to point to the way businesses behave

in the pursuit of profit. When long-term value-destroying business practices start to degrade relationships with societal stakeholders, or destroy natural resources, the public is accustomed to being fed the greenwash of ‘brand promise’, or side-tracked by blaming some other party.

There is certainly no shortage of scandals, from price-fixing to over-compensation of top executives. Nor is it hard to find an industry that isn’t vulnerable to exploitive practices, whether of its labour, its suppliers, or its customers, including patients, fans, learners as well as the long-suffering consumer being invited into further unsecured debt.

Now is the time for corporate South Africa to learn about what sustainability really means to the future of the country as well as to the long-term success of the business. The articles in this quarter’s review understandably concentrate on social issues, with labour relations coming under the spotlight in our Media analysis (p. 12). In our quiz (p. 6), we invite you to experience the wealth gap reflected in South Africa’s Gini coefficient. Ferial Haffajee calls for a strengthened media (p. 10) and I’ve weighed in with a look at how better reporting by companies will assist asset managers make more responsible investments.

Rob Worthington-Smith

YOUR NON-FINANCIAL HEALTH TODAY WILL PREDICT YOUR FINANCIAL hEALth tOMORROW

CONTENTS

purp

lebe

rry

1012

/732

3

NEDBANK. LEADING THE WAY Advertorial

Conservative estimates put the world’s population at around nine billion people by 2050. That’s two billion more mouths tofeed than is currently the case. While the responsibility for providing these escalating global nutrition requirements rests on the shoulders of the world’s agriculture sector, it is not a burden this sector can be expected to bear alone – particularly when one considers that the growing additional challenges of climate change and water scarcity that will make farming an increasingly difficult undertaking in the coming decades.

Given the importance of agriculture, it is incumbent on us to actively contributeto its sustainability. So, while some may contend that the only part banks haveto play in agriculture is through lending money to farmers, at Nedbank Group,we take a different approach. One that,we believe, has the potential to make a lasting and significant contribution to the establishment of sustainable agriculture within the South African agricultural sector.

Based on our recognition of sustainable agriculture as one of the essential corner-stones of the world’s emerging green economy, Nedbank Group is committed to promoting and enabling such sustainable agriculture. Our work in this area sees us cooperating closely with agriculture sector stakeholders in order to gain a better understanding of the challenges facedand contribute to the development of actionable and effective sustainable agriculture initiatives.

Through our involvement with theGreen Trust, which Nedbank Group helped establish over twenty years ago, we support and participate in a varietyof initiatives aimed at transformingSouth Africa’s agriculture sector while,at the same time, educating both farmers and consumers on the importance of sustainable farming practices and consumption habits.

Nedbank’s recent three-year partnership agreement with WWF-SA’s Sustainable Agriculture Programme is just one example of this integrated approach by the group to encourage and enable sustainable agriculture at all levels of industry and society. Through our support of this Programme, Nedbank will be making a significant and sustainable contribution towards the establishment and growthof healthy farmlands and surrounding ecosystems as well as the development of a resilient and viable agribusiness sector that will continue to play an important role in job creation, food security, social and economic upliftment and developmentof the entire country.

The WWF Sustainable Agriculture Programme currently focuses on agricultural sectors within areas of global conservation importance, such as the Western Cape’s Fynbos region, the Succulent Karoo and Grasslands ofSouth Africa. Sector partnerships inthese regions include wine, sugar, fruit, with newly emerging partnerships

developing within the dairy and the grain-fed beef sectors. This programme seeks to encourage environmentally sensitive agriculture production practices that ensure improved water and energy efficiency, reduced stress on limited, scarce natural resources (water, energy), increase production capacity (through the promotion of healthy, living soils and optimal water usage) whilst delivering sustained, ethical long-term employment and community upliftment opportunities. The programme focuses on both commercial, as well as emerging farmers.

By targeting not only the primary agriculture sector, but also the role players throughout the supply chain such as retail industry, key markets and many other key stakeholders in government, corporate and civil society sectors, the Nedbank-supported WWF Sustainable Agriculture Programmeoffers a unique opportunity for all members of society, including each ofus as daily consumers, to be a part ofa viable solution to South Africa’s sustainable agriculture challenges.

And when you consider that conservative estimates point to the need for globalfood production to increase by 70% inthe next 35 years in order to meet the nutrition needs of the nine billion future inhabitants of our planet, it’s easy to see why this level of involvement by all is non-negotiable. And why Nedbank is committed to investing in the futureof South Africa’s farming.

Banking thebenefits of sustainable agriculture investmentBy Brigitte Burnett, Head of Sustainability: Nedbank Group

C

M

Y

CM

MY

CY

CMY

K

NedbankSusAgri-Advertorial(f).pdf 1 2012/10/25 10:49 AM

BEE BLAMEDMarikana:

The implementation of BEE by most mining companies has been narrowly focused on shareholding and dividends, enriching only a handful of elites. The law, which says that the required 15% to 26% black ownership can be held by just one person, is partially to blame. However, Employee Share Ownership Plans (Esop) can be effective: Kumba Iron Ore, whose Esop paid out R2.6 billion this time last year, experienced as little as 2% of employees striking compared to between 15% and 80% at other mines.

Labour reLations act neeDs reforMThe average numbers of days lost per 1 000 employees in Europe (2005-2009) was 30.6, compared with 507 in South Africa – 16 times higher. Our minimum, 36, was greater than Europe’s average. Labour lawyer John Brand says: “This is by far the highest strike rate in the world, with by far the most violent strikes in the world”.

Global focus on jobsThe World Development Report 2013: Jobs calls for strong private sector-led growth, and highlights the importance of governments’ role in spurring private-sector growth. The report stresses that labour policies should not become an obstacle to job creation – a current criticism of the South African marketplace. Meanwhile a report by the Bertelsmann Foundation shows that SA experiences the highest social inequality among BRICs countries, linking this to our poor education system and labour market.

Responsible investing pays offMore than half the world’s investor capital, comprising US$78 trillion worth of assets, now asks companies for climate change information. Paul Simpson, chief executive of the Carbon Disclosure Project, says: “The momentum behind Responsible Investment is now enormous. The top 50 CDP companies with the best actions on climate change outperform the market, and have provided double the financial return of the benchmark returns of the Global 500 companies over the past six years.”

Absa launches its SME IndexUsing Stats SA economic data, the SME Index aims to provide relevant information on the state and development of SMEs, as well as employment challenges in South Africa, for use by SMEs and policymakers alike. SMEs are drawing a stronger focus globally too, with the International Finance Corporation committing $1 billion to SME-related projects in sub-Saharan Africa during 2012. However, the index shows that only a minority of SMEs (20%) are creating jobs. Some economists blame SA’s complex labour legislation for this.

A ‘social media storm’ forced Woolworths to shut down its Facebook page after a blogger made accusations that Woolworths’ employment policy excludes whites. Woolworths, like all JSE-listed companies, has legal obligations to transform its employee base through the Employment Equity Act. In fact, proposed amendments to the Act call for even stricter penalties for failure to reach targets. Is this a case of marketplace realities diverging from government policy?

Woolworths ‘accused’ of discrimination

Absa’s black shareholders realise

Eight years on, Absa’s black shareholders have sold their stake in the business realising a rand value of R3.26 billion. Absa was one of the first financial services companies to implement a BEE deal. The transaction is viewed as a success, unlocking a substantial amount of financial benefits for a broad base of participants including community trusts, women’s groups, BEE companies, stokvels, small and medium businesses and historically disadvantaged individuals across South Africa’s nine provinces.

R3.26 billion

the first shall be Last South Africa’s rigorous financial auditing and reporting standards were rated number one globally in the World Economic Forum’s Global Competitiveness Report, for the third year running. However, out of 144 countries, SA scored worst for co-operation in labour-employer relations, second worst for hiring and firing practices, and fourth worst for the quality of our higher education system. SA’s biggest hindrances to doing business include an inadequately educated workforce, restrictive labour regulations, and inefficient government bureaucracy.

141 | 142 | 143 | 144

MARIKANA, FDI PANICANABoth the JSE’s All Share Index and Top 40 Index jumped 12% since the start of 2012, reaching historical highs at the end of August. Post Marikana, however, depreciation of the rand has largely wiped out these gains in dollar terms, reflecting South Africa’s weakness as an investment destination. Downgrading of SA’s credit rating by Moody’s further weakens SA’s investment case.

Best laid plansThe final draft of the National Development Plan (NDP), released on the eve of Marikana, plans to grow the number of employed from 11 million to 24 million by 2030. While many praise the NDP’s inclusivity and focus on reducing inequality, critics are querying the plan’s funding model, which depends strongly on higher mining exports.

11 million 24 million

OUARTERLY REVIEW

TRIALOGUE SUSTAINABILITY REVIEW NOVEMBER 20122

OUARTERLY REVIEW

The appeal: Government and labour unions claimed the R100 million fund set aside in the original merger agreement to develop small suppliers was insufficient to counter the risk of their losing business to global giant Wal-Mart’s international supply chain. An increase to R500 million was requested.

The judgement: The competition court ordered Wal-Mart to double its spending on small supplier development to R200 million over five years – less than half the amount requested, but double the R100 million in the original merger agreement. It was determined that a focus on upgrading skills was more important than the size of the fund.

The commentary: Judge Dennis David said the core objective of the fund should be the integration of local SMEs into the global value chain of Wal-Mart. He warned that competition law should not be used as a strategy for government to deal with globalisation challenges. Critics argued further that the situation creates the perception of government as being against foreign direct investment. “The Department of Trade and Industry’s priority should have been to lobby for the renewal of [the US African Growth Opportunity Act], not interfere with the merger,” said Mario Oriani-Ambrosini of the IFP.

Wal-Mart / Massmart merger

five sa firms qualified for the Dow Jones sustainability index

Gold Fields, Investec, Nedbank, Sasol and Woolworths qualified for the DJSI in 2012. The DJSI analyses the economic, environmental and social performance of companies and is a key reference point for responsible investors.

20 to 1 versus 10s of thousandsScarcity of water caused tens of thousands to die during the 2011 drought in the Horn of Africa. Considering that it takes an average of 20 litres of water to process and bottle one litre of soft-drink, water conservation should rate high as a corporate concern. Yet findings from the KPMG report on corporate water strategies show that out of fourteen measured industries, the food and beverage industry was the least likely to undertake a water footprint. Only three of the largest 250 companies surveyed report on the water footprint for any part of their supply chain and none report for the entire supply chain.

20 litres =

Sustainability management software that moulds to your needs...

Solutions. Governance. Sustainability

+27 11 465 6944 | sustainability@isometrix.com | www.isometrix.com

IsoMetrix Sustainability Ad.indd 1 01/11/2012 11:33:59

BROADER SCOPE OF CSI

a gradual process of formalisationOnce upon a time it was considered to be morally correct to give a small portion of company proceeds to those less fortunate. There was no business directive, or any regulatory pressure, to do so. It was simply a feel-good exercise. Often the selection of good causes was a privilege bestowed upon the company chairperson. Donations were given without fanfare, unaccompanied by overt displays of publicity-driven backslapping.

Then pressures came to bear. Initially the need to show evidence of contributions to community development came from the Sullivan Principles, which affected US-based companies operating in South Africa in the late 1970s. In more recent times, the imperative for CSI arose from the inclusion of socio-economic development (SED) as an element of the broad-based black economic

empowerment (BBBEE) scorecard. Companies now set up teams to manage their contributions and dedicate resources to promote their good work. CSI has become a formal and recognised part of corporate South Africa.

Differing views of valueThe formalising of CSI has not led to universal acceptance of the value it offers. For many companies, CSI remains on the periphery, a token expenditure of 1% of company profit. For these companies, what counts is how profit is generated in the first place and how the other 99% is allocated. The ‘we make it, they spend it’ sentiment still pervades certain spheres of business. For others, CSI is the soul of the business, fighting above its weight to provide long-term solutions to the socio-economic ills of our country, and an effective vehicle to uplift surrounding communities. Perhaps both camps can legitimately argue their corners.

There is certainly evidence of ineffective spending – honest attempts to make a difference that are poorly planned and, in certain cases, end up doing more harm than good. Many CSI programmes yield only marginal benefits from the considerable effort and resource that is allocated. The reasons for this failure are many, but the common denominator is superficiality. Disparate initiatives that focus on inputs – and not results – are what give the CSI sector a bad name. Development is complex and multifaceted. Those seeking quick-fix solutions with inadequate levels of investment are setting themselves up for failure.

Corporate social investment has become a recognised part of doing business in South Africa. Yet there are still questions being asked about the value that CSI is able to contribute to development and about its rationale for existence. While there may be examples of poor and ineffective practice, if undertaken strategically, CSI can contribute significantly to the socio-economic landscape within which business operates.

CSI succeeds only when:

• Impactistrulydevelopmental

• Programmesarerelevanttoyourbusiness.

CORPORATE SOCIAL INVESTMENT:

A BUSINESS IMPERAtIVE OR NICEtY?

IMA

GE

©iS

tock

phot

o.co

m /

Mal

eWitc

h

TRIALOGUE SUSTAINABILITY REVIEW NOVEMBER 20124

Reporting by Nick Rockey

closing the credibility gapIf CSI is to gain universal respect and recognition, it needs to achieve two things. Firstly, it needs to have a demonstrable, positive developmental impact. Secondly, it needs to be relevant to the business that provides the support.

Considering the developmental angle first, a useful point of departure is recognising that development is primarily the responsibility of government. Government spends over R600 billion per annum on education, health and related social services. Trialogue estimates that CSI expenditure, when considered in the broadest definitional terms, amounted to R6.9 billion in 2011/12. CSI can therefore, at best, play a supportive role, aligning with government priorities and linking with broader initiatives that will sustain the effort once corporate funders move on.

It follows that there are other basic practices which need to be followed to ensure successful outcomes. Engaging with those affected, designing holistic solutions and understanding the boundaries of involvement are important elements of a proposed intervention. Most importantly, ongoing monitoring of outcomes is the only way in which those implementing CSI programmes will know whether they are making progress or not.

To establish greater credibility, the CSI sector needs to prove itself in developmental terms. It is equally important to justify CSI expenditure to the business. CSI budgets are effectively drawn from shareholder funds. This is different to private philanthropy where individuals or representative trustees are at liberty to decide on how to spend their money. Decisions about CSI spending must be justifiable to business owners – or at least to the executives acting on their behalf. This calls for a business case for CSI. Whether this is premised on licence-to-operate, stakeholder or other strategic imperatives, spelling out the business case adds to the internal credibility of CSI, a factor that should not be under-estimated.

The business case, if properly made, can be compelling. A well-conceived CSI programme can offer a company strategic benefits, evidenced through an actual improvement in the competitive position of the company over the long term. Relationships with product and market development, alignment with key stakeholder interests, contribution to staff satisfaction and linkages to corporate image and brand identity can lead to tangible gains for business.

commitment implies following throughFor mining companies, healthy industrial relations and wage negotiations are critical to business continuity. The consequences of the breakdown in these relations, as evidenced by recent events in Marikana, are all too severe. However, a less obvious, but increasingly important, issue is the quality of living standards surrounding mines. Communities and the media are quick to expose slum-like conditions, unmanaged dump-sites and shacks without access to sanitation. Yet these conditions prevail in spite of the noble principles espoused by the mining charter and substantial investments by mining companies in infrastructure projects.

So where is the system falling short? In part, the lack of visible impact is due to the piecemeal approach that mines adopt in their efforts to have social and labour plans (SLP) approved. Projects are agreed and delivered, supposedly in partnership with the integrated development plans (IDP) of municipalities. However, after investments are made, we find clinics that are poorly planned or not adequately staffed, schools that are not maintained or properly run, and, all too often, there is no one to pick up the ball and drive effective outcomes. It may not be the responsibility of mines to do so, but perhaps stronger partnership terms with government, and an eye on the end goal rather than on individual projects, would yield more sustainable outcomes. And that must surely be in the interests of mining companies.

new draft codes – a step in the wrong directionThe draft BBBEE codes, currently out for comment, seek to direct CSI funds to income-generating projects and 100% black beneficiaries. Overly prescriptive regulations will surely be a setback for the CSI sector. CSI funds are, in any event, predominantly spent on black beneficiaries, and if a company can make an optimal impact by investing in education or health, why should this be discouraged?

A company with a dominant presence within a small community will benefit from supporting that community through holistic interventions. On the other hand, a national company with expertise in ICT, for example, may do better by utilising its technology platform for social good. Think about the impact that a company like Vodacom can have in supporting HIV/Aids messaging through a mobile network that reaches millions. Forcing

companies into unfamiliar developmental spaces will simply entrench a compliance mindset, increase the costs of verification and take us back to the fragmented and largely ineffective thinking of the past.

rephrasing the csi imperativeAs with most things in life, behaviour is influenced by incentives. Currently, the business sector is incentivised to spend 1% of NPAT on CSI in order to obtain points on the BBBEE scorecard. Mines are compelled to agree on and deliver projects that are part of their SLPs. There is no incentive or obligation for business to report on the effectiveness or sustainability of their efforts. Nor is there any directive or accessible mechanism for companies to utilise their core competence in establishing developmental partnerships with government. So perhaps government is getting what it is asking for – unco-ordinated injections of cash into a vast array of disparate initiatives.

This is not always the case. We are increasingly finding companies which, in pursuit of leading practice, are asking a different set of questions. They are exploring how to utilise their business footprint and competence to improve socio-economic conditions, they are measuring outcomes and refining methodologies, and they are building knowledge and influencing others in their chosen field of development. Importantly, their eye is on the ultimate objective of achieving a significant and sustained impact, accompanied by describable business benefits. Let’s hope that these companies are able to maintain their good work in spite of well-intended regulatory drivers and their unintended consequences.

“Forcing companies into unfamiliar developmental

spaces will simply entrench

a compliance mindset and

take us back to the fragmented

and largely ineffective thinking

of the past.”

IMA

GE

©iS

tock

phot

o.co

m /

Mal

eWitc

h

TRIALOGUE SUSTAINABILITY REVIEW NOVEMBER 2012 5

1. When the petrol price increase is announced on the first Wednesday of the month, do you:a. Decide on which meal to skip in order to afford transport to

work.b. Rework your budget to ensure that your credit card

payments can be met.c. Make a mental note to avoid the petrol stations, the queues

are ridiculous!

2. The transport workers’ strike has just started. You:a. Desperately need the work, but your comrades say you

must join them in solidarity.b. Tell your co-workers ‘they’ should be lucky to have a job in

these times.c. Call your broker to check your luxury car insurance covers

riot damage. Wouldn’t do to spoil the bodywork, it’s only clocked up 20 000kms.

3. You see a news poster: ‘FDI leaves SA, rand weakens’. Your response:a. FDI? I don’t know the dude, but he obviously has the

freedom to follow his fortune, a freedom I don’t have.b. Reminds me of the days of sanctions against SA. Inflation

went to 20%; Dad paid most of his salary back to the bank. Will I be in the same boat?

c. Damn! I should have bought my forex earlier for our Disney vacation. No, wait, we did Disney last year. Let’s do Greece before they quit the Euro and it becomes too crowded.

4. It’s that time of the year and matric exams are in full swing across the country. What is your teenager looking forward to?a. What exams? My kid did not even get textbooks this year.

He must find a job to help support the family. b. I’m proud my daughter will pass, but is matric of any use

these days? And another three years at university, with a loan to pay off? She’d be better off calling her well-connected uncle in the municipality.

c. Plett Rage!

5. Staying fit and eating healthily ensures peak performance and helps maintain one’s vitality. How do you stay healthy?a. I walk five kms a day as part of my commute. I work eight

hours a day as a gardener. I’m hungry and tired most of the time. When I broke my wrist falling off a ladder, I had no job, no money for six weeks. I am very hungry now.

b. I usually end up grabbing a pie and coke on my way home. I want to eat healthily and stay fit, but I’m just too tired to cook after a long day.

c. Mary’s converted us to organic stuff, so I’m supposed to be eating a lot more healthily. I try to make up for it at the

19th, but then my personal trainer makes me pay for it next morning at the gym. He’s a sadist!

6. It’s Friday. Your weekend plan is:a. Another normal workday and then straight to the shebeen

as Sunday is my only day off.b. Admin! With no time during the week, weekends are when I

need to visit the bank, do the shopping and try the lotto. c. Double-booked again! The Goldbergs want us to join them

in Cape Town, they’ve got tickets to the Rodriguez concert. Wouldn’t want to miss the last two rounds of the Million Dollar tournament in Sun City, though.

7. The year has flown by! Christmas is around the corner; it is time to finalise holiday plans. What are you looking forward to this year?a. A long journey in an unsafe and overcrowded taxi. I hope

my stokvel pays me enough to take some gifts to my family in the Eastern Cape.

b. A holiday at home. I have to spend my savings on fixing the car, but next year I plan to do something nice.

c. I told you already, we’re doing Greece this year. Darling, how’s Sam getting from Plettenberg Bay to Athens?

8. How do you juggle kids and work? a. Granny looks after all the kids. But she’s very frail. I worry

about what they are up to. b. We used to help look after each other’s kids in our

neighbourhood. Nowadays we all work. We’ve left having kids rather late so we can afford a decent crèche.

c. Silly question! The au pair does a great job. Thank heavens for the cell phone – she lets me know when to pop in at the Eisteddfod.

9. How do you pay your tax?a. Do you mean UIF and VAT? It’s too much money. My brother

pays nothing in the township, but I worry about the cash he has to hide from the gangs.

b. Don’t argue with SARS. Just pay, no questions asked.c. My financial advisor structures my finances. He saves me

a fortune in tax, though it does mean an annual trip to the boring Cayman Islands.

10. How do you manage credit?a. The biggest evil in my life. Before I had a bank account I

was paid weekly, but had to pay loan sharks everything. Now I don’t even see the money, it is deducted even before I can get to the ATM.

b. When I got a job I was able to finance a car. But now I am still paying for a car I cannot drive until I get my bonus. Only then can I afford to get it fixed.

c. This is not a subject for discussion. Let’s just say my financial team (including my bank manager) and I are watching the interest rate very carefully!

tESt thE dREAMWhen the monopoly game is over, it is time to count the scoreThere comes a time in every game of Monopoly, not far from the end, when most of the players realise they have no chance of winning. Take this quiz and see whether you are a winner or a loser in the South African economy.

IMA

GE

©iS

tock

phot

o.co

m /

siro

npe

SUSTAINABILITY OUIZ

TRIALOGUE SUSTAINABILITY REVIEW NOVEMBER 20126

Reporting by Trialogue

score:For each answer: (a), score nothing, for (b), score 5 points and (c), 10 points. If you scored the max, you’re the winner! You’ve joined that exclusive club that votes its members lofty executive compensation in an ever-climbing virtuous spiral!

If you scored 10 points or less, count yourself among 80% of the country’s population. Nobody needs to tell you that you’ve lost the game. The dice are loaded. Chance cards have sent you to the mines, ‘do not pass GO, do not collect 200’.

If you scored somewhere around 50 points, welcome to South Africa’s middle class! Of course you will never win, but at least you know plenty of people around you that are worse off. You might even help them out when you can.

Bonus question for winners only: For how much longer will your personal castle remain a safe place to raise future generations?

inequality is unsustainableWith a Gini co-efficient of over 0.6, SA has the highest level of measured inequality in the world. Rising social unrest, as seen in the likes of the increasingly violent service delivery protests, xenophobic attacks and the more recent and brutal illegal mining strikes, suggests a deep-seated and wide-spread resentment towards the current state of affairs. South Africa’s high level of inequality is proving unsustainable, and coupled with the slower than hoped for economic growth, is set to increase South Africa’s risk for social unrest and a further potential slowdown in economic growth.

The SA government has not been lethargic when it comes to addressing the issue. Various legislative mechanisms have been implemented over the last two decades to address inequality through the redistribution of wealth, such as broad-based black economic empowerment and labour reform. These have, however, proven ineffective as the country continues to see rising inequality,

while only a handful of previously disadvantaged individuals benefit from government’s efforts, elevating them to super-rich status. Public sector inefficiencies and lacklustre performance, coupled with dubious deals and cronyism, must shoulder some of the blame.

Business, government and society have to work together to tackle the complex concerns within our society. By applying proven solutions, such as the provision of quality education and access to opportunities for all on the one hand, and stamping out cronyism and inefficiencies on the other, we might just lead South Africa into a better future with a more positive outlook for all.

Whatever your attitude towards fairness, reform to reduce income disparities in South Africa not only makes sense, it is critically important for South Africa’s long-term economic prosperity and social stability.

Responsibly investing in your future

www.gepf.co.za

Public servants powering South Africa’s growth.

GEPF is the single biggest investor in the South African economy. By investing in SA’s economy, we are laying the foundation for a sustainable future. This means that not only are we guardians of the future of our members and pensioners, but we are also contributing to the sustainability of SA’s economy.

IMA

GE

©iS

tock

phot

o.co

m /

siro

npe

INTEGRATED REPORTING

Now is a precarious time to be a South African. We live at the interface between the world of wealth and privilege on the one hand, and the backwater of dashed expectations and growing poverty on the other. The poor and disenfranchised are on their feet, some to migrate across provincial borders in search of better opportunities, others to demonstrate against perceived and real socio-economic imbalances.

Increasingly, society recognises that capitalism, when driven through the short-term lens of quarterly profit demands, is a model that fosters the several sins of greed, excess, exploitation, and immediate gratification. In the absence of leadership, notably from government, whose role should be to moderate, the sustainability of the entire economy is under threat.

It is easy to blame the politicians, the wielders of political power. But the owners of wealth – shareholders, policyholders and the managers who guard their capital – should also look to raise the temperature of their collective investing IQ (to borrow from the language of the impassioned Russell Loubser). Is it sustainable for top executives to be paid a thousand times the lowest worker’s wage? How long can disadvantaged customers be exploited through irresponsible, unsecured lending? Hasn’t it long been obvious that a narrow interpretation of the dti’s BBBEE codes would not empower the majority of our citizens?

Improved behaviour has to start at the level of individual companies seeking to attract investor support. If investors allocate their capital responsibly, as

required by Regulation 28 of the Pension Fund Act, companies will be forced to change. But is there a compelling business case, even in the short to medium term? After all, all shareholders, not least policyholders and pensioners, expect their investments to perform reasonably, or they would withdraw their capital and reallocate their funds elsewhere.

the case for investing in sustainabilityFortunately, there is mounting evidence and acceptance that a focus on responsibility, measured through so-called ESG [economic, social and governance] performance, improves business performance in the long term. Recently, Deutsche Bank commissioned a study entitled ‘Sustainable Investing – Establishing long-term value and performance’. This study looked at 100 academic studies of sustainable investing around the world. It found “overwhelming academic evidence” within all the studies that companies with high ratings for CSR and ESG factors have a lower cost of capital in terms of debt and equity and are a lower long-term investment risk.

The meta study also found that in every one of the 100 academic studies surveyed, companies with high ratings for CSR exhibited financial out-performance, while in 89% and 85% of the studies, companies with high ratings for ESG (or E, S or G) exhibited market-based or accounting based out-performance, respectively. According to the study, “most investors see this as a medium- (3 – 5 years) to long- (5 – 10 years) term opportunity”.

early and late adopters How long will it take for the key players in the marketplace, the asset managers on the one hand and the companies whose stock is publicly tradable, to start acting on this intelligence? And how does the South African capital market stack up against its peers across the world?

In order to determine the extent to which corporate and investor behaviour is changing to contribute to a more sustainable society, Harvard Business School professors Robert Eccles and George Serafeim analysed data from over 2 000 companies in 23 countries. Two aspects were looked at: the extent to which companies are adopting a more integrated approach to annual reporting, i.e. incorporating ESG issues as key influencers of their business strategies; and the number of times in two quarterly periods that investors accessed environmental and social performance metrics from Bloomberg.

Countries were then indexed as High or Low for both degree of integrated reporting and for investor interest in ESG, placing each country in one of four quadrants:

• Countries that ranked high on both counts included the likes of UK and Germany where there is a high degree of integrated reporting and a high level of investor interest in non-financial performance.

• The opposite end of the scale featured the likes of China, Hong Kong and South Korea. The study’s authors contend these countries need a regulatory shock to break out of their current equilibrium.

• Countries with sustainability-minded investors, but little integration of ESG issues in their companies’ reporting, included India, Japan and the United States. Companies in these countries will surely soon feel the pressure from asset managers to improve their approach to identifying non-financial issues and integrating their response, both in terms of strategy and reporting.

• South Africa joined the likes of Brazil, France and Sweden in the quadrant where there is a high degree of integrated reporting by companies, but very little interest by investors in non-financial performance metrics.

While the authors of the study describe the countries in this last quadrant as being characterised by ‘Sustainable

Regulation 28 of South Africa’s Pension Funds Act requires pension funds to actively consider sustainability issues in their investment decisions. We look at the investment case and the role that both industry and asset manager can play to create long-term value.

INVESt IN LONG-tERM VALUE, AVOID SHORT-TERM DISASTERS

TRIALOGUE SUSTAINABILITY REVIEW NOVEMBER 20128

SAICA has always advocated the importance of embracing sustainability today in order to remain profitable tomorrow. Our latest effort sees the launch of Green II – an update of our 2009 publication which has helped numerous corporate leaders understand and implement the King III guidelines to their advantage. To order a copy of the book contact Juta Customer Services: Telephone: 021 659 2300, E-mail: orders@juta.co.za, Website: www.jutalaw.co.za

it’s probably time you take a leaf from our book.

If you still believe that money doesn’t

grow on trees…

NOW available!

Reporting by Rob Worthington-Smith

Companies’, the likelihood is that South Africa’s presence high up the scale has more to do with regulatory pressure from the King Committee process and our early involvement on the International Integrated Reporting Committee (IIRC).

bring esG reporting to the c-suiteTrialogue’s own experience in authoring reports suggests that the offices of the financial director and the sustainability manager are still ideologically far apart. Until non-financial reporting matures to ensure that what appears foremost in the annual report matches the issues foremost on the company’s board agenda, it will remain hard to tell which reports are providing an accurate account of the intrinsic value of their companies. And until this happens, South African asset managers will have little hard information on which to make informed investment decisions.

Clearly the responsibility for bridging the reporting gap has to be partly shouldered by the financial director’s

office. This is the realm of the Chartered Accountant (CA), of GAAP and IFRS. Within their ledgers, the company’s performance is reduced to hard numbers and key financial ratios. These make up the performance dashboard that drives behaviour, strategy and performance management.

towards a better understanding of riskGraham Terry, Senior Executive: Strategy and Thought Leadership, South African Institute of Chartered Accountants (SAICA), regards it as SAICA’s responsibility to inform its members of the importance of non-financial issues, their measurement and reporting in the Integrated Annual Report (IAR). “Part of our challenge is the perception that soft issues introduce fuzziness and an increase in reporting risk. I believe this position is more a function of the comfort zone provided by traditional financial reporting,” says Terry. “Through our seminars, courses and awareness campaigns, we are trying to show that

developing methodologies to define and report on non-financial issues serves to increase our understanding of the long-term risks facing the business. If our members can rise to this challenge, we will be building a far more accurate investment case for the asset manager, and this surely reduces uncertainty and risk.”

In conclusion, there is clearly both a strong case for investing with responsible companies, as well as a desperate societal imperative to turn around the long-term sustainability of the entire economy. Our future, and the future of our children, depends on this. Much has been written in the media about the lack of political leadership. Now is the time for leadership in the capital market – from both sides: company CEOs prepared to acknowledge and respond to long-term societal and environmental issues. And enlightened asset managers, prepared to look beyond the next quarterly investment call, towards a horizon where value is defined by investment in long-term relationships and in sustainable natural resources.

FERIAL HAFFAJEE INTERVIEW

“Sustainability is an investment in tomorrow,” states Ferial Haffajee, editor of City Press. She goes on to explain that this investment needs to be in the next generation of leaders as well as in living sustainably and within our means. Her vision is for “all of this to create a virtuous circle of what should become a good society”.

Haffajee first became aware of sustainability issues in the early 1990s when Eddie Koch, pioneering environmental and investigative journalist of the Weekly Mail, was already exploring the links between mining and sustainability issues. She then moved on to the Mail & Guardian where her involvement in the ‘Investing in the Future’ awards honed her belief that sustainability is about growing the next generation of leaders. In her opinion, too many people interpret sustainability too narrowly as a green issue, rather than thinking about it as bringing three and a half million unemployed youth into work.

the consumption challengeHaffajee believes that sustainability has become the challenge of our times, particularly the issue of how to strike an appropriate balance between the desire of people to consume in developing countries and the diminishing resources available to do so.

“South Africa is in an era of consumption and bling. People are very acquisitive because, for many of us, this is the first generation with a bit of spare cash. “How do you make the trade-off between a growing, thrusting middle class and living more sustainably?” questions Haffajee.

Although a challenge, Haffajee has discovered that most South Africans are now starting to consider how to live more sustainably. Just before the Conference of Parties (COP17) in Durban last year, City Press ran a story on how sustainably ten households around the country live.

“We found that each ordinary household, from a shack dweller, to an RDP house to a fancy Durban mansion, was doing something interesting. All had begun to make the changes, either to save costs or because of commitment,” she explains. In her opinion the energy crisis and accompanying power cuts that hit South Africa in 2008 spurred the ‘green economy’ movement in this country.

corporate word versus deed“In South Africa there is a rich and ingrained corporate history of attempting sustainability initiatives but I’m not sure if they are having any macro-economic impact. It is particularly hard to have such an impact when mining is the bedrock of the economy,” Haffajee says. She goes on to state that although there are an endless

number of frameworks and policies of what ought to be, it is in putting these frameworks into practice that South African corporates fall down.

Using Marikana to illustrate this point, she says that “the massacre brings this concept into sharp focus as it allows us to look at the difference between word and deed”. She thinks Lonmin’s sustainability report was very good, but that its implementation of the policies within the report was poor. “I don’t think we should aportion blame but we should recognise that there is no easy solution. These problems are decades-long, tough issues to crack.”

Another issue for Haffajee is that South African corporates have billions of rands uninvested or under-invested. Companies are sitting on their money as they are nervous about the policy situation globally and in South Africa. “This is the failing of our time. As much as a trillion rand is under-invested, yet over three million young are unemployed,” she states.

Transformation and gender equity are also topics that, according to Haffajee, need more focused corporate attention. “The progressing and promoting of women is happening at a snail’s pace and most major black empowerment deals are underwater,” she explains. Taking these as a measure of sustainability, she does not believe that South African corporates are doing well. According to Haffajee, “BEE and employment equity laws are largely ignored, the state lacks the capacity to enforce them and business lacks the will to implement them.”

On a more positive note, Haffajee is excited by the recent development of

THE MEDIA NEEDS StRENGthENING ON SUStAINABILItY ISSUES While society is preoccupied with acquiring the material trappings of progress, and corporate

South Africa with assessing the risks of committing investment in uncertain times, editor of City

Press, Ferial Haffajee, believes that the media needs to convey to the public a better understanding

of sustainability.

“As much as a trillion rand is under-invested, yet over three million young are unemployed.”

TRIALOGUE SUSTAINABILITY REVIEW NOVEMBER 201210

sustained and profitable ‘green economy’ ventures, including wind- and solar-powered ventures. She believes that these initiatives will make a measurable difference. She also feels that banking companies in South Africa have been very innovative in bringing financial services to the unbanked. Another sector that interests her is mobile telephony and she is looking forward to seeing its policies develop over time.

‘Dialoguing’ a solution To improve the situation, Haffajee believes that South Africa needs to repeat what it did in 1994. “We need to discover each other through dialogue, discover very different understandings of the world and places we come from, and reach solutions through those forums,” she states.

South Africa’s Constitution is the function of such a process but, in her view, Nedlac has been a failure in this regard.

She states that the National Development Plan is the biggest document for this country after the Constitution and covers many important sustainability issues, but questions the future of the document. “If it is not absolutely supported by all of society it will become yet another of those documents where we say a lot and don’t act accordingly,” she says. According to Haffajee, Mangaung will determine the future of the plan.

the role of the media Haffajee believes that integrated reporting has improved corporate disclosure significantly. However, she points out that the media does not have the expertise

to read such reports critically. “We are not asking whether the information is meaningful and real,” she says. Rather, the media relies on civil society to hold companies to account.

“The media doesn’t understand sustainability,” states Haffajee. She goes on to explain that there is little depth of interest and specialisation in the area of sustainability. Journalists may look at education or black economic empowerment or green issues but they generally do not see the linkages between the different issues. “There is a duty as editors to see these linkages and to construct seamless narratives about sustainability issues,” she says.

According to Haffajee, the media needs to make ‘green’ black. “This is starting to happen and there are increasing numbers of black activists who have succeeded in making it a broader issue,” she says. However, she feels that the media is actually behind the population on green issues. “I have found that lifestyle journalism about consumption, celebrity and bling is much more popular than sustainability journalism. If I look for a lifestyle journalist, chances are I will get twenty applicants, if I look for an environmental person, I’m not going to get any,” she states.

Haffajee believes that sustainability journalism fellowships would improve the situation. Newsrooms are not going back to the sizes they once were and journalists do not have the time to investigate sustainability issues and the corporate responses to these issues. “We need to see interested companies and non-profits establishing writing fellowships that encourage an interest and give journalists the space and time to do this where it doesn’t impact on my ability to run a newspaper,” continues Haffajee. “Nothing beats independent reporting.”

“South Africa is in an era of consumption

and bling. People are very acquisitive because, for many

of us, this is the first generation with a bit of spare cash.”

Reporting by Cathy Duff

TRIALOGUE SUSTAINABILITY REVIEW NOVEMBER 2012 11

IN THE MEDIA

Media, by its nature, seeks attention. When the going is good, companies encourage and put out news that puts a shine on their brand promises. Until a crisis actually breaks, it is better, so the thinking goes, to avoid raising issues of concern to society. Such is human nature, such, in spades, is corporate nature.

Whole industries have experienced crises before, such as the dotcom crisis over the millennium and the meltdown in banking in 2008. But never, in recent times, have we seen such a sharp increase in negative coverage as the mining industry has suffered over the last quarter (see Chart 1). Considering the importance

of its role in the economy, we are likely to see this effect spread across other industries in our final quarter analysis for 2012.

Chart 2 shows the movement in sustainability rating for the most extreme movers over the last quarter. While the positive movers reflect recoveries from previous poor ratings, the movers down are practically in meltdown, so far as media commentary is concerned. Not surprisingly, the worst four, led by Lonmin, are all mines affected by the fallout from the Marikana massacre. In this period, Barclays also received negative coverage from the Libor scandal.

WHEN WILL WE START CARING FOR thE LONG tERM?The Sustainability Coverage Monitor (SCM) has never seen such a sharp deterioration in ratings over a single quarter. The charts on these pages illustrate just how serious the issue of labour relations has become for the sustainability of the South African economy.

an independent, unpaid-for surveyThe Sustainability Coverage Monitor is an independent survey of corporate South Africa. No fees are solicited and no company or organisation has paid to be a part of this survey.

In order to analyse the media, Trialogue partners with The Media Tenor Institute of Media Analysis. Media Tenor scrutinises the news, opinion and business sections of leading South African print, broadcast and online media to provide a range of media intelligence to the corporate sector. Media Tenor uses its research data to compile the Sustainability Coverage Monitor (SCM), the results of which are published in this review every quarter. The data used is based on Media Tenor’s comprehensive day-by-day analysis of all relevant company-related articles appearing in 30 broad-based national daily and weekly newspapers and TV news broadcasts.

For more information on the methodology and categorisation of the SCM, please visit www.mediatenor.co.za or www.trialogue.co.za

Table 1 illustrates just how precipitous and unprecedented has been the negative movement in sustainability coverage compared with previous disasters, such as the News Corp wire-tapping scandal and the BP oil spill in the Gulf of Mexico. Lonmin’s SCM rating has dropped by more than half in the third quarter. The next worst drop was suffered by Transnet in 2010. Aurora and Gold Fields both made the top 10 quarterly movers down over the three years of measurement.

Chart 3 shows the movement in the rating of sustainability issues between the second and third quarters of 2012. While there has for some time been much negative commentary around compliance with legislation, the biggest negative movers are in human resource management and sustainability advocacy. The latter shows how late we, as a thinking, media interactive society, tend to grasp the long-term implications of our short-term actions. While the going is good, corporate SA is quick to exploit the capitals at its disposal, seemingly blind to the growing relational debt being built up in its various stakeholder accounts.

Worse, excuses are often found during the lead-up to a crisis. Was the nationalisation debate really about nationalisation? True stakeholder engagement would have revealed that it was actually about poverty and unfair labour conditions. When the temperature rises, there is a tendency for weak leaders to look for the nearest dragon to triumph over. Julius Malema, it turned out, was not the dragon. If this is not already clear, the Farlam Commission should reveal the true nature of the challenges facing our fragile economy.

100

ChARt 1

IT related

Banks

Telecommunications

Retail

Energy

Transport

Accounting

Oil/Gas

Media

Financial services

Negative PositiveNeutral

0 20 40 60 80

Mining

Positive and negative coverage per industry for Q3

Biggest movers in third quarter

ChARt 2

Q2 – 2012 Q3 – 2012

Vodacom

Sasol

African Rainbow Minerals

Discovery

Billiton (Marius Kloppers)

-60 -30 0 30 60

Anglo Platinum

Lonmin

Gold Fields

AngloGold Ashanti

Barclays

SCM Index

MOVERS UP

MOVERS dOWN

TRIALOGUE SUSTAINABILITY REVIEW NOVEMBER 201212

Banks dominated the top performers largely because they communicated well around sustainability issues during their interim reporting season. While the overall outlook for the mining industry is exceptionally negative, African Rainbow Minerals and Kumba Iron Ore performed well, the latter relating to its windfall BEE payout for employees.

IN THE MEDIA Reporting by Trialogue and Media Tenor SA

tABLE 1

Biggest quarterly movers down over last three years

Company Result time period Issue

Lonmin -52.57 2012 Q3 Marikana shooting and wildcat strikes.transnet -43.11 2010 Q2 Striking workers cause more than R30 million damages. Wasteful expenditure of

R6.5 billion. Transnet CEO dismissed after illegally awarding R19 million contract to company linked to ex Communications Minister Simphiwe Nyanda.

News Corporation -39.30 2011 Q3 Hit by News of the World wire-tapping scandal.Aurora -38.45 2011 Q2 Liquidation of company and non-payment of workers.Gold Fields -34.73 2012 Q3 Wildcat strikes.SA Roadlink -32.60 2010 Q1 Western Cape calls for laws to be rewritten to ban dangerous bus operators after high

profile SA Roadlink bus accidents.

Air France -32.29 2010 Q4 Crash of Air France flight from Rio to Paris blamed on pilot error. Royal dutch Shell -31.95 2011 Q4 Oil spill off Nigerian coast.Eskom -31.08 2010 Q1 Eskom receives 24.8% increase after requesting 35%. This massive increase raises

concerns around the impact on the overall economy and focus is given to the impact on the poor.

ABI -30.37 2010 Q4 ABI strike characterised by violence, destruction of property and arrests.BP -29.90 2010 Q3 Deepwater Horizon oil spill keeps BP’s sustainability score among the lowest for almost

three quarters.

strengths and weaknesses across industriesDespite three banks appearing in the Top 10 this quarter, Chart 1 shows the banking industry nonetheless faces challenges. Unsecured lending is the tip of the iceberg illustrating the financial squeeze facing consumers. The industry is further challenged by the decrease in foreign direct investment. With less merger and acquisition activity, there is less opportunity to finance these deals. The government’s infrastructure programme was supposed to kick off, but remains bogged down in political and bureaucratic

detail, while political elites fighting for leadership in Mangaung will further stall progress.

The retail industry is the flagship of good coverage in South Africa, and Woolworths has come out on top in terms of positive media coverage. Conditions are looking more positive as we move past the uncertainty that remained in the wake of the Wal-Mart deal. The data also shows that small storms in a ‘twittercup’ are a nuisance but hardly impact on the long-term sustainability of an organisation, if well managed. Both these stories appear in our Quarterly Review on pages 2 and 3.

The media coverage data shows the IT industry offers great opportunity for innovation. The explosion of data and data mining tools offers opportunities for the entire supply chain to operate more efficiently in bringing goods and services to customers. Web-based software increases useability, compatibility and customer inclusiveness, the cutting edge of which is visible through the social media phenomenon.

the longer termFinally, what does the SCM data tell us about the longer term? While this analysis has been focused on the third quarter, indicators are pointing towards environmental challenges, in particular around climate change (e.g. scarcity of potable water), conservation of energy and finding new energy sources.

tABLE 2

top 10 sustainability scores

Q3 Q2 Q1Nedbank Transnet Massmart

Standard Bank Woolworths Old Mutual

Sasol FNB Facebook

Absa Pick n Pay Cell C

Vodacom Eskom Discovery

Kumba Iron Ore Anglo American Coronation

Pick n Pay Standard Bank Daimler

African Rainbow Minerals Absa Exxaro

Resources

SAB Miller FirstRand Wal-Mart

Eskom Google Sasol

Movement in rating of sustainability issues, Q2 to Q3

ChARt 3

Q2 – 2012 Q3 – 2012

BEE/Transformation

External stakeholder relations

Sustainability management

Marketplace Impact

Environment

Community relations

Compliance with legislation

Sustainability advocacy

Human resource management

-60 -30 0 30 60

SCM Index

MOVERS UP

MOVERS dOWN

The lesson is that we, as a society, need to take preventative medicine early, rather than imagine we can have our cake and eat it. We criticise Eskom for applying for significant increases in levies, but do we want to face the future in darkness again?