Aus Businesses Don’t Fully Grasp Sustainability Risks
Thursday, 4th December 2014 at 10:14 am
Almost half of all Australian Stock Exchange Top 50 (ASX50) companies are failing to articulate the value being created by engaging in issues of sustainability, according to a new report.
The report, From Tactical to Strategic: How Australian businesses create value from sustainability, by GRI Focal Point Australia, together with CPA Australia and KPMG Australia, investigates the extent to which ASX50 companies explore the major social, environmental and economic issues affecting operations, and how they connect this to the value of businesses.
Researchers consulted ASX50 2013 annual reports, annual reviews, sustainability reports and integrated reports to investigate how companies are recognising ten global megaforces – population growth, climate change, energy and fuel, material resource scarcity, wealth, water scarcity, food security, deforestation, ecological decline and urbanisation – that are set to impact their businesses across the next 20 years.
The investigation revealed that while companies identified with eight out of the 10 issues, on average, this largely focused on compliance and efficiency oriented activities, rather than strategic activities.
While brand value and reputation was the most cited value driver across all megaforces, securing investment was the least utilised. Indeed, for half of the megaforces, the report said more than 50 per cent of companies identifying with the megaforce failed to identify a single reason as to how this created value for the business.
“The recently released ASX Corporate Governance Principles and Guidelines have placed sustainability risks high on the agenda in corporate Australia. This research shows that while the ASX50 broadly understand how they impact upon issues of sustainability, they are not yet fully grasping the impact of global sustainability issues upon their businesses. Moreover, companies are not yet articulating the value that sustainability creates for their business,” Victoria Whitaker, Head of GRI Focal Point Australia said.
“Businesses need to understand the global pressures that are bearing down across the globe. They need to develop relationships with their stakeholders that expand their business view and inform their decisions. They need to bring sustainability beyond efficiency and into to core of the business aligning it with strategy, so that it can support the business in creating value in the short, medium and long term,” she said.
Chi Mun Woo, KPMG Climate and Sustainability partner said that the megaforces identified challenged businesses’ ability to prosper under changed conditions – and that while it was encouraging that companies were actively considering their effects, most considerations were in the form of operational tweaks as opposed to mapping out what needed to change around the business model and addressing strategic risks and opportunities.
“This research validates the hunch we had that companies are good at optimising operations as conditions change – for example when we experience higher input costs or ambient temperatures – but few think about tipping points and other non-linear step changes in the business environment that render incremental responses inadequate,” Woo said.
“By looking at how corporate Australia is reporting on social, environmental and economic issues this research represents an important contribution to the continuing evolution of integrated reporting. It will help inform companies as they expand beyond traditional financial reports and attempt to capture and communicate the true value creation of businesses" Alex Malley, Chief Executive of CPA Australia said.
From Tactical to Strategic: How Australian Businesses create value from sustainability can be found here: