MATERIAL MATTERS

INTRODUCTION

Our definition of materiality with regard to integrated reporting and the process followed for determining material issues, are based on the published guidelines of the IIRC. These take into account our strategic intent and operating context as a state-owned enterprise (SOE), as well as the guidelines of the International Federation of Accountants (IFAC) and the Global Reporting Initiative (GRI).

Our executive management is responsible for managing the material issues in a structured way and ensures that the list remains current and relevant. The Board Audit Committee (BAC) validates the list of material issues.

OUR DEFINITION OF MATERIALITY

We consider a matter to be material if it supports our strategic goals as a state-owned development finance institution and has the potential to substantially affect our ability to create and sustain value in the short, medium and long term.

CREATING VALUE

As a key implementer of relevant government policies, we support our shareholder, the State, through its shareholder representative, the Minister of Economic Development, in achieving our mandate and delivering on our goals.

OUR MATERIALITY DETERMINATION PROCESS

A range of external and internal influences is taken into account, and a matter is considered to be relevant if it is deemed worthy to the appropriate stakeholders, if it links to significant risks confronting the IDC, or if it lies at the heart of our strategies. Issues that could substantially impact our ability to create financial value and deliver development returns over time are also considered to be material.

In addition to stakeholder consultations and engagements, we conduct research into industry best practice and the reporting themes and practices of our contemporaries. The process ends with a validation of the outcomes and confirmation of compliance with the requirements of the relevant frameworks.

We rely on existing, ongoing engagement mechanisms with stakeholders to gather feedback for our integrated report content.

The 11 material issues identified in 2013 were merged into five during 2015. These were revisited during the year under review to test their continued relevance. A revised list of seven material issues emerged from this process and these are introduced in this report.

STRATEGY

Strategic priorities for the year are identified during Board strategy and business planning sessions. The strategic imperatives rest on our strategic pillars.

KEY RISKS

Top risks are identified and evaluated in terms of magnitude and likelihood. Issues that could substantially affect value creation are identified and linked to strategy, governance, performance and prospects. Our risk management process and key risks are outlined on pages 10, 11 and 64 of this report.

STAKEHOLDERS

Key to the process of determining our material issues is an in-depth understanding of our stakeholders and the information they require to evaluate our performance.

The issues identified by stakeholders are prioritised on the basis of their significance in terms of our economic, environmental and social impacts. The issues with the highest priority are the material issues, which we judge necessary to report.

STAKEHOLDER ENGAGEMENT OBJECTIVES

Our Stakeholder Engagement Policy recognises the following objectives:

  • To identify, focus on and deepen stakeholder relationships
  • To create a better understanding of stakeholder needs, leading to positive stakeholder perceptions
  • To influence the social, economic and environmental policy framework within which the IDC operates to enable industrial development
  • To increase engagement with sector players for better coordination of opportunities and programmes
  • To improve our understanding of customer needs, leading to enhanced customer experience
  • To improve communication channels
  • To interact with stakeholders, to anticipate changes and challenges in the environment in which the Corporation operates, thereby optimising opportunities and minimising risk
  • To entrench the IDC brand
  • To enhance the delivery of our strategic objectives and projects.

MATERIALITY FILTER

Issues emerging from three elements, namely our stakeholders, our strategy, and the key risks faced by our organisation, are evaluated in terms of probability and potential impact on our ability to create value.

STAKEHOLDER UNIVERSE

Our stakeholders are ranked in terms of two parameters: our potential impact on the stakeholder, and the stakeholder’s influence on the IDC. Where stakeholders rank high in both these areas, there is a high level of interdependence between us and the stakeholder. These stakeholders are therefore considered the most important and their requirements are prioritised.

The stakeholders with the highest levels of influence and dependence are government structures involved with industrial policy and economic development, lenders, our employees, and our clients and project partners as shown in the top right sector in the figure on page 17. Government exerts a strong influence on our strategic direction as it determines the country’s broader policy direction and, in some instances, set policy which directly impacts on us. As a key implementer of some of these policies, the IDC also has a large impact on these government structures.

This is because the success of these policies – and by implication their performance, and government’s ability to deliver on its goals – are dependent on our performance in these areas. We also rely on government to create an enabling environment that is conducive to investment and economic growth to help facilitate our role as a Development Finance Institution (DFI) involved in industrial development.

We depend on other domestic and foreign financial institutions to raise capital required for our investment activities. Simultaneously, we have a high impact on these lenders as they depend on us to honour our financial commitments to them.

Without our human capital we cannot mobilise financial capital. We rely on our people in all aspects of our operations. Our people’s fortunes are also closely tied to those of the Corporation as they rely on the IDC to remunerate them fairly, ensure that their skills remain relevant and provide them with opportunities to develop and grow. We rely on project partners and clients for the implementation and successful running of projects to ensure that we can achieve our goal of industrial capacity development and the development outcomes we pursue.

Project partners rely on us for funding and long-term support to ensure the success of projects.

The second tier of stakeholders are those that rank “high” on one of the axes in the diagram and “medium” on the other axis. These include potential IDC clients, communities around IDC-funded projects, IDC subsidiaries, provincial government, and regulators, including National Treasury.

Top risks and strategic priorities are mapped to the material issues of stakeholders and the most significant issues that emerge from the three perspectives are clustered.

EVALUATION AND PRIORITISATION OF MATERIAL MATTERS

Material matters are identified by reviewing Board submissions, quarterly reports to the shareholder, our operating environment, risk management processes and findings, and stakeholder issues. Our material issues were prioritised by assessing the impact of delivering on our strategy and risk metrics in the context of our strategy.

We respond by:

  • Assessing the impact on risk tolerance and risk appetite
  • Actioning activities to manage material matters
  • Evaluating scenarios.

We report outcomes to the Board and stakeholders and we review and monitor our performance on these issues.

Stakeholder prioritisation

STAKEHOLDER ENGAGEMENT

The table below summarises our engagements with key stakeholders, their expectations from us, and our responses to their concerns.

MATERIAL ISSUES

Based on the above analysis, it has become clear that except for some details of what is expected from the IDC, the expectations of stakeholders have not changed significantly over the past number of years. Our material issues remain very similar to the previous year, with the issues relating to partnerships expanded:

  • Industrial development
  • Socio-economic development
  • Customer expectations
  • Human capital
  • Partners
  • Governance, regulation and risk management
  • Financial sustainability.

CONTEXTUALISATION OF MATERIAL MATTERS

Industrial development

We execute our mandate of industrial development in accordance with relevant legislation and government policy. As a main implementing agent of government policies such as the New Growth Path, the Industrial Policy Action Plan, and the National Development Plan, we make every effort to intensify our investment activities in those sectors in which we are active.

Socio-economic development

As a DFI, our funding directly influences certain socio-economic development outcomes and assists with South Africa achieving its Sustainable Development Goals and the transition to a low carbon economy. We participate in relevant forums and platforms to assist with this.

Customer expectations

Our clients expect to be provided with customised products and services, and to deal with knowledgeable and professional staff. We therefore continuously revise our products and simplify processes in order to improve the fit of products with customer needs, respond to requests timeously, and improve communication.

The IDC conducts annual customer satisfaction surveys amongst its existing clients to keep abreast of needs and expectations. The findings enable the Corporation to have a full view and understanding of the customer experience through the application and after-care journey. One of the conclusions of the survey is that respondents rate the IDC’s “overall service experience” as 7.9 on a scale of 1-10, which is an indicator of the customer’s overall satisfaction level with regard to the IDC’s service delivery*. More details and conclusions from the survey can be found on the IDC online website.

Human capital

The Corporation fosters a high-performance culture with an emphasis on change and innovation. Transformation and diversity are cornerstones of our human capital strategy. We endeavour to offer appropriate rewards and recognition, work satisfaction, and a good working environment. Whilst we strive to attract and retain appropriately qualified, skilled and experienced employees, our employees expect commitment to mandate, a stable and predictable work environment and an engaged and supportive leadership.

Partners

Our project partners, associates, subsidiaries and other business partners expect us to remain financially stable, operationally independent and to employ transparent processes and uphold governance principles. Successful collaboration calls for investments in time and effort to sustain relationships. The IDC plays a critical role in the structuring of projects to crowd-in private capital.

Governance, regulation and risk management

Our Board of Directors leads ethically and effectively. We subscribe to the principles of good governance as provided for in the King III Report. Transparency is of the utmost importance and we strive to maintain effective governance at all times, including in our dealings with stakeholders. We comply with the provisions of the PFMA and the Treasury Regulations as are applicable to schedule 2 entities. Systems and processes are regularly updated and we keep and update registers relating to conflicts of interest, risk management and fraud prevention.

Financial sustainability

As a financially sustainable SOE, we use our balance sheet and the ability to leverage on equity to achieve our objectives. Since our primary objective is developmental return, we make choices based on various factors including risks, the capital structure and financing structures.

* The following clients are excluded from the survey: international clients, clients undergoing legal action as well as those who are undergoing restructuring. Some of these clients are however included in the short-term quarterly survey.

Links between material matters and strategic pillars