by François Masquelier, Head of Corporate Finance and Treasury, RTL Group, and Honorary Chairman, European Association of Corporate Treasurers
A number of somewhat avant-garde multinationals have realised how far one single document, combining structured and comprehensive communication on financial and non-financial performance, can take them in projecting an image of innovation and in demonstrating real determination to be right up to date. This more co-ordinated and consolidated approach to communication also demonstrates that they want to create a company that is more sustainable in the long run. Doing it is great. Communicating it is even better. Publicising it in a more organised way is ideal. Sometimes it is more the form than the content that will give the impression of pioneering spirit. Some large international groups have understood this – for instance Philips and PepsiCo – and they try to show the readers of their annual reports that they are at the forefront of ‘social responsibility’ and that sustainability goes hand-in-hand with finance.
“It’s no use saying ‘we are doing our best’. You have got to succeed in doing what is necessary”
The concept of a single integrated report explaining financial and non-financial performance (ESG – Environmental, Social and Governance) is not just a passing fad. It would in fact be reasonable to expect that, in time, this type of report will be required by the various national and international regulators. In this respect, South Africa (RSA) has been right in the forefront since 1 March 2010, adopting the requirement to issue an integrated report. With ‘King III’ (the King Report on Governance for South Africa 2009), it is now a requirement to produce a report of this type. The aim of this legislation is to see that the Republic of South Africa continues to be a leader in corporate governance standards and practices. The aim is to spur companies on and to put the financial results into perspective, showing how they had a positive or negative effect on the economic life of the communities in which they operate. Alternatively, companies should show how they plan to eradicate the adverse effects in future, or at least minimise them. By this pioneering adoption, South Africa hopes to produce a domino effect. It is interesting to note that, as with ERM (Enterprise Risk Management), it has been more exotic or far-flung countries, such as New Zealand and Australia, that have set the pace. We should also note that South African companies are excited by the idea of making a positive contribution to this sustainability drive.
How things stand now
For a few years now, listed companies have had to report their financial results according to high-quality international standards – IFRS or US GAAP. We have sung the praises of the comparability that results from standardisation and financial transparency. This is one of the foundations needed for efficient capital markets. These financial reports naturally draw their institutional legitimacy from various factors such as the need for statutory audit, the effectiveness of mechanisms for preventing fraud, from internal controls, performance metrics, investor information, consolidated and condensed accounts.