More than just a buzzword for SA’S businesses

MANY in South African business roll their eyes at the word “sustainability”. For some it is a trendy cause that has resulted in pesky regulations and some new lip-service reporting requirements. The reality is that sustainability is one of the most fundamental challenges to business practices since the rise of organised labour first forced employers to consider the welfare of their workforce.

The paradigm of immediate profit generation is now seriously up for revision. Sustainability for the future has become a key part of public and corporate policy, which means company management must now balance the demands of impatient shareholders with a far broader range of stakeholders in a long-term future. So business leaders need to understand thoroughly the concept of sustainability and its legislative and governance implications. At the heart of sustainability is the idea of balancing the present with the future, of seeing the present not as an end itself.

Sustainability is far more than an environmental issue. It represents a complex matrix of concepts that aim to ensure that the business and the people who work in it all have a viable future in every sense.

The King 3 Report on corporate governance says sustainability refers to at least five kinds of capital. The first is human capital — how we sustain the workforce through good health, safety, career paths, personal development and worklife balance. There is much social welfare and labour legislation already in place to ensure the sustainability of SA’s human capital. The maintenance of human capital is expensive — contributions for workers’ compensation, unemployment insurance, skills levies, etc — but we know that without a healthy, trained and motivated workforce, SA’s economic sustainability will come under increasing pressure.

The second is social capital — the value of social networks, of bonding between people, and bridging across diversity, creating a norm of reciprocity. Where there is social capital, there is goodwill between people, which is a valuable resource. Integral to this are good communication systems, fair labour practices and effective dispute resolution.

Third, King 3 talks of manufacturing capital — the investment made by businesses in technology and machinery to ensure they have the technological edge to compete globally. The amount and quality of equipment available and whether it is up to date has a bearing on the productivity of the labour force and the profitability of the enterprise.

Next is natural capital — the extension of the economic notion of capital (manufactured means of production) in relation to the natural environment. Natural capital relates to ecosystems that yield a flow of resources into the future. For example, a stock of trees or fish that provides a source of new trees or fish into the future should be indefinitely sustainable. Natural capital may also provide services such as recycling waste or water catchment and erosion control.

Finally, King 3 talks of economic capital — the amount of risk capital a firm needs to ensure its future sustainability as a going concern. This incorporates market risk, credit risk and operational risk.

So the initial “triple bottom line” approach adopted by earlier King reports (people, financial issues, environment) has been overtaken by this subsequent model of the five “capitals”, which provides an approach within which a business can frame strategic and operational management decisions.

The report sees that directors have a responsibility to educate shareholders on the value of viewing returns over the longer term and recognising that value in areas other than the financial contribute to the organisation’s ability to continue operating in a dynamic economic, environmental and social context.

Unions and employees have their own responsibilities in terms of sustainability and have to learn to sacrifice some shortterm rewards for a longer-term benefit — but that just highlights the need for management to adopt what King 3 calls a stakeholder-inclusive approach to corporate governance and to seek a corporate citizenship that “implies an ethical relationship of responsibility between the company and the society in which it operates”.

Now, more than ever, there is a need for the kind of collaborative decisionmaking (as opposed to adversarialism) that results in sustainable workplaces.

Rycroft is the head of the department of commercial law at the University of Cape Town.