The decade of action: reporting the financial risks inherent in climate change and social issues
Just 30 years ago, only 12 percent of companies had sustainability reporting as a key component in their annual reports. In contrast, today that figure stands globally at approximately 80 percent (92 percent amongst ASX100 companies) – highlighting the importance of ESG reporting to both shareholders and companies.
But for the 20 percent that don’t adopt the accepted global practice, sustainability reporting cannot easily be solved with a quick fix. Reporting methodologies and approaches are complex and dynamic, requiring deep professional knowledge and expertise and must be backed up with robust sustainability strategies and risk management processes.
The latest KPMG Survey of Sustainability Reporting has tracked monumental changes since the report was first published in 1993.
Sustainability is more than just climate change
Our latest results indicate risk is the new lens to view sustainability or ESG, with changing attitudes to climate change being the key driver behind this trend. Climate change was once viewed with scepticism as a corporate responsibility issue that might bring reputational risks for companies perceived to be part of the problem. But perception changed with the advent of the Task Force on Climate-related Financial Disclosures (TCFD) in 2015 which highlighted the financial risks inherent in climate change were being under-reported or not reported at all.
In only 5 short years, attitudes towards the financial risks of climate change in the financial and corporate sectors have changed beyond recognition. I predict climate change is only the first of a series of ESG issues which will come to be perceived as financial risks or, indeed, opportunities. Social issues such as child labour, forced labour, working conditions, diversity and equality, fair pay, biodiversity and more will soon take on the same financial relevance.
UN Sustainable Development Goals
With the 2020s often termed ‘the decade of action’ there has been a shift in companies (67 percent of ASX100) linking the UN Sustainable Development Goals (UN SDG) into their business activities. Covering global challenges such as poverty, inequality, climate change, peace and justice are at the forefront of societal discourse and represent the continually widening scope of sustainability reporting.
Data collected in relation to the UN SDGs from ASX100 companies was largely consistent with results garnered internationally with climate action and sustainable, inclusive economic growth being our top two goals (75 percent and 69 percent). Interestingly to note however, gender equality is a larger concern in Australia than the rest of the world (63 percent in Australia, compared with 43 percent globally).
Reporting on biodiversity should be a key priority for any business particularly those operating in high risk sectors. The speed with which the world is losing its biodiversity is alarming to say the least. It is therefore worrying that only 36 percent of ASX100 companies reported on biodiversity in the past financial year. Further to this only 18 percent believe that a loss of biodiversity could come as a detriment to their business.
Any business that believes it will remain entirely unaffected by this, in my opinion, is not facing up to reality. Furthermore, the biodiversity crisis will only be exacerbated in years to come by the climate crisis and will have pervasive impacts that affect everyone.
My advice to the business leaders therefore is to get your heads around biodiversity. Understand how your company is contributing to biodiversity loss and what risks it faces from it. You will be asked about this very soon by your investors, lenders, insurers, customers and consumers. You will also likely to be expected to make public disclosures on it sooner than you may think. Get ready by starting now.
Overall, our latest survey is indicative that sustainability reporting within the ASX100 has improved dramatically in the last three years. Australian companies have moved from a laggard status, to a position now where a majority use the internationally regarded GRI sustainability framework, and have information externally assured as well as linking activities to the UN SDGs.