The Australian Council of Superannuation Investors (ACSI) has released The Sustainability Reporting Journey: Corporate Reporting in Australia – Disclosure of Sustainability Risks Among S&P/ASX200 Companies.

Chief Executive Officer of ACSI, Ann Byrne notes the profound impact that environmental, social and governance (ESG) risks have on the long-term viability of companies and their investors to achieve sustainable growth into the future, and therefore how important disclosure of sustainability risk reporting is.

‘To enable investors to effectively price and manage risk during their analysis of an investment, there is a need for relevant information, and companies must understand the form that information should take –commensurate with the risks specific to their industry sector. It must be meaningful, accurate, timely and comparable data to help investors identify and manage their exposure to ESG investment risks.’

Having now conducted the study for six years (initially on the ASX100 but extended to the ASX200 in 2009), ACSI is well positioned to draw some significant conclusions about the sustainability reporting practices of ASX200 companies.

Ms Byrne says that whilst there has been a notable improvement in companies reporting to a level of Detailed or Comprehensive this year, almost half of ASX200 companies are still rated at a level of No Reporting or Basic Reporting.

‘Whilst the percentage of companies reporting to a level of Detailed or Comprehensive has increased from 23% in 2012 to 36% in 2013, there are still 45% of ASX200 companies in this year’s study that are rated as No Reporting or Basic Reporting – an improvement of only 4% from the 2012 findings. The overall rate at which change is occurring is therefore very disappointing.’
‘If the number of companies reporting to a Comprehensive level continues to increase by the same annual rate it has in 2013, it will be almost 20 years before all ASX200 companies are disclosing ESG risks at this level,’ she says.

Key findings of the 2013 research include that:

• 85% of companies in the ASX200 provide at least a Basic level of sustainability risk reporting
• As has been the case in previous years, there appears to be a notable degree of correlation between company size and sustainability reporting level
• 39 companies in the ASX200 have at least some of their sustainability reporting data verified by an external party and almost all of these companies fall into the reporting category of Comprehensive
• The number of ASX200 companies structuring their sustainability reports to the Global Reporting Initiative (GRI) framework has increased by five companies to 43, with 80% of those companies reporting to the GRI falling into the ASX100.
• 78 companies have been included in all six of ACSI’s research projects, and all of these now provide some level of sustainability reporting, with a significant number reporting to a level of Comprehensive or Detailed
• 135 companies have been included in the research since 2009 (when the research was expanded from the ASX100 to the ASX200) and there has been a notable increase in the number of these companies reporting to a Comprehensive level in 2013.

Ms Byrne notes that for the first time, since the inaugural year of the sustainability research in 2008, ACSI has elected to name a select number of companies who continue to outperform, and those who continue to underperform, compared to the practices of their ASX200 peers.

‘There are 23 companies in the ASX200 that have consistently reported to a level of Comprehensive for four or more consecutive years. ACSI believes these companies should be highlighted not only for their continuous levels of benchmark disclosure, but also their willingness to continue to improve’, she says.

‘A further eight companies are considered to significantly lag behind their peers, having been rated as No Reporting for four or more consecutive years, despite having been contact by ACSI annually to highlight the need for improved disclosure.’

‘ACSI has communicated to these companies the importance of reporting in relation to management and performance across a range of risks, including environmental and social (internal and external) risks and has clearly recognised that material risks will differ between companies, ‘ says Ms Byrne.

Contrasting the approach of ‘laggards’ and ‘leaders’, Ms Byrne states:’
‘ACSI continues to observe many annual reports that state a company’s commitment to sustainability policy, but provide no indication of their performance against this policy, nor any indication of the material nature of factors included in such a policy.’

‘Where a company does produce a standalone report, ACSI encourages that it be announced to the ASX, as it is an indication that the company understands that such information is of material significance to both the company and its shareholders. In this year’s study, 41% of companies that produced a standalone report announced its release to the ASX.’

Findings also show that there is a degree of correlation between company reporting practices and other ESG factors including:

• High correlation of ACSI voting against board endorsed resolutions where a company has poor sustainability reporting
• Higher percentage of ACSI and broader market opposition to remuneration practices in poor reporting companies
• Fewer women on the boards of companies with poor sustainability reporting practices
• Companies that better disclose ESG risks are rated by external research providers as having better ESG management practices.

Around half of the ASX200 responded to the Carbon Disclosure Project (CDP), with almost all ASX50 companies responding publicly. Companies with No Reporting or at Basic reporting levels were also far less likely to respond to the CDP.

A copy of the full report including details of the ‘leaders’ and ‘laggards’ is available on the ACSI website at www.acsi.org.au

The Australian Council of Superannuation Investors (ACSI) provides independent research and advice to assist its member superannuation funds to manage environmental, social and corporate governance (ESG) investment risk.

ACSI currently represents more than 39 members who collectively manage over AUD$340billion in funds under management and 57% of the Australian profit-to-members superannuation sector.