Superfunds looking for greater transparency on ESG risks

Sustainability reporting stakeholder engagement processes identify ESG risks

Sustainability reporting stakeholder engagement processes identify ESG risks

Australian Council of Superannuation Investors works to improve corporate the Environmental, Social and Governance (ESG) performance of Australian companies.  It does this by providing research and advice to its member superannuation funds and also through engagement with the Boards of Australia’s largest companies.

I spoke with Paul Murphy, Executive Manager, Institutional Investments and Policy about their recent report The Sustainability Reporting Journey which looks at the disclosure of sustainability risks by the top 200 Australian companies.  ACSI has been conducting this research on an annual basis for seven years now.

The Sustainability Reporting Journey provides hard evidence which Murphy and his colleagues at ACSI use as background for discussions with the Boards of Australia’s top 100 companies.  They have also used previous reports as a basis for writing to the Board Chair’s to encourage them to do more.  A key mechanism for doing this has been the naming of ESG reporting laggards – something superannuation fund members supported to aid further engagement with companies around improving transparency.

The report identifies five levels of reporting: no reporting, basic, moderate, detailed and comprehensive (no, not the same as ‘comprehensive’ for G4 reporting). Only four laggards were identified.  These are companies who have been in the ‘no reporting’ category for at least four years.  The number has dropped from 17 in 2009 and eight in 2013 – evidence that naming and shaming works.

Consistent with a significant body of academic research, the ACSI report notes that large companies report more with 62% of the top 50 companies categorised as ‘comprehensive’ and named as leaders (compared to only 23% of the top 200).  But, only half of these top 50 companies had their reports externally assured missing out on opportunities to improve their reporting processes and leaving question marks about their credibility. Do the maths and you’ll see that external assurance is not a prerequisite of being in the comprehensive category and labelled as a ‘leader’.  Well, as Murphy says, it’s important to name companies who are on the right track –  though perhaps calling these companies ‘leaders’ is going a bit far?  The real problem, in Murphy’s view, is the number of companies in the top 50 who are reporting in the ‘basic’ category.  Perhaps these are the ones that should be named and shamed?  They are companies who do not properly identify a full range of ESG risks.

The ‘comprehensive’ group was dominated by mining and banking sector companies – sectors which need to work harder to maintain their license to operate – i.e. the support of society at large and a broad range of stakeholders.  As Murphy notes, and academic research overwhelmingly supports, companies and industries that are going through some sort of legitimacy crises (for example, by not managing reputation risks) tend to report more.  A hard lesson learnt – if their reporting processes had been up to scratch in the first place, they would likely have discovered and managed their ESG risks better.  Companies should be concerned about this because investors are.

Through the research and follow up work, ACSI is making an important contribution to reducing the ESG risk exposure of Australian companies – and reducing negative social and environmental impacts at the same time.

Related articles on this website:

Sustainability reporting: A tool for improving returns to shareholders?

RBS Sustainability Review 2013: building trust and developing integrated thinking

Ten steps to integrated reporting

Five essentials to embedding sustainability

The role of the (bank) CFO in value creation: an interview with Mark Joiner, NAB

ESG issues and business responses: an interview with Ian Woods, AMP Capital

Know of other pension funds/ investors being proactive like this? Please add a comment.

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