1
A 2012 report compiled by Jess Schulschenk for Ernst & Young South Africa refers to the 2009 King Code as transitioning from a “comply or explain” to an “apply or explain” approach. Although integrated reporting is not “mandatory” in a strict legislative sense, for convenience we will use this term throughout the chapter with the understanding that it means “comply or explain,” and following the 2009 King Code's appearance, “apply or explain.” “Interview Summary Report.” Compiled by Jess Schulschenk in collaboration with the Albert Luthuli Centre for Responsible Leadership at the University of Pretoria. Publishe
1
A 2012 report compiled by Jess Schulschenk for Ernst & Young South Africa refers to the 2009 King Code as transitioning from a “comply or explain” to an “apply or explain” approach. Although integrated reporting is not “mandatory” in a strict legislative sense, for convenience we will use this term throughout the chapter with the understanding that it means “comply or explain,” and following the 2009 King Code's appearance, “apply or explain.” “Interview Summary Report.” Compiled by Jess Schulschenk in collaboration with the Albert Luthuli Centre for Responsible Leadership at the University of Pretoria. Published by Ernst & Young South Africa. August 2012. 1–40. In February 2010, the principles of the King Code of Governance of 2009 (King III), including those that recommend integrated reporting, were incorporated into the Johannesburg Stock Exchange's listing requirements and listed companies were obliged to apply the King III principles or explain their reasons for deviating from them (for financial years starting on and after 1 March 2010). SustainabilitySA. www.sustainabilitysa.org, accessed May 2014,
2
Not all listed companies produce integrated reports. There is no accurate number of the number of companies that do.
3
Nonfinancial information refers to environmental, social, and governance (ESG) information that reflects company performance in these areas.
4
On April 16, 2013, the European Commission issued a proposal to require large EU companies to report on social and environmental issues in annual financial reports. “Proposal for a Directive of the European Parliament and of the Council amending Council Directives 78/660/EEC and 83/349/EEC as regards disclosure of nonfinancial and diversity information by certain large companies and groups.” European Commission. Strasbourg, France. April 16, 2013, http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2013:0207:FIN: EN: PDF, accessed April 2014. On April 15, 2014 the plenary of the European Parliament adopted this directive by a vote of 599 to 55 from its 28 member states. http://ec.europa.eu/internal_market/accounting/non-financial_reporting/index_en.htm, accessed April 16, 2014. In July of 2010, France took a step towards mandating integrated sustainability and financial reporting for large companies with a law called Grenelle II, Article 225 of which states that all listed companies on the French stock exchanges, including subsidiaries of foreign companies listed in France, and unlisted companies, must incorporate information on “the social and environmental consequences” of company activities or publish a justification for the exclusion of information if it is deemed irrelevant. Ernst & Young. “How France's new sustainability reporting law impacts US companies” 2012, http://www.ey.com/Publication/vwLUAssets/Frances_sustainability_law_to_impact_US_companies/$FILE/How_Frances_new_sustainability_reporting_law.pdf, accessed February 2014.
5
Brazil's BM&FBOVESPA and India's Bombay Stock Exchange have taken concrete steps to encourage listed companies to use sustainability reporting, and eight member exchanges of the World Federation of Exchanges (WFE) have joined the UN's Sustainable Stock Exchanges initiative to help research how stock exchanges can facilitate corporate transparency. In 2012, the WFE published the first “sustainability disclosure ranking” to benchmark the annual change in performance of global stock exchanges. Morrow, Doug. “Measuring Sustainability Disclosure on the World's Stock Exchanges.” World-Exchanges.org, http://www.world-exchanges.org/insight/views/measuring-sustainability-disclosure-world%E2%80%99s-stock-exchanges, accessed February 2014.
6
Also known as social accounting, nonfinancial reporting is the process of communicating the social and environmental effects of an organization's economic actions to society at large and particular stakeholders (interest groups). PwC. Audit and Assurance Services, “What is corporate reporting?” http://www.pwc.com/gx/en/corporate-reporting/frequently-asked-questions/publications/what-is-corporate-reporting.jhtml, accessed February 2014.
7
“Statistical Release for Census 2011 (embargoed until October 30, 2012).” Published by Statistics South Africa for the South African government, Private Bag X44, Pretoria 0001. Population was 51,770,560 people as of 2011. P0301.4. http://www.statssa.gov.za/publications/P03014/P030142011.pdf, accessed February 2014.
8
Empirical studies have shown that better corporate governance is highly correlated with better market valuation and operating performance, for example: Klapper, Leora F. and Inessa Love. “Corporate governance, investor protection, and performance in emerging markets.”
9
King, Mervyn and Leigh Roberts.
10
Ibid., pp. 40–44. The five forces are growing investor power supporting sustainability issues, requirements of large corporate customers for more sustainable business practices in their suppliers, increasing regulation on societal issues, pressures on companies from governments to deal with poverty and growing social inequality, and the need to reduce the waste of diminishing natural resources.
11
Ibid., pp. 5–9.
12
Ibid., pp. 16–22. The problems are: (1) too heavy for the postman, (2) yesterday's story, (3) not the whole story – the financial pictures only, (4) not the whole story – some intangibles are excluded, (5) not the whole story – some costs are excluded, (6) different reports for different users, (7) nonfinancial information is not considered mainstream by all, (8) reporting influences behavior, (9) short-termism, (10) reporting is behind the technology curve, and (11) no common system for preparing the annual report.
13
While 1994, the year of the first multiracial democratic elections, is commonly regarded as the end date of apartheid, making it a 46-year phenomenon, the process to dismantle apartheid legislation officially concluded in 1990, when the African National Congress ceased to be regarded as a terrorist organization by the South African state and was instead made a legal political party and all laws enforcing apartheid were abolished.
14
Knight, Richard. “Sanctions, Disinvestment, and U.S. Corporations in South Africa.”
15
Denmark, France, and Canada initiated bans on investment in and oil trade with South Africa, which Israel enacted in 1987 and Japan followed from 1986–88. To restrict loans and exports to South Africa, the United States passed its main anti-South Africa legislation, the
