Sustainability and integrated reporting : an analysis of the audit committee's oversight role

Abstract

Sustainability has been described as the primary moral and economic imperative of the twenty-first century and one of the most important sources of both opportunities and risks for businesses. Companies are also expected to behave, and be seen to behave, as responsible corporate citizens that is, as protecting, enhancing and investing in the wellbeing of the economy, society and the natural environment in which they do business. Accordingly the need exists for accurate, reliable and credible stakeholder reporting by organisations on their economic, social and environmental performances and achievements. An effectively functioning audit committee can play an important role in this regard to assist the board in providing accurate and credible sustainability reporting and disclosures that are integrated with the company's financial reporting. The objective of the article is twofold: it aims, firstly, to provide a brief overview of the development of sustainability and sustainability reporting and the role that audit committees can fulfil in this regard; and, secondly, its intention is to provide evidence that the recommendations of the third Report on Corporate Governance for South Africa (King III) regarding sustainability reporting, assurance and the audit committee's oversight responsibility for this are justified. This is done through a literature review of current sustainability and audit committee developments and practices, and this is supported by empirical evidence obtained from assessing the annual reports and questionnaires sent to the audit committee chairs of the Top 40 listed companies in South Africa. The main findings of the study are that the majority of audit committees at the largest listed companies in South Africa are not taking oversight responsibility for sustainability reporting on their boards' behalf, although they are dealing with some ethical and social reporting aspects. It was also found that reporting by companies in their annual reports on their audit committee's corporate governance, social and sustainability oversight responsibilities was limited and does not reflect the true state of affairs. These findings are of significance, as they provide support for the recommendations of King III (effective from 1 March 2010) that companies should in future provide integrated reporting in terms of both their finances and sustainability, and that the audit committee should take oversight responsibility for this. The study is of specific relevance for Africa with its rich mineral resources, as it is of vital importance that companies that do business on the continent behave as responsible corporate citizens, respect the environment and society, and provide accurate, reliable and credible reporting on their financial and sustainability performance to all of their stakeholders.