A company founded in 1878, Sri Lanka-based conglomerate Hayleys has within the past three years strategically increased its emphasis on sustainability and environmental, social, and governance (ESG) efforts, with an additional focus on strengthening disclosure reporting.
“This is a company [that] has extensive interests across communities, throughout agricultural smallholder networks, and diverse value chains,” said Prashani Illangasekera, ACMA, CGMA, general manager, Group ESG at Hayleys. “These concepts and the ethos of creating value beyond shareholders has always been part of who we are [at Hayleys].”
In 2022, Hayleys formulated its ESG road map and action plan, Hayleys Lifecode, which is rooted in the UN’s Sustainable Development Goals (SDGs). Additionally, to strengthen the organisation’s internal ESG governance structure, it created a central Group ESG division that now reports to the Group CFO.
Monitoring metrics and analysing data on energy and water consumption, waste generation, emissions, human resource indicators, and other ESG initiatives as part of this reporting push is complicated, given the diversity and breadth of Hayleys’ business interests: Hayleys has more than 170 companies, spanning 16 sectors that include transportation and logistics, purification solutions, glove manufacturing, textile manufacturing, and plantations and agriculture. Hayleys Group accounted for 5.5% of Sri Lanka’s export income in 2022–2023.
The biggest challenges, according to Illangasekera, are efficient data aggregation, ensuring data integrity, and remaining compliant with evolving reporting standards and frameworks. “Consistency and centralising operations are key,” she said.
Illangasekera shared with FM Hayleys’ approach to ESG and sustainability, the finance team’s involvement and reporting efforts, and three lessons for how CFOs can support their organisation’s ESG initiatives. (See also the sidebar, “Integrated Reporting and Sustainable Businesses”.)
Illangasekera’s responses have been edited for length and clarity.
What is Hayleys’ approach to ESG overall — the big picture?
Prashani Illangasekera: ESG is part of who we are. In terms of formalising sustainability and ESG, we’ve really strengthened our ESG governance structure. We established an ESG Steering Committee with board and GMC (Group Management Committee) representation. Governing the Hayleys Group, we have the board of directors, and the Group Management Committee (GMC), which includes all the business heads from our 16 sectors, the Group CFO, the head of HR, and legal.
It is through the Steering Committee that ESG is really driven in a strategic way across our companies.
How is Hayleys working with companies in its Group to advance ESG initiatives?
Illangasekera: The Hayleys Lifecode centres on the key environmental, social, and governance areas that we want to focus on as a group. On the environmental side, we have energy, climate, biodiversity, wastewater, and materials. Then on the social pillar, we have employees, health and safety, customers, suppliers, and communities. On governance, we have ethics, stakeholder engagement, transparency, and anti-corruption.
All sectors are completing their own ESG road maps and setting their own targets, which are aligned to the Hayleys Lifecode — and our larger sectors have already achieved this.
If you look at our sectors, they are very independent business units on their own. They have their own boards and very strong leadership teams. Sometimes it’s difficult to harmonise ESG aspirations across all these companies, but that’s what we are trying to do from the centre.
In terms of implementation and how it happens practically, we have ESG champions in each sector. Some of them are dedicated roles; some of them are actually ESG teams. All policies, standards, procedures, and Group-wide initiatives are cascaded down to sectors, ensuring that we are all working towards the same goals.
What role is finance playing in this?
Illangasekera: A few years ago, with the developments in reporting, the sustainability function was brought under the CFO. Now I report directly to the Group CFO who also functions as the head of Group ESG.
That has really helped in terms of improving the discipline of reporting. When you are a finance person, you look at numbers differently and are able to spot anything that is slightly off.
We are trying to replicate this model across our sectors as well. In several of our sectors the finance director or CFO is the person responsible for sustainability. With the shift to IFRS S1 and S2 standards, we have looked to strengthen the role of the finance person in sustainability reporting.
The finance and sustainability teams have to come together because the new standards are essentially looking at the financial implications of sustainability related risks and opportunities.
To what extent are Hayleys’ finance teams working with its suppliers on ESG?
Illangasekera: This is an area that we can make a lot of progress on. Within the Hayleys Lifecode, we included a target on supplier assessment — environmental and social assessment of all suppliers.
There is a lot of work at the grassroots level, within our export manufacturing sectors. For example, our agriculture sector sources from more than 11,000 out-growers in rural communities. The sector works with these out-growers in giving them the inputs, in providing capacity building for sustainable agriculture.
We have a value-added glove manufacturing arm holding about 5% of the global market share for its products. It has a network of about 5,000 rubber farmers. There is an ongoing programme called DPL Firstlight, which promotes ethical sourcing of rubber, and again there’s a lot of capacity building.
There’s a lot of investments in community development to strengthen this relationship with the suppliers, but we also ensure that there’s a lot of knowledge sharing that happens.
How is new technology a part of this?
Illangasekera: When we started this journey, data capture spreadsheets were used. These worksheets were circulated to all the companies, who would then fill out the data and send it back to the centre.
But with the evolution of the Group, we acquired new sectors and evolved our reporting frameworks. Reporting became increasingly more complex and became sector-specific as well. For example, with the sector-specific guidance from Global Reporting Initiative (GRI) and Sustainability Accounting Standards Board (SASB), there is an array of sector-level disclosures that are required.
As a result of this, Hayleys developed its own digitised sustainability information system through its own softwaredeveloping arm. This is called the Hayleys Cube, and the Cube now lets users across all our facilities input data into a web-based system. It is aggregated here at the central level.
With spreadsheets, it is challenging to manually consolidate over 170 companies. You also can’t assess the accuracy or the integrity of the information. The system has really helped with that because when there are significant variations in the data, the system flags it and asks, “Are you sure this number is correct?”
What ESG reporting frameworks does the company use? How has that changed, and what are planned changes ahead?
Illangasekera: I think like most companies that started sustainability reporting, we commenced this journey with the GRI Standards and adopted the new revisions whenever there were changes. We were one of the first adopters of the new standards in Sri Lanka two years ago.
In addition to that, we started reporting on the International Integrated Reporting Framework. We also adopted several industry standards of SASB and recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD). We are still at early stages of TCFD reporting and are looking to improve our disclosures in the future.
But the challenge for us is the complexity of our group and the fact that our scope is constantly evolving. There are always new acquisitions, new developments, and those have to be brought into our reporting system as well. That has been the challenge.
We are also looking to voluntarily adopt IFRS S1 and S2 in the next reporting cycle. There’s a lot of work going on now on transitioning to those two standards.
And what are lessons for CFOs in other organisations?
Illangasekera: Firstly, I think CFOs need to adopt a long-term approach. In terms of long-term performance, social and environmental risks are now critical in risk landscapes. CFOs need to start understanding this and looking at profit beyond one or two years, to five or ten years down the line, where the implications of climate change and other natural events will have serious implications.
Secondly, CFOs need to start looking at the connectivity between the “nonfinancial” numbers and the financials.
At Hayleys, we like to refer to the “nonfinancial” indicators as prefinancials because these are the things that ultimately determine your financial performance. How much energy are you consuming? How efficient is your energy usage? What is your water intake? All that determines your financial performance, and so we need our teams to start seeing that link.
The third lesson is that the finance unit must play an increasing role in [sustainability- related financial] reporting. Here at Hayleys, the annual report is done centrally by my team and the finance team together.
What further advice would you have for finance leaders on approaching ESG?
Illangasekera: In general, finance leaders need to start building their curiosity to understand this systems perspective and how many external factors are now shaping performance. These are areas that finance leaders need to start exploring and understanding to build sustainable and resilient businesses.
Sustainability and ESG has evolved from being a good corporate citizen and looking good to being a determinant of the actual commercial sustainability of your business. How are you going to manage the environmental and social risks that are inevitable in your operations?
For finance leaders, broadening their perspective now is critical.
How do you see the future direction of ESG reporting from a Sri Lankan and global perspective?
Illangasekera: As someone who’s been in reporting for a while, this alphabet soup of frameworks has added so much complexity, and it is really challenging for a company like us. You have to maintain integrity, while making sure that we are meeting the different information needs of our diverse stakeholders and reporting frameworks.
So, there’s a lot of effort, resources, tech, and processes that are required. The introduction of the IFRS standards, which are meant to be a consistent global reporting standard for everyone, are absolutely needed.
I think it will take time for companies to fully adopt because there are a lot of complexities involved. For example, IFRS S2 is on climate change, and it requires climate scenario analysis. So, for example, if global temperatures increase by 2% or two degrees, what is the impact on your revenue, on your cost, on your profitability? Thousands of variables can affect that. You need to have complex modelling capabilities to do this sort of scenario analysis.
These platforms and software are usually very expensive for local corporates, so this technology and information gap is a significant challenge.
There is a significant knowledge gap as well. It will be challenging getting there, and I think it’ll take probably the next three or four years for companies to really start getting into the groove with the new IFRS standards.
Globally, investors have called for consistency in reporting, and definitely this is a step in the right direction.
Integrated reporting and sustainable businesses
An integrated report tells a more complete story of how an enterprise creates value over the short, medium, and long term. It creates a holistic narrative of an enterprise beyond the financials and helps the organisation join the dots across silos, driving integrated thinking, planning, and performance.
Integrated reporting incorporates material sustainability-related information and provides meaningful insights into an organisation’s use of and impacts on tangible capital, such as financial and manufactured, as well as the intangible elements of an enterprise, such as its human, intellectual, social and relationship, and natural capital.
The sustainability disclosure standards IFRS S1 and S2 issued by the International Sustainability Standards Board build on the concepts of the Integrated Reporting Framework. When used with these standards, integrated reports provide decision-useful information to providers of capital and help improve the efficiency of capital markets through higher-quality information relating to the business model, risks and opportunities, strategy and resource allocation, and performance and prospects of an enterprise.
Jamie Roessner is a senior content writer at AICPA & CIMA, together as the Association of International Certified Professional Accountants. To comment on this article or to suggest an idea for another article, contact Oliver Rowe at Oliver.Rowe@aicpa-cima.com.
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AICPA & CIMA RESOURCES
Articles
“ESG Becomes Top Priority for Finance Leaders”, FM magazine, 13 November 2023
“Are You Incentivising Climate Destruction?”, FM magazine, 10 May 2023
“How CFOs Are Handling the Push for More ESG Reporting”, FM magazine, 7 February 2023
Accounting standards guidance
Climate and Sustainability/ESG page on the AICPA & CIMA website