The Australian Council of Superannuation Investors (ACSI) is due to launch its latest Sustainability Reporting Practices study, which analyses how Australia's top 200 listed companies disclose and report their environmental, social and governance (ESG) risks.
ACSI and the Financial Services Council are also finalising a new ESG Reporting Guide for launch at the FSC's conference in August. The goal is to help listed companies and investors reach common understanding about the level and type of ESG reporting required.
ACSI's initiatives are important and timely. As debate about climate change and a carbon tax rages, listed companies are under intense pressure to more fully disclose ESG risks and to report them in a more meaningful way that allows comparisons over several years and across companies and sectors, and against a company's financial performance.
Such information would enable institutional investors, who have multi-decade investment responsibilities, to better understand and value corporate ESG risks, such as environmental exposures, occupational health and safety, and industrial relations.
ACSI has criticised listed companies for not doing enough to report sustainability risks. Its 2010 report said: "The majority of ASX 200 companies are yet to provide sufficient reporting on their performance against sustainability risks, thus indicating that they do not fully appreciate the materiality of these factors."
It found more than half of ASX 200 companies in 2010 had "no" or "basic" reporting on sustainability risks - a finding that is unlikely to improve greatly when ACSI releases its next instalment, based on sustainability reporting trends in the past year.
There is also a view that Australia's investment community is not doing enough to force companies to disclose sustainability risks and to properly incorporate these into valuation methodologies. Industry Funds Management chairman Garry Weaven has been among the more vocal critics of superannuation funds and fund managers not doing enough to value sustainability risks.
There is no shortage of examples to back Weaven's concerns. Safety issues at Tiger Airways, the fallout for Meat and Livestock Australia over animal-cruelty claims, and allegations Reserve Bank of Australia currency firm Securency bribed overseas officials to win banknote supply contracts show the potential damage from poorly-managed sustainability risks.
The big concern is listed companies being caught in a carbon exposure that has not been considered by super funds or fund managers.
Australia is following a global push to improve corporate sustainability practices and reporting, and develop stronger support for sustainability within the investment community.
Almost 90 per cent of global chief executives surveyed in a United Nations Global Compact and Accenture study said accurate valuation of sustainability risks by investors, particularly in regard to long-term investments held by pension funds, was vital for sustainability reporting to reach a global 'tipping' point.
But many companies are reluctant to adhere to a more prescriptive, rules-based sustainability reporting template, which some global investor groups and non-government organisations favour. Australian companies currently use a principles-based approach that is favoured by the ASX Corporate Governance Principles and Recommendations.
Under this system, directors use their judgment to report current and foreseeable sustainability risks that are material to the share price.
As investor anxiety about sustainability risk increases, a more prescriptive approach might be needed if listed companies do not meet institutional investor requirements for information.
