In this article, we will explore the importance of sustainability reporting for ASX-listed companies and the key components involved.
What is Sustainability Reporting?
Sustainability reporting is an emerging financial report that will soon be mandatory for publicly listed companies in Australia. It involves sharing information about an organisation’s Environmental, Social and Governance (ESG) practices. This report will give stakeholders important information about the company’s sustainability efforts and their contribution to social and environmental goals.
Why is Sustainability Reporting Important?
While sustainability reporting is not currently mandatory in Australia, investors and other parties are starting to show significant interest in sustainability reports and the developing international standards.
The Australian Securities & Investments Commission (ASIC) has recently shown an interest in sustainability reporting. In a media release from June 2022, ASIC urged organisations to “provide useful and meaningful information for investors and other users” as they prepare their end of year and half year financial reports. While not solely focused on sustainability reporting, it called out several risks that may be affected by changing circumstances including “commitments and policies on climate and carbon emissions by governments”, while also cautioning that high carbon-emitting organisations might be particularly affected. See more from ASIC here.
The Australian Securities Exchange Limited (ASX) has also recently begun a crackdown on greenwashing, to ensure companies are accurately portraying the environmental and social aspects of their business or products. Read more here.
Sustainability reporting offers a variety of benefits including better risk management, cost optimisation, improved decision-making and enhanced corporate reputation.
Getting Started on Sustainability Reporting
Sustainability reporting isn’t mandatory, so why bother?
Many companies are choosing to reveal sustainability information due to increasing demands from stakeholders. Boards and leaders are recognising the potential benefits of focusing on sustainability such as enhancing corporate reputation and brand, reducing risks, seizing opportunities, shaping company culture and attracting top talent.
Some stakeholders argue that mandatory sustainability disclosures are necessary to ensure companies operate in an accountable and transparent manner.
As the new financial year begins, it is advisable for companies to start their sustainability journey by taking the initial steps towards sustainability reporting.
What is Involved in Sustainability Reporting?
It’s a common misconception that carbon emissions are the only factor for sustainability reporting. While this still remains an issue, there are a lot more factors to be considered in sustainability reporting.
It requires a holistic approach that considers environmental, social and governance (ESG) factors. These factors serve as a general frame of reference to assess how a company manages risks and opportunities. Examples of ESG factors important to stakeholders include:
- Global warming/net zero
- Land use/ecological sensitivity
- Air/water pollution
- Waste recycling & re-use
- Energy efficiency
- Water management
- Fresh water availability
- Diversity, equity & inclusion
- Employee engagement
- Human rights
- Customer satisfaction
- Health and safety
- Community engagement
- Wealth creation & employment
- Governing purpose
- Board composition
- Ethical behaviour
- Modern slavery
- Data protection/privacy
- Bribery & corruption
- Risk and opportunity oversight
- Remuneration & executive compensation
The Australian Government is planning to make it mandatory for large businesses and financial entities to include specific information about their carbon footprint, greenhouse gas emissions and climate risk in their annual financial reports.
Australian Climate and Sustainability Reporting Standards
Australian regulators are planning to implement specific company-level disclosures related to carbon footprint, greenhouse gas emissions and climate risk. The aim is to align with other major financial markets to avoid any lag in comparison to global disclosures. Large Australian entities are expected to begin reporting in the financial year 2024-25, with SMEs required to report at a later date. These reporting requirements will contribute to better transparency and accountability regarding an organisation’s sustainability performance.
Sustainability Reporting for ASX-Listed Companies
Sustainability reporting has become increasingly important for ASX-Listed companies as they seek to address sustainability issues and demonstrate their commitment to sustainable practices. By embracing sustainability reporting, organisations can enhance transparency, strengthen their long-term strategy and meet the expectations of stakeholders and regulatory bodies.
In relation to the environmental aspect of ESG, companies are now required to disclose their carbon footprint, considering both upstream (suppliers) and downstream (customers) climate footprint information. This means that if you’re a supplier or customer of an ASX-listed company, you may be obligated to disclose your climate footprint information to them. The specific extent to which customers need to disclose this information is still uncertain, as the International Sustainability Standards Board (ISSB) is currently working on developing accounting standards related to sustainability.
Need Help With Sustainability Reporting?
We understand that sustainability reporting and ESG compliance is a complex area and you may have questions, particularly due to the relatively new reporting framework.
Our team is highly knowledgeable in sustainability reporting and ESG compliance. We can provide guidance on starting your sustainability journey, understanding the essential components of a sustainability report and staying updated on laws and regulations. We also provide Climate Emission Verifications through Climate Active (i.e., Agreed Upon Procedures of Climate Emission Data). Climate Active certification offers significant benefits for small and medium-sized organizations (SMEs) seeking to address climate emissions and demonstrate their commitment to sustainability. If you’re interested in this certification or looking for more information, please contact us.
Get in touch with us today and learn how we can help you with effective sustainability reporting and ESG compliance.