Focus on Australian Sustainability 'Laggards'

Two in five of the largest 200 companies listed on the Australian Stock Exchange are failing to produce sustainability reporting that meets the needs of investors, according to a new review.

Some 40 per cent of S&P/ASX200 companies still rate in the two lowest categories of the Australian Council of Superannuation Investors’ annual review of sustainability disclosure.

“Pleasingly, this year’s research shows a continuing positive trend in reporting practices, with almost 40 per cent of companies rated in the top two categories of Comprehensive and Detailed,” ACSI’s Chief Executive Gordon Hagart said.  

“At the other end of the scale,however, more than 40 per cent still rate in the two lowest categories, Basic and No Reporting – levels which are considered to be far from meeting the needs of investors.”

The research, now in its seventh year, assesses the level of public reporting by Australia’s largest listed companies with the goal of promoting continuous improvement in reporting standards and practices across the market.

The review is based on the premise that environmental, social and governance (ESG) risks can have a significant impact on the long-term performance of companies and that thorough disclosure of information regarding corporate performance in these areas is therefore integral to investment decision-making.

Gordon Hagart said that for investors to effectively price and evaluate ESG issues, as part of their analysis of existing and potential investments, companies need to not just explain the risks relevant to them and their industry – but to demonstrate how they are managing them.

“A lack of reliable and comparable disclosure of corporate performance, beyond that contained in traditional financial reporting, can undermine effective communication of these longer-term measures of business success by company boards to their owners,” Hagart said.

“Investors, such as ACSI’s members, need meaningful, accurate, timely and comparable data to help them identify and manage their exposure to ESG investment risks as they make decisions about selection and weighting of stocks in their portfolios. This information is also a crucial input into investors’ processes for engaging with companies and exercising their ownership rights.”

2014 Report Highlights

Access the full report here. 

• 85 per cent of ASX200 companies provide some level of reporting on sustainability factors.

• 75 companies have been reviewed in all seven of ACSI’s research projects since 2008; of these, almost 70 per cent report to a level of Comprehensive or Detailed, and there are none rated No reporting.

• New reporting guidelines and regulations from ASIC and the ASX Corporate Governance Council will have implications for companies’ sustainability reporting. ACSI encourages all companies to review their responsibilities and prepare accordingly for upcoming reporting periods.

• Above all, they should focus on reporting that is likely to be most meaningful for long-term owners, and take an ‘above and beyond’ approach to the minimum regulatory requirements.

• ACSI is pleased to publicly acknowledge 25 companies that have been rated as Comprehensive for four or more consecutive years. Ten of these have been rated Comprehensive for all seven years of research.

• At the opposite extreme, there are 4 persistent “laggards” who have neglected to report on sustainability risks to any extent for four or more consecutive years, despite having been engaged by ACSI on the need for improved disclosure as a risk management tool.

• A company’s annual report continues to be the most likely place for a company to provide its sustainability reporting (153 companies); followed by the corporate website (132 companies).

• Larger companies continue to be more proficient sustainability reporters, with 62 per cent of ASX50 companies reporting to a level of Comprehensive.

Access the full report here.