Human Rights and the financial risk of climate change a low priority for Australia’s top companies.
Corporate responsibility (CR) reporting is now standard for large and mid-cap companies across the world – but Australia’s performance is plateauing, and needs to improve.
That is the headline finding in KPMG International’s biennial survey of CR and sustainability reporting by nearly 5000 top companies and organisations worldwide.
Every two years, we assess the CR and sustainability reporting by the top 100 companies and other entities (by revenue) – known as N100 – in countries across the world. The 2017 survey covers 49 nations, which is a major project by any standards.
Australia’s top entities (75 companies, 15 public sector organisations and 10 superannuation funds) are failing in two key aspects of corporate responsibility (CR) reporting: firstly they lag the world average in acknowledging human rights as a business issue, and secondly less than half recognise climate change as a financial risk.
Australian companies lag the global average of 73 percent of businesses who recognise human rights as an issue and they are well behind the 90 percent of CR reporters who recognise this issue in the top global group of organisations (G250).
Of those Australian entities that do acknowledge human rights as an issue, 79 percent disclose a human rights policy. This is positive, as a human rights policy is a fundamental building block of corporate action on human rights.
But only 40 percent refer to the UN Guiding Principles on Business and Human Rights, that indicates organisations are still coming to terms with how international standards should shape their policies and practices. Many lack the ability to implement those principles.
And while publicly reporting on human rights is an indicator that the company has at least started considering rights related risks, Australia’s top organisations need to identify, remediate and respond to the impacts.
This will need a change in mindset – and it needs to be soon, because the next few months will see human rights rising up the corporate risk list in Australia.
Legislation on modern slavery – modelled on the UK law – is being introduced, which will require public disclosure of business efforts to eradicate forced labour and other related practices in companies’ operations and supply chains. Board approval and a director’s signature is likely to be required for public ‘modern slavery statements’ – so companies need to start addressing rights issues urgently.
On climate change reporting, there is limited activity in Australia, despite increasing regulatory exhortation. Earlier this year prudential regulator APRA warned that climate change risks must be regarded as a risk management issue for business, as many of these risks are financial in nature and are foreseeable, material and actionable. Yet only 41 of the N100 organisations currently acknowledge climate change as a financial risk in their reporting – although this is not inconsistent with global levels.
To be fair, we do expect these results are impacted by the particular timing of reporting in Australia (i.e June vs December year ends) and there will be a significant increase in activity and disclosures in relation to climate risk in the next reporting cycle. Many of the 30 June 2017 annual reports released in the last few weeks are demonstrating that entities are starting to get up to speed with this fast-evolving and relatively new framework.
The report finds that of entities that do report, a relatively high proportion provide some narrative description of the potential impacts. Very few, however, are currently quantifying the potential impact of those risks in financial terms or modelling it using scenario analysis or other methodologies as the Financial Stability Board Task Force on Climate-related Financial Disclosures (TCFD) recommends.
Globally, one area of positive improvement is in carbon reporting, where 67 percent of the top 250 organisations now report targets to cut emissions compared to 58 percent in 2015. Public scrutiny of corporate performance in this area has increased since the Paris Agreement on Climate Change, despite the disappointment of the US pulling out earlier this year.
But these targets cannot be arbitrary – in the next few years KPMG expects to see many more companies setting carbon reduction strategies linked to national, regional or global climate goals and communicating those strategies in their CR reporting.