By Jonathon Hanks, writing for Business Day Earth

Sustainable development needs to move from the margins to the mainstream in South Africa’s boardrooms. While some local companies rank amongst the global leaders on sustainability, many still fail to appreciate the strategic business significance of sustainable development.

From April 2011, all companies listed on the Johannesburg Securities Exchange will be required to publish an ‘integrated sustainability report’. While the publication of sustainability reports is not new in South Africa (indeed, a few companies have been producing such reports for almost 15 years), this requirement by King III reflects an understanding and desired approach to sustainable development that contrasts strongly with what has characterised much of the South African corporate response thus far.

Until now, for many companies the publication of a sustainable development report – whether as a stand-alone document or as a section in their annual report – has arguably represented their primary formal engagement on the issue of sustainable development. Along with completing their corporate submissions to the JSE SRI index and the Carbon Disclosure Project, and occasionally fielding requests from a small pool of SRI investors, writing this report is typically the principal sustainability-related task of the often recently appointed ‘sustainability manager’. She (it’s usually a she) frequently juggles this job with what are seen to be the related functions of corporate communications, human resources, black economic empowerment and/or the company’s corporate social investment budget.

Putting it bluntly: for many local companies and investors, sustainable development is not seen to be particularly material to the company’s core strategy. This reflects both a misunderstanding of the full extent of the challenge, and a failure to appreciate the nature of the associated risks and opportunities that sustainability presents.

The King III governance standard – if properly understood and effectively implemented – seeks to change this misunderstanding. By calling for integrated sustainability reporting, the governance code is not requiring companies to simply include a section on sustainability within their annual financial report; this would be nothing more than cosmetic tinkering. Instead, it is asking companies to demonstrate how social, economic and environmental considerations impact on the company’s value drivers and how these issues are being effectively integrated within the company’s core strategy and throughout its operations and sphere of influence.

King III does so because it sees the ‘economic and moral imperative’ of sustainability as one of the most important sources of opportunities and risks for business. Most importantly, King III acknowledges the complexity and systemic nature of the challenge, it concedes that current, incremental changes towards sustainability are not sufficient, and it thus advocates ‘a fundamental shift in the way companies and directors act and organise themselves.’

Sustainable development: A ‘fundamental shift’

The challenges associated with sustainable development are profound, both at a global level and more particularly within South Africa. The country has significant and potentially destabilising social and economic inequality, with one of the world’s highest Gini coefficients reflecting the vastly differing levels of access to resources, nutrition and basic services such as housing, water and energy. Depending on the measures used, currently between 45 and 55% of the population are living in poverty, an increase both in absolute numbers and proportion since the democratic transition in 1994. Unemployment levels remain high, and are being further affected by the current global financial recession.

As with the rest of the world, South Africa is characterised by high levels of resource consumption amongst an affluent few. This consumption – coupled with the demands of a rapidly growing class of aspirant new consumers and with the urgent need for broader economic development – is placing increasingly visible demands on a declining resource base. It is estimated, for example, that by 2025 total demand will exceed the country’s maximum potential yield of water, and there are concerns relating to the quality of the existing water supply. Although South Africa is the third richest country in terms of biodiversity, currently some 34% of the country’s terrestrial ecosystems, and around 82% of river eco-systems, are categorised as threatened.

A recent report by WWF, the global NGO, suggests that South Africa’s current ‘ecological footprint’ exceeds its biocapacity and that the country is thus running ‘an ecological deficit’. This means that we are either using foreign biocapacity for the resources we consume and to absorb the wastes we generate, or we are liquidating our own productive ecosystems by using resources faster than they can be regenerated. Either way, this represents a significant risk to future economic prosperity and societal wellbeing. Although a developing country, South Africa has an extremely high carbon emission level per unit of GDP compared to the rest of the world, and we are seen to be particularly vulnerable to some of the potential physical impacts of climate change.

Addressing the systemic flaws

If we are to be the ‘Re-Generation’ that reshapes a regenerative economy – one that promotes social justice by decoupling economic development from resource use – then we will need leaders who have sufficient imagination, vision and courage to acknowledge and challenge the ‘system flaws’ that underpin our current business and economic models. In his recent bestseller Hot, Flat and Crowded, Thomas Friedman identifies three fundamental flaws that he believes have contributed to the current financial crisis and that, if not addressed, will have potentially catastrophic social and environmental consequences: the systematic underpricing of the true costs and risks of our activities; the pervasive application of ‘the worst sort of business and ecological values’ characterised by ‘a profligate and hedonistic approach to economic life… where the connection between educational achievement, hard work and prosperity is broken’; and the tendency of markets to privatise gains and socialise losses.

Addressing these challenges will not be easy: we have grown up in a generation that appears hard-wired to accept quantitative economic growth as the overriding objective of societal activity and that has become accustomed to price signals that suggest limitless availability of resources, despite the fact that some of the most fundamental feedstocks of the economy – fossil fuels, phosphorous and water – may soon be facing significant supply constraints. Acknowledging and preparing for such challenges places increased responsibility and expectation on forward-looking business leaders.

The SA corporate response to sustainability

In South Africa, the context of the corporate response to societal issues has been significantly influenced by the legacy of colonialism and apartheid, with big business often closely implicated in this history. While there may be some debate about the exact nature of this involvement, it is clear, for instance, that mining companies played an influential role in initiating important aspects of this legacy, including rural land taxes and the migrant labour system. The business submissions to the Truth and Reconciliation Commission – which should be required reading for South African business students – provides a useful reminder of the extent of business complicity in our apartheid past.

At the same time, of course, some in the South African business community sought to ameliorate the worst elements of the apartheid state, with various business leaders and representative bodies playing an important role in the transition to democracy. Arguably, the response of this progressive group of business leaders was informed more by an economic imperative than it was by any moral imperative, with a key driver being the realisation that the human and societal costs of apartheid were destroying the foundation upon which business’s longer-term prosperity depended.

Whatever the motivation, the drive to address that societal challenge is a drive that we need to see from business leaders in addressing the challenges of sustainability. Businesses flourish best in societies that prosper. Unless and until we appreciate the interdependency between economic development, social justice and functioning ecosystems, society’s and business’s longer-term interests will continue to be compromised.

Signs of leadership in the South African business response

While the effective integration of sustainability concerns within corporate strategy is currently limited to a few local companies, there is nevertheless scope for South Africa to demonstrate the leadership on sustainability that it has shown in effecting the transition to democracy.  Ironically, in many respects our apartheid past has provided an important formative basis that will serve us well in addressing the challenges of sustainability: we have talented business leaders who are well versed in running businesses in the context of adversity; we have effective governance and engagement practices inherent in the DNA of many our companies; and we have global entrepreneurs and innovators that have demonstrated the capacity to seize opportunities in a growth-constrained world.

At the recent global conference of the Global Reporting Initiative (GRI), attended by more than 1,000 sustainability practitioners from around the world, Africa was by far the most underrepresented region, with only 15 delegates from the continent, almost all of them from South Africa. Yet these low numbers belie the impact that South Africa is having on the corporate sustainability agenda. If one was to take the GRI gathering as a simple proxy, then one would get a sense of the contribution that South Africa is making in this field: the chairman of the GRI and the Convenor of the GRI’s stakeholder body are both South Africans; the impassioned closing address by the Executive Director of Greenpeace came from a South African; and one of the shared best practice examples of corporate sustainability was given by a leading local company.

Lee Scott, former CEO of Wal-Mart, recently described sustainability as “the single biggest business opportunity of the 21st century and the next main source of competitive advantage.” We need more of South Africa’s board rooms and investors to share this understanding, and fewer of those companies that do little more than pay lip service to the issue, handing it off to a sustainability manager tasked with producing a sustainability report. Ignoring the strategic impact of sustainability will not only be an individual loss to the particular company, but potentially also a collective loss to the country as a whole.