Australian corporates have shifted their focus away from diversity and governance, instead prioritising environmental and social factors in the ESG space, according to new research from a boutique asset manager.
Perennial has released the findings from its second annual Sustainable Future Survey, showing greenhouse gas emissions are now the most important ESG area of focus for 250 ASX-listed companies for the next 12-18 months, up from fourth place in 2019.
Worker rights and modern slavery followed in second place, tailed by governance in third and safety in fourth.
Meanwhile diversity had dropped from being the top priority for companies to fifth place in 2020.
Indigenous relations also increased in priority, to seventh place from its previous ninth.
Damian Cottier, portfolio manager of Perennial’s sustainable future strategies said the focus on climate change, modern slavery and Indigenous relations had increased with greater media and shareholder attention in 2020.
“Our survey results capture how Australian corporates are moving to address these issues,” Mr Cottier said.
ESG is becoming more of a strategic focus for listed companies, with 72 per cent of survey participants saying they have a corporate strategy specifically referencing ESG or sustainability.
As more corporates disclosed and measured targets associated with greenhouse emissions, the number of companies producing waste targets had risen year-on-year by 7 per cent, to 60 per cent of respondents.
More than half (55 per cent) agreed a national energy policy would provide a clearer pathway for sustainable investment, helping companies plan and invest for a more sustainable future.
On the lowered focus on diversity, Perennial ESG analyst Emilie O'Neill said the responses had suggested there are still barriers to attracting a gender diverse pool within certain industries.
“While other issues appear to have overtaken diversity, gender diversity at manager and executive level remains a challenge for Australian corporations,” Ms O'Neill said.
“Respondents appear to place emphasis on increasing gender diversity in executive ranks, with 53 per cent of respondents strongly agreeing this is an area of focus compared to 35 per cent who strongly agree that increasing diversity at entry-level of employment is a focus.”
Remuneration a grey area
Meanwhile remuneration is reportedly creating confusion for many, with only half of the respondents agreeing that investors have consistent and clear expectations regarding remuneration policy.
“We think is a key area to watch going forward given investors have conflicting attitudes towards management incentives – particularly in a COVID-19 impacted environment,” Mr Cottier said.
He added it is clear increasing investor and consumer pressure is encouraging more sustainable business practices, with some 90 per cent of respondents agreeing engagement with investors on sustainability and ESG is beneficial for their company, up from 85 per cent the previous year.
“ESG issues are having a greater impact on share prices, and stakeholders are increasing their expectations,” Mr Cottier commented.
“Companies are looking at ways to improve, albeit there is still some way to go.”
Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth.
Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio.
You can contact her on [email protected].