Professor Mervyn King: an imperative for business

Professor Mervyn King is Chair of the Board of Directors at General Reporting Initiative (GRI) and one of the foremost authorities in the area of sustainability. His views and recommendations are sought by business leaders around the globe. We asked him for his view on how sustainability is shaping business and what its impact will be in the future.

How has sustainability transformed the way businesses operate during the last decade?
Mindsets have changed tremendously and continue to do so. For over 150 years we’ve had a ‘take, make and waste’ economy based on two false assumptions: a) that planet earth had infinite resources and; b) that planet earth had an infinite capacity to absorb waste. We now know that this is not the case.

If mindsets have changed, is there now a greater urgency to achieve sustainability than before?
Yes there is. Consider that businesses today face the same challenges as society at large: the financial crisis, the climate change crisis and ecological overshoot. What this means is that the most forward-thinking companies have begun implementing far-reaching and long-term sustainability initiatives that address these last two areas.

What does this mean for the average business which may not have developed a comprehensive approach to sustainability?
These companies risk placing themselves at a disadvantage in the longer term. The integration of sustainability within a company’s overall strategy is now an imperative for any business that wishes to be successful in ten years time. This is not only about making sure that your operations are generating a lower environmental impact but that your products and services, as well as your financial position, are also sustainable in the long-term.

So how are companies responding to stakeholder pressure?
They are increasingly following responsible investment codes so that stakeholders are well-informed as to whether a business is sustainable or not – something you can’t tell from a balance sheet. The other is that companies now have supply chain codes of conduct and they should be published as stakeholders want to know the traceability of products. What is required is a holistic approach to sustainability.

Would companies benefit from an external advisor to achieve this?
The benefit of an external advisor is that they can bring in sustainability expertise that might not exist in-house. However, sustainability has to be endorsed and driven at the highest level and then embedded throughout the organisation and that is something that only the board and management can achieve.

The way companies communicate this has also evolved, hasn’t it?
Yes. To begin with, we were taught to report as though the only end user was an investment analyst and thus we conveyed messages that were ridden with corporate, legal and accounting jargon. Now we know that we must report in clear and concise language that any stakeholder can understand. What people have to realise is that we’re not replacing financial reporting, we’re evolving it, and this has always happened in response to both world and economic events.

‘Sustainability has to be endorsed and driven at the highest level and then embedded throughout the organisation’

Is it both internal and external stakeholders who are pushing boards to change their reporting habits?
Yes, although boards increasingly realise that they also benefit by doing so. Today, big multinational companies have a huge impact on society and the environment and thus directors have a duty to report this impact and detail what is being done to improve or reduce it, where relevant.

Is there a role for external auditors in this field?
Absolutely, the external auditor provides the assurance check, through the advice they give and the external audit. However, the integrated knowledge required for this holistic view exposes the external auditor to greater risk today because they are giving assurance on a wider field of issues, which are not clearly standardised and measured.

So accountancy is likely to change?
It will, because we have to encourage a broader integration of skill sets, whereby the knowledge of the auditor is not purely financial. In essence this means that they have to learn a new syllabus as they need to understand an integrated report. It’s a huge challenge but at the same time, an exciting opportunity.

What has been the impact of the King III Code (of corporate governance) since its publication last year?
King III has been described as being at the global forefront of governance. Companies were reporting in a silo, instead of showing how sustainability was integrated into their strategic thinking and embedded into company operations - King III clarifies the need to do this.

Is that why is it important to adhere specifically to a reporting framework such as GRI?
It doesn’t have to be GRI – although we recommend it as the best framework – but you can use any standard as long as you report and explain the impact your operations are having on society, financially and the environment. You must also demonstrate how sustainability has been incorporated into your long-term strategy.

Biography

Professor Mervyn King is Chairman of the Global Reporting Initiative (GRI), based in Amsterdam.

A Senior Counsel and former Judge of the Supreme Court of South Africa, he has consulted, advised and spoken on legal, business, advertising, sustainability and corporate governance issues in 43 countries and received many awards. Currently, he is also Chairman of the Asian Centre of Corporate Governance, the United Nations Committee on Governance and Oversight, and of Strate – the settlement arm of trades in equities, money market instruments and bonds in South Africa. Professor King is the author of Transient Caretakers and The Corporate Citizen.