At the turn of the century, Australia’s reporting seasons and annual general meetings (AGM) primarily focused on financial reports for investors. However, this focus has broadened significantly.
According to Martin Currie portfolio managers Will Baylis and Naomi Bant, sustainability discussions are now integral to corporate reporting.
What’s more, this dialogue extends beyond investors to include unions, activists, regulators, employees, and consumers.
As such, Baylis and Bant have identified key environmental, social and governance (ESG) topics that ASX-listed companies need to work harder to address in FY2024–25.
Leading the charge will be the climate transition, according to the duo, with decarbonisation having been a significant topic in AGMs in recent years.
“As of 1 July 2024, the government requires mandatory climate disclosures for Scope 1 and 2 emissions from major emitters and large organisations. Next year’s reporting will be even more crucial,” Baylis and Bant said.
Namely, companies will also need to assure material Scope 3 emissions, scenario analysis, and transition plans.
“Currently, few companies share their scenario analysis, so this will mark a significant information shift,” they said.
“We anticipate seeing increased revenue and earnings, growth in capital expenditure and R&D from solution-oriented companies, and significant investments in heavy industrial transitions. Additionally, we expect to observe higher costs and depreciation due to climate change, as well as reduced asset lives and values due to stranded asset risks.”
Another critical focus, Baylis and Bant said, is natural capital and biodiversity.
However, with a short implementation timeline to mandatory climate reporting, the portfolio managers posited that companies may focus less on nature this reporting season.
“We are hearing already that many companies are deprioritising biodiversity policy development, and only five listed Australian companies have committed to early adoption of the Taskforce on Nature-related Financial Disclosures (TFND).”
Turning to workplace safety, the duo observed that such concerns have expanded beyond labour-intensive sectors like resources to include industrial and consumer sectors, with a marked rise in injuries and deaths.
“This spike is linked to increased mechanisation and automation, a growing migrant workforce, and the reliance on imported goods and online retail, which increases warehousing and manual handling. High-quality training and education are crucial in all cases,” Baylis and Bant said.
“Mining companies have traditionally been very transparent, but now all companies must acknowledge and mitigate the risks.”
Moreover, Australian companies are increasingly focused on improving outcomes for First Nations people.
Noting that resource companies have traditionally been leaders in this area, Baylis and Bant said that more companies are expected to report their efforts this year, which are likely to include diversity initiatives, targeting Indigenous employment, training programs, and procurement.
Gender diversity will also guide engagements with boards and management, the duo added, highlighting that “diverse teams lead to better decision making and business outcomes”.
While progress has been made on gender, much work remains, according to the portfolio managers. Namely, Workplace Gender Equality Agency (WGEA) data has shown that roughly half of the Australian workforce is female, whereas only 34 per cent of board members and 22 per cent of chief executives are female.
“We are focused on seeing a better gender balance across the full workforce. While improvements are being made at senior management and board levels, we want to better understand the pipeline of talent companies have for succession from the next generation,” Baylis and Bant said.
They also flagged ethical sourcing as a key theme to watch, particularly as reporting requirements under Australia’s Modern Slavery Act have been in place for several years.
“However, Australian supply chains weave through the highest risk region in the world. Companies must remain vigilant, as much work is still needed to eliminate modern slavery risk from their supply chains,” the pair said.
“We have found that the companies that are more transparent about modern slavery incidents, rather than trying to hide or downplay them, invest most in mitigation and have the most positive impact.”
Rounding out the themes to watch this year was greenwashing, as regulators and investors are expected to double down on their scrutiny of company annual reporting.
Baylis and Bant said they will be looking for concrete evidence that a company has implemented strong policies and processes to ensure they are doing what they say, alongside being fully transparent about the associated risks and opportunities.
“Sustainability is not just a marketing tool; it requires genuine commitment and action,” they said.
