Chief Executive Officer's letter to stakeholders
Italtile's ESG journey: Embedded sustainability
Dear stakeholder
WHY SUSTAINABILITY MATTERS
Sustainability is embedded as a core value in the Italtile business and is a key consideration in our strategic planning and decision-making process. Our Group philosophy is that a well-structured, efficiently implemented ESG strategy makes a significant contribution to the strength of the corporate brands and positions the business to create and unlock sustainable value for all stakeholders. Our products and businesses are increasingly recognised by our customers and other stakeholders for their leading ESG benefits and growing competitive advantage in this regard.
In the year under review, the Group developed a new ESG strategy underpinned by a range of KPIs, which will improve alignment and focus across the business in order to achieve our ESG ambitions.
In the 2024 financial year, we will continue to enhance our positive environmental and social impact and conduct our business to the highest ESG standards while striving to make a meaningful difference to our customers, communities and employees.
HISTORY OF SUSTAINABILITY
Established more than five decades ago, and represented by a national footprint, we are a proudly South African company that strives to play a constructive role in the communities where we operate. We recognise that the Group's longevity is based on the commitment of the people we employ across the business, the positive involvement of our key stakeholders, and the natural environment we operate in - all of which contribute to and support the continued growth of the Group. In this light, we take our responsibility seriously to progress the sustainability of our business and the well-being of the stakeholders who depend on us.
We have a history of environmental and social responsibility leadership. We pride ourselves on reducing our operational impact on the environment through reduced consumption, recycling and waste management. We design and manufacture products that create returns but also generate savings for customers on energy costs, carbon footprint and water consumption.
COMMITMENT TO KEY UNITED NATIONS SUSTAINABLE DEVELOPMENT GOALS (“SDGs”)
Our core values are partnership, empowerment, fairness, human dignity, integrity, excellence, honesty and servant leadership. These values underpin our approach to sustainability and are supported by rigorous ethics, sound governance and exacting risk management processes and structures.
Our efforts to address ESG challenges and contribute to transformation in our business align with the United Nations SDGs to promote sustainability by eliminating extreme poverty, protecting the planet and ensuring prosperity for all. We recognise these SDGs are of vital importance to driving economic growth, addressing social and economic inequality and promoting short, medium and long-term sustainability.
Although not a signatory to the UN Global Compact, we have identified SDGs to which we believe we can contribute the most and have the most impact on. Our contribution to these SDGs is largely determined by the evolving landscape in our operating markets, as well as the interests and issues raised by our stakeholders.
GOAL
End hunger, achieve food security and improved nutrition and promote sustainable agriculture.
GOAL
Ensure healthy lives and promote well-being for all ages.
GOAL
Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all.
GOAL
Achieve gender equality and empower all women and girls.
GOAL
Ensure availability and sustainable management of water and sanitation for all.
GOAL
Ensure access to affordable, reliable, sustainable and modern energy for all.
GOAL
Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all.
GOAL
Build resilient infrastructure, promote inclusive and sustainable industrialisation, and foster innovation.
GOAL
Reduce inequality within and among countries.
GOAL
Make cities and human settlements inclusive, safe, resilient and sustainable.
GOAL
Ensure sustainable consumption and production patterns.
GOAL
Take urgent action to combat climate change and its impacts by regulating emissions and promoting developments in renewable energy.
GOAL
Conserve and sustainably use the oceans, seas and marine resources for sustainable development.
GOAL
Protect, restore and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification, and halt and reverse land degradation and biodiversity loss.
GOAL
Strengthen the means of implementation and revitalise the Global Partnership for Sustainable Development.
JSE SUSTAINABILITY DISCLOSURE GUIDANCE AND CLIMATE DISCLOSURE GUIDANCE
The Board supports the philosophy and intent of the JSE Sustainability and Climate Disclosure Guidance documents that serve as voluntary guidance tools to improve the quality of ESG reporting, and accordingly, has incorporated them in the disclosure gap analysis which is conducted on a regular basis to benchmark the business's reporting standards against best practice.
The Board is satisfied that the following disclosures, as recommended by the guidelines, are being adopted in this report.
Governance - the Board's oversight of sustainability and climate-related impacts, risks and opportunities, and its process for integrating sustainability issues into the overall governance approach.
Strategy - how an assessment of sustainability and climate-related impacts, risks and opportunities has influenced the organisation's strategy, and what impact this has had on the organisation's overall performance, both positive and negative.
Management - how sustainability and climate-related impacts, risks and opportunities are identified, assessed, and integrated into the organisation's management processes.
Metrics, targets, and performance - the performance metrics and targets used by the organisation to measure, monitor, and manage its sustainability and climate impacts, risks and opportunities, and its performance against these metrics and targets.
Reference: information extracted from the JSE Sustainability Disclosure Guidance and Climate Disclosure Guidance.
Note: the reports in this IAR on corporate governance, the environment, remuneration and material risks and opportunities elaborate on our ESG endeavours in terms of governance, strategy, management, metrics and performance.
CONTINUED JOURNEY TO IMPROVED DISCLOSURE AND ENHANCED REPORTING
The Integrated Reporting and Assurance Services provider ("IRAS") conducts an annual review of ESG reporting by JSE-listed companies. Employing their Sustainability Data Transparency Index ("SDTI"), their 2022 methodology rated companies according to 203 key indicators ("disclosures"), including: standard disclosures; economic; governance; labour; health and safety; environmental and CSI/SED.
The Group's results of the 2022 IRAS assessment are summarised below.
Note: the scoring for the 2021 financial year data was adjusted due to the inclusion of 60 new indicators within the 2022 financial year survey (eight scored), and the elimination of scoring for three prior year indicators. All of the new indicators resulted from stakeholder engagement with multiple ESG/Sustainability experts, including 33 that came directly from the JSE's Sustainability Disclosure Guidance launched in the first half of 2022.
IRAS SDTI GAP ANALYSIS: ITALTILE LTD – PERFORMANCE AS A PERCENTAGE
| FY2022 % |
FY2021 % |
|
| OVERALL SCORE | 61,54 | 63,46 |
| Standard disclosures | 37,5 | 25,0 |
| Economic | 80,0 | 86,7 |
| Governance | 77,3 | 77,3 |
| Labour | 42,9 | 50,0 |
| Health and safety | 10,0 | 40,0 |
| Environment | 55,0 | 55,0 |
| CSI/SED | 93,3 | 80,0 |
Although the score of 61,54% declined from 63,46% in 2021, the result qualifies as 'good' as defined by IRAS and substantially exceeds the JSE average score of 50,68%.
In light of the weaker score received on the revised health and safety and labour indicators, effort has been made to expand our disclosure in this regard. The Human Resources and Training report in this document contains substantially more information than in previous years. This enhanced disclosure should result in an improved score in the 2023 assessment.
In order to ensure consistent improvement in reporting standards, management will continue to use the SDTI checklist as an internal gap analysis, in conjunction with other ESG best practice frameworks, as well as the JSE's recently launched disclosure guidelines.
COMMUNICATING OUR ESG MESSAGES
We aim to provide a transparent and consistent message on our performance, our plans to create value, and our ESG progress across our communication channels. We engage with stakeholders to ensure our strategy remains relevant and are cognisant of their changing needs and interests.
We hold regular formal engagements with our largest local and international institutional and private shareholders. We welcome feedback from stakeholders, which can be directed to our Citizenship Manager at: ngubol@italtile.co.za.
PEOPLE
Our stakeholders are interested in how we manage our human capital relationships to achieve mutually beneficial rewards for all parties.
OUR EMPLOYEES
Our policy is to attract the best calibre of people by being the employer of choice in our industry through ensuring our employees are appropriately remunerated, incentivised through profit share, treated with respect and as partners, provided with a safe and rewarding working environment, and are able to grow and develop through training and skills development.
We strive to engage better with our team to address key issues and identify areas for improvement. The engagement scores over the recent years are as follows:
| % | |
| 2023 | 74 |
|---|---|
| 2022 | 75 |
| 2021 | 76 |
| 2020 | 77 |
| 2019 | 74 |
| 2018 | 73 |
We are satisfied with the 74% engagement score achieved in the year under review, given the prevailing low levels of confidence in the country at present and the Group's weaker results.
In our working environments, we strive to comply with the Occupational Health and Safety Act No 85 of 1993 and other relevant legislation, regulations and codes of practice in South Africa and other jurisdictions in which we operate. We conduct regular health and safety audits across all retail stores and supply chain businesses. The independent external safety, health and environment audit that was conducted in the year under review confirmed that improvement was made across the business.
In terms of Ceramic Industries, most of the South African factories undergo the Sedex Member Ethical Trade Audit ("SMETA") - a global social auditing methodology. The SMETA audit process comprises four pillars: labour standards; health and safety; business ethics; and the environment. The audited factories all achieved green status in their audits.
OUR PARTNERS
The management team engages with franchisees on a regular and frequent basis through regional forums; personal contact; call-in and online support; regular store visits; quarterly reviews and annual brand conferences. We regard our franchisees as valued partners, and the low franchisee churn is a clear reflection of the good relationship with them. We have a strong demand for our brands from existing and prospective franchise partners.
OUR LOCAL COMMUNITIES
The Group's CSI programme is conducted through well-planned, structured and well-funded initiatives undertaken by our retail brands and manufacturing businesses. Our franchisees also participate in local community initiatives at their own discretion.
OUR CUSTOMERS
Management is extremely mindful of retaining the loyalty and goodwill of our customers. Our flat organisational structure ensures that line management is hands-on, and also supported by executive management, who frequently conduct site visits to ensure we remain abreast of customer trends and expectations. The Group operates call-in and online support and conducts a range of measures to evaluate customer satisfaction sentiment, including Mystery Shops, in-store Voice of the Customer surveys, Net Promoter Score and ad hoc independent brand health monitoring. Complaints and credits are measured and KPIs aligned to improving the customer experience are in place.
ENVIRONMENT
Our environmental risk reduction plan
Environmental sustainability is core to all our strategies. The Group is committed to minimising the environmental impact of operations for our customers, our staff and all other stakeholders and remains committed to developing and sourcing products that not only require fewer resources to produce, but enable our customers to save water, electricity and waste. We continue to innovate and invest in technology to use our resources more efficiently.
The Group continuously develops its overarching environmental sustainability framework including metrics, targets and reporting. Sustainability forums have been established to monitor progress, innovate and work towards achieving the targets. Improved tracking of relevant metrics against targets is ongoing.
The Group is committed to reducing, reusing, recycling and recovering as a key principle to limit our waste and minimise our contribution to emissions, effluents and landfill.
As in all our business processes, continuous improvement will be required to develop the capabilities we need to deliver on our targets.
ETHICS AND GOVERNANCE
Our investors' primary interests in the realm of governance relate to our conduct and risk management policies, the role of the Board, and remuneration issues related to KPIs and pay for performance.
The Group is committed to honesty, integrity and transparency in all its activities and operations. We believe that a productive workplace is characterised by an environment in which service, efficiency and harmonious teamwork relationships are of primary concern to all.
The Group's Code of Conduct outlines our policies regarding, among others, our human rights stance and management of conflicts of interest. The Group has adopted a formal Code of Business and Ethics, and we strive to ensure our business partners share the same philosophy in terms of ESG matters.
ESG ACCOUNTABILITY STRUCTURE
- The Board is accountable for ensuring key sustainability policies, including the Codes of Conduct and Business and Ethics are communicated, understood and complied with by all Group businesses, employees and associates.
- The Social and Ethics Committee oversees ESG matters on behalf of the Board.
- Responsibility for promoting and implementing ESG policies is delegated to business unit senior management.
