Sustainability

October 03, 2020

Sustainability

King III and Integrated Reporting and Disclosure Guidelines for South African Companies

By – Steven Firer

Chapter 1

Introduction

Chapter 2

Integrated Reporting and Disclosure

Chapter 3

Sustainability Reporting

Chapter 4

Stakeholders and their information needs

Chapter 5

The Global Reporting Initiative (GRI) Guidelines

Chapter 6

Accouability Principles

Chapter 7

The Reporting Process

Chapter 8

External Assurance

Chapter 1

1.1 Definition and Purpose

The purpose of this guide on integrated reporting and disclosure is to provide explanatory implementation guidance for senior executives thinking about integrated reporting and disclosure, to outline the concepts, and to provide assistance in relation to some of the key issues associated with integrated reporting and disclosure.

There is increased emphasis on sustainability and its inseparable interface with strategy and control. King 3 calls for integrated reporting and disclosure (reporting of financial information with sustainability issues of social, economic and environmental impacts) and recommends that the audit committee engage an external assurance provider to provide assurance over material aspects of the sustainability reporting in the integrated report. The skill set of the audit committee will have to include member/s proficient in sustainability. Furthermore, integrated reporting and disclosure may require registered auditors and assurance providers who can provide assurance on both the financial components and the sustainability aspects of reporting. This is likely to impact the external audit engagement, opinion and associated costs, as well as director liability in the event of misrepresentation.

1.1

Definition and Purpose

1.2

Key Challenges and Approach to Overcoming Key Challenges

1.3

Summary of the King III principles

1.2 Key Challenges and Approach to Overcoming Key Challenges

KEY CHALLENGE

APPROACH TO OVERCOMING KEY CHALLENGE

Awareness of the relevance of INTEGRATED REPORTING AND DISCLOSURE

 Review of international, national and industry

 sector trends in INTEGRATED REPORTING AND

DISCLOSURE reporting

 Review of competitor activity in INTEGRATED

REPORTING AND DISCLOSURE reporting

 Assessment of the business implications for the

company

Understanding key stakeholder requirements & expectations

 Identify stakeholders

 Engage in dialogue with key stakeholders

 Insight into stakeholder expectations

Clarity in relation to objectives & risks

 Engage senior executives in order to gain their

 perspective

 Assess current capability to meet stakeholder

 expectations

 Determination of objectives & awareness of

 risks

Measurement of key aspects of INTEGRATED REPORTING AND DISCLOSURE performance

 Development of KPIs and metrics

 Ensure alignment with stakeholder expectations

and company objectives

1.3 Summary of the King III principles

ETHICAL LEADERSHIP AND CORPORATE CITIZENSHIP Overview

Sustainability is one the key concepts of the King III code and effective leadership has become central to the achievement of integrated sustainability within the organisation. King III stipulates that the board is responsible for creating and sustaining an ethical corporate culture which is a key driver for an organisation’s continuing viability. Corporate citizenship is about doing business ethically and in a responsible manner which has become an intrinsic feature of sustainability.

Implications

Weak ethical leadership and corporate citizenship will directly affect the long-term sustainability and continued viability of the organisation. In many instances a lack of good corporate citizenship impacts on the community within which the organisation operates and will consequently contribute to increased discontent, disputes and even litigation. Long-term implications of unsustainable, unethical practices may foster negative stakeholder and public reaction and hostility. Weak corporate citizenship will manifest itself through unsustainable practices across the economic, social and environmental disciplines of the business. Failure to integrate sound governance, good leadership, ethical and sustainable practices into the organisation’s strategy and structure can incite major business failure or collapse as demonstrated during the current prevailing economic conditions. it has been perceived that unsustainable practices, unethical behaviour or poor leadership can no longer be placed on the business periphery and has now garnered enough influence to compromise an organisation’s corporate governance structure in every respect.

BOARDS AND DIRECTORS

Overview

King III explicitly proclaims that the Board of Directors are responsible for upholding the principles and practices that ensure good corporate governance. King III requires boards to have an appropriate balance of skills, experience and expertise to fulfil its mandate successfully. The code declares the Board integral to the success of corporate governance and they should always act in the best interests of the company. King III places unprecedented emphasis on the Board of Directors and their responsibilities and provides guidance on director development, board remuneration and composition as these factors are intrinsic to the success of the organisation.

Implications

Weak board constituency and directorship can ultimately lead to a collapse or failure of an organisation as the success of an organisation relies heavily on the independence, expertise and direction of its board. A weak board composition can invariably lead to a lack of adequate board contribution and value creation needed for a successful, profitable and soundly governed organisation. Increased regulation and legal liability hold the board personally responsible for failed decisions, lack of insight and due diligence into its fiduciary duties. Directors are now, more than ever, held accountable by their stakeholders for implementing sound governance measures and sustainable business practices as provisioned in the new South African laws (Companies Act) and codes (King III).

AUDIT COMMITTEES

Overview

Audit Committees play a vital role in corporate governance as they are responsible for the integrity of the organisation through oversight of integrated reporting and reviewing of internal financial controls. King III specifies the duties and responsibilities of the audit committee, over and above integrated reporting, which has become extensive and now includes internal audit, external audit, risk and management process, and the finance function which involves IT risks and fraud risks that relate to financial reporting and internal financial controls. As with the board, the audit committee should also consist of a blend of appropriate competence and expertise to discharge their responsibilities. The role and expectation of the audit committee has changed considerably and has become fundamental to sound governance.

Implications

Inadequate audit committee composition can impact on the organisation’s auditing processes and controls making it difficult to adhere to its statutory responsibilities. This can eventually result in the organisation failing, due to a lack of disciplines and poor regulation. King III has a firm stance on integrated reporting, which is to include both sustainability and financial risks and their impacts will be compromised by a poorly constructed audit committee, if there exists inadequate expertise surrounding the diverse set of audit roles and responsibilities. Audit committees typically play a prominent role in fraud prevention, mitigation and thus a weak audit committee can substantially reduce an organisation’s ability to do business ethically and with transparency. King III stipulates the joint commitment by the board and audit committee to resolve conflict with regards to the audit committee’s statutory duties in terms of the Companies Act. Thus a weak audit committee may not have the necessary influence to manage board conflicts to provide the financial independence required.

THE GOVERNANCE OF RISK

Overview

King III places a strong focus on risk management declaring it inseparable from the company’s strategic and business processes. Risk management has been identified as a fundamental requirement for business success and ultimately the survival of organisations, as a lack of adequate risk management has resulted in a number of corporate failures within the last few years. King III declares the board responsible for the governance of risk and should set the organisation’s risk appetite and risk tolerance. Greater emphasis is also placed on the board to ensure that it is satisfied with the approach to manage and mitigate risk.

Implications

Risk has been inextricably bound with an organisation’s success and failure and is central to its well- being and its future viability. A poor risk governance framework can severely inhibit an organisation’s success and ultimately its survival. Failure to implement a risk governance framework that adds value to the organisation is regarded as no more assuring than an organisation that has failed to introduce any risk governance into the organisation at all. Sound risk governance is therefore a critical ingredient in maintaining a financially sound and robust organisation that ensures the protection of all its stakeholders. Invariably poor risk management constitutes a lack of effective and efficient operations which may lead to the organisation not adequately preparing for business-crippling risks which can easily manifest itself in the total collapse of the organisation or severe difficulties encountered by the organisation. A weak risk governance framework can even adversely affect an organisation’s investment opportunities as it may pose serious assurance implications for sound investments by investors.

THE GOVERNANCE OF INFORMATION TECHNOLOGY

Overview

Information Technology (IT) has become integral to the success of an organisation as it sustains and enhances a business’s strategic objectives. It is considered to be a highly integrated business process for the support, sustainability and growth of organisations. King III has recognised this by introducing for the first time the role of IT governance in the Code. King III has elevated IT to board-level and requires the board to give IT due consideration, as the board is now responsible for the governance of IT. The IT governance component in the code offers tangible benefits that aim to extend well beyond just compliance.

Implications

Information Technology (IT) governance is a new addition to King III, as regulatory agencies have recognised the increasing importance IT plays in business currently and have acknowledged the crippling-effect it can have if left ungoverned. It is now considered critical to business growth and survival. Essentially IT governance, as per King III, calls for the increased formalisation of IT decisions, accountability, policies, standards, controls, procedures and reporting to create a more sustainable and well governed organisation. Ineffective IT governance can yield countless legal implications like fraud, violation of privacy issues, intellectual property theft and other cyber threats, as well as, financial implications like loss in profitability, inconsistent revenue streams and incorrect financial forecasting. Poor IT governance can sacrifice the corporate integrity and diminish shareholder value within the organisation which can ultimately result in poor investor confidence in the long-term.

COMPLIANCE WITH LAWS, RULES, CODES AND STANDARDS

Overview

Legal and statutory compliance is an important element in good corporate governance. In addition compliance also considers non-statutory and non-binding rules, codes or standards and consequently, as with laws, failure to meet these recognised rules, codes or standards of governance may render an organisation, board or individual director liable at law. King III emphasises the importance of compliance with all applicable laws and non-binding standards, codes and rules in achieving the appropriate standards of conduct for the business. It also ensures that the board is responsible for oversight of the company’s compliance. Regulatory compliance should be seen to be a natural extension of governance duties by organisations.

Implications

Non-compliance or contravention of any laws, rules, codes, standards or otherwise, can have extremely severe and dire consequences for organisations, from fines, penalties and criminal prosecution to litigation, permit cancellations, license withdrawals and sanctions. Wider implications can include direct financial losses, loss of access to key markets and even debarring from tender procedures. Reputational damage is also a huge consequence of non-compliance which can in turn affect the confidence in the investor community and may even prove to be difficult in attracting high calibre staff and professionals. As of recent, the increased risk of personal liability and litigation falls heavily on directors as the plethora of regulations, acts and laws have put severe pressure on directors to “comply or else” as ultimate responsibility rests with the board. King III has moved away from “comply or else” to “apply and explain” however, this widely recognised non-binding standard may still be used by the court of law in assessing the required due diligence and care exhibited by directors with regards to non-compliance or contravention. Organisations who brazenly disregard the significance and importance of sound corporate governance and compliance are in the position to suffer great business failures and even greater corporate collapses as seen by many iconic banking institutions.

INTERNAL AUDIT

Overview

King III shifts towards risk-centric internal auditing as it is able to address strategic, operational, financial and sustainability issues. A risk-based approach allows internal audit to determine whether controls are indeed effective in managing the risks that arise from the company’s strategic direction. King III requires internal audit to provide assurance on internal controls and risk management. This will allow internal audit to deliver value to the business and contribute to effective corporate governance.

Implications

Internal Audit, as advocated by King III, places greater emphasis and aims to provide better assurance on internal controls and risk management. Lack of proper internal auditing procedures can negatively impact the transparency, accountability and effective management of the organisation and expose it to greater risks. Inadequate risk management procedures and internal controls can easily be detected through precise internal auditing however, weak internal auditing procedures can allow fraudulent activities, financial discrepancies, non-compliance and unsustainable practices to arise. Inconsistent internal auditing procedures may invite inefficiencies and possibly overlook pertinent strategic and business risks making it more difficult to manage and mitigate risks and establish proper responses. Weak audit procedures can result in the audit coverage failing to adequately cover the full breadth of the organisation’s risk profile and leaving key areas unprotected. Failure of internal audit to address key strategic, business and compliance risk areas can ultimately lead to weak overall corporate governance and business inefficiencies.

GOVERNING STAKEHOLDER RELATIONSHIPS

Overview

Stakeholder engagement plays a pivotal role in sustainability and good corporate governance and has been widely advocated in King III. Stakeholder relationships provide a platform for the board to consider both the concerns of stakeholders and well as their objectives in the decision-making process. Constructive stakeholder engagement should always be encouraged and the organisations should strive to adopt a stakeholder-inclusive approach to corporate governance.

Implications

Stakeholder relationship and commitment is instrumental in an organisation’s path to good corporate governance as all stakeholders, in one way or another, are directly affected by the organisation’s decisions and business and vice versa. Strained stakeholder relationships can be of detriment to an organisation’s prosperity and its future possibilities for success. Failed interaction between the organisation and its stakeholders can compromise the organisation’s governance objective of openness and transparency as well as obtaining mutual respect. Absent or insufficient stakeholder engagement can result in stakeholders becoming resistant, disenchanted and potentially threatening towards the organisation. Unsatisfactory or inadequate stakeholder commitment can manifest itself in terms of labour strikes, boycotts and negative media attention which may cause irreparable reputational damage to the organisation. In extreme instances poor stakeholder cooperation can negatively affect the profitability and value of the organisation especially through civil litigation or public discord.

INTEGRATED REPORTING AND DISCLOSURE

Overview

Integrated reporting encompasses all financial and non-financial issues which gives a holistic and reliable view of the organisation to stakeholders. The integrated report should give an account on triple bottom line (economic, social, environmental) issues, including the operations of the company, the sustainability of the business, the financial results and the results of the operations and cash flows. This will provide a thorough assessment of the viability and economic value of the business instead of the book value.

Implications

Integrated reporting as defined by the Code is a holistic, integrated representation of an organisation’s performance through both a financial, as well as, a sustainability standpoint. Sustainability reporting focuses on “triple bottom line” business practices of economic, social and environmental impact. Weak integrated reporting that does not adequately link the social and environmental behaviour to financial consequences can eventually hurt an organisation’s corporate credibility in the long-term, as organisations will be seen as not being socially responsible and rather only financially driven. Sustainability has been synonymous with business survival, longevity and its ability to grow successfully, thus insufficient sustainability consideration can be irreparably damaging to the value creation an organisation attempts to wield. Poor sustainability reporting can impact significantly on overall reputation and contribute to an organisation’s risks, as society is now placing increased pressure on organisations to do business ethically and sustainably. The implications of inferior reporting and poor disclosure can lead to fewer long-term investors as it puts into question the reliability, transparency, longevity and credibility of the organisation. Investors are looking for socially responsible profitability rather than pure financial profitability which is what integrated reporting through King III attempts to drive.

Chapter 2

2.1 Integrated Reporting and Disclosure Framework

King III states that the board should issue an integrated report on its economic, social and environmental performance annually. This integrated report should contain “adequate information on the operations of the company, the sustainability issues pertinent to its business, the financial results, and the results of its operations and cash flows”.

King III further states that “integrated reporting should be focused on substance over form and should disclose information that is complete, timely, relevant, accurate, honest and accessible and comparable with past performance of the company. It should also contain forward-looking information.”

And lastly, King III states that a truly integrated report should be presented in one document. But, if the integrated report is presented in more than one document, those documents should be released at the same time and be disclosed as an integrated report.

2.1

Integrated Reporting and Disclosure Framework

2.2

A Progression towards integrated reporting and disclosure

2.3

Disclosure checklist

Principle/s

Summary recommendation/s

The board should ensure the integrity of the company’s integrated report.

1. A company should have controls to enable it to verify and safeguard the integrity of its integrated report

2. The board should delegate to the audit committee to evaluate sustainability disclosures

3. The integrated report should:

a. be prepared every year;

b. convey adequate information regarding the company’s financial and sustainability performance; and

c. focus on substance over form.

Sustainability reporting and disclosure should be integrated with the company’s financial reporting.

1. The board should include commentary on the company’s financial results

2. The board must disclose if the company is a going concern

3. The integrated report should describe how the company

has made its money

4. The board should ensure that the positive and negative

impacts of the company’s operations and plans to improve the positives and eradicate or ameliorate the negatives in the financial year ahead are conveyed in the integrated report.

Sustainability reporting and disclosure should be independently assured.

1. General oversight and reporting of sustainability should be delegated by the board to the audit committee

2. The audit committee should assist the board by reviewing the integrated report to ensure that the information contained in it is reliable and that it does not contradict the financial aspects of the report

3. The audit committee should oversee the provision of assurance over sustainability issues.

2.2 A Progression towards integrated reporting and disclosure

A Progression towards integrated reporting and disclosure

1. Brief marketing publications including newsletters and brochures

2. Inclusion of limited environmental/ social information within statutory reporting

3. Commencement of consistent annual reporting on environmental/ social issues, primarily

descriptive in nature with minimal quantitative data

4. Publication of separate environment and/or community reports (emergence of independent report verification)

5. Annual reporting based upon detailed environmental/ social performance data with clear linkage to objectives and outcomes. The report is publicised and provided through a range of distribution channels to stakeholders

6. Integration of economic, environmental and social performance measurement into a single report — integrated reporting and disclosure

2.3 Disclosure checklist

According to King III the following should as a minimum be disclosed in the integrated report, along with explanations regarding how the principles in King III have been applied:

Para Extract

Chapter 1: Ethical leadership and corporate citizenship

Ethics performance

Para 49

The board should ensure that the company’s ethics performance is disclosed in order to provide relevant and reliable information about the quality of the company’s ethics performance. As part of its sustainability reporting, the board reports on the company’s ethics performance and discloses the information in a sustainability report.

Key Questions Directors should be asking:

1. Corporate citizenship, sustainability and stakeholder inclusivity requires judgement, balance and compromise. Does the board have the right composition, skills and reliable data to make these types of judgement calls?

2. Have we assessed the moral and economic imperatives of corporate citizenship? Have we taken this into account when reviewing our corporate strategy?

3. Citizenship and sustainability risks may be obscure or indirect. How do we identify and manage these risks as well as opportunities?

4. Do we have policies in place that will guide every level of the business in terms of expected behaviours and practices and with reference to our interaction with all material stakeholders?

5. Do we measure the impact or lack thereof, of our corporate citizenship initiatives?

Chapter 2: Boards and directors

Board chairman

Para 39

If the board appoints a chairman who is a non-executive director but is not independent or is an executive director, this should be disclosed in the integrated report, together with the reasons and justifications for the appointment.

Board composition

Para 76

Every year, non-executive directors classified as ‘independent’ should undergo an evaluation of their independence by the chairman and the board. If the chairman is not independent, the process should be led by the lead independent director. Independence should be assessed by weighing all relevant factors that may impair independence. The classification of directors in the integrated report, as independent or otherwise, should be done on the basis of this assessment.

Para 78

Independent non-executive directors may serve longer than nine years if, after an independence assessment by the board, there are no relationships or circumstances likely to affect, or appear to affect, the director’s judgment. The assessment should show that the independent director’s independence of character and judgment is not in any way affected or impaired by the length of service. A statement to this effect should be included in the integrated report.

Reporting

Para 88

The following aspects regarding directors should be disclosed in the integrated report:

- the reasons for the removal, resignation or retirement of directors;

- the composition of the board and board committees and the number of meetings held, attendance at those meetings and the manner in which the

board and its committees have discharged its duties;

- the education, qualifications and experience of the directors;

- the length of service and age of the directors;

- whether supervising of new management is required in which case retention

of board experience would be called for;

- other significant directorships of each board member;

- actual or potential political connections or exposure; and

- any other relevant information.

Board performance

Para 114

The board should state in the integrated report whether the appraisals of the board and its committees have been conducted. The report should provide an overview of the results of the performance assessment and the action plans to be implemented, if any.

Board committees

Para 127

The composition of board committees should be disclosed in the integrated report, including any external advisers who regularly attend or are invited to attend committee meetings.

Para 127

The integrated report should disclose the terms of terms of reference of the board committees, as approved by the board.

Group vs. subsidiary boards

Para 145

Adopting and implementing policies and procedures of the holding company in the operations of the subsidiary company should be a matter for the board of the subsidiary company to consider and approve, if the subsidiary company’s board considers it appropriate. The subsidiary company should disclose this adoption and implementation in its integrated report.

Directors’ remuneration

Para 159

Base pay and bonuses: Targets for threshold, expected and stretch targets for performance should be robustly set and monitored and the main performance Parameters should be disclosed.

Para 167

Participation in share incentive schemes should be restricted to employees and executive directors, and should have appropriate limits for individual participation, which should be disclosed.

Para 174

To align shareholders’ and executives’ interests, vesting of share incentive awards should be conditional on achieving performance conditions. Such performance measures and the reasons for selecting them should be fully disclosed. Where performance measures are based on a comparative group of companies, there should be disclosure of the names of the companies chosen.

Para 176

Incentive schemes to encourage retention should be established separately, or should be clearly distinguished, from those related to rewarding performance and should be disclosed in the annual remuneration report voted on by shareholders.

Para 180

Companies should provide full disclosure of each individual executive and non- executive director’s remuneration, giving details as required in the Companies Act No

71 of

- - - - -

2008 of

base pay;

bonuses;

share-based payments, granting of options or rights;

restraint payments; and

all other benefits (including present values of existing future awards).

Similar information should be provided for the three most highly-paid employees who are not directors in the company.

Para 181

In its annual remuneration report, to be included in the integrated report, the company should explain the remuneration policies followed throughout the company with a special focus on executive management, and the strategic objectives that it seeks to achieve, and should provide clear disclosure of the implementation of those policies.

Para 182

The remuneration report should explain the policy on base pay, including the use of appropriate benchmarks. A policy to pay salaries on average at above median requires special justification. It should also explain and justify any material payments that may

be viewed as being ex gratia in nature.

Para 183 & 184

Policies regarding executive employment contracts should be set out in the annual remuneration report.

These policies normally include at least the following:

- the period of the contract and the period of notice of termination (after the initial period, contracts should normally be renewable yearly); and

- The nature and period of any restraint.

Para 185

The annual remuneration report should disclose the maximum and the expected potential dilution that may result from the incentive awards granted in the current year.

Key Questions Directors should be asking:

1. Do we have the right people in place to lead and manage all aspects of our business?

2. Is the board sufficiently independent of management?

3. Do we need to get external expert advice?

4. Will we get greater value from board and committee evaluations if we employ an independent

service provider?

5. Are we comfortable that we have satisfied our overarching responsibilities adequately where we

have delegated functions to subcommittees?

6. Are we spending our time efficiently in meetings and dealing only with material issues?

7. Is there a need to revise our board and committee charters?

8. In which committee should we deal with sustainability issues?

9. Are the current roles and structures of our subsidiary boards adding value?

10. How do we incorporate strategy, risk, performance and sustainability into our decision making

philosophy?

Chapter 3: Audit committees

Interim results

Para 40

Where the external auditor is appointed to perform a publicly reported review of the interim results, the report of the external auditor should be made available to users of the interim results and should be summarized in the interim results.

Finance function

Para 51

Every year, the audit committee should consider and satisfy itself of the appropriateness of the expertise and adequacy of resources of the finance function and experience of the senior members of management responsible for the financial function. The results of the review should be disclosed in the integrated report.

Internal controls

Para 69

The audit committee must conclude and report yearly to the stakeholders and the board on the effectiveness of the company’s internal financial controls.

Para 70

Weaknesses in financial control, whether from design, implementation or execution, that are considered material (individually or in combination with other weaknesses) and that resulted in actual material financial loss, fraud or material errors, should be reported to the board and the stakeholders. It is not intended that this disclosure be made in the form of an exhaustive list, but rather an acknowledgement of the nature and extent of material weaknesses and the corrective action, if any, that has been taken to date of the report.

Reporting

Para 85

As a minimum, the audit committee should provide the following information in the integrated report:

- a summary of the role of the audit committee;

- a statement on whether or not the audit committee has adopted a formal

terms of reference that have been approved by the board and if so, whether the committee satisfied its responsibilities for the year in compliance with its terms of reference;

- the names and qualifications of all members of the audit committee during the period under review, and the period for which they served on the committee;

- the number of audit committee meetings held during the period under review and members’ attendance at these meetings;

- a statement on whether or not the audit committee considered and recommended the internal audit charter for approval by the board;

- a description of the working relationship with the chief audit executive;

- information about any other responsibilities assigned to the audit committee

by the board;

- a statement on whether the audit committee complied with its legal,

regulatory or other responsibilities; and

- a statement on whether or not the audit committee recommended the

integrated report to the board for approval.

Key Questions Directors should be asking:

1. Does the audit committee have the appropriate blend of skills to discharge its responsibilities, specifically the skills required to oversee integrated reporting?

2. Has a process been approved by the board to allow the audit committee to consult with specialists or consultants to assist the audit committee with the performance of its functions?

3. Is there effective communication and coordination of the board’s oversight activities to ensure that the audit committee is informed of all significant actual or potential financial and nonfinancial risks?

4. Does the internal audit function have appropriate skills and resources to deliver on expectations regarding the review of internal financial controls?

5. Does a mechanism exist for resolving differences of opinion between the audit committee and the board regarding the audit committee’s statutory responsibilities should such differences arise?

Chapter 4: The governance of risk

Board’s responsibility for risk

Para 4

The board should be able to disclose how it has satisfied itself that risk assessments, responses and interventions are effective.

Para 13

The board may set limits regarding the company’s risk appetite i.e. the risk limits that the board desires, or is willing, to take. Where the risk appetite exceeds, or deviates materially from the limits of the company’s risk tolerance (the company’s ability to

Risk assessment tolerate), this should be disclosed in the integrated report.

Para 39

The company’s integrated report should include key sustainability risks, and responses to these risks and residual sustainability risks.

Risk disclosure

Para 54

In its statement in the integrated report, the board should disclose for the period under review any undue, unexpected or unusual risks it has taken in the pursuit of reward as well as any material losses and the causes of the losses. This disclosure should be made with due regard to the company’s commercially privileged information. In disclosing the material losses, the board should endeavour to quantify

Para 55

and disclose the impact that these losses have on the company and the responses and itTnhtelrobvsoesanertsdio.nshsoimulpdledmiscelnotsedabnyytchuerbreonatr,dimanmdinmeanntaogremenevnistatgoepdrerivseknthraetcumrareyntchereoaften

the long-term sustainability of the company.

Para 56

The board should also disclose its views on the effectiveness of the company’s risk management processes in the integrated report.

Key Questions Directors should be asking:

1. Do we understand how risk appetite and tolerance is applied in our organisation?

2. How do we know that the biggest risk exposures to our organisation are being adequately

managed?

3. When last did we participate in a risk assessment activity?

4. How often have we considered the same riskrelated issue in the various management and

governance meetings?

5. Is ICT risk actively considered in our risk management process?

6. Do we specifically consider compliance risk and, if so, how satisfied are we that it is effectively

covered?

7. Are risks prioritised and ranked to focus the responses and interventions on those risks outside

the board’s risk tolerance limits?

8. Do we have an approved annual risk management plan?

9. Who assures non financial risks, such as plant availability, staff capacity and competency, the

impact of legislative changes on the business/ organisation etc? And to which management or

board committee is the assurance provided? Are we satisfied that this assurance is reliable?

10. Do we have a fraud risk plan to consider our fraud exposure and prevention?

11. Does our disclosure on the effectiveness of risk management reflect the actual position of our

business/organisation?

Chapter 5: The governance of information technology

Para 9

The board should take the necessary steps to ensure that there are processes in place to ensure complete, timely, relevant, accurate and accessible IT reporting, firstly from management to the board, and secondly by the board in the integrated report.

Key Questions Directors should be asking:

1. Do we understand how IT decisions are taken and who is accountable?

2. Do we have an IT governance framework in place which defines and supports decision models,

governance structures, accountability and governance processes?

3. Is IT involved in strategic business decisions and planning?

4. Is the investment in IT understood?

5. Is our intellectual property, company and client information properly protected?

6. How do we ensure compliance of IT with laws, rules, codes, standards and regulations?

7. How is the value delivered by IT measured?

8. Is the approach towards IT risks facing the organisation clear? (Risk avoidance vs. risk taking)

9. Is the board regularly briefed on IT risks to which the enterprise is exposed?

10. Is IT a regular item on the agenda of the board and is it addressed in a structured manner?

11. Does the board have a clear view on the major IT investments from a risk and return

perspective?

12. Does the board obtain regular progress reports on major IT projects?

13. Is the board getting independent assurance on the achievement of IT objectives and the

containment of IT risks?

Chapter 6: Compliance with laws, codes, rules and standards

Para 6

The board should disclose in the integrated report the applicable non-binding rules, codes and standards to which the company adheres on a voluntary basis.

Para 10

The board should disclose details in the integrated report on how it has discharged its responsibility to ensure the establishment of an effective compliance framework and processes.

Para 22

A company should consider disclosing in its integrated report any material - or immaterial but often repeated - regulatory penalties, sanctions and fines for contraventions or non- compliance with statutory obligations that were imposed on the company or any of its directors or officers. Disclosure should be considered having regard to whether divulging the information that the disclosure will necessitate, would negatively affect the company, breach confidentiality, or breach any agreement to which it is a party.

Key Questions Directors should be asking:

1. What are the key statutory and regulatory obligations to which our organisation needs to comply?

2. Are we in compliance with these requirements? If so, how have we received this assurance and are we satisfied that the assurance is credible?

3. When last did we consider compliance at the board?

4. Are we aware that many Acts, such as the National Credit Act, can impact our organisation even

though we are not a financial institution?

5. How are we appraised of changes in the legal and regulatory landscape?

6. Do we have sufficient evidence to defend our organisation in court or to prove to a regulator

that we have complied with a specific act?

7. Does our disclosure on the effectiveness of compliance reflect the actual position in our

business/organisation?

Chapter 7: Internal audit

The need for and role of internal audit

Para 1

If the board, in its discretion, decides not to establish an internal audit function, full reasons should be disclosed in the company’s integrated report, with an explanation of how adequate assurance of an effective governance, risk management and internal control environment has been maintained.

Internal controls

Para 12

The board should report on the effectiveness of the system of internal controls in the integrated report.

Para 30

The audit committee should provide comment on the state of the internal financial control environment in the company’s integrated report.

Key Questions Directors should be asking:

1. Is internal audit aligned to strategy and does its plan focus on areas that are most likely to impact stakeholder value?

2. Is internal audit effective and frequent enough in its communications with the audit committee and us?

3. When last was an objective assessment done to ascertain whether internal audit has the appropriate level of technical and analytical skills required to address the industry risk and risk requirements of our business?

4. Is our internal audit function poised to lead a combined assurance initiative?

5. Is there sufficient assurance of our ethics and risk management programmes?

6. Does internal audit utilise technology in its processes and use existing systems and data

effectively in the performance of its work?

7. What were our most recent loss events and what comfort did internal audit provide us with on

these?

8. How does our internal audit function compare against its peers in benchmark studies?

9. Is our chief audit executive subjected to a robust annual assessment based on key attributes

relevant to our business?

10. 1What is our true absorbed cost of internal audit?

11. Is our internal audit agile enough to address emerging business issues?

12. Does the internal audit function have the necessary and diverse skills required to give assurance

to the audit committee on internal financial control?

Chapter 8: Governing stakeholder relationships

Para 22

The board should disclose in its integrated report the nature of its dealings with its stakeholders and the outcomes of these dealings.

Para 36

A company should consider disclosing in its integrated report the number and reasons for refusals of requests for information that were lodged with the company in terms of the Promotion of Access to Information Act, 2000. Disclosure must be considered having regard to whether divulging the information that the disclosure will necessitate will detrimentally affect the company or breach confidentiality or any agreement to which it is a party.

Key Questions Directors should be asking:

1. Do we have a stakeholder strategy and policies in place? If so, are they adequate or do they need revamping? If not, do we have the in-house knowledge to draft documents that will deliver value?

2. Have we identified our material stakeholders?

3. Do we know and understand the issues, risks and opportunities associated with our various

stakeholders?

4. Are our current forms of stakeholder communication effective?

5. Do we have the necessary reliable information to make informed judgement calls when

balancing the legitimate interests of various stakeholder groupings?

6. How do we actually engage with all our stakeholders in practice?

Chapter 9: Integrated reporting and disclosure

Financial disclosure

Para 8

The annual financial statements should be included in the integrated report.

Para 9

The board should include commentary on the company’s financial results. This commentary should include information to enable a stakeholder to make an informed assessment of the company’s economic value, by allowing stakeholders insight into the prospects for future value creation and the board’s assessment of the key risks which may limit those prospects.

Para 10

The board must disclose whether the company is a going concern and whether it will continue to be a going concern in the financial year ahead. If there is concern about the company’s going concern status, the board should give the reasons and the steps it is taking to remedy the situation.

Sustainability disclosure

Para 11-13

The integrated report should describe how the company has made its money; hence the need to contextualize financial results by reporting on the positive and negative impact the company’s operations had on its stakeholders. It is important for sustainability reporting and disclosure to highlight the company’s plans to improve the positives and eradicate or mitigate the negatives in the financial year ahead. This will enable stakeholders to make an informed assessment of the economic value and sustainability of the company. Reporting should be integrated across all areas of performance, reflecting the choices made in the strategic decisions adopted by the board, and should include reporting in the triple context of economic, social and environmental issues.

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Assurance of sustainability information

Para 20

In obtaining assurance (of sustainability information), the company should be clear on the scope of the assurance to be provided and this should also be disclosed. To the extent that reports are subject to assurance, the name of the assurer should be clearly disclosed, together with the period under review, the scope of the assurance exercise, and the methodology adopted.

Summarized integrated report

Chapter 3 Para 41

Due to the volume and complexity of information conveyed in the integrated report, users benefit from a summary of the integrated report. The company should therefore prepare a summarized integrated reporting addition to the complete integrated report.

Contents of summarized integrated report

Chapter 3 Para 42 & 43

The objective of the summarized integrated report is to give a concise but balanced view of the company’s integrated information. In preparing the summarized integrated report, companies should give due consideration to:

- providing key financial information. The International Financial Reporting Standard on Interim Reporting (IAS 34) provides useful guidance as to which financial information and notes should be included;

- providing sufficient commentary by the company to ensure an unbiased, succinct overview of the company’s financial information; and

- providing the company’s key performance measures regarding sustainability information. Summarized integrated information should be derived from the underlying integrated report and should include a statement to this effect.

Assurance of summarized integrated report

Chapter 3 Para 44

The audit committee should engage the external auditors to provide an assurance report on summarized financial information, confirming that the summarized financial information is appropriately derived from the annual financial statements.

Key Questions Directors should be asking:

1. Does the company have a sustainability strategy and policy?

2. Is sustainability considered part of ongoing business activities?

3. Are sustainable development issues integrated into business management systems and

departments such as risk, environmental, legal and financial?

4. Have sustainability criteria been built into individual performance agreements?

5. Does the company have a suitably qualified director/s and executive/s with the responsibility for

sustainable development?

6. Who in the company is the custodian of the content and assurance of the integrated report?

7. Do we have to follow the GRI G3 guidelines?

Chapter 3

3.1 3.2

3.1

What is Sustainability Reporting?

The benefits and costs of sustainability reporting

What is Sustainability Reporting?

As an emerging and rapidly developing practice, there are already several attempts made to define what a sustainability report is or should be. In general, however, sustainability reporting involves reporting on the economic, environmental and social impact of organisational performance. A sustainability report should be a high-level strategic document, which defines the organisation's vision, core values and purpose as well as addressing the issues, challenges and opportunities that sustainable development brings to its core business and its industry sector. All material and relevant elements of sustainability - economic, environmental and social should be addressed, both on a separate and integrated basis. As a strategic report, key business issues such as public policy positions, risk management procedures and governance commitment should also be disclosed.

Figure ? - The 3 elements of sustainability reporting and respective performance indicators

3.2 The benefits and costs of sustainability reporting

Since sustainability reporting is a voluntary activity, it is necessary for companies to establish why they need to report and the benefits of doing so.

The following are benefits most commonly mentioned by companies that have embraced sustainability reporting:

Demonstrate corporate responsibility

Organisations can demonstrate to their stakeholders their holistic approach to corporate responsibility by disclosing management strategies, systems and policies relating to environment and society. Reporting also assists in aligning corporate vision, business values and principles with internal business practices and processes. Sustainability report is an effective tool to communicate corporate social responsibility (CSR) initiatives to important stakeholders.

Strengthen stakeholder relations

Sustainability reporting can be a good basis for dialogue and discussion with stakeholders. Stakeholder dialogue is increasingly used by large companies to help identify key issues that are of concern to their stakeholders.

Appropriate issues can then be addressed in the sustainability reports to meet stakeholders' expectations. Confidence and trust between stakeholders and the company are improved when stakeholders are included in the reporting process.

Increase competitive advantage

Organisations that can demonstrate full responsibility to sustainable development and then report on them, benefit from gaining a competitive edge over their peers in the same sector that are not as open and transparent about such issues. Sustainability reporting may provide competitive advantage in capital, labour, supplier and customer markets.

Improve access to buyers' lists of preferred suppliers

Suppliers who share the same high environmental and social values and can openly report on all aspects of their performance, thus giving a more complete and transparent view of the organisation's managerial strategy and operations, are more likely to achieve preferred supplier status.

Improve profitability

Improved environmental and social performance will often have a direct and measurable

impact on profitability (the financial bottom line) through costs saved or avoided or through new revenues generated. Reporting on non-financial information indirectly reflects both the readiness and ability of an organisation to enhance long-term shareholder value of its intangible assets.

Enhance reputation

Companies that produce a complete and credible report on social and environmental performance will gain external recognition as a responsible organisation. Sustainability reports in the long term may contribute to increased brand value, market share and customer loyalty.

Continuous improvement

Public disclosure of targets and achievements act as an internal driver, continually improving a company's environmental and social performance.

Risk of regulatory intervention is minimised

By adopting high environmental and social standards, organisations are prepared for current and future environmental regulation. Regulatory intervention is minimised by effective self-regulation.

Reduce corporate risk

In the reporting cycle, it is common to identify the areas of environmental and social risk which previously went unnoticed ('warning of trouble spots'). Reporting helps organisations evaluate potentially damaging developments before they develop into unwelcome liabilities.

Enhance employee morale and attract new talents

Companies that practise a more open and transparent style of business will motivate their employees. This type of employer tends to attract the best talents.

Assists investment analysis

Investors and financial analysts are no longer just interested in information on financial performance. Information on the risks and opportunities associated with a company's environmental impact and social responsibility can be used to support investment decisions. By accounting for economic, environmental and social impacts, investors and financial analysts will obtain a clearer picture of a company's true health. Socially responsible investment, where companies are screened prior to investment using social and environmental criteria, is growing exponentially. Sustainability reports aid analysis and, for some funds, reporting is a requirement.

It is inevitable that the task of preparing a sustainability report will require additional resources such as time and finance. But this cost need not be inhibitive, as there may be a bigger cost to pay if a report is not published.

The costs of reporting are mostly:

- installing the appropriate management systems and putting in place sustainable development processes within the business itself.

- employing specialist staff/internal auditors

- appointing external verifiers

- publication and distribution costs/web site design costs

- a potential 'reporting risk' cost by disclosing negative information, or how your report is

perceived.

Chapter 4

4.1 4.2

4.1

Stakeholders and their information needs Different Approaches in Reporting

Stakeholders and their information needs

Today, financial success is no longer the sole measure by which companies are judged. Companies are expected to go beyond financial responsibilities to their shareholders and perform well on non-financial areas such as human rights, labour conditions in their supply chains, environmental impacts of their business, and impact of their operations and products on society.

Companies are increasingly aware that, in order to meet these growing demands made on them by their stakeholders, they need to change the way they 'do business'. This change includes becoming more transparent and accountable for the economic, environmental and social consequences of their business activities. This includes taking responsibility for the full range of positive and negative consequences arising from corporate decisions and actions, and disclosing these impacts in an appropriate environmental, social and sustainability report.

The diagram below shows how companies should identify and communicate with their stakeholders, consider and act on their needs and involve them fully in corporate business. In order to make their operations more sustainable, companies must also begin to integrate economic viability with environmental responsibility and social accountability (core values). To complete the picture, external reporting is necessary to communicate a company's performance on its core values to all its stakeholders.

Figure 1 - Corporate understanding of, and the relationship with, affected and affecting stakeholders

Stakeholders and their related information needs are summarised below:

Employees

This group needs information to ensure the employer is a respected corporate citizen that contributes to society while being economically successful. They also need assurance on health and safety grounds. Employees are also increasingly interested in information about levels of remuneration, retirement benefits and the extent of professional development opportunities.

Non-governmental organisations (NGOs)/environmental organisations

Representing a broad range of interests such as environmental protection, human rights and social issues, these stakeholders require a basis to understand a company's vision, values and principles. Reports improve communication and build greater trust.

Lenders

This group requires information to ensure that secured assets are not impaired in any way and to assure conformity with ethical lending policies. Sustainability information helps determine the risk associated with the company's business practices.

Suppliers

Sustainability reporting provides a convenient review of the entity's overall environmental and social policies and strategies.

Shareholders/financial analysts/investors

To ensure that poor environmental management or social performance will not translate into financial risk.

Local communities

Reports provide site-specific data relating to emission, waste policies, wider economic and local community issues. The local community also becomes aware of the social benefits brought forth by the company located within their community.

Customers

Customers want to know if the products they buy are environmentally and socially friendly. Corporate customers may have strict environment/social procurement policies, and as such they want to know a company's values and principles with regards to environment and society.

Regulators and policy makers

Sustainability information demonstrates corporate commitment and progress and may help in minimising future regulatory intervention. Many reporters make a considerable effort to identify their primary stakeholders and establish an ongoing dialogue with them to ensure that the published reports meet their needs. A comprehensive stakeholder survey is an essential pre-requisite for publishing a first environmental or sustainability report. Thereafter, companies may set up stakeholder panels or focus groups to maintain the process of dialogue and feedback. Feedback forms are usually included in published reports and web-based reports normally incorporate a mechanism for delivering feedback through the website itself.

4.2 Different Approaches in Reporting

There is no single correct way of publishing or communicating environmental, social or economic performance data. Reporters have experimented with many different approaches including:

- separate sections in the annual report

- hard copy stand-alone environmental or sustainability performance reports

- community directed site reports

- employee newsletters (corporate intranet)

- corporate videos

- CD-ROMS with back-up information

- summary hard copy report with full report on corporate website and

- publishing only on the corporate website

Each approach has a different cost profile and reporting companies need to achieve an appropriate balance between satisfying stakeholders and incurring excessive production and distribution costs.

Chapter 5

5.1 What is the GRI?

The GRI G3 Guidelines are a guide for companies preparing sustainability reports. As a result, the entity should assess the GRI G3 Guideline disclosures to determine which are material for itself and then include those in the integrated report.

The GRI began in 1997, with Coalition for Environmentally Responsible Economies (CERES) and the United Nations Environment Program combining activities with a view to enhancing the quality, rigor, usefulness and consistency of integrated reporting and disclosure reporting. Support for the GRI has grown significantly since inception, and it now enjoys the backing and involvement of a broad range of parties that have worked to establish a set of internationally acceptable reporting guidelines.

Sector Supplements, Issue Guide Documents, and Technical protocols will supplement the Guidelines in time. However, the Guidelines are the foundation document, with all additional guidance based upon it. As of December 2002, Sector Supplements were available for Financial Services, Mining and Tour Operators, with Automotive sector supplements under development.

While the Guidelines provide a valuable framework for assisting companies with the development of Integrated reporting and disclosure, the GRI acknowledges that companies will choose an approach that best suits their specific circumstances, as well as an incremental approach in applying the Guidelines.

The Sustainability Reporting Guidelines consist of Principles for defining report content and ensuring the quality of reported information. It also includes Standard Disclosures made up of Performance Indicators and other disclosure items, as well as guidance on specific technical topics in reporting.

5.2 The GRI 2002 Guidelines

The second, expanded version of the GRI reporting Guidelines was issued in August 2002, just prior to the World Summit on Sustainable Development in Johannesburg (at which GRI received extensive high- level political support). The 2002 Guidelines represent a significant step forward for sustainability reporting, containing an improved set of environmental indicators alongside much-expanded sets of social and economic performance indicators.

5.1

What is the GRI?

5.2

The GRI 2002 Guidelines

5.3

Components of a sustainability report

The 2002 Guidelines are divided into four parts:

Part A: Using the Guidelines

This section provides an informative overview of the Guidelines as a whole, including a description of what they are, who should use them and how to prepare a sustainability report using the Guidelines.

Part B: Reporting Principles

This section provides a cohesive framework of reporting principles similar to (but wider in scope than) the framework of principles underpinning financial reporting. Reporting organisations should be able to demonstrate that the published report has been prepared in accordance with the principles set in this section.

Part C: Report Content

A description of the content of a GRI report. A GRI report consists of:

a statement of vision and strategy

a profile of the reporting entity

a description of its governance structure and management systems

a GRI content index

performance (economic, environmental, social) indicators.

Part D: Glossary and Annexes

A number of annexes are included on issues such as credibility & assurance and incremental application, together with a glossary.

5.3 Components of a sustainability report

Key Reporting Principles

Reporting Principles describe the outcomes a report should achieve and guide decisions throughout the reporting process, such as selecting which topics and Indicators to report on and how to report on them. Each of the Principles consists of a definition, an explanation, and a set of tests for the reporting organization to assess its use of the Principles. The tests are intended to serve as tools for self-diagnosis, but not as specific disclosures to report against. Tests can, however, serve as a reference for explaining decisions about the application of the Principles.

Defining Report Content, Quality, and Boundary

Principle

Explanation

Materiality

The information in a report should cover topics and Indicators that reflect the organization’s significant economic, environmental, and social impacts or that would substantively influence the assessments and decisions of stakeholders.

Stakeholder inclusiveness

The reporting organization should identify its stakeholders and explain in the report how it has responded to their reasonable expectations and interests.

Sustainability context

The report should present the organization’s performance in the wider context of sustainability.

Completeness

Coverage of the material topics and Indicators and definition of the report boundary should be sufficient to reflect significant economic, environmental, and social impacts and enable stakeholders to assess the reporting organization’s performance in the reporting period.

Reporting Principles for Defining Quality

Principle

Explanation

Balance

The report should reflect positive and negative aspects of the organization’s performance to enable a reasoned assessment of overall performance.

Comparability

Issues and information should be selected, compiled, and reported consistently. Reported information should be presented in a manner that enables stakeholders to analyze changes in the organization’s performance over time, and could support analysis relative to other organizations.

Accuracy

The reported information should be sufficiently accurate and detailed for stakeholders to assess the reporting organization’s performance.

Timeliness

Reporting occurs on a regular schedule and information is available in time for stakeholders to make informed decisions.

Clarity

Information should be made available in a manner that is understandable and accessible to stakeholders using the report.

Reliability

Information and processes used in the preparation of a report should be gathered, recorded, compiled, analyzed, and disclosed in a way that could be subject to examination and that establishes the quality and materiality of the information.

Reporting Guidance for Boundary Setting

In parallel with defining the content of a report, an organization must determine which entities’ (e.g., subsidiaries and joint ventures) performance will be represented by the report. The Sustainability Report Boundary should include the entities over which the reporting organization exercises control or significant influence both in and through its relationships with various entities upstream (e.g., supply chain) and downstream (e.g., distribution and customers). For the purpose of setting boundaries, the following definitions should apply:

Application Levels

To indicate that a report is GRI-based, report makers should declare the level to which they have applied the GRI Reporting Framework via the “Application Levels” system. To meet the needs of beginners, advanced reporters, and those somewhere in between, there are three levels in the system. They are titled C, B, and A. The reporting criteria at each level reflect a measure of the extent of application or coverage of the GRI Reporting Framework. A “plus” (+) is available at each level (ex., C+, B+, A+) if external assurance was utilized for the report. A report maker self-declares a Level based on its own assessment of its report content against the criteria in the GRI Application Levels.

The Levels aim to provide: Report readers with a measure of the extent to which the GRI Guidelines and other Reporting Framework elements have been applied in the preparation of a report. Report makers with a vision or path for incrementally expanding application of the GRI Reporting Framework over time. Declaring an Application Level clearly communicates which elements of the GRI Reporting Framework have been applied in the preparation of a report.

Control

The power to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities.

Significant influence

The power to participate in the financial and operating policy decisions of the entity but not the power to control those policies.

Report – Application Level

C+

B+

A+

G3 PROFILE DISCLOSURE S

Report on – 1.1/2.1 – 2.10/3.1 – 3.8/3.10 – 31.2/4.1 – 4.4/4.14 –

4.15

ASSURANCE

Report on all criteria listed for level C

plus: 1.2/3.9/3.13/4 .5 – 4.13/4.16

– 4.17

ASSURANCE

Same requirements as level B

ASSURANCE

G3 MANAGEMEN T APPROACH DISCLOSURE

Not Required

ASSURANCE

Management approach disclosures for each indicator

category

ASSURANCE

G3 PERFORMAN CE INDICATORS AND SUPPLEMENT PERFORMAN CE

INDICATORS

Report on a minimum of 10 performanc e indicators – including at least one from social, economic and environmen

ASSURANCE

Report on a minimum of 20 performance indicators – including at least one from economic, environment , human rights, labour society and product responsibilit

ASSURANCE

Report one each G3 and Sector Supplement Indicator with due regard to the materiality principle by either reporting on the indicator or explaining the reason for its

omission.

ASSURANCE

For explanation of numbering system – refer Section 6

For explanation of performance indicators – refer Section 10

Standard Disclosures

There are three different types of disclosures contained in this section.

Strategy and Profile

Disclosures that set the overall context for understanding organizational performance such as its strategy, profile, and governance.

Strategy and Analysis

Organizational Profile

Report Parameters

Governance, Commitments, and Engagement

Management Approach

Disclosures that cover how an organization addresses a given set of topics in order to provide context for understanding performance in a specific area.

Reporting on Trends

Information should be presented for the current reporting period (e.g., one year) and at least two previous periods, as well as future targets, where they have been established, for the short- and medium-term.

Use of Protocols

Organizations should use the Protocols that accompany the Indicators when reporting on the Indicators. These give basic guidance on interpreting and compiling information.

Presentation of Data

In some cases, ratios or normalized data are useful and appropriate formats for data presentation. If ratios or normalized data are used, absolute data should also be provided.

Data aggregation

Reporting organizations should determine the appropriate level of aggregation of information. See additional guidance in the General Reporting Notes section of the Guidelines.

Metrics

Reported data should be presented using generally accepted international metrics (e.g., kilograms, tonnes, litres) and calculated using standard conversion factors. Where specific international conventions exist (e.g., GHG equivalents), these are typically specified in the Indicator Protocols.

Performance Indicators

Indicators that elicit comparable information on the economic, environmental, and social performance of the organization.

Economic

The economic dimension of sustainability concerns the organization’s impacts on the economic conditions of its stakeholders and on economic systems at local, national, and global levels.

Environmental

The environmental dimension of sustainability concerns an organization’s impacts on living and non-living natural systems, including ecosystems, land, air, and water.

Social Performance

The social dimension of sustainability concerns the impacts an organization has on the social systems within which it operates.

Strategy and Profile - GRI Standard Disclosures

1.1

Statement from the most senior decision- maker of the organization (e.g., CEO, chair, or equivalent senior position) about the relevance of sustainability to the organization and its strategy.

1.2

The reporting organization should provide two concise narrative sections on key impacts, risks, and opportunities.

2.1

Name of the organization.

2.2

Primary brands, products, and/or services.

2.3

Operational structure of the organization, including main divisions, operating companies, subsidiaries, and joint ventures.

2.4

Location of organization’s headquarters.

2.5

Number of countries where the organization operates, and names of countries with either major operations or that are specifically relevant to the sustainability issues covered in the report.

2.6

Nature of ownership and legal form.

2.7

Markets served (including geographic breakdown, sectors served, and types of customers/beneficiaries).

2.8

Scale of the reporting organization.

2.9

Significant changes during the reporting period regarding size, structure, or ownership.

2.10

Awards received in the reporting period.

3.1

Reporting period (e.g., fiscal/calendar year) for information provided.

3.2

Date of most recent previous report (if any).

3.3

Reporting cycle (annual, biennial, etc.)

3.4

Contact point for questions regarding the report or its contents.

3.5

Process for defining report content

3.6

Boundary of the report (e.g., countries, divisions, subsidiaries, leased facilities, joint ventures, suppliers).

3.7

State any specific limitations on the scope or boundary of the report.

3.8

Basis for reporting on joint ventures, subsidiaries, leased facilities, outsourced operations, and other entities that can significantly affect comparability from period to period and/or between organizations.

3.9

Data measurement techniques and the bases of calculations, including assumptions and techniques underlying estimations applied to the compilation of the Indicators and other information in the report.

3.10

Explanation of the effect of any re-statements of information provided in earlier reports, and the reasons for such re-statement (e.g., mergers/ acquisitions, change of base years/periods, nature of business, measurement methods).

3.11

Significant changes from previous reporting periods in the scope, boundary, or measurement methods applied in the report.

3.12

Table identifying the location of the Standard Disclosures in the report.

3.13

Policy and current practice with regard to seeking external assurance for the report. If not included in the assurance report accompanying the sustainability report, explain the scope and basis of any external assurance provided. Also explain the relationship between the reporting organization and the assurance provider(s).

4.1

Governance structure of the organization, including committees under the highest governance body responsible for specific tasks, such as setting strategy or organizational oversight.

4.2

Indicate whether the Chair of the highest governance body is also an executive officer

(and, if so, their function within the organization’s management and the reasons for this arrangement).

4.3

For organizations that have a unitary board structure, state the number of members of the highest governance body that are independent and/or non-executive members.

4.4

Mechanisms for shareholders and employees to provide recommendations or direction to the highest governance body.

4.5

Linkage between compensation for members of the highest governance body, senior managers, and executives (including departure arrangements), and the organization’s performance (including social and environmental performance).

4.6

Processes in place for the highest governance body to ensure conflicts of interest are avoided.

4.7

Process for determining the qualifications and expertise of the members of the highest governance body for guiding the organization’s strategy on economic, environmental, and social topics.

4.8

Internally developed statements of mission or values, codes of conduct, and principles relevant to economic, environmental, and social performance and the status of their implementation.

4.9

Procedures of the highest governance body for overseeing the organization’s identification and management of economic, environmental, and social performance, including relevant risks and opportunities, and adherence or compliance with internationally agreed standards, codes of conduct, and principles.

4.10

Processes for evaluating the highest governance body’s own performance, particularly with respect to economic, environmental, and social performance.

4.11

Explanation of whether and how the precautionary approach or principle is addressed by the organization.

4.12

Externally developed economic, environmental, and social charters, principles, or other initiatives to which the organization subscribes or endorses.

4.13

Memberships in associations (such as industry associations) and/or national/international advocacy organizations in which the organization:

4.14

List of stakeholder groups engaged by the organization.

4.15

Basis for identification and selection of stakeholders with whom to engage.

4.16

Approaches to stakeholder engagement, including frequency of engagement by type and by stakeholder group.

4.17

Key topics and concerns that have been raised through stakeholder engagement, and how the organization has responded to those key topics and concerns, including through its reporting.

Performance Indicators

Questions to consider when assessing measurement indicators for inclusion in Triple Bottom Line reports:

1. Does the indicator address the requirements and concerns of key stakeholders?

2. Is the indicator aligned to company objectives and policy?

3. Will the indicator provide management with information to guide decision-making?

4. Does the indicator adequately convey information about performance that is specific to the industry

sector?

5. Does the indicator facilitate comparison with competitors?

6. Can internal systems generate accurate, reproducible data?

7. What is the risk in publishing a specific measure of performance?

8. Is it a significant management issue for the reporting entity?

ECONOMIC PERFORMANCE INDICATORS ASPECT: ECONOMIC PERFORMANCE

EC1

Direct economic value generated and distributed, including revenues, operating costs, employee compensation, donations and other community investments, retained earnings, and payments to capital providers and governments.

EC2

Financial implications and other risks and opportunities for the organization’s activities due to climate change.

EC3

Coverage of the organization’s defined benefit plan obligations.

EC4

Significant financial assistance received from government.

ASPECT: MARKET PRESENCE

ASPECT: INDIRECT ECONOMIC IMPACTS

EC5

Range of ratios of standard entry level wage compared to local minimum wage at significant locations of operation.

EC6

Policy, practices, and proportion of spending on locally-based suppliers at significant locations of operation.

EC7

Procedures for local hiring and proportion of senior management hired from the local community at locations of significant operation.

EC8

Development and impact of infrastructure investments and services provided primarily for public benefit through commercial, in- kind, or pro bono engagement.

EC9

Understanding and describing significant indirect economic impacts, including the extent of impacts.

ENVIRONMENTAL PERFORMANCE INDICATORS ASPECT: MATERIALS

EN1 Materials used by weight or volume.

EN2 Percentage of materials used that are recycled input materials.

ASPECT: ENERGY

ASPECT: WATER

EN8 Total water withdrawal by source.

EN9 Water sources significantly affected by withdrawal of water.

EN10 Percentage and total volume of water recycled and reused.

ASPECT: BIODIVERSITY

EN3

Direct energy consumption by primary energy source.

EN4

Indirect energy consumption by primary source.

EN5

Energy saved due to conservation and efficiency improvements.

EN6

Initiatives to provide energy-efficient or renewable energy based products and services, and reductions in energy requirements as a result of these initiatives.

EN7

Initiatives to reduce indirect energy consumption and reductions achieved

EN11

Location and size of land owned, leased, managed in, or adjacent to, protected areas and areas of high biodiversity value outside protected areas.

EN12

Description of significant impacts of activities, products, and services on biodiversity in protected areas and areas of high biodiversity value outside protected areas.

EN3

Habitats protected or restored.

EN14

Strategies, current actions, and future plans for managing impacts on biodiversity.

EN15

Number of IUCN Red List species and national conservation list species with habitats in areas affected by operations, by level of extinction risk.

ASPECT: EMISSIONS, EFFLUENTS, AND WASTE

EN16

Total direct and indirect greenhouse gas emissions by weight.

EN17

Other relevant indirect greenhouse gas emissions by weight.

EN18

Initiatives to reduce greenhouse gas emissions and reductions achieved.

EN19

Emissions of ozone-depleting substances by weight.

EN20

NO, SO, and other significant air emissions by type and weight.

EN21

Total water discharge by quality and destination.

EN22

Total weight of waste by type and disposal method.

EN23

Total number and volume of significant spills.

EN24

Weight of transported, imported, exported, or treated waste deemed hazardous under the terms of the Basel Convention Annex I, II, III, and VIII, and percentage of transported waste shipped internationally.

EN25

Identity, size, protected status, and biodiversity value of water bodies and related habitats significantly affected by the reporting organization’s discharges of water and runoff.

ASPECT: PRODUCTS AND SERVICES

ASPECT: COMPLIANCE

EN28 Monetary value of significant fines and total number of non-monetary sanctions for non- compliance with environmental laws and regulations.

ASPECT: COMPLIANCE

EN29 Significant environmental impacts of transporting products and other goods and materials used for the organization’s operations, and transporting members of the workforce.

ASPECT: OVERALL

EN30 Total environmental protection expenditures and investments by type.

EN26

Initiatives to mitigate environmental impacts of products and services, and extent of impact mitigation.

EN27

Percentage of products sold and their packaging materials that are reclaimed by category.

LABOR PRACTICES AND DECENT WORK PERFORMANCE INDICATORS

ASPECT: EMPLOYMENT

ASPECT: LABOR/MANAGEMENT RELATIONS

LA4 Percentage of employees covered by collective bargaining agreements.

LA5 Minimum notice period(s) regarding operational changes, including whether it is

specified in collective agreements.

ASPECT: OCCUPATIONAL HEALTH AND SAFETY

LA1

Total workforce by employment type, employment contract, and region.

LA2

Total number and rate of employee turnover by age group, gender, and region.

LA3

Benefits provided to full-time employees that are not provided to temporary or part- time employees, by major operations.

LA6

Percentage of total workforce represented in formal joint management–worker health and safety committees that help monitor and advise on occupational health and safety programs.

LA7

Rates of injury, occupational diseases, lost days, and absenteeism, and number of work- related fatalities by region.

LA8

Education, training, counseling, prevention, and risk-control programs in place to assist workforce members, their families, or community members regarding serious diseases.

LA9

Health and safety topics covered in formal agreements with trade unions.

ASPECT: TRAINING AND EDUCE ACTION

ASPECT: DIVERSITY AND EQUAL OPPORTUNITY

LA10

Average hours of training per year per employee by employee category.

LA11

Programs for skills management and lifelong learning that support the continued employability of employees and assist them in managing career endings.

LA12

Percentage of employees receiving regular performance and career development reviews.

LA13

Composition of governance bodies and breakdown of employees per category according to gender, age group, minority group membership, and other indicators of diversity.

LA14

Ratio of basic salary of men to women by employee category.

HUMAN RIGHTS PERFORMANCE INDICATORS

ASPECT: INVESTMENT AND PROCUREMENT PRACTICES

HR1

Percentage and total number of significant investment agreements that include human rights clauses or that have undergone human rights screening.

HR2

Percentage of significant suppliers and contractors that have undergone screening on human rights and actions taken.

HR3

Total hours of employee training on policies and procedures concerning aspects of human rights that are relevant to operations, including the percentage of employees trained.

ASPECT: NON-DISCRIMINATION

HR4 Total number of incidents of discrimination and actions taken.

ASPECT: FREEDOM OF ASSOCIATION AND COLLECTIVE BARGAINING

HR5 Operations identified in which the right to exercise freedom of association and collective bargaining may be at significant risk, and actions taken to support these rights.

ASPECT: CHILD LABOR

HR6 Operations identified as having significant risk for incidents of child labor, and measures taken to contribute to the elimination of child labor.

ASPECT: FORCED AND COMPULSORY LABOR

HR7 Operations identified as having significant risk for incidents of forced or compulsory labor, and measures to contribute to the elimination of forced or compulsory labor.

ASPECT: SECURITY PRACTICES

HR8 Percentage of security personnel trained

in the organization’s policies or procedures concerning aspects of human rights that are relevant to operations.

ASPECT: INDIGENOUS RIGHTS

HR9 Total number of incidents of violations involving rights of indigenous people and actions taken.

SOCIETY PERFORMANCE INDICATORS ASPECT: COMMUNITY

ASPECT: CORRUPTION

ASPECT: PUBLIC Policy

ASPECT: ANTI-COMPETITIVE BEHAVIOR

SO1

Nature, scope, and effectiveness of any programs and practices that access and manage the impacts of operations on communities, including entering, operating, and exiting.

SO2

Percentage and total number of business units analyzed for risks related to corruption.

SO3

Percentage of employees trained in organization’s anti-corruption policies and procedures.

SO4

Actions taken in response to incidents of corruption.

SO5

Public policy positions and participation in public policy development and lobbying.

SO6

Total value of financial and in-kind contributions to political parties, politicians, and related institutions by country.

SO7

Total number of legal actions for anti- competitive behavior, anti-trust, and monopoly practices and their outcomes.

SO8

Monetary value of significant fines and total number of non-monetary sanctions for non- compliance with laws and regulations.

PRODUCT RESPONSIBILITY PERFORMANCE INDICATORS ASPECT: CUSTOMER HEALTH AND SAFETY

PR1

Type of product and service information required by procedures and percentage of significant products and services subject to such information requirements.

PR2

Total number of incidents of non-compliance with regulations and voluntary codes concerning product and service information and labeling, by type of outcomes.

PR3

Practices related to customer satisfaction, including results of surveys measuring customer satisfaction.

ASPECT: PRODUCT And SERVICE Labeling

ASPECT: MARKETING COMMUNICATIONS

ASPECT: CUSTOMER PRIVACY

PR4

Total number of incidents of non-compliance with regulations and voluntary codes concerning marketing communications, including advertising, promotion, and sponsorship by type of outcomes

PR5

Total number of substantiated complaints regarding breaches of customer privacy and losses of customer data.

PR6

Monetary value of significant fines for non- compliance with laws and regulations concerning the provision and use of products and services.

ASPECT: COMPLIANCE

PR7

Life cycle stages in which health and safety impacts of products and services are

assessed for improvement, and percentage of significant products and services categories subject to such procedures.

PR8

Total number of incidents of non-compliance with regulations and voluntary codes concerning health and safety impacts of products and services during their life cycle, by type of outcomes.

Chapter 6

6.1 AA1000 Assurance Standard

The AA1000 Assurance Standard has developed an approach for assurance providers to assess the credibility of publicly reported INTEGRATED REPORTING AND DISCLOSURE related information. Verification of Integrated reporting and disclosure reports in accordance with the AA1000 Assurance Standard must apply the AA1000 Assurance Principles.

The AA1000 Assurance Principles are:

- Completeness — the inclusion of all appropriate information.

- Materiality —information is seen to be material if it would reasonably influence the conclusions

and decisions of the reports users; and misinformation is material if it would have a similar

influence.

- Responsiveness — refers to a commitment to continuous improvement in relation to its

impacts, stakeholder concerns and relevant standards.

- Accessibility — effective communication of INTEGRATED REPORTING AND DISCLOSURE

information in a manner that is readily accessible and affordable for the stakeholder.

- Evidence and Assurance Approaches — concerns the evaluation of the supporting data, systems,

policies and procedures.

In developing an approach to reporting, companies should be mindful that at some point in the future they are likely to require independent verification of their reporting, underlying systems, and policies. In this context procedures should be developed in such a way as to facilitate verification and assurance processes.

Chapter 7

7.1 The major steps involved in undertaking the reporting process

The major steps involved in undertaking the reporting process are: 1. Planning for Reporting

a. Understand the national, international and industry sector trends in INTEGRATED REPORTING AND DISCLOSURE reporting

b. Identify key stakeholders

c. Establish the business case, and set high-level objectives for INTEGRATED REPORTING AND

DISCLOSURE reporting

d. Secure support from the Board and senior executives

e. Identify resource requirements and determine budget

2. Setting the Direction for INTEGRATED REPORTING AND DISCLOSURE Reporting

a. Engage with stakeholders to understand their requirements

b. Prioritise stakeholder requirements and concerns

c. Set overall objectives for INTEGRATED REPORTING AND DISCLOSURE reporting

d. Review current approach and assess capability to deliver on reporting objectives

e. Identify gaps and barriers associated with current approach, and prioritise risks associated with

overall reporting objective

f. Review of associated legal implications

g. Develop INTEGRATED REPORTING AND DISCLOSURE reporting strategy

h. Determine performance indicators for inclusion in report

i. Establish appropriate structure and content of the report

3. Implementation of INTEGRATED REPORTING AND DISCLOSURE Reporting Strategy

a. Implementation of INTEGRATED REPORTING AND DISCLOSURE reporting strategy (including required data collection and review processes)

b. Clarify relationship to statutory financial reporting

4. Publication of INTEGRATED REPORTING AND DISCLOSURE Report

a. Prepare draft report

b. Review content and structure of report internally, and modify accordingly

c. Obtain independent assurance — external verification

d. Publish INTEGRATED REPORTING AND DISCLOSURE report

e. Seek feedback from stakeholders and incorporate into planning for the next periods reporting.

Chapter 8

8.1 External Assurance

The purpose of integrated reporting is for stakeholders to make informed decisions on the basis of information in the integrated report. As a result, if the information in the report is assured, users will have comfort that the information they are basing their decisions on is credible, accurate and complete. No matter how good an entity’s internal processes are to produce sustainability information, the rigour of an assurance process can identify problem areas and challenge some of the statements and claims made. This protects the directors from the risk of publishing inaccurate data, statements and claims. The rigour of the assurance process will help to identify weaknesses and gaps in the systems, processes and controls in place for compiling the sustainability information and data.

The external auditors providing assurance over the financial information can also assure the sustainability information; External auditors other than the financial information auditors can be engaged to assure the sustainability information; or • Depending on the entity itself, and the nature of its material sustainability issues, there may be scope for obtaining assurance from specialised technical consultants over specific sustainability information.

If different parts of sustainability information are being assured by different assurance providers, the concept of combined assurance will become important. The Audit Committee will need to ensure that there is co-ordination amongst all the assurance providers, that assurance is obtained over all significant sustainability risks and that there is no significant overlap nor gaps between the assurance providers.

Two separate assurance statements will be included in the integrated report, one on the: • Financial information; and another on the • Sustainability information. The assurance statements will specify the page numbers over which assurance is provided and the scope of assurance, so that readers of the integrated report will be able to distinguish what information has been assured and by who.

The Audit Committee should engage an external assurance provider to provide assurance over material elements of the sustainability information in the integrated report. It is important to note that for the scope of assurance, once again, one size does not fit all, and the scope will depend on many different factors, including the: • Maturity of sustainability and its reporting processes within the entity; • Level of internal assurance processes over sustainability information; and • Stakeholder expectations of assurance. However, the sustainability information should be assured as a whole using a combination of qualitative and quantitative assurance. This should include assurance over: • Specific key performance indicators e.g. water use; • Statements and claims made in the narrative; and • The self-declared GRI G3 application level.

he major benefits in obtaining independent verification and assurance are:

- Enhanced corporate profile and external credibility;

- Management assurance that policies and procedures are being followed;

- Improved trust and confidence of stakeholder groups; and

- Reduction of risk to the reporting company.

Example of an External Assurance Report

http://www.pdfdownload.org/pdf2html/view_online.php?url=http%3A%2F%2Fwww%2Eanglogold% 2Eco%2Eza%2Fsubwebs%2Finformationforinvestors%2Freports09%2FSustainabilityReview09%2Ff%2F AGA%5FSD09%5F07%2Epdf&images=no

Report of the independent assurers

To the Board of Directors and Management of AngloGold Ashanti Limited Introduction

We have been engaged by AngloGold Ashanti Limited (“AngloGold Ashanti”) to conduct an assurance engagement on selected subject matter reported in AngloGold Ashanti’s Sustainability Review 2009, (“Sustainability Review”) for the purposes of expressing a statement of independent assurance, for the year ended 31 December 2009. This assurance report applies only to the subject matter as referenced herein. The Sustainability Review includes both the published hard copy “Summary Report” and the Internet published “Supplementary Information” (www.aga-reports.com/09).

Subject Matter

The following subject matter related to the Sustainability Review was selected for an expression of assurance:

 The alignment of AngloGold Ashanti’s sustainability policies to the International Council of Mining and Metals’ (ICMM) 10 Sustainable Development Principles. (Limited Assurance, Sustainability Review page 19, and refer to the section on the ICMM Sustainable Development Framework implementation in the Supplementary Information www.aga-reports.com/09)

 AngloGold Ashanti’s reporting of its material sustainable development priorities based on its own review of the business and the views and expectations of its stakeholders. (Limited Assurance, Refer pages 5 and 6 of the Summary Report)

 The description of systems and approaches that AngloGold Ashanti has implemented to manage its material sustainable development priorities as related to the Key Performance Indicators (KPIs) marked for assurance in the GRI table of the Supplementary Information www.aga- reports.com/09 by the symbol . (Reasonable Assurance)

 AngloGold Ashanti’s performance on its sustainable development priorities by way of the selected KPIs as marked for assurance in the Supplementary Information www.aga- reports.com/09 by the symbol . (Reasonable Assurance)

 AngloGold Ashanti’s self declared Global Reporting Initiative (GRI) G3 application level (Limited Assurance, page 4 Summary Report)

Directors’ responsibility

AngloGold Ashanti’s directors are responsible for the selection, preparation and presentation of the identified subject matter in accordance with the GRI’s new generation (G3) guidelines and the ICMM sustainable development framework.

Responsibility of the independent assurers

Our responsibility is to express to the directors an opinion on the identified subject matter contained in the Report, for the year ended 31 December 2009, based on our assurance engagement.

Work performed

We conducted our engagement in accordance with the International Standards for Assurance Engagements 3000, “Assurance Engagements other than audits or reviews of historical financial information” (ISAE 3000) issued by the International Auditing and Assurance Standards Board; and the ICMM’s Sustainable Development Framework Assurance Procedure.

Criteria

The requirements as set out by both the ICMM Sustainable Development Framework Assurance Procedure and the reporting criteria as stipulated by the GRI new generation (G3) guidelines, have been applied as assurance criteria. Anglogold Ashanti’s internal corporate reporting procedures were applied as criteria for testing the selected KPIs in the scope of assurance.

AngloGold Ashanti Sustainability Review: Supplementary Information 2009 Our work consisted of:

 reviewing AngloGold Ashanti’s implementation of the ICMM requirements;

 obtaining an understanding of the systems used to generate, aggregate and report data at

selected sites and business units in South Africa, Obuasi operation in Ghana, and Geita

operation in Tanzania;

 conducting interviews with management at the sampled operations and at Head Office;

 applying the assurance criteria in evaluating the data generation and reporting processes;

 performing key controls testing;

 testing the accuracy of data reported on a sample basis;

 reviewing the consistency between the subject matter and related statements in AngloGold

Ashanti’s Sustainability Review report; and

 reviewing the validity of AngloGold Ashanti’s self-declaration of the GRI (G3) application level in

the Report.

Inherent limitations

Non-financial data is subject to more inherent limitations than financial data, given both the nature and the methods used for determining, calculating, sampling or estimating such data. Qualitative interpretations of relevance, materiality and the accuracy of data are subject to individual assumptions and judgements.

The evidence gathering procedures for limited assurance are more restricted than for reasonable assurance and therefore less assurance is obtained with limited assurance than for reasonable assurance.

Conversion factors used to derive emissions and energy used from fuel and electricity consumed, are based upon information and factors derived by independent third parties. Our assurance work has not included an examination of the derivation of those factors and other third party information.

We have not carried out any work on data reported for prior reporting periods, nor in respect of future projections and targets.

We have not conducted any work outside of the agreed scope and therefore restrict our opinion to the agreed subject matter.

Conclusion

On the basis of our limited assurance procedures, nothing has come to our attention causing us to believe that the subject matter selected for limited assurance for the year ended 31 December 2009, is materially misstated.

On the basis of our reasonable assurance procedures, the subject matter selected for assurance for the year ended 31 December 2009, is free from material misstatements.

Registered Auditor Johannesburg

12 March 2010

Integrated Reporting

By – Professor Steven Firer Technical Partner - Nkonki

Integrated Reporting is a new approach to corporate reporting that demonstrates the linkages between an organization’s strategy, governance and financial performance and the social, environmental and economic context within which it operates. By reinforcing these connections, Integrated Reporting can help business to take more sustainable decisions and enable investors and other stakeholders to understand how an organization is really performing. It is not the intention of Integrated Reporting to usurp the position of financial reporting measurement standards. These will continue to be the basis for the measurement of the existing use and returns on financial capital dictated by the International Financial Reporting Standards (IFRS).

What might an Integrated Report look like?

To help guide the development of the framework, both the IRC SA and IIRC have published a series of guidance notes to help companies practice Integrated Reporting. In addition to identifying how Integrated Reporting is different, the respective papers identify a number of key components which compose the building blocks for an Integrated Report, some of which may be new to many readers. In essence, topics to be included in the Integrated Report as set out in the respective papers are, although organised slightly differently, very similar.

IRC SA IIRC

Key components of an Integrated Report Key components of an Integrated Report

Report profile: What is the scope and boundary of the report?

Organisational overview, business model, and governance structure: How do we create value and make decisions?

Organisational overview and business model: What does the organisation do and how does it create and sustain value in the short-, medium- and long-term?

Remuneration policies: What is our approach towards remuneration?

Governance and remuneration: What is the organisation’s governance structure, and how does governance support the strategic objectives of the organisation and relate to the organisation’s approach to remuneration?

Understanding the operating context: What are the circumstances under which we operate?

Operating context, including risks and opportunities: What are the circumstances under which the organisation operates, including the key resources and relationships on which it depends and the key risks and opportunities that it faces?

Strategic objectives, competencies, KPIs and KRIs: Where do we want to go and how do we intend to get there?

Strategic objectives and strategies to achieve those objectives: Where does the organisation want to go and how is it going to get there?

Account of the organisation’s performance: How

Performance: How has the organisation

have we fared over the reporting period? performed against its strategic objectives and related strategies?

Future performance objectives: Informed by our recent performance, what are our future objectives?

Future outlook: What opportunities, challenges and uncertainties is the organisation likely to encounter in achieving its strategic objectives and what are the resulting implications for its strategies and future performance?

Analytical commentary: What are the views of the leadership about the organisation?

The Integrated Report comprises the proposed building blocks, and is built on the foundation provided by the financial statements, sustainability report, governance and remuneration report, and other reports relevant to the business of the company.

The Integrated Report

Prepared in accordance with the “Framework for Integrated Reporting and the Integrated Report Discussion Paper”, issued January 2011

Governance and Remuneration Report

Prepared with reference to King III

Sustainability Report

Covering a combination of environmental, social and governance matters. Prepared in accordance with a recognised framework such as GRI or AccountAbility and audited toprovide at least limited assurance over key indicators in accordance with ISAE 3000 or AA 1000 AS

Financial Statements

Prepared in accordance with IFRS and audited to provide reasonable assurance in

accordance International Assurance Standards

with

While many of these building blocks or components are familiar, the business model deserves some discussion as it introduces the concept of how the business creates and sustains value in the short-, medium- and long-term and its interaction with external factors, relationships and resources. In doing so, it considers six capitals that the business may rely on (in essence, the financial and non- financial resources).

These are defined thus:

 Financial capital: The pool of funds available to the organisation.

 Manufactured capital: Manufactured physical objects, as distinct from natural physical objects.

 Human capital: People’s skills and experience, and their motivations to innovate.

 Intellectual capital: Intangibles that provide competitive advantage.

 Natural capital: Includes water, and, minerals, and forests; and biodiversity and eco-system

health.

 Social capital: The institutions and relationships established within and between each

community, group of stakeholders and other networks to enhance individual and collective well- being. It includes an organisation’s social license to operate.

The IIRC has issued a set of guiding principles underpinning the preparation of an Integrated Report:

 Strategic focus: An Integrated Report provides insight into the organisation’s strategic objectives, and how those objectives relate to its ability to create and sustain value over time and the resources and relationships on which the organisation depends.

 Connectivity of information: An Integrated Report shows the connections between the different components of the organisation’s business model, external factors that affect the organisation, and the various resources and relationships on which the organisation and its performance depend.

 Future orientation: An Integrated Report includes management’s expectations about the future, as well as other information to help report users understand and assess the organisation’s prospects and the uncertainties it faces.

 Responsiveness and stakeholder inclusiveness: An Integrated Report provides insight into the organisation’s relationships with its key stakeholders and how and to what extent the organisation understands, takes into account and responds to their needs.

 Conciseness, reliability and materiality: An Integrated Report provides concise, reliable information that is material to assessing the organisation’s ability to create and sustain value in the short-, medium- and long-term.

Plan for Integrated Reporting

Elements

Content

Group profile

 First few pages of the report to introduce the business o In which sector does the business operate?

o What type of business is this?

o What are the products?

o What is the structure of the Group and the company? Where does the business operate?

Scope and boundary

 Indicate the reporting period to which the report pertains

o Focus on comparability between different reporting periods (i.e. the impact of acquisitions, disposals or restructuring on the

comparability of financial and non-financial information)

o Focus on comparability between financial and non-financial information (more often than not the boundary for financial and

non-financial information differs)

Key features

 Illustrate the company's main achievements and key features

o Ensure a balance between financial and non-financial information o Utilise graphs, illustrations and pictures to deliver a clear message

to the reader (too many words drown out the message)

Strategy Vision Values

 Use this part of the report to inform the reader of the character and values of the business

o Clearly describe the strategic goals and objectives of the business in plain language (this is a key feature of the report since risks, opportunities, key performance indicators and targets will all be linked to the strategic objectives of the business)

Governance structure

 Set out the governance structure of the group and the company, including the committee structure

o Provide details on directors (qualifications, experience, age, other Board appointments, etc.)

o Describe the governance structures to manage risk and sustainability respectively

o Governance report should provide clear feedback on the performance of the Board and each committee, as well as specific disclosures as required in terms of King III (composition of the Board, statement on adequacy of internal controls and internal financial controls, ethics performance, etc.)

Stakeholders

 Identify the risks and opportunities facing the business (linked to the strategic objectives)

o Indicate the mitigation plans in place to mitigate the risks and capitalise on opportunities

o Ensure a balance between financial and other risks and opportunities (think people, product, supply chain, governance, and environment)

Key performance indicators and targets

 Identify the key performance indicators as it pertains to the strategy, risks and stakeholder concerns

o Ensure a balance between financial and non-financial indicators

o Identify measurable targets linked to the key performance indicators and report back on the progress to achieve these targets

Remuneration

 Explain the business' remuneration strategy

o How is remuneration used to ensure delivery on the business'

strategy? Include information of long-term and short-term incentives, as well as financial and other incentives

Compliance Checklist

Report content and structure

Question

Y/N

1. Does the Integrated Report demonstrate a clear link between strategy, risk, key performance indicators and targets informed by stakeholders and is this link consistently demonstrated in the Chairman's Report, the Chief Executive Report, the salient features table and the divisional review?

2. Is the risk disclosure balanced with regards to financial, economic, social and environmental risk and has a credible mitigation plan been provided?

3. Is the report written in a concise manner that covers material and relevant matters? (Due to the fragmented nature of the regulations and frameworks currently guiding the various components of an Integrated Report, reports often contain duplicated information. This detracts from the core message and also introduces risk to the company.)

4. Is the boundary of the report as it relates to financial and non-financial information properly explained with reference to specific frameworks and company-specific challenges?

5. Have measurable targets relating to the wider sustainability agenda been set and disclosed?

6. Where summary financial information is provided, has it been reported in accordance with IA5 34: Interim Financial Reporting?

7. Does senior management remuneration disclosure comply with the requirements of the Companies Act, King III and the Integrated Reporting guidelines? Where the company decides not to apply the principles of King III and the Integrated Reporting Discussion Paper, has the rationale been discussed by and documented in the minutes of the Remuneration Committee?

Corporate context

Question

Y/N

1. Does the Integrated Report describe the corporate context of the company in a holistic manner?

2. Is the corporate context communicated in an easy-to-understand format by using maps, diagrams, timelines and other innovative methods?

3. Does the report ascribe to the basic principles of reporting by disclosing the scope, period, limitations and exclusions?

4. Is the intended target audience for the Integrated Report described, as well as the rationale for choosing these stakeholders?

5. Does the report apply and embed qualitative characteristics?

o Is information provided relevant to the user?

o Is information free from bias and material error?

o Is the report understandable to a wide range of stakeholders?

o Is the report comparing information against prior years and/or

industry benchmarks?

o Is the report provided at least on an annual basis?

o Is the information provided of such a nature that it could be

verified by an independent third party?

6. Does the report have a logical structure related to the key messages and information needs of the targeted audience?

7. Is information presented in a visually attractive manner by using charts, pictures, photographs and interactive navigation tools?

8. Does the report provide an executive summary with a balanced overview of the content and key messages?

9. Does the report include quantitative key performance indicators, incorporating historical trends and future targets?

Showing relevance

Question

Y/N

1. Is the stakeholder engagement process robust in identifying the right stakeholders relevant to the organisation?

2. Has the company adopted a framework to enable the assessment and ranking of concerns raised by the stakeholders to assist in the identification of material items?

3. Has the materiality framework and approach been approved by the relevant oversight body before being disclosed?

4. Has the Integrated Report been reviewed to ensure only material items are included in order to reduce the irrelevant information being presented to stakeholders?

Demonstrating commitment and management quality

Question

Y/N

1. Does the organisation present a vision for the future in which sustainability challenges relevant to the organisation are addressed? (It is important that the company's vision seeks to address key sustainability risks and opportunities.)

2. Does the organisation describe a business strategy, with corresponding goals, values and SMART [Specific, measurable, achievable, realistic time- bound] objectives, in response to the sustainability vision?

3. Does the company assess the key risks and opportunities that will influence the organisation's business, and is a credible risk mitigation plan provided?

4. Does the report describe all governance structures in place to manage sustainability matters, as well as roles and responsibilities of function and individual accountabilities?

5. Does the business describe management systems in place for handling sustainability issues? (Companies should explain how sustainability considerations are integrated into these business processes.)

Addressing the sustainable development agenda

Question

Y/N

1. Has compliance with external sustainability standards (such as the UN Global Compact and Global Reporting Initiative) been described and does this include achievements, challenges and progress against the criteria?

2. Have the key achievements and challenges been described when reporting supply chain performance? (Organisations should consider integrating the supply chain into key performance targets and objectives.)

3. Does the report describe how employees are involved or encouraged to be involved in the sustainability strategy and objectives? (The report should also assess the effectiveness and functioning of initiatives and processes that encourage employee involvement.)

4. Does the business describe improvement programmes with civil society? (This should include the outcome of engagements, both positive and negative, and the associated risks and opportunities, where applicable.)

5. Does the company describe innovation that maximises identified opportunities or the mitigation of risks? (Examples can include the design of new products and services, innovative manufacturing processes or new partnerships in the marketplace.)

Achieving credibility

Question

Y/N

1. Is the stakeholder identification methodology sufficiently robust, properly explained and consistent with an acceptable framework?

2. Is the form of stakeholder engagement meaningful and effective and is it properly disclosed?

3. Have the key topics or concerns raised through the stakeholder engagement process been properly recorded and disclosed?

4. Is the company's response to stakeholders concerns appropriate and is it properly disclosed?

5. Does the report contain a good balance of issues, and not only contain matters that reflect well on the organisation?

6. Are the company's soft (electronic) disclosures consistent with the hard copies and are they becoming progressively more dynamic?

7. Has the non-financial information been assured in a cost-effective manner by recognised, credible and knowledgeable people/entities?

Corporate Governance

Question

Y/N

1. Given the Corporate Governance disclosures which are included in the Integrated Report, will stakeholders generally conclude that the company:

a. Has an effective and robust governance structure?

b. Adheres to good governance principles?

c. Has an independent and effective audit committee?

d. Has an effective risk management policy and plan to ensure the identification, management and monitoring of all material risks facing the institution (including IT and compliance risk)?

e. Has a well-positioned, risk-based internal audit function?

f. Has a structured approach to stakeholder engagement, including processes to ensure the identification of key issues for stakeholders and effective communication channels to report on how those issues are addressed?

2. Is it clear from the company's Integrated Report that governance, strategy, risk, performance and sustainability are intrinsically linked?

3. Is it clear from the Integrated Report that the company's governance structures are designed to provide strategic direction to the company, and to ensure the link between strategy, risks and opportunities, and the performance of the company?

4. Does the Integrated Report include an assessment by the board of:

a. The effectiveness of the risk management function?

b. The effectiveness of the system of internal control?

c. The response to IT governance?

d. The integrity of the Integrated Report?

5. Given the link between the codified standard of director conduct (and the risk of personal liability where the standard is not met) and the governance principles embodied in King III, do you feel comfortable that the governance disclosures in the company's Integrated Report illustrate the board's (as well as individual director's) commitment to compliance with the standard?

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