Corporate Australia taps into social conscience with a sharp rise in ESG reporting

Corporate Australia is gaining a social and environmental conscience with more than 87 per cent of the country’s top companies returning substantial and meaningful reporting of ESG strategies over the past year, according to a report by PwC Australia.

The analysis by the accounting giant found ESG (Environmental, Social, and Governance) reporting was up 29 per cent from 2020.

More importantly, it found the number of companies disclosing a timeframe around ESG strategies and goals has nearly doubled with 76, or 38 per cent, of the ASX 200 providing deadlines for their ESG targets.

“This is encouraging progress, particularly given the absence of universally-adopted standards and regulatory guidance on ESG reporting,” says PwC Australia’s ESG assurance lead Matthew Lunn.

“However, alongside notable pockets of excellence among material disclosures, when we dig into the details we see a more nuanced picture where progress in some critical areas could have been better.”

The report, titled ESG reporting in Australia - the full story, or just the good story?, found that only 36 per cent of the ASX 200 companies have a net-zero target, while just 4 per cent have articulated carbon-negative plans and goals.

In other areas of ESG reporting, only 47 per cent of the ASX 200 have a gender diversity policy with measurable targets, while 76 per cent don’t have a reconciliation action plan endorsed by Reconciliation Australia.

Lunn says the improvements seen in reporting on net-zero targets highlights the rising call from the investment community for greater clarity from corporations as the international debate for action heats up.

“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 - but while we’ve seen improvement in 2021, there’s a long way to go,” says Lunn.

“Our analysis finds setting targets and demonstrating commitment by linking these to executive remuneration is one of the biggest areas for improvement for the ASX 200.

“It’s essential that companies are setting transparent and meaningful targets based on the strategies they disclose, because without measurable and assurable key performance indicators, based on globally recognised taxonomies and science-based targets, their ESG statements and sentiment may be seen as ESG washing, or greenwashing.” 

PwC has also called for the remuneration and long-term incentives of top executives to be linked to achieving ESG targets, similar to current profit and share-price targets.

“This ensures clear responsibility and lines of reporting from skilled management to the board in areas as broad as environmental impact and climate change, risk management, human resources and diversity and inclusion," says Lunn.

“Many boards are asking questions about ESG, but they’re not turning the magnifying glass on themselves to ensure they have the right knowledge and expertise to be able to appropriately manage or provide governance over ESG.”

PwC Australia sees long-term value for Australian companies through their performance in the ESG field.

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

“While there is a breadth of publicly-reported information in the ASX 200, there’s still a big opportunity for companies to integrate more robust ESG strategies into their business.

“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.”

PwC would also like to see companies come clean on their negative impacts as well.

“Balance is an important concept when it comes to ESG reporting and helps companies avoid the charge of greenwashing,” says Lunn.

“Many companies also exclude information on ESG topics they do not consider material. However, stakeholders may infer different conclusions from these omissions.”