Sustainability In Business Finance In South Africa Business Essay

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The progressive and extensive increase in stakeholders' and customers' demands has led to the evolution and shift in the paradigm of management thinking. There has been a continuous change in the demands of stakeholders, changes and development in technology as well as significant economic pressures. As a result, there has been a rising propensity for organizations to review their methods and ways of operation. In fact, unprecedented trends are being noted in the corporate strategy adopted particularly in terms of sustainable thinking (Bruwer, 2010). Thus there has been a sudden emergence of the concept of sustainability business that regards the society and ecology within which a business operates. The move by several corporate organizations into sustainable business has been described as "Doing Good to Do Good" and the organizations that embrace corporate philanthropy "Doing Good to Do Well" (Vogel, 2005). The two strategies have counter-pointed with new understanding of Corporate Social Responsibility. Many business organizations have sought to shift their strategy into the adoption of sustainable business practices that do not only increase the value of the firm but also meet the needs of the business stakeholders as well as the environment. In this research report, analysis of the measures undertaken by South African organizations towards sustainable business is considered. The corporate world, South Africa included, has had to shift focus on maximizing value through high profit margins but also the consideration of the society and environmental interests.

There is need for business organizations to adopt practice and thinking based on values. Similarly, business organizations need to embrace ethical standards and responsible behavior in their management so that they can conspicuously and abruptly change the structure and form in which they come to be known (Larson, Teisberg & Johnson, 2000). The challenges on sustainable development in the global business have forced business to rethink their business models and the increase focus on innovative services and products. Sustainable business practice originates from the concept of corporate social responsibility which is regarded as a way of business thinking meant to increase efficiency in the process of delivering quality products to customers (Azapagic, 2004). Moreover, companies are challenged to persistently and continuously seek to differentiate their products to only create loyal consumers but also attract new ones.

Strategies on sustainable citizenship, creation of value as well as fulfillment of stakeholders' needs in business organizations require commitment into approaches towards the creation of sustainable industries and markets. Recent research has provided immense evidence that social standards and environmental sustainability have greatly increased the level of competitiveness of a business organization (Bruwer, 2010). The dominance of the logic on service discourse alongside pursuit of value creation is an indication of the shift in contemporary management thinking. The logic of service delivery entails the shift of paradigm from the neoclassical economists' logic of goods dominance and paying more attention to the delivery of quality services. As such, the logic of service delivery embraces the desire of an organization to align itself with the provision of services and products that are consistent with the needs of the consumers. In spite of the good qualities possessed by the logic of service delivery, the model fails to consider global sustainability in the seriousness it disserves as well as review of business challenges responsible for the development of new business models. Nevertheless, insights acquired from practice of sustainable business offer a chance for the reshaping of strategies that provide a competitive advantage to the organization.

Value creation through sustainable business

The economic forum of the world has engaged businesses, governments as well as major stakeholders in business partnerships in encouraging business practices that contribute to sustainability (Sikken, 2011). Based on the conversations conducted with corporate executives and investors, it is apparent that financial markets are in a very crucial position in fostering successful transition into sustainable business practices. In fact, there has been a major campaign by the forum for world economy to sensitize different firms in diverse industries to participate and support the integration of social, environmental and governmental aspects in every investment decision undertaken. Earlier in 2005, the forum had highlighted diverse propositions on the manner of integrating social and environmental factors in asset allocation as well as investment analysis decisions. Consequently, increased attention by investors towards understanding and evaluating risks of sustainability as well as investment opportunities has tremendously increased (Sikken, 2011). As a matter of fact, it is estimated that 850 investors appended their signatures to the UN-backed responsible performance principles. Moreover, the launch of an internationally recognized reporting committee in 2010 has played a major role in the integration of sustainable reporting in financial reports.

The progress made in the financial reporting and sustainable business, immense hurdles need to be overcome in order to consider sustainable investment in a mainstream perspective. Recent survey on a total of 788 executives demonstrates that the financial market possess immense power that can be harnessed to drive global firms into engaging in sustainable business practices (Sikken, 2011). Furthermore, it is evident from the survey that several executives are of the view that the investors will not factor in the issue of sustainability in their development of models of valuation. However, there is no tangible evidence on the move towards sustainable investment by the investors. Sustainable business is a form of business that takes into account the long-term effects that its actions will have on the environment, governance as well as the surrounding society.

A business organization operating in South Africa has to consider the consequences of its actions on the people living within the society in which it exists, the effects on the governance of the organization as well as impacts it has on the environment. Such a business organization is in a better position to delivery superior financial returns with a high level of risk adjustment. Creation and maintenance of a sustainable business both in the South African context as well as the global contexts in general requires a cautious analysis of investment projects in order to ensure that they are in line with sustainability goals. Moreover, sustainable investing incorporates the aspects of risk-adjustment in the financial returns making it more superior to investment which is "socially responsible" and "impact investing" (Gilbert, Leibold & Probst, 2002). Based on the UN Principles of Responsible Investing (PRI), the concept of sustainable investment seeks to factor in environmental, governance and social considerations in the process of making decisions on investment. Many business organizations in South Africa today are, more than ever before, laying reasonable emphasis in the consideration of the importance of undertaking sustainable investment decisions.

A firm that pursues to create value through sustainable business practices considers being socially and environmentally responsible and the adoption of business strategies and practices of operation that create a healthier and cleaner world with the ultimate goal of improving profitability (Aras & Crowther, 2008). In fact, corporate strategies on sustainability in business are a reflection of the global pursuit of sustainable development. The South African corporate organizations have not been left behind in the pursuit of global goals. Since 1987 when "Our Common Future" was published, there has been an unprecedented crystallization into the pursuit of sustainable development and many global organizations. The Brundtland commission is in charge of global environmental development (Voelpel, Leibold, & Tekie, 2004). The activities of the commission have steered the process of sustainability in business practices. Moreover, the commission has provided an extensive explanation on sustainable development as one that has the ability to fulfill the present needs while at the same time safeguarding the needs of future generations.

The concept of sustainability business has attracted immense attention among several South African CEOs as well as managers are now focusing on the possibility of improvement present as well as the future returns by undertaking sustainable business practices. As a matter of fact, the firms that are pursuing sustainability are not just being philanthropic by making decisions on whether to choose profitability of environmental responsibility (Visser, 2005). On the contrary, they are seeking to put in place practices that lead to improved efficiency, strategic advantage as well as product differentiation as a result of innovative product offerings. As Porras and Collins (1994) describe, the firms which pursue the adoption of sustainable business practices achieve immense financial benefits for the sole reason of pursuing values that go beyond profit maximization. In this regard it is evident, therefore, that firms that pursue business sustainability attain progressively incremental growth in value.

Sustainability Reporting and the Environment

The realization of the fact that poor corporate governance can result to a complete demise of a firm has led to increased focus on ethical considerations and proper corporate governance. The global trends on corporate governance have played a major role in influencing the practices of South African firms in a large extent (Dawkins & Ngunjiri, 2008)). The concept of sustainability reporting relates to the philosophy that requires firms to not only prepare accurate financial reports to their shareholders but also report on their actions towards environmental sustainability. The concept has been widely recognized as the ""Tipple Bottom Line" form of reporting (McIntosh & Visser, 2006). In fact, financial reporting alone no longer satisfies the needs of different stakeholders of a company. As such, companies are under intense pressure to report all information related to every aspect of their performance. This includes the impacts of its activities on the environment.

A survey by KPMG in 2004 indicated that many South African companies had registered positive result as a result of monitoring and disclosing their issues on sustainability. For instance, several companies surveyed reported a tremendous improvement in the security of their sites and installations due to their participation in sustainability reporting (Sikken, 2011). Similarly, other companies experienced high level of social performance due to goodwill from the community. A research to determine the level of environmental and social auditing as well as financial reporting in annual reports of South African firms listed in Johannesburg Stock Exchange was done by the University Of Stellenbosch Business School. The research established that there was a general improvement in sustainability reporting as from 2004. It also established that there was a trend by various companies to publish additional details concerning their measures towards the implementation of the BEE (Black Economic Empowerment) (Sebhetu, 2010). Finally, the research noticed an increased entrenchment of ethical compliance as well as corporate governance in the culture of various companies.

The propensity of South African companies to embrace sustainability reporting has been greatly influenced by three major factors: King II report, the Johannesburg Stock Exchange Socially Responsible Investment (SRI) and GRI (International Global Reporting Initiative). The 1994 King II Report was instrumental in transforming corporate governance as it ensured that accountability and transparency was upheld in South African public companies. After the revision of the report in 2002, it became a compulsory required for companies to comply with certain aspects of the report. All listed companies had to comply with the requirements or explain for the failure to comply (Ambe, 2010). In the report, sustainability reporting was covered in an in-depth scope with compulsory requirement for companies to give a report on various issues such as safety, transformation, management of environment, ethics, society, as well as sustainable practices. The GRI report is meant to offer global guidelines on sustainability reporting. Being internationally recognized framework for companies to report on their economic, social and environmental performance, most South African public companies have had to comply with them (Merlin & Visser, 2002). The launch of SRI Index in 2004 by JSE has provided a mechanism for identifying the companies that have observed the triple bottom line form of reporting. Thus such companies have registered investment level from the public.

Conclusion

Sustainable business service is a metaphor that can be analyzed by embracing a proactive form of thinking by business managers, business leaders as well as entrepreneurs. The proactive type of thinking will definitely lead to the creation of social values as well as organizational responsibility. The trend towards sustainable business is as a result of the integration between sustainable thinking and business thinking. Businesses can create desirable image and hence value by embracing sustainable business practices. This has the effect of creating image based on value. Listed South African companies are progressively embracing a sustainability form of reporting. Similarly, many companies are publishing sustainability reports in a comprehensive manner at a specific period and giving a summary in the financial reports.

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