South African Governance Legal Framework for Corporate disclosures and reporting: Part 1 – Voluntary sustainability reporting

• Citation: (2022) 34 SA Merc LJ 268
• DOI: https://doi.org/10.47348/SAMLJ/v34/i2a5
• Published date: 01 February 2023
• Pages: 268-292
• Author: Schoeman, W.
• Date: 01 February 2023

JOBNAME: SAMLJ Vol 31 Part 1 PAGE: 1 SESS: 13 OUTPUT: Wed Nov 23 09:50:32 2022 SUM: 3AACFE82

/first/Juta−JM/SA−Merc−2022/SAMLJ−2022−V34−pt2/06Schoeman

SOUTH AFRICAN GOVERNANCE LEGAL

FRAMEWORK FOR CORPORATE

DISCLOSURES AND REPORTING: PART 1 –

VOLUNTARY SUSTAINABILITY REPORTING

WERNER SCHOEMAN*

Lecturer: Mercantile and Labour Law Department,

School of Law, University of Limpopo

Abstract

The general dissatisfaction of shareholders and other users of financial

statements with both voluntary sustainability and mandatory

financial disclosure and reporting, prompt an appeal for increased

government-commanded reporting requirements. State-based standard-

setting and voluntary sustainability reporting within the corporate

jurisprudence must therefore evolve, which includes, among others, the

variety of legal and regulatory standards, their dynamism, and the

manner in which standards can be imposed. Directors and auditors

must act ethically to observe their various functions as regulated by the

Companies Act 71 of 2008 and the Auditing Profession Act 26 of 2005.

National and international companies persistently undermine good

governance. Directors’ and auditors’ failure to comply with ethics can

certainly not continue with impunity. The global trend in the use of

voluntary sustainability reporting highlights the prominence that

auditors play in good corporate governance, although compliance with

voluntary sustainability reporting does not warrant good corporate

governance. Independence of auditors remains contentious in the light of

the funding model of the regulator, working of audit committees,

the connection between directors and companies, and the corporate

governance expectation gap.

Keywords: corporate governance legal framework, voluntary sustainability

reporting, directors, auditors, audit committees, corporate governance

expectation gap

* BCom LLB (PU for CHE) LLM (UL) LLD, Department of Mercantile Law, Faculty of

Law, University of Pretoria. This article is a reworked extract from Schoeman, The Role and

Liability of Auditors in Corporate Disclosures and Reporting: A Legal Analysis (LLD thesis,

University of Pretoria, 2022).

002 - SA Mercantile Law - November 14, 2022

268

https://doi.org/10.47348/SAMLJ/v34/i2a5

(2022) 34 SA Merc LJ 268

© Juta and Company (Pty) Ltd

JOBNAME: SAMLJ Vol 31 Part 1 PAGE: 2 SESS: 13 OUTPUT: Wed Nov 23 09:50:32 2022 SUM: 4B3FD163

/first/Juta−JM/SA−Merc−2022/SAMLJ−2022−V34−pt2/06Schoeman

I INTRODUCTION

The diminution of the rule of law, human rights, corruption, and other

social factors, as measured by quantifiable values have inspired the

reduction of intricate concepts into ‘simple numbers’ over the past two

decades.

1

Therefore, governments have integrated ‘quantitative indica-

tors into performance-based rules, information disclosure regimes, and

self-regulation’ to improve compliance with norms.

2

Effective use of indicators can play a progressively significant part in

regulatory governance, and provide a number of benefits, such as

appraisal of accountability, so as to set standards and norms, evaluate

compliance with dogmas and explicit goals, and weigh execution with

reference to specified objectives.

3

The enduring disgruntlement with the

unsavoury reputation of current voluntary sustainability reporting and

the concomitant appeal for government-commanded reporting

requirements,

4

may be appeased by the use of indicators by auditors

when auditing the corporate responsibility information of companies.

On the other hand, Sarfaty argues that the scholarly silence around the

repercussions of indicators for governance exist because of a disregard of

cogitating the confines when these statistical tools are used in practice,

while adequate consideration of their costs is lacking.

5

Sarfaty’s empiri-

cal study of the Global Reporting Initiative (GRI) confirms the elevation

of box ticking and insincere corporate governance compliance as

potential costs of the implementation of indicators, since the GRI’s

system of reports grades companies based on the quantity of indicators

reported on by companies, rather than the quality of their performance.

Since external verification is optional, the data behind the unverified

indicators are considered untrustworthy.

6

Part I of this article will focus

on assessing the efficacy of the framework for voluntary sustainability

reporting, and Part II will focus on the efficacy of the framework for

mandatory financial disclosure and reporting.

1

Sarfaty, ‘Regulating through numbers: A case study of corporate sustainability reporting’

(2013) 53(3) Virginia Journal of International Law 575 at 576–577.

2

Sarfaty, (2013) 53(3) Virginia Journal of International Law 575 at 576–577.

3

Sarfaty, (2013) 53(3) Virginia Journal of International Law 575 at 577–578.

4

Jebe, ‘Sustainability reporting and new governance: South Africa marks the path to

improved corporate disclosure’ (2015) 23 Cardozo J International and Company Law 233 at

236.

5

Sarfaty, (2013) 53(3) Virginia Journal of International Law 575 at 577–578.

6

Sarfaty, (2013) 53(3) Virginia Journal of International Law 575 at 580–581; Ackers,

‘Corporate social responsibility assurance: how do South African publicly listed companies

compare?’ (2009) 17(2) Meditari Accountancy Research 1at6.

002 - SA Mercantile Law - November 14, 2022

https://doi.org/10.47348/SAMLJ/v34/i2a5

SOUTH AFRICAN GOVERNANCE LEGAL FRAMEWORK 269

© Juta and Company (Pty) Ltd