A major study conducted by KPMG Australia into the implementation of the ASX Governance Council’s new and amended fourth edition of the Corporate Governance Principles and Recommendations by almost 600 ASX-listed entities, has revealed a stall in reporting on diversity, equity and inclusion.
KPMG reported that only a slight increase in the number of ASX entities disclosing a diversity policy over the last six years – up from 87 per cent in 2015 to 88 per cent in 2021.
Commenting on the research, Dr Meg Brodie, KPMG partner, human rights & social impact, demanded further action to address the more than one in 10 companies that are still not disclosing a diversity policy.
“We are also seeing a stagnation in the proportion of women in senior executive and board positions, and across the workforce in general. Although the COVID-19 pandemic is likely a contributing factor, it is disappointing to see such slender progress over six years,” Dr Brodie said.
In fact, across all three ASX categories assessed by the firm, it identified a regression in disclosures on the proportion of women in at least one of the categories of general workforce, senior executives and board.
The ASX 501+ cohort had the lowest rates of disclosure and proportion of women, while having the highest “if not, why not” excuse rate.
Dr Brodie highlighted the benefits to having a diversity policy, noting that over one-third of entities have recognised the improvements it made to the operations.
“Those entities recognise that having and implementing a diversity policy is not just the right thing to do but also generates multiple benefits for the business including increased talent attraction, retention and better business performance to name a few,” Dr Brodie said.
On the upside, KPMG found that some companies are going beyond gender and are including broader definitions of diversity.
“We’re seeing encouraging signs of reporting on diversity beyond gender, pointing towards the next wave of responses to diversity, equity and inclusion needs,” Dr Brodie said.
As for why companies are forgoing disclosure, she explained that the most common reason is the size of the entity and/or the size of its workforce.
“The question, therefore, is 'what effective support do smaller listed enterprises need to take the next step on diversity?'”
‘Unlikely’ exposure claims
KPMG also explored environmental and social risks, and revealed that over a quarter of companies reported no material exposure.
KPMG characterised this finding as “unlikely”.
“A review of sector-specific reporting identified some instances of entities reporting no material exposure to environmental and social risks and being out of step with companies in the same industry,” Julia Bilyanska, KPMG partner, ESG services, said.
Climate change, biodiversity and water scarcity were cited as the most common environmental exposures while community engagement, diversity, equity and inclusion, and health and safety were reported as the most common social exposures.
“Investors and regulators are taking a keen interest, and sustainability reporting standards are being developed at a global level - with the prospect of them being made mandatory in Australia – so all ASX-listed entities need to take a fresh look at their reporting in this area,” Ms Bilyanska advised.
“This study suggests that while two-thirds reported material exposure to environmental and social risks, others need to reconsider their assessments in the current climate and look at approaches taken by peers,” she added.
Delving also into the current version of the Council's Corporate Governance Principles and Recommendations (4th Edition), KPMG reported a generally high adherence, while noting that “many examples of good practice were identified”.
The ASX is now said to be considering a fifth edition of the Principles and Recommendations to keep up with their constantly evolving governance expectations.
