Johannesburg, Tuesday, 13 April 2010 - Business can no longer be conducted as usual because the past 150 years of take, make and waste has depleted the world's natural capital.
The problem has been exacerbated by three parallel crises, said corporate governance icon Professor Mervyn King at an integrated reporting seminar hosted by the South African Institute of Chartered Accountants (SAICA) in Johannesburg today.
He identified the three crises as:
"The new economy of today is characterised by business unusual, whereby we have no option but to make more with less. Governance, strategy and sustainability are inseparable."
Hence the emergence of the King III Code on Governance, which will become a JSE listings requirement from June 2010.
The integrated report requirement of King III calls for integratedfor integrated financial and non-financial reporting.
"The key word here is integrated. While the separate outcomes on financial and non-financial performance measures are important, equally important is the relationship between them."
He maintained that traditional accounting and reporting emphasised discrete assets, presenting them as additive rather than interdependent. "In the modern economy, it is increasingly the interaction among assets - people, technology, capital, networks - that drives creation."
King said that integrated reporting embodied the concept that economic value was not equal to book value, with the former reflecting issues like:
He believed that there was a growing awareness of the reality of sustainability issues owing largely to the publicity being accorded to climate change, with, increasingly, a realisation that without water there could be no existence; that the rate of human pollution was outstripping our capacity to "purify naturally".
King stressed that integrated reporting was also good for business, because among other things it helped raise capital more cheaply, retained skilled employees, and engendered loyalty and pride.
"Financial information alone is not sufficient for informed assessments on how a company positively and negatively impacts on a community economically, socially, and environmentally. Nor does it demonstrate how the company will enhance the positive aspects and eradicate or ameliorate the negative aspects.
"In short, corporate reporting is not what it used to be."
He emphasised the new approach's need to focus on accountability, responsibility and assurance.
"There must be an inclusive approach to governance, with boards assuming responsibility for citizenship. Integrated reporting, which creates responsibility, goes a long way toward satisfying stakeholders' need for continued trust and confidence."
But, King cautioned, all the positive aspects of such an approach would be futile unless they were independently assured. It was in this context that the auditing profession had to equip itself; it needed to upskill to assure the credibility of integrated reporting.
"Assurance must be meaningful, credible and cover comparable information on impacts on the economy, society and the environment."
King recommended that a corporate mindset change be embraced in order to integrate sustainability and the company's strategic long-term direction.
Source: SAICA
