Social accounting champions

By Andrea Di Turi 

This time it is neither the United States nor Europe leading the way but South Africa. And for once it is not South Africa’s World Cup hitting the headlines but its Stock Exchange. Why? Because it has just approved an innovative regulation that requires companies to include social and environmental concerns in their integrated reports.

Normally, the reports required by Stock Exchanges when listing companies cover economic and financial matters. But as of June, SEJ Limited, Africa’s largest stock exchange requires companies to produce a King report on governance (III) with detailed reports of their social and environmental impacts. The report is named after Professor Mervyn King, who chaired the committee which drew up the document.

“The integrated report is the evolution of the financial report”, declared King, former judge on the Supreme Court, “and it is important to highlight that the integrated report does not substitute the financial report, rather, it reflects the evolution of and role of enterprises in society”.

World leaders

In 2004 the Johannesburg Stock Exchange introduced the first Socially Responsible Investment Index (JSE Sri Index); today it is the only Stock Exchange in the world to require environmental and social information about the companies it lists. Its example may soon be followed by the Canadian Stock Exchange in Toronto.

As of 2002, France requires companies to include social and environmental impact reports in their annual budget report. And in the UK there are similar requirements in the 2006 British Company’s Act. At the beginning of this year the Securities and Exchange Commission had highlighted the need for companies listed on the stock market to provide information on the impact of climate change on their businesses. But until today no one had foreseen such a strict and specific requirement as the production of an integrated environmental and social report.

Complain or explain

The drawing up of the report follows a “complain or explain” formula, which means that if the company does not expect to meet certain criteria, it needs to explain why not.

Now that the regulation has been approved, one problem remains: what reporting model should be used? For this reason the Integrated Reporting Committee (IRC) has been created. Made up of representatives of various South African organisations active in the financial, accounting and industrial fields and including the SEJ, the committee will be in charge of establishing guidelines. Another committee is working on the same issue as well. It is an international committee, appropriately called the International Integrated Reporting Committee. This shows that the model of the simple balance sheet is going to be soon overcome.