ACSI ESG disclosures review homes in on the absence of safety reporting
12/08/2019
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The Australian Council of Superannuation Investors (ACSI) has released their annual evaluation and ranking of company sustainability disclosures of the ASX 200.

ACSI has been reporting on environmental, social and governance issues (ESG) for twelve years. Over this period reporting has improved. Now a majority of ASX 200 companies provide comprehensive reporting. The 2019 report indicates more is required.

Safety

This year, ACSI expanded their analysis to include safety metrics.

Safety data and workplace fatalities can be material, with industries such as mining, transport and construction vulnerable in terms of regulation, fines, shutdowns, exclusion, industrial action, litigation, remediation, and reputation.

There is no requirement for companies to report workplace fatalities to the market (although there is a requirement to report a fatality to state regulatory bodies).

Over the year, there were 22 workplace fatalities at 13 companies, of which 16 were contractors

The absence of transparency extends to executive compensation plans. Amongst the ASX 200, 85 companies relied on safety metrics for remuneration outcomes. However, 8 of these companies reported no outcomes on safety metrics.

It is expected that ACSI members will step up their vigilance on the reporting of safety outcomes, and the extent that these are incorporated into and impact executive incentive outcomes.

ESG reporting

Two companies currently dominate ESG standards assessment. MSCI and Sustainalytics scores are utilised by several investment funds for portfolio management, contributing to the response by listed companies to improve their standards of reporting.

ESG reporting ranged from no reporting to what ACSI referred to as “detailed” and “leading”. While the terms “detailed” or “leading” were not defined in the report, such reports had the following features:

  • A range of ESG risks were identified;
  • The process used to identify such risks was disclosed;
  • A description of how such risks were managed, and
  • Inclusion of targets and data to demonstrate improvement of risk management.

Larger companies have been, and are better at ESG reporting. In 2008, more then 25 per cent of ASX 100 companies had either “detailed” or “leading” policies compared with less than 10 per cent for ASX 101-200. For 2018, 72 per cent of the ASX 100 were considered detailed or leading compared with 35 per cent for the ASX 101-200.

Comparing the ASX 200 from 2008 to 2018, the number of ‘no reporting’ decreased from 31 to 16 companies while detailed and leading reports increased from 39 to 107.

Improvements over the decade have been made despite the bar for detailed and leading reporting continuing to rise.

The better ESG reports belonged to the insurance, transportation and commercial and professional services sectors. The worst were media and entertainment, software and services and retailing sectors.

‘Laggards’ are companies that have not reported on ESG risks and management for two or more successive years. This year, the number of laggards named by ACSI decreased from 9 to 6.

ESG standards reference two sets of frameworks.

The ACSI research referenced the Integrated Reporting (IR) framework and the UN Sustainable Development Goals or SDGs (see HERE) . The IR reporting framework emerged in 2013 and focuses on reporting the value created during the reporting period by assessing the business through six capitals being tangible (financial and physical) and intangible (human, social, environmental and intellectual).

The uptake of IR remains slow. Only 7 ASX 200 companies have adopted the full framework while 48 per cent of companies have partially adopted the IR principles.

The UN Sustainable Development Goals emerged in 2015. They comprise a set of 17 sustainability goals. They address the global challenges related to poverty, inequality, climate, environmental degradation, prosperity, and peace and justice. The Goals encourage businesses to contribute to achievement of the Goals by 2030.  (See HERE) .

The top 5 SDG goals being reported include; climate action, decent work and economic growth, gender equality, good health and well-being and responsible consumption and production.

Adoption of the SDGs amongst ASX 200 companies has been extensive. Up from 20 per cent last year, 30 per cent of ASX 200 companies refer to SDGs in their reporting. However, Australia is lacking on an international scale. Germany, France and the UK have 83, 63 and 60 per cent adoption, respectively.

Climate change and the TCFD standard

Climate change risk has also been an agenda item for ACSI over the past decade. ACSI members’ are long-term and their return horizons encompass emerging economy-wide impacts of climate change.

Large scale superannuation and sovereign wealth fund investors are concerned that there is an absence of comparable data on climate-change risk opportunities. Since 2017, ACSI has been encouraging companies to adopt the Task Force on Climate-related Financial Disclosures (TCFD) framework. This framework has four key elements for disclosure as follows:

1 . Governance – the governance around the management of climate change risk and opportunities i.e. which board committee is tasked with oversight;

2 . Strategy – the actual and potential impacts of climate-related risks and opportunities on the company’s business, strategy and financial planning;

3 . Risk management – the process used to identify, assess and management of climate change risk; and

4 . Metrics and target – the metrics and targets used to assess and manage relevant climate-related risks and opportunities.

In 2018, 52 ASX 200 companies had adopted or committed to disclose against this framework. The ACSI research found that while the number of companies adopting the TCFD framework is increasing, they were less likely to disclose information that is longer term in nature i.e. medium to long term targets and scenario analysis.

Gender

The research found that gender diversity remains low.

On average, 21 per cent of executive leadership roles are held by women in the ASX 200. All male executive leadership teams made up 16 per cent of the ASX 200. These all male leadership teams are outside of the ASX 20.

The transportation, banking and food and staples retailing sectors lead the way in gender diversity. For the ASX 200, these sectors all have diverse leadership teams.

How does your company rank?

To see how your ASX 200 company ranks, see the ASCI report HERE .

© Guerdon Associates 2021
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