Australia’s largest companies are lagging on ESG reporting as investors demand climate accountability

Australia’s largest companies are lagging on ESG reporting as investors demand climate accountability
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  • Some 62% of ASX200 companies failed to publish the details of their ESG commitments over the last year.
  • New research suggests that investor expectations continue to outpace the efforts of Australia’s largest companies amid shifting expectations and a broader democratisation of share-trading.
  • Only 36% of ASX200 companies have a net zero target, while just 4% have carbon-negative plans or goals.
  • Visit Business Insider Australia’s homepage for more stories.

The nation’s largest listed companies are going to greater lengths to be transparent about their environmental, social and governance commitments, though many still don’t have endorsable action plans, and the majority don’t even make their strategies publicly available.

Analysis of Australia’s ASX200 companies conducted by consulting firm PwC shows that while 87% of the top 200 firms undertook “meaningful ESG reporting” over the last year, up 29% on the year before, as many as 62% of them failed to make details related to their “short, medium and long-term goals” publicly available. 

Matthew Lunn, ESG assurance lead at PwC Australia, said the Australian market has seen notable cosmetic improvements, but critical areas continue to go unaddressed. 

“We’re witnessing enormous investor-driven demand for information about a company’s commitment to ESG activities, which provides a significant opportunity to impress capital markets and reap the rewards of doing so by clearly demonstrating goals and commitments,” Lunn said.

“But while we’ve seen improvement in 2021, there’s a long way to go. A strategy without a plan, a timeframe and measurable targets to be held accountable against is not a strategy, but merely a statement of ambition.

“Short, medium and long-term plans are needed to ensure progress is made against a company’s ESG strategies with targets and KPIs in order to make progress measurable.”

PwC found that only 36% of ASX200 companies have some semblance of a net zero target, while just 4% have spoken about carbon-negative plans and goals. 

Meanwhile, some 66% of these companies don’t have their ESG reporting externally assured, leaving no way of knowing whether commitments can even be achieved. 

The firm’s research found that despite the limited ESG efforts launched by Australia’s largest companies, the expectations of investors continue to outpace them. PwC puts it down to three factors. 

First, that global crises like the pandemic and climate change have spurred new stakeholder demands, as the “expectations and education” of investors expands.

The firm also suggests that ESG reporting standards continue to change, mounting continuous challenges in the face of large companies, while capital providers require more information to meet ESG-driven investment mandates. 

“With stakeholders more attuned than ever to the impacts of climate change, companies have needed to amp up their response,” Lunn said. 

“Increased stakeholder activism has meant companies who make such disclosures have to be prepared to back them up with genuine plans to meet their stated targets — and be careful about how they label their operations or products as clean or green.”

Those who do so, and fail to follow through on their commitments, run the risk of greenwashing, Lunn said. In Australia, the charge has come with consequences that reach far beyond missed investment opportunities. 

The Commonwealth Bank of Australia became one of the earliest case studies, after one of its shareholders in August tried to sue the bank in a bid to see documents detailing decisions to finance oil and gas projects, which was claimed could fall afoul of the Paris Agreement. 

The case, launched in the Federal Court of Australia, marked a first for climate lawfare in Australia, and came just weeks after CBA published an updated climate plan in its annual report backpedalling on earlier commitments. 

Listed companies have come to face a cacophony of new pressures, as retail investment platforms, like Superhero in Australia and Robinhood in the U.S., have democratised share-trading, and welcomed scores of communities to the world of investing, much like crypto exchanges did before them. 

With those new demographics has come a greater expectation for ESG reporting and action on a new subset of issues. Lunn said ASX200 companies could meet some of those expectations if they went a little further than the base level required of them. 

“There is an important delineation between reporting ESG information and executing on an integrated ESG strategy,” Lunn said. 

“While there is a breadth of publicly-reported information in the ASX200, there’s still a big opportunity for companies to integrate more robust ESG strategies into their business,” he said. 

“The key is to engage with stakeholders and properly understand the topics that are important to them — and reflect on how the priorities and goals of these stakeholders drive the ESG strategy.

Companies can’t do that, Lunn said, without proper ESG governance infrastructure in place. 

“With complex and rapidly changing issues under the ESG banner, boards need to be regularly assessing whether their members are suitably skilled to navigate these issues,” Lunn said.