Blog courtesy of Susan McNair, Currie Communications
When it comes to environmental, social and governance (ESG) reports, most large-listed companies keep outsiders in the dark.
A lack of transparency in ESG reporting makes it hard to assess companies’ non-financial risks, impacts and actions.
The Global ESG Monitor (GEM), a study of ESG reports from the largest listed companies in Europe, the USA and Australia, found that Corporate sustainability reporting is difficult to gauge. This is because it is varied in both method and quality. For those closely watching the global corporate sustainability agenda, it probably came as no surprise.
Financial reporting has been common practice for businesses for more than a century, and in markets across the world, the importance of independent standards and authority has long been recognized. So, while we have no single universal standard, the principles that underpin financial reporting across the DAX, Euro Stoxx 50, Dow Jones and ASX 50 now mean investors can easily compare across a global financial landscape.
By comparison, non-financial reporting is in its early stages. While the reasons for reporting are clear – the acknowledgment of changing social license and heightened investor scrutiny – the ‘what’ and ‘how’ aren’t.
Without regulatory guidance or standards, companies are left to report ESG in the manner that best suits their business, sector, data and resources.
So, what did we learn in this study of ESG reports?
What‘s apparent is that a standard approach is lacking. More than 90 percent of reports reference a standard or framework, but that “standard” varied significantly both within and between regions. Notably, the United Nations Sustainable Development Goals (SDGs) and the Global Reporting Initiative (GRI) are the most referenced frameworks.
European – and more specifically, German – companies, dominate the top 10 in both the ESG-specific and integrated reports, likely because ESG reporting is more regulated in those markets. So, where does Australia lead when it comes to ESG reporting? Well, more than 85 percent of ASX 50 companies detail ESG objectives and targets, yet more than half the reports don’t disclose results when they fail to make progress.
More than half of all companies reference an analysis of material issues in their reports, with 80 percent of DAX companies providing such information. In comparison, their Australian counterparts trail the world in reporting a link between materiality analysis and strategy.
Investors and the community are the primary drivers for ESG, but their influence on ESG strategy and reporting is unclear.
If we’re thinking about the corporate sector’s focus in terms of sustainable development goals, Climate Action (SDG13) is where it is at. Unsurprisingly, it’s a priority across most companies that aligned their reporting with the SDGs, including those in Australia.
Where does this leave us? Well, with a quandary in the short term.
The evaluation of a company’s non-financial performance will continue to take place ‘in the dark’ until there are standard, internationally valid and technical requirements for ESG reporting. At that point, reporting will finally shine a light on a company’s ESG progress.
Want to do your own digging? Download the report, and see for yourself.
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