Reporting your way to growth...

by Chris Gibbons

With the recent launch of the International Integrated Reporting Committee, sustainability reporting is moving rapidly up the corporate agenda. For listed companies, in particular, it’s no longer optional. But you don’t have to be a major multinational to make it work for you. Chris Gibbons discovered a small Cape Town clothing company that is fully committed to sustainability and has the results to show for it.

Drive along run-down Voortrekker Road in Cape Town’s windy Maitland and you can almost taste the decay. The chipped plaster, cracked windows and unswept gutters are what’s left of a once lively clothing and textile sector. Now threadbare, its factories supplied South Africa. Generations of the same family, mainly women, often worked side by side, secure in the knowledge that, like food, the nation would always need clothes. Then cheap Chinese imports flooded the market, helped by a stronger rand currency and market liberalisation. Since 2003, according to the SA Clothing and Textile Workers Union, upwards of 70,000 jobs have been lost in the sector. So it’s something of a surprise to turn off the main road, into the bright, clean, white-painted premises of Impahla Clothing. It’s doubly so to learn that this small company is not only hiring, but is also looking to expand its floor space to meet growing demand.

Impahla’s managing director and co-owner, William Hughes, confirms that headcount has grown from 88 people in 2004 when he and his partners invested in the company to its current 180. He reveals that he’s about to hire another 60, possibly more, and has just agreed terms to extend the premises. Impahla is a strategic supplier to German sportswear company, PUMA, and helped by both PUMA and the German Development Corporation (GPZ), has embraced sustainability reporting, as set out by the Global Reporting Initiative (GRI). Clearly, it’s paying off.

Integrated reporting

Unlike its bigger listed counterparts, Impahla Clothing publishes its sustainability report voluntarily. From this year (2010), all JSE-listed companies will be required to produce an Integrated Report, combining both the Financial and Sustainability Reports. This stipulation flows from the work of IoDSA’s Professor Mervyn King and the Committee on Corporate Governance which earlier this year published its third report on Governance. King III, as it’s known, calls for companies to put ‘the financial results in perspective by also reporting on:

  • how a company has, both positively and negatively, impacted on the economic life of the community in which it operated during the year under review; and
  • how the company intends to enhance those positive aspects and eradicate or ameliorate the negative aspects in the year ahead.

King himself explains that a lot of companies have been doing what he calls "green washing - just putting down and ticking boxes on the Global Reporting Initiative indicators. But now companies will have to show that they are integrated. This is not a 'do-good' policy, it is good, hard-nosed business". King offers the example of global brewing giant SABMiller employing water engineers, "because of the realisation of how important water and the future of water, the scarcest commodity on planet earth, is to a brewer." King, a former High Court judge, says companies have also begun to realise that the great shareholder of the modern age is the pension fund. "Pension fund trustees, in order to discharge their obligations, have to make sure that the companies in which they invest have a long-term sustainable future. You cannot tell that just from financial reports."

Sustainable benefits

At Impahla Clothing, money is tight. William Hughes says this year’s sustainability report cost his company R60,000. It’s a chunk of money for such a small operation, to say nothing of equally costly management time, but Hughes says they do it to move closer to stakeholders, like Impahla’s bank, Absa, which likes it very much. It also enables Impahla to approach organisations such as the Department of Trade and Industry, which they’re doing at the moment with regard to a solar energy project. "We can approach the dti, and say, 'here is a report on what we do, it can be tested, it is externally assured, it is not a b&lls*#t document.'"

Hughes is emphatic that Impahla’s commitment to sustainability reporting is not just good PR and marketing. "I am not looking for customers - I do not have the capacity." Nor is it a condition of doing business with PUMA. "But having said that, they want to make all their strategic suppliers do a sustainability report because of our example. It was not a condition of doing business but it was something that was suggested, we grasped it and have taken it on board. Our staff also love the report."

It emerges that there are two key reasons Impahla has embarked on this project. The first, according to Hughes, is a genuine commitment to sustainability. "We are now carbon neutral and have taken out our debt to the environment. We’ve done it for ourselves, not to impress anybody." He remembers South Africa’s crippling series of power cuts in 2008. "It was disastrous here. Every day the lights would go out at two o’clock and we’d sit here for two hours, idle. We want a sustainable business, and that’s why we are currently looking at solar power."

The second reason is the rigor the reporting process has brought to Impahla’s management and measurement systems. People in the clothing industry are "battling big-time" says Hughes, "and sustainability reporting used correctly can help you. It forces you to look at things differently." He lists areas of cost control like water and electricity usage, but also points to far less obvious factors, like staff arriving late. "Late-coming in the Western Cape is quite a problem and there are a number of problems that cause it like poor public transport and lack of personal discipline. We had always looked very closely at our absenteeism rates, but weren’t looking at late-coming. And when we analysed it, we realised that 2% of our production time was being lost in this area." That enabled Impahla to go to the Bargaining Council and the trade union concerned and set 0.5% of the annual wage increase aside as a incentive bonus for on-time arrivals. "It’s an all or nothing incentive, with a target of 1%. If we hit that target, everyone gets the bonus; if we don’t, no one gets. There are big benefits to all of us from the attention to detail."

Staff benefits

Hughes also believes that staff appreciate the structure and discipline that’s in place. He explains the structure of another bonus related to sick leave: "There’s a habit here of staff taking a day from time to time to go shopping. But if they don’t take their sick leave, they get another bonus. Now they think twice about it."

On the health side of the sustainability equation, Impahla, like the bigger players, wants to ensure that staff are not exposed to any risk. Hughes cites a chemical called PPE, used in the process that prints designs onto garments. "We also have occupational health nurses coming in, and for the people using chemicals like PPE, we have their urine tested regularly because these are not nice chemicals." This is not standard industry practice, and Impahla also brings in the City of Cape Town Municipality to test the safety of chemicals going into the drainage system.

"You can definitely crunch the numbers a bit more closely," says Hughes, "especially if you are a bigger company and have shareholders to report to. You can track the efficiencies - look in our report at things like electricity usage and late-coming." But Hughes says there’s more to it than that. "If you become sustainable by - say - reducing your electricity consumption, relying less on the grid, there is more now for the rest of the nation. But there’s a long-term benefit that you can’t measure in rands and cents. In five years’ time, when the lights go out, then you can measure the benefits because that’s when, with no electricity, you’ll have no production. So you are building towards the time when the crunch comes, when you will be better equipped to deal with the future than a company that is just reaping gains as if there were no tomorrow."

It’s a textbook example of how a well-designed business practice - sustainability reporting, placed in the right hands like William Hughes and the team at Impahla - can benefit the company, its owners and staff, to say nothing of the broader community and the environment. It’s also obvious that, by using it wisely, Impahla has created a clear competitive advantage over its rivals. And there’s nothing more sustainable than that!

Useful resources:
Institute of Directors in South Africa
The Institute of Directors in South Africa (IoDSA) is a non-profit organisation that is unique in that it represents directors, professionals, business leaders and those charged with governance duties in their individual capacities in southern Africa.
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