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Sustainability – Why Chief Financial Officers are driving savings and strategy

CFO - Savings and strategy

Meeting the sustainability imperative

“To be profitable going forward we have to invest in sustainability. It’s not an option but a necessity. If this is not done the organisation will not be able to survive in future years.” – CFO, South Africa

This has been a critical year for sustainability and business. At the Rio+20 Corporate Sustainability Forum in June, more than 1,000 corporate leaders pushed for new regulations and measures to incentivise moves to a green economy.

Pending European Union regulations are expected to make certain types of nonfinancial reporting, including environmental reporting, mandatory in the near future. And the International Integrated Reporting Council (IIRC) is putting the finishing touches on its first framework, which is expected to debut in 2013.

Sustainability has obviously arrived on many corporate agendas. And judging from the results of a new Deloitte Touche Tohmatsu Limited (DTTL) study of CFOs, it has also landed squarely on the CFO agenda.

In fact, while sustainability may have taken a back seat to dealing with the global economic malaise of the last few years, it has now emerged as a finance priority not just because of regulations and the push for transparency — but because it has been demonstrated to be a valuable weapon in a CFO’s cost-cutting arsenal.

Read the full report . . . . Sustainability – Why CFOs are driving savings and strategy

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Why sustainability needs to become a strategic item on the C-suite agenda

sustainability

In recent years in industry, there has been a growing momentum towards improving the environment and creating sustainability. An article published in The SA–Mag shares the thoughts of Paul Ben Israel, Leader for Sustainability at Deloitte Consulting Infrastructure and Power Solutions.

Sustainability in the corporate world

Sustainability from a business perspective: the ability to merge corporate economics and long–term shareholder value – needs to become a strategic rather than operational item on the agenda of C–suite executives, says Deloitte.

The basic ‘What if?’ question, will drive companies, many of which presently misunderstand the strategic nature of sustainability and view it primarily as carbon and greenhouse gas emissions, needs more decisive strategic actions.

This change in focus will occur naturally as climate change, environmental pollution and concerns about resources, such as water and biodiversity, and changes in talent perception of companies come to the fore.

The pending water crisis in Gauteng, which is being led by the impacts of acid mine drainage, growth in levels of urbanization, water quality issues at water distributors and lack of infrastructure development, were cases in point.

As water becomes scarcer, the volumes available for production, maintenance and safety will decrease and costs will rise. Industry will be placed in a similar position to that presently being experienced with the supply of electricity.

The challenges of maintaining productivity and managing costs effectively will have the potential of negatively impacting on shareholder value and business competitiveness and sustainability.

There is therefore an inexorable dovetailing between ‘green issues’ concentrated on the environment and business sustainability, which is based on generating profits and creating shareholder value within a competitive economic environment.

The reality is that sustainability is a strategic business imperative. There is no doubt that as more companies move towards putting sustainability issues on the board’s agenda that it will become a major line item at meetings. It should feature on the ‘top–five’ issues of concern of Chief Financial Officers and Chief Executive Officers.

Read the full article . . . .  Sustainability in the corporate world

If you would like a more detailed discussion on corporate sustainability, contact Paul Ben Israel at  pbenisrael@deloitte.co.za

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Sustainable capitalism, corporate reporting and the role of the accounting profession

2012 is the year of Rio+20, a major milestone in a series of conferences on Sustainable Development held by the United Nations. Rio+20 is anticipated to be the largest of them all and will focus on the progress made in tackling sustainability issues since the historic Earth Summit of 1992. It was at this summit, in the same city, that the UN framework convention on climate change was established, among other things.

From a corporate reporting perspective, there is an ongoing impetus to properly operationalise the concept of integrated reporting. It is through the Integrated Report, using the mechanism of integrated reporting, that stewards seek to provide stakeholders with connected information on the broad sustainability of a corporation in the short, medium and long term.

The purpose of this article is to assess the role that corporate reporting, the accounting profession and accounting professionals in South Africa have played and can play to advance sustainable value creation.

The list of challenges currently facing our planet is formidable and in some respects unprecedented and extraordinary. The seventh edition of Global Risks 2012 recently published by the World Economic Forum warns that unsustainable economic imbalances, social inequalities and the possible knock-on effects of other risks may lead to the reversal of the gains of globalisation.

Many of the top-most risks identified clearly relate to broad sustainability issues, and include serious concerns about water supply, food shortages, chronic fiscal imbalances, severe income disparities, extreme volatility in energy and agricultural prices, rising greenhouse gas emissions and a failure to adapt to the effects of climate change.

These challenges impact on the sustainability of our economic and physical future as well as the manner in which we organise ourselves.

Download the paper . . . . Sustainable capitalism, corporate reporting and the role of the accounting profession

If you require a more detailed discussion on integrated Reporting, feel free to contact Bertie Loots or Nirali Shah at bloots@deloitte.co.za or niralishah@deloitte.co.za

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The CIO’s Role in Business Innovation: Sustain or Disrupt?

 

 

 

Should CIOs focus on sustaining innovation, using emerging technologies to improve business efficiency and effectiveness? Or should they lead the charge to apply technology in ways that disrupt business as usual?

We’re at an unusual time in industry: five major forces affecting businesses are all technology-based. These forces – mobility, analytics, social, cloud computing and cyber intelligence – are being combined in new ways, opening the door for sustaining innovations that can improve productivity and drive down costs. These forces can also be used to disrupt “business as usual” to create totally new ways of generating value. So where should CIOs focus their energy and resources?

This is the latest question in a series of debates Deloitte is running off of these blog posts and other social media platforms.

PointCounter-Point
CIOs should sustain the business. Efficiency, effectiveness and regulatory mastery are even more important now. CIOs should focus on sustaining innovations that address today’s growing concerns.CIOs should lead disruption. Social computing, mobility and the cloud aren’t just changing society, they’re disrupting business. Who’s better positioned to help take advantage of these tools than the CIO?
Technology is the fuel, not the driver. Technology enables innovation, but the business should be doing the driving. The CIO should respond to the needs of the business, not the other way around.Technology can break constraints. That’s where innovation happens. The CIO is in a rare position to lead the creation of disruptive business models given technology’s prominence across business.
Immediate returns come from driving down costs. IT is the largest capital expenditure in many companies. Keeping up with technology’s declining cost curve is a full-time job with a high return on investment.You can’t shrink your way to greatness. It’s worth the deliberate sacrifice of some efficiency gains to achieve the potential long-term advantages offered by disruptive innovations.
Chasing disruption is a crapshoot. Better to focus on incremental improvements that are more likely to pay off than risk limited resources on a long shot.The odds are better than you think. Disruptive innovation is just as likely to pay off as sustaining efforts when pursued deliberately and consistently, with a strategy and operational metrics tuned to its specific needs.

Once the debate has run for a few weeks; a full report will be generated which will summarise the thoughts and opinions given.

 

5 questions every CIO should be asking

game changing in technology leaders arena

The game is changing and its changing fast. Technology is one of the most rapidly developing areas of business today and it does not appear to be slowing in the near future. Technology Trends such as Cloud Computing; BYOD and Enterprise Mobility among others are topping most CIO agenda’s across the world. Bill Allison, Deloitte Consulting’s Global Technology Leader was recently in South Africa. Whilst here, Bill shared the top 5 questions that he is asked on a near daily basis – questions that every CIO should be asking to ensure that they are positioning themselves and their organisations correctly for fast-paced and ever developing future.

What follows are those top 5 questions as well as a short summary of the advice that Bill has willingly dispensed.

How do I best manage risk and in doing, avoid failure?

  1. Have a proactive risk discussion with your top 5 – 10 stakeholders-  identify risks, and potential mitigation strategies. Be sure to document them for future reference and planning.
  2. Establish clear, individual risk owners.
  3. Define a simple, closed loop process for identifying, managing and mitigating risk.
  4. Execute risk management/mitigation with dedication and vigor.

How do I make organisational change really happen?

  1. Establish top down executive alignment, and reaffirm regularly and aggressively. If you think there is alignment – think again to be sure!
  2. Gain personal, tangible commitment from top executives.
  3. Gain bottom up commitment through frequent, interesting communication, training, professional development- and don’t forget to answer ‘what’s in it for me?’
  4. Spend appropriate time/money on usability and adoption initiatives.

How do I choose between established, mature vendors when purchasing enterprise software?

  1. Know that TCO will typically be very similar, this is not enough to alter your business decision.
  2. Real feature/functionality will likely be similar enough to not alter your opinion.
  3. Understand the R&D budget/approach and the strategic direction of each vendor.
  4. Get to know the vendor’s top executives- and establish your comfort/discomfort with their vision/ability to execute.
  5. Use your assessment of c & d as a heavy influence of your final choice.

Should I consider rescuing a failed initiative?

  1. Have courage, and consider the option.
  2. Success can often be closer than you might have thought before conducting the analysis.
  3. Make any rescue attempt tangible, visible and aggressive.

How do I best interact with my Board of Directors?

  1. Risk management is often a good topic- and a top agenda item for the board.
  2. Use the outputs from question question 1 above, to prove you are thoughtful, strategic and proactive.

To understand if you are asking the right questions in your organisation; contact Deloitte Consulting’s Technology leader; Kamal Ramsingh; directly.

contact Kamal directly


Which of these questions do you find most relevant to your situation?

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Ten key findings on how Chief Financial Officers are engaging with sustainability

CFOs are engaging with sustainability. That’s the key finding of the 2012 Sustainability and the CFO survey, undertaken on behalf of Deloitte Touche Tohmatsu Limited and its member firms by independent analyst firm Verdantix.

The 250 CFOs surveyed—representing companies with greater than US$1 billion in revenue each, across 14 countries on five continents—painted a clear picture of a CFO function whose attitude toward sustainability is in transition. For much of this group, sustainability is integral to how their businesses run. This paper offers ten key findings on how CFOs are engaging with sustainability.

Download the full paper . . . . Sustainability – CFOs are coming to the table

Contact Shamal Sivasanker at Deloitte Consulting South Africa for a more detailed discussion on sustainability initiatives in Africa. Shamal may be contacted at ssivasanker@deloitte.co.za

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High electricity bills set to choke South African companies

Companies must begin to manage the rising cost of electricity as a strategic issue, as this will have a direct impact on competitiveness.

For a more detailed discussion, feel free to contact Paul Ben-Israel at pbenisrael@deloitte.co.za and Daryl Elliott at delliott@deloitte.co.za

Paul Ben-Israel, Leader for Deloitte Sustainability at Deloitte says South Africa’s move from being a low cost electricity producer because of excess capacity built up in the 1970s, towards a more cost reflective tariff since 1998, means that electricity pricing has a bigger impact on costs and ultimately company profits.

Daryl Elliott Executive Lead for Infrastructure and Power Solutions at Deloitte says that the first step towards managing the cost of electricity is to measure the cost of consumption. “If you can’t measure it, you cannot manage it” he says.

Ben-Israel notes that when a company faces a price rise in any key production factor, it faces two choices. The first is to pass it on to the customer, but that might make a company less price competitive. “The other option is to absorb the cost, which then erodes profit margin, which will invariably impact shareholder investment decisions” he says. Companies thus face the challenge of how to improve their energy intensity by either producing  more from the same amount of electricity or producing at current levels with less electricity. The overall aim is to reduce the electricity to production ratio.

“For individuals and corporates, the certainty and quality of cash flows is critical” says Ben-Israel. He notes that without certainty, long term planning becomes difficult and significantly more unpredicatble. Thus if a mining company for example faces volatile commodity prices, a fluctuating exchange rate and, in the wake of recent events in the platinum mining industry rising labour costs, now also has to deal with spiraling cost of electricity, it may have to shelve or even scrap new projects. Mining and manufacturing are two of the sectors that come to mind as being most affected by electricity as a proportion of its input costs, but all sectors should be looking at managing their costs. ‘“Whether you consume R 1000 or R 100 000 a month, you have to improve
your energy intensity,” he says.

The question of competitiveness is not just faced by companies but by the South African economy as a whole. South Africa’s economy remains energy intensive, with higher energy consumed per unit of Gross Domestic Product (GDP) than developed nations such as Canada, the United Kingdom and Germany, however this is expected for developing or emerging economies. Companies can take a few steps to proactively reduce their cost of electricity or energy consumption in general. Ben-Israel says companies can start by appointing a Sustainability Officer, preferably at board level, to look at overall energy use and the strategic implications of rising costs.

Elliott says companies should also begin to search for an energy efficiency solution.  A long term view towards energy efficiency allows for innovative combinations of technology and funding options to be considered. Part of the solution can be a collective one. For example, companies in close proximity can plan together to create certain off-grid energy solutions or share lessons learnt with each other. Ben-Israel says the solution to sustainable reductions in energy consumption requires a “culture change” not only from corporates, but also from individuals and households.

He says he expects that after the current round of tariff increases for Eskom, where two consecutive 25% increase were followed by 16%, South African households and businesses will have to contend with another three years of increases that are twice or even three times the inflation rate, if all electricity consumers do not come to the party. “We cannot expect Eskom to continue providing for increasing electricity demand without there being a price tag attached”. Elliott notes that the current increases granted to Eskom are “too low”. That is because while they may help cover Eskom’s current build programme of R 300 billion, the tariff increases do not cover the country’s future needs to invest in additional generation capacity. The price tag associated with a nuclear plant is substantial.  Thus the R 13,2 billion profit that Eskom recently declared may seem high, but is actually a very small percentage  of its future investment needs.

Government is playing its part to help towards encouraging electricity saving, but according to Ben-Israel, policy may need to be refined and more creative solutions sought.  The use of tax incentives and tools such as accelerated depreciation for equipment that improves energy efficiency have helped change behaviour, but it seems more needs to be done.  Ben-Israel points to the implementation of regulation 773 of the Electricity Regulation Act as an example of where implementation can be tightened. The regulation was meant to be implemented at the beginning of this year and required that all users who consume more than 1000 kwh per month must install a smart meter. There are currently no enforcement mechanisms for regulation 773.  Government also has measures, such as the Demand Side Management Tariff, in place as well as the environmental levy, but there needs to be a national strategy on how these funds should be used for optimal investment in the electricity sector .

Elliott points out that instead of direct  rebates or subsidies  for example, individual households for installing solar geysers, an option could be to fund a mass installation programme run by accredited companies and have a small repayment built into the electricity bill over a lengthly period. Smart funding solutions will provide consumers with long term protection against rising tariffs. It is believed that through this mechanism, government can enable a more sustainable long term energy efficiency sector, and stand to use funding available for subsidies in a more efficient manner. An added benefit to this is the overall positive contribution to the environment

The current limitation with the policy framework to implement this idea is that Eskom is not a funding institution, and may either have to apply for exemption for the Public Finance Management Act or collaborate with a funder like the Development Bank of Southern Africa (DBSA) or the Industrial Development Corporation (IDC) to realise this dream. But any policy option that is pursued will only succeed if individuals and companies make a conscious effort to change their current paradigms and elect to work together.

For a more detailed discussion, feel free to contact Paul Ben-Israel at pbenisrael@deloitte.co.za and Daryl Elliott at delliott@deloitte.co.za

Why the sustainability imperative is a board level concern

For a large and growing number of customers, suppliers, employees, investors, and others, sustainability has become a key criterion when determining whether or not they wish to be associated with an organisation.

Few other issues are expected to have as significant an effect on organisations, the way they operate, and the products and services they provide as sustainability. Sustainability has been called the next megatrend, which will transform organisations, their markets, and the economy in a way comparable to past megatrends, such as the advent of mass production, the IT revolution, and globalisation.

Issues associated with sustainability include corporate reporting, climate change, resource usage, business sustainability matters, labour and community relations, and more.

For business, sustainability involves ensuring that the negative social and environmental impacts of business activities are reduced so as to be consistent with development in a finite planet. The concepts of sustainable business seeks to combine environmental and social improvements with financial success.

Download the full article . . . .  Why the sustainability imperative is a board level concern

For a more in depth discussion around sustainability, we invite you to chat to Mark Victor (Director – Deloitte Southern Africa Risk Advisory). Mark’s email address is mvictor@deloitte.co.za

The future of sustainability reporting

This report (published by the United Nations Environment Programme, Deloitte and the Centre for Corporate Governance in South Africa), provides an impressive overview of the range of opinions on the future of sustainability reporting. Thought leaders, practitioners and companies were invited to reflect on achievements and speculate about future developments.

If you would like to have a more detailed discussion on the subject of Integrated Reporting, contact Bertie Loots at bloots@deloitte.co.za

Welcome note from Bertie Loots (Leader – Integrated Reporting at Deloitte Southern Africa)

“South African listed companies, which are required by the Johannesburg Stock Exchange to report on the financial, social and environmental sustainability of their operations in accordance with the King Report of Governance for South Africa 2009 (King III) on a “Comply or Explain” basis, have been grappling with the challenge of producing integrated reports since March 2011.

The approach of our firm to this very practical challenge, and opportunity, for companies to tell their story with credibility has been to provide our view, based on empirical examination and analysis, on the state of the actual emerging practice of integrated reporting, and integrated reports, in South Africa. We see our role as active and constructive contributors to both the debate and the process.

This publication of Deloitte, the United Nations Environment Programme and the Centre for Corporate Governance in Africa at the University of Stellenbosch Business School serves to provide an international perspective on integrated reporting, by articulating the views of internationally pre-eminent role players on topical issues associated with integrated reporting and integrated reports.

The pivotal importance of a symbiotic manner of organisation and operation, the reciprocal relationship between sustainability (in all its dimensions) and business models, and the fundamental need of stakeholders to understand what actually happens around the boardroom table come through clearly and consistently. As a result, we believe the content of this publication advances the debate on integrated reporting, and integrated reports, in very important respects.

We do hope that the reader, having read and digested the content, will come to the same conclusion.

Deloitte Southern Africa is grateful, and proud, to have been able to co-sponsor this very timely and topical publication”.

Download the publication . . . . The future of sustainability reporting (2.6 Mb – 142 pages)

If you would like to have a more detailed discussion on the subject of Integrated Reporting, contact Bertie Loots at bloots@deloitte.co.za

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Integrated Reporting practices based on findings from 100 JSE-listed companies

I have provided an introduction below to a publication (which applies to all members of the C-Suite) prepared by the Deloitte Integrated Reporting and Sustainability team, which discusses the state of Integrated Reporting practices in South Africa. The publication contains the key findings of the empirical research conducted on 100 companies listed on the Johannesburg Stock Exchange.

The analysis covered 7 subjects, 58 principles and 160 questions seeking to assess actual performance against good practice. The publication includes practical observations on certain topical subjects which appear to be a challenge for companies. I have provided an excerpt below and will send you the full report upon request.

If you would like to discuss the contents of the report in more detail, please contact Bertie Loots (bloots@deloitte.co.za), Nina le Riche (nleriche@deloitte.co.za), Johan Erasmus (jerasmus@deloitte.co.za) or Jaco Pretorius (japretorius@deloitte.co.za).

Integrated Reporting: Navigating your way to a truly Integrated Report

Integrated Reporting is the new kid on the block … and like many new kids there are great hopes for its future including the ultimate achievement of embedding a strategy that preserves long-term value, simplifying reporting and adding more meaningful information to a wide range of users. But where does the idea come from? What is it trying to do? And what is the current state of development?

And before you think this is just for the accountants, think again. Integrated Reporting aims to incorporate everything from strategy through to risk management; from financial reporting to the inclusion of usage of other capitals (think societal and environmental impacts). And it aspires to meet the needs of a wider group of stakeholders – employees, customers, suppliers and others. So everyone associated with an organisation in a significant way is likely to be touched by it.

At Deloitte, we see Integrated Reporting as enabling a process which enhances and preserves long-term sustainability in all its dimensions, without unduly sacrificing short-term performance. The Integrated Report is in turn an annual report that comprises a holistic and integrated representation of the entity’s efforts to enhance and preserve long-term sustainability in all its dimensions, without unduly sacrificing short-term performance.

Deloitte has released its second quarterly report on the state of Integrated Reporting in South Africa. The report reveals that Integrated Reporting standards have been adopted by more than half of South Africa’s listed companies. Although it is now necessary for these JSE-listed companies to include a statement of compliance with the principles set out in the King Code on Governance Principles (King III) in their annual reports, many companies are still scoring surprisingly low on corporate governance matters.

Download the publication . . . .  Integrated Reporting – Navigating your way to a truly Integrated Report

We value your comments and feedback. If you have any questions, do not hesitate to contact us!

 

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