The Australian Council of Superannuation Investors (ACSI) has released its eleventh annual report on the extent of sustainability disclosures by Australia's 200 largest listed companies: Corporate Sustainability Reporting in Australia: An Analysis of ASX 200 disclosure.
Among other things, ACSI observed an 'emerging trend' towards Australian companies adopting international frameworks such as Integrated Reporting <IR>, and the metrics defined by the Taskforce on Climate-related Financial Disclosures (TCFD) and the Global Reporting Initiative. Commenting on this ACSI CEO Louise Davidson said: 'Global standards are associated with good risk management. This is a positive development which will increase investor confidence in the quality of corporate reporting, making it more likely it will be used for decision making'.
Overview – trends in climate risk disclosure
- Greenhouse gas (GHG) emissions: ACSI found that 112 ASX200 companies or 56% disclosed some measure of GHG emissions in 2017. Commenting on this, the report notes that under Australia's National Greenhouse and Energy Reporting (NGER) scheme, which has been in place since the 2009, corporate groups that emit above 50 kilotonnes or more of certain emissions are required to report publicly and suggests that this has had the effect of establishing an expectation to report, even for companies below the formal reporting threshold.
- Policy Statements: According to the report, 48% (95 companies) in the ASX 200 now have a climate change policy statement. These statements 'typically discuss' the relevance of climate change to the business, what actions are being taken or 'at minimum' an acknowledgement of the Paris Agreement.
- Emissions targets: 21% of companies (42 companies) have established GHG emission reduction targets. Of these 42 companies, 16 have disclosed an objective to achieve an absolute reduction in GHG emissions between 2017 and 2025. Three of the companies had an absolute target for the period between 2025 and 2049 and one committed to zero net emissions by 2050. ACSI found that nine companies had more than one type of GHG emissions reduction target. The majority of these were absolute emissions reduction targets, including five companies with commitments to zero emissions by 2050.
Financial institutions? ACSI found that five financial institutions have a lending target for a dollar amount of financial capital allocation to low-emissions or technology solutions to climate change. ACSI comments that this is indicative of these companies recognising the 'potential risks and rewards of having high and low-emissions loans in their portfolios and are reducing net GHG emissions (ie de-risking their business) through their lending practices'. TCFD adoption commitment: Since the final version of the TCFD framework was released in June 2017, 22 companies have either committed to reporting, or have published the analysis recommended by the Taskforce ACSI writes. Of these companies, eight were in the ASX20 and the balance were in the ASX21-100. ACSI comments that 'Given that shareholder pressure to disclose is growing, we expect to see an increase in reporting against the framework in 2018'.
[Note: As previously reported in Governance News, the Australian Securities and Investments Commission (ASIC) recently identified the disclosure of information on climate change-related risks as one of the key issues for its focus in the forthcoming annual report season. ASIC’s position has now been expanded in an important speech for the Centre for Policy Development by Commissioner John Price (Financing a Sustainable Economy). To assist boards and their committees in 'embarking on the climate-related financial risk reporting journey', MinterEllison has prepared a guide: The climate risk reporting journey: a corporate governance primer to assist boards which poses key questions relevant to the assurance of a corporation's reporting on climate-related financial issues. See: MinterEllison Partners Sarah Barker, Maged Girgis, Mikes Hales, Brendan Clark, Keith Rovers, Simon Scott: The climate risk reporting journey: A Corporate Governance primer.]
Further detail: overview of the report findings
- Investor focus on climate change increased sharply in 2017. ACSI writes that overall there is evidence of a trend towards an increased level of investor concern with climate issues. For example, ACSI notes that the number of climate-related shareholder resolutions around the world increased three-fold from 63 in 2016 to 184 in 2017, and in Australia from one in 2016 to six in 2017. ACSI adds that in the first four months of 2018 there have already been three ASX company resolutions.
- Overall there was an improvement in sustainability reporting: ACSI found there was an improvement overall in the extent of sustainability reporting over the last twelve months with 41 companies (21% of the ASX200) now disclosing their GHG emissions and publishing a climate-related policy and 17 companies (8%) reporting against all four indicators used in the report to assess climate disclosure: greenhouse gas (GHG) emissions levels, a climate change policy, a GHG reduction target, and adoption of, or commitment to the TCFD. 'This confirms that sustainability reporting is considered to add value among the largest listed companies in Australia' ACSI comments.
- The larger the company the more in-depth the disclosure: ACSI found a broad range of disclosure standards across the ASX200 with larger companies disclosing in greater depth than smaller companies. In the ASX101-200, almost half of the companies fell into the lowest two categories used in the report for ranking the disclosure with 15 companies assessed as providing ‘No reporting’ (the lowest level) and 28 as providing ‘Basic' reporting (the second lowest level). By contrast, 19 companies in the ASX20 (95%) reported to the highest levels of disclosure.
- 4.5% companies still not reporting on sustainability risks: The report identifies nine companies who have not reported sustainability risks and management for two or more successive years. The companies are: The a2 Milk Company Ltd; Aristocrat Leisure Ltd; Altium Ltd; Australian Pharmaceutical Industries Ltd; Domino's Pizza Enterprises Ltd; Estia Health Ltd; Galaxy Resources Ltd; Iron Mountain Incorporated and Webjet Ltd. Commenting on this, ACSI CEO Louise Davidson 'It is evident [from the report findings overall] that there is a core group of pacesetters for good disclosure practices. However, although the leaders are getting better, other companies are demonstrating unacceptable complacency. These companies are missing an important opportunity to demonstrate that they are serious about identifying and managing sustainability risks and opportunities.'
- The link between reporting and community trust: ACSI writes that the findings 'highlight the strong role that corporate reporting can play in establishing trust with investors and the community'. 'Good quality reporting enables shareholders to make informed investment decisions and the community to judge whether its confidence in companies is well-placed or misplaced. Poor or missing information shows a disregard for stakeholders' needs and is a signal of risk' ACSI CEO Louise Davidson.
About the report
The report does not assess the performance of each company’s management of sustainability risks, but rather the extent to which companies undertake disclosure.
The report assessed four climate-related indicators to rate the extent of disclosure by each company:
- If the company measured and reported Green House Gas (GHG) emissions and what scope of emissions were reported.
- If there was a statement or policy acknowledging climate change or corporate undertakings to address climate change risk or opportunities.
- If the company disclosed a GHG emissions reduction target(s) and over what time frame. The target(s) could be absolute or an intensity (usually emissions per unit of production).
- Company disclosure regarding the Task Force on Climate-related Financial Disclosures (TCFD) framework.
The list of companies included in the review includes all companies in the ASX200 on 31 March 2018.
- The research and conclusions in the report are based on a desktop analysis by ACSI analysts of publicly available information for the 2017 reporting year. The research includes information provided in annual reports, websites and standalone sustainability reports (if available).
- ACSI writes that depending on the reporting period for each company, this usually includes information for the fiscal year ending 30 June 2017 or the calendar year ending 30 December 2017. The cut-off date for information to be included in our analysis was 31 March 2018.
[Sources: Australian Council of Superannuation Investors media release 26/06/2018; Corporate Sustainability Reporting in Australia. An Analysis of ASX 200 disclosure June 2018]
The World Business Council for Sustainable Development (WBCSD) and the Climate Disclosure Standards Board (CDSB), in conjunction with Sustainable Business Australia (SBA) also recently released a report: Sustainability reporting in Australia: jumping into the mainstream, assessing the extent and quality of corporate Australian sustainability disclosures and the 'challenges and opportunities for corporate reporting'. Drawing on international comparisons (South Africa and Singapore) the report outlines suggested steps to ensure Australia is a 'global leader' in sustainable finance.
Consistent with the ACSI report, the WBCSD report finds that there is increasingly an appetite for change among Australian shareholders and comments that this is increasingly being shared by regulators and 'pushed' by Australia's largest investors.
The report suggests that: 'As a leader in the Asia-Pacific region with an active and pronounced finance sector, Australia is well-positioned to spearhead sustainable finance' but that this will require significant improvements in the scope and quality of reporting.
[Sources: World Business Council for Sustainable Development (WBCSD) media release 27/06/2018; Sustainability reporting in Australia: jumping into the mainstream]