Case Study - Gold Fields' integrated reporting journey - CPA Journal
Global mining companies are subject to a more complex array of external effects and influences than companies in most other industries. The best way to deal with this is to give as much thought to environmental, social, and governance factors as to operational and financial issues and manage the trade-offs between them; in other words, to manage the company in an integrated manner. Integrated reporting is the most effective way to convey this to the industry’s myriad and sometimes adversarial stakeholders.
As one of the world’s largest gold mining companies, listed on both the Johannesburg Stock Exchange (JSE) and New York Stock Exchange (NYSE) and operating in six countries on four continents, Gold Fields felt that integrated reporting was a natural fit. Being an early adopter of integrated reporting in South Africa, it produced its first integrated report in 2010 and became a pilot company of the International Integrated Reporting Council (IIRC).
Mining, as an extractive industry, has significant effects on the local environment and surrounding communities. Companies such as Gold Fields must date and accurately report these effects; measuring them requires extensive socioeconomic studies that are not yet available. As such, it often seems that miners only report the good news. More companies are starting to use independent consultancies to measure community outcomes, and reporting on these will follow soon.
Motives to Change
Gold Fields’ transition to an integrated report in 2010—it had produced separate sustainability reports since 2003—was prompted in part by international reporting trends, the demands and criticism of stake-holders, and corporate governance trends, as captured by the King Code of Governance for South Africa 2009 (King III). More importantly, mining companies need to be more in touch with environmental, societal, and governmental issues than companies in other sectors; for example, without the tacit support of communities, mines find it difficult to operate. Similarly, many mining companies operate in jurisdictions where the supply and costing of energy is difficult and expensive. Many have thus resorted to or are looking at renewable energies as a more reliable—and eventually cheaper—supply of power. Integrated thinking and integrated reporting are therefore the result of mining realities.
As a result of this external change, internal systems started to adapt, starting with Gold Fields’s risk policy, which now lists both sustainable and nonsustainable development risks for the company, regions, and mines. The risk register is used to determine the company’s strategy, which now reflects the integrated approach. This strategy also works its way into the key performance indicators (KPI) of senior management. Gold Fields’s integrated report is a mirror of the issues faced by the company and dealt with by its senior management teams, whether they are operational, technical, financial, or sustainability related.
Many other issues had to be resolved before the company’s executive and directors considered moving to integrated reporting:
- Getting the sustainability (nonfinancial information such as health, environmental, and community investment data) reporting to the same standard as the financial reporting. This has required a significant investment in human resources, capturing technology, and databases to collate and analyze the data. This project is still ongoing.
- Ensuring that different sustainability data was measured in the same way in different regions and operations. This has been achieved.
- Instituting quarterly auditing by internal auditors and annual auditing by external auditors.
- Breaking down the barriers that existed between financial, operational, and sustainability reporting. This required finding crosscutting themes that required input from all these fields.
The support of the CEO was critical, as he understood the strategic issues. Similarly, the audit committee of the board was an early adopter and now supports extending integrated reporting to quarterly board reports and results, among others.
Conforming with International Standards
Gold Fields’s integrated report took a step forward as the IIRC’s International <IR> Framework (Framework) was finalized in December 2013. Of the framework’s seven guiding principles, of particular relevance to Gold Fields was materiality, which has been critical in the development of the integrated report. Materiality is largely determined through a combination of the major risks confronting the company, the key performance indicators (KPI) in the CEO’s balanced scorecard, and interviews with senior management and external stakeholders ahead of the formulation of the report. In terms of stakeholders, the focus of the report is partly determined through interaction with government and communities by regional executive teams.
The report is structured around the key strategic objectives and material issues facing the company. Key strategic objectives and the responses to them are emphasized throughout the report, but the focus on strategy is most directly addressed in the CEO statement, which includes not only a narrative but also a table of the previous year’s key objectives and how they were addressed, as well as a table of the current year’s objectives.
Material issues are addressed in a number of ways in the report:
- A risk heat map listing the top 10 risks facing the company, regions, and mines, as well as measures to mitigate these risks.
- A table of major stakeholders, the key issues the company engaged them on, and how it responded to these issues during the year.
- The crosscutting sections of the report.
The New Model of Value Creation
The framework defines an integrated report as “a concise communication about how an organization’s strategy, governance, performance, and prospects, in the context of its external environment, lead to the creation of value over the short, medium and long term.” In other words, unlike the traditional interpretation of value, in integrated reporting value is not created by the company alone, but is influenced by the external environment and the relationships with stakeholders, as well as the resources used and affected.
Value creation is a critical element in the development of Gold Fields’s integrated report. When value was defined as creating value for shareholders, financial statements were sufficient. Today, however, most leading gold mining companies have adopted total value creation to reflect positive value creation not just for investors, but also for governments, employees, business partners, and communities. A critical part of value reporting is disclosing the negative impact the company has on both the environment and society. This is often difficult to quantify, and text-based reporting remains the norm.
Integrated reporting also gives Gold Fields a framework for communicating a longer-term vision of performance. This is becoming increasingly important to investors. One of the company’s largest investors is South Africa’s government pension fund, which has a long-term view and asks questions about safety policies, carbon emissions, and social investments in adjacent communities.
Finally, while Gold Fields does not make direct reference to the six capitals, it does report extensively on all the inputs and outputs of the business. An area that will require increased attention in the future is the outcomes of the business, in particular the social and long-term environmental effects. This is often difficult to quantify, as it requires extensive, long-term monitoring and measurement, but this is the kind of commitment companies must make to gauge their effects and, if necessary, mitigate them.
Some challenges remain for Gold Fields. The concepts of integrated reporting and thinking have not been fully embraced by middle management, with some managers not taking responsibility for delivering on nonoperational and nonfinancial issues. At a more senior level, integrated thinking is starting to be firmly entrenched thanks to the inclusion of sustainable development–based KPIs in the scorecard of all senior managers, from the CEO downwards.
Furthermore, the reporting burden is becoming difficult to manage for many listed companies. Reporting against many different frameworks—including the Dow Jones Sustainability Indices, Global Reporting Initiative, Carbon Disclosure Project, and United Nations Global Compact, various International Organization for Standardization and Occupational Health and Safety Assessment Series processes, and numerous requests from environmental, social, and governance rating agencies—has become extremely time consuming and resource intensive. In addition, the information required in these processes does not always fully align with the company’s integrated report. Gold Fields is looking at ways to more efficiently handle its reporting burden by using the integrated report as a basis for the other sustainability frameworks, while reviewing its participation in some of the other standards and frameworks. The company is also looking at how it might open up the process so that the direct views of external stakeholders are reflected. Finally, the company aims to improve its ability to set and report on long-term targets.
Perhaps the biggest challenge is to embed integrated thinking and integrated management within the company. Several companies have managed to report in an integrated manner, but integrated thinking has as yet not been formalized or fully embedded into structured management processes. This remains a work in progress, and Gold Fields continues to actively promote integrated thinking, collaboration, and innovation in the company. This is essential, as the mining industry continues to be in the public spotlight and thus needs to be seen to be even more accountable than other industries.
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