ESG reporting falling short

03-Mar-2016

By James Dunn

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Despite ASX recommendations on environmental, social and governance (ESG) disclosures that took effect almost two years ago, most listed companies still had a long way to go in improving ESG reporting, according to the Financial Services Council (FSC) and Australian Council of Superannuation Investors (ACSI).

Research conducted by the two bodies revealed 13 per cent of S&P/ASX 200 companies failed to provide meaningful information on sustainability factors and a further 17 per cent provided only basic information.

That said, statistics from think tank Sustainable Business Australia showed that before the ASX guidelines were put in place, only about 7 per cent of listed companies produced any sustainability disclosure.

While the ASX recommendations required companies to disclose whether they had material exposure to ESG sustainability risks, and what they were doing to manage the risks, there was “still no mandatory ESG reporting required by listed companies”, FSC chief executive Sally Loane said.

The recommendations required companies to disclose their material sustainability risk, but they in fact did not specify the form of disclosure or reporting framework required to fully address those guidelines.

In the words of the recommendation, to meet that disclosure “does not require a listed entity to publish a sustainability report … however, a sustainability report may meet this recommendation”.

As ASX general manager of communications Matthew Gibbs pointed out, the principles set out by the exchange were not compulsory.

“Companies do not have to adopt the recommendation, but they do have to disclose what they do instead – the ‘if not, why not’ reporting regime,” Gibbs said.

The FSC and ACSI hoped to lift the depth of disclosure with the launch of a guide for Australian companies on how to identify and report ESG issues.

Rather than the prescribed reporting laid out by the ASX, the guide was designed as a framework for companies to disclose the ESG information that institutional investors would look for when considering their investments.

“We’ve developed the ESG Reporting Guide for Australian companies to help them disclose any ESG risks in a consistent way, so investors and analysts will have better information to help them make measured investment decisions,” Loane said.

“Our reporting guide clearly sets out examples of material risks that investors are looking for in disclosure.

“Shareholders and analysts are increasingly focusing on ESG reporting to gauge companies’ performance beyond traditional financial data.”

ACSI CEO Louise Davidson said while companies had shown progress in sustainability reporting, there was still room for improvement.

“As institutional investors, ACSI members, as well as other investors, need to price and evaluate these risks if they’re to protect and manage their investments for the long term,” Davidson said.

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