Sustainability Reporting in Australia

Transcription

1 sustainability advisory services Sustainability Reporting in Australia advisory

2 Contents Page Foreword 1 Executive summary 2 Looking to the future: trends in sustainability reporting 3 About the survey 5 Key findings survey of sustainability reporting 6 KMPG s Sustainability Advisory Services team 11 Contact us 12

3 Sustainability Reporting in Australia Foreword Public disclosure of sustainability-related information is firmly on the agenda for many organisations. This trend is being driven by a range of forces including the greater focus of analysts and institutional investors on long-term performance, the increasing financial materiality of greenhouse gas emissions, and a global movement towards more overt corporate responsibility and associated competitive positioning. Sustainability reports are nowadays often developed with boardroom input and perused by mainstream investment analysts. These analysts increasingly recognise the potential impact on a company s longer-term investment value, potential liabilities and general risk profile on environmental, social and governance (ESG) issues. Our latest survey of sustainability reporting in Australia confirms that more Australian companies than ever before produced formal sustainability reports for reporting periods ending in Although public companies are under obvious pressure to produce some form of sustainability reporting, it is interesting to note that major private companies have been strong adopters of sustainability reporting. Of course, quantity should never be confused with quality. The quality of public sustainability reporting varies. This is not surprising. The progressive adoption of appropriate sustainability reporting standards such as the Global Reporting Initiative (GRI) on sustainability should improve the comparability of reports, if not across all companies, then at least within particular industries. Through our Sustainability Advisory Services team KPMG continues to work with clients and the business community generally to improve the relevance and utility of sustainability reporting in Australia. The real challenge for us all is to produce sustainability reports that generate the kind of information that enhances organisational performance, leading to improved commercial outcomes and satisfaction of community concerns. If sustainability reporting can amply respond to these challenges corporate reporting can shift from an annual exercise that results in a glossy publication to one with real strategic importance to the company as well as providing meaningful information to all stakeholders. It is an exciting prospect. Rob Hogarth Partner Margaret Smylie Partner

4 Sustainability Reporting in Australia Executive summary KPMG s latest survey of sustainability reporting practices in Australia found that major public and private entities increased both the incidence and quality of their sustainability reporting during We expect this trend to continue in 2007 and beyond. The report contains nine specific findings. 1. Our analysis suggests that 30 percent of Australia s top 500 companies have published, or are expected to publish, sustainability reports for This result continues a 16-year upward trend. 2. Sustainability reporting today must include information on relevant climate change matters and our analysis of sustainability reporters among Australia s top 500 companies found that 85 percent referred to greenhouse gas and climate change issues. 3. Australia lacks an overall mandatory requirement for sustainability reporting and sustainability reporting levels in Australia continue to lag those in several comparable countries (e.g. UK, Germany and Japan). 4. The four industry sectors that dominate the ASX300 (mining, property and business services, manufacturing, and finance and insurance) are well represented in sustainability reporting. 5. The level of sustainability reporting amongst top 100 public and private companies is very similar. 6. Of those companies producing sustainability reports, 83 percent have published stand-alone sustainability documents and only 17 percent published integrated/combined financial and sustainability reports. 7. More companies are embracing the internet and associated digital media to disseminate their sustainability reports. Of the top 500 companies who have already produced a 2006 sustainability report, 87 percent have published in both electronic and hard copy formats. 8. The majority (70%) of sustainability reports were found to align with, or make reference to, the GRI, an international, voluntary framework for sustainability reporting. 9. The number of companies seeking independent assurance over performance data and information contained within their sustainability report continues to increase. Survey findings suggest that in 2006, 40 percent of ASX 500 reporting companies had independent assurance, compared with 34 percent in 2004 and 28 percent in Before presenting these findings in more detail, we provide an insight across a number of key trends that are shaping the future of sustainability reporting in 2007 and beyond.

5 Sustainability Reporting in Australia Looking to the future: trends in sustainability reporting Sustainability reporting continues to evolve with pace, both in Australia and overseas. Understanding this trend is important enabling companies to build the right capabilities to deliver timely, relevant and reliable information in response to the needs of key stakeholder groups. The release of the revised ASX Corporate Governance Principles, which includes an expectation for listed companies to internally report on sustainability risks, highlights the importance of this issue. Sharpening focus At its heart, sustainability reporting is concerned with the communication of credible, relevant information to a range of stakeholder groups including staff, investors and potential customers. The sheer breadth of issues covered within the scope of many corporate sustainability agendas has led to the development of long encyclopedic reports. Such reports are difficult for stakeholders to easily digest and resource intensive to produce. Board and investor-relevant issues such as climate change and reputational concerns are increasingly elevating the importance of sustainability reporting within many organisations. As a result, we are observing a noticeable sharpening of sustainability reports towards the clear articulation of a company s positioning, performance and underlying strategy across areas known to be of greatest relevance to key stakeholder groups. Investor-led initiatives, such as the Principles for Responsible Investment, Carbon Disclosure Project and Global Framework for Carbon Risk Disclosure have acted as catalysts for this trend. A range of sustainability-related issues are hitting the radar when considered through the lens of a medium-to-long-term investment horizon.

6 Sustainability Reporting in Australia Current Future Softer CSR issues Hard issues (board and investor) Board and investor relevant issues such as climate change and reputational considerations are increasingly elevating sustainability-related agendas and reporting/disclosure considerations. Boards, senior executives and investors are increasingly focused on sustainability-related drivers, performance, positioning and advocacy. Encyclopaedias Prospectuses The breadth of issues covered within the scope of many companies sustainability agendas (and the expectations of frameworks such as the GRI) has led to the production of many encyclopaedic reports. This trend will reverse, particular as companies increasingly develop and implement effective materiality assessment processes. Company Value chain and influence Sustainability reports have traditionally focused on issues associated with the operations over which a company has direct control (e.g. staffing, environmental performance, OH&S). Such areas will remain important, but increasing focus will be given to value chain considerations and spheres of influence. Reporting Communication Sustainability reporters will increasingly seek to utilise reporting strategies that are more responsive to stakeholder needs and expectations. The internet will continue to be an important communication channel, complementing (and expanding) information contained in hard-copy annual publications. Annual 24/7/365 Development of formal sustainability reports provides a structured process for the collation and analysis of sustainability-related information. Such reports are likely to remain important, however companies will increasingly use various communication channels to maximise the effectiveness of engagement with priority audiences. Operational performance Products and markets Whilst operational performance remains important, sustainability reports will increasingly adopt a more holistic approach to considering the sustainability impact and influence of their activities. Increasing discussion will relate to products (e.g. green loans) and the markets in which they operate. Risk Value and opportunity Leading sustainability reporters typically provide a clear insight across sustainability risks. It is anticipated that reporting on such issues will continue, however such information will be augmented with broader opportunityrelated discussions and information on the value extracted through sustainability strategies.

7 Sustainability Reporting in Australia 5 About the survey Since 1993 KPMG has conducted, and been involved with, a range of surveys exploring different aspects of sustainability reporting, both internationally and within Australia. KPMG s triennial international survey of Corporate Responsibility Reporting, most recently published in 2005, provides an insight into global sustainability reporting related trends and developments. Closer to home, for the past three years, KPMG has collaborated with the Centre for Australian Ethical Research (CAER) and Deni Greene Consulting to prepare the State of Sustainability Reporting in Australia (commissioned by the Australian Government Department of the Environment and Heritage). This report represents an extension of this investigative work, providing an insight into sustainability reporting trends for 2006 and commenting in relation to anticipated key future sustainability reporting trends. Given the speed in recent years of sustainability report evolution, both in Australia and overseas, it is envisaged that this information will provide a useful reference point for both sustainability reporters and users of their reports. Survey methodology and analysis Information presented here is based on analysis conducted by KPMG s Sustainability Advisory Services in March and April Where possible, KPMG has sought to maintain comparability with previously released survey information. Based on publicly available information, this survey provides an insight into the extent to which the top 500 Australian companies formally disclosed sustainability-related information for reporting periods ending in The term sustainability reporting is used in this document to refer to, and include, all corporate sustainability reporting (CSR), including triple bottom line (TBL) reporting and reporting on issues related to safety and health, the environment, community and people. This approach is consistent with that employed in previous related surveying work commissioned by the Commonwealth Government. Information in this report relates to sustainability reporting activities by Australia s top 500 companies (across annual reporting periods ending in 2006) and covers: ASX 300 listed companies Top 100 private companies Top 100 public companies The top 100 public and private companies were determined using Standard & Poor s index. The top 100 public and private companies are ranked on annual revenue. Surveying work undertaken by KPMG in connection with this report primarily involved a high-level, desktop review of publicly available information. Data was collected from company websites and published corporate documents. We then analysed annual financial reports to determine the extent to which they included sustainability-related information. Historical information was also extracted from the Commonwealth Department of Environment and Heritage report, The State of Sustainability Reporting in Australia KPMG s triennial International Survey on Corporate Responsibility Reporting (last published in 2005) was used to provide an international context where appropriate. Defining reports The terminology used in relation to corporate responsibility and for reporting on sustainability performance is varied. Companies may refer to sustainability, sustainable development, corporate social responsibility to name a few. All of these terms broadly cover the topics of social, environmental and economic performance with differing levels of detail. These are all included in the survey sample.

8 6 Sustainability Reporting in Australia Key findings survey of sustainability reporting Extent of sustainability reporting in Australia (top 500 companies) The incidence of corporate sustainability reporting in Australia continues to increase Analysis suggests that 145 (30%) of the top 500 Australian companies have published, or are expected to publish, a sustainability report for This compares with 125 (25%) in Amongst ASX100 listed companies, the level of sustainability report disclosure for 2006 rose to 35 percent with these companies either having already published, or being expected to publish, a sustainability report for Taking a historical perspective, it is interesting to note that the overall level of sustainability report disclosure continues the upwards trend observed over the past 16 years (see figure 1 below). It should be noted that the companies included in the top 500 in Australia vary from year to year. The group of companies covered by this year s report differs somewhat from the group covered last year. KPMG expects that this upwards trend will continue into 2007 driven in part by an increased focus on greenhouse gas emissions (and broader climate change related risk exposures) and stakeholder expectations relating to corporate responsibility; driven in particular by staff expectations in an increasingly competitive employment market. Indeed, the level of sustainability reporting may accelerate, particularly in response to the actions of corporate sustainability leaders as they increasingly develop sophisticated marketing and branding initiatives built upon their proven sustainability performance. In accordance with the heightened awareness of corporate responsibilities and the upwards trend of disclosing non-financial information, the expected increment in companies producing sustainability reports in is larger than that of the previous couple of years. KPMG expects this increment to further extend in Number of reports Reports anticipated to be published Published reports Department of Heritage and Environment State of Sustainability Reporting 2005.

9 Sustainability Reporting in Australia 7 2. Climate change has emerged as a key driver and shaper of the sustainability reporting agenda Disclosure of climate change related information has become an important dimension in many sustainability reports. For example, analysis suggests that 85 percent of the top 500 Australian companies that published, or are expected to publish, a sustainability report for 2006 included climate change/greenhouse gas related disclosures. Indeed, corporate activity in response to climate change is becoming fast and furious, with companies across a diversity of industries committing to: becoming carbon neutral establishing emission targets over internal activities developing new, less-carbon-intensive products and services capitalising on potential trading opportunities. As widely recognised, climate change related issues have the potential to impact upon the investment value, general risk profile and potential liabilities of many organisations. Given this situation, many companies realise that climate change/ghg emission reporting may extend across both the financial and non-financial reporting requirement/expectations. The challenge for sustainability reporting is to fast track this process, building on the significant progress made recently, to develop robust, reliable reporting of genuine value to a range of key stakeholder groups. Climate change related disclosures Climate change related disclosures may be contained in: more broadly focused corporate sustainability reports responses to investor-led initiatives, such as the Carbon Disclosure Project and Global Framework for Carbon Risk Disclosure GFCRD) annual reports specific press/communication releases (e.g. outlining a company s stated carbon neutral positioning) other corporate reporting/disclosures regimes (e.g. resulting from participation in the Greenhouse Challenge Plus program, which is a federal government initiative). Example Global Framework for Carbon Risk Disclosure (GFCRD) Launched in October 2006, the GFCRD was developed by a group of institutional investors from around the world. Investors are increasingly interested in this framework, for use in analysing a company s business risks and opportunities resulting from climate change. They also want to view the company s efforts to address those risks and opportunities. The framework encourages standardised climate risk disclosure to assist companies providing such information. It includes work by investors to analyse and compare corporate performance and risk exposure. The framework consists of the following four elements of disclosure: total historical, current, and projected greenhouse gas emissions strategic analysis of climate risk and emissions management assessment of physical risks of climate change analysis of risk related to the regulation of greenhouse gas emissions.

10 Sustainability Reporting in Australia 3. Sustainability reporting in Australia continues to lag international levels As previously noted, 35 percent of ASX top 100 companies either published, or are expected to publish, a sustainability report for This level of reporting lags that observed in many developed countries around the world. For example, looking back to 2005, the level of sustainability reporting amongst the largest 100 companies in Japan and the UK was 80 percent and 71 percent respectively. 2 The fact that observed levels of sustainability reporting by Australian corporations continues to track below countries such as the UK, Japan and Germany is a source of frustration for some. However, it is important to recognise that there are a number of key differences between the Australian landscape and such overseas markets. For example, differences exist in relation to regulatory disclosure and reporting requirements. Sustainability reporting in Australia remains voluntary as there is no legislative requirement for companies to publish such reports. This is not the situation in some markets such as Japan where specific legislation has been enacted in relation to the mandated disclosure of particular sustainability-related information. Extent of sustainability reporting amongst top 100 companies UK 71% Germany 36% Japan 80% USA 32% Australia 35% South Africa 18% Note: Data presented for UK, US, Germany, Japan and South Africa is based upon information contained within KPMG s triennial survey of Corporate Responsibility Reporting, most recently published in KPMG, International Survey of Corporate Responsibility Reporting, 2005.

11 Sustainability Reporting in Australia 4. The extent of reporting varies significantly between industry sectors Based on the number of companies, the ASX 300 is dominated by four industry sectors: mining (19%), property and business services (18%), manufacturing (17%), finance and insurance (12%).. Analysis indicates these four sectors are well represented in sustainability reporting. Indeed, the mining and manufacturing sectors make up 24 and 29 percent respectively of those ASX300 companies publishing sustainability reports for 2006 perhaps not surprising given the nature of their business activities. The level of sustainability reporting by companies within the property, business services, finance and insurance sectors highlights the importance of specific sustainability-related issues. For example, the banking sector is increasingly responsive to stakeholder expectations in relation to the disclosure of information relation to lending practices, customer service and access levels, and the promotion of financial literacy within the community. It will be interesting to observe the relative levels of reporting in coming years as sustainability-related issues, most notably climate change related, increasingly permeate through the economy. Comparison of ASX300 companies by industry sector and sustainability reporting ASX 300 Companies by ANZSIC Classifications ASX 300 Reporting Companies by ANZSIC Classifications Mining Property & Business Services Manufacturing Finance & Insurance Wholesale Trade Transport & Storage Electricity, Gas & Water Supply Cultural & Recreational Services Construction Other 5. Levels of sustainability reporting among both the top 100 public and private companies are similar Analysis shows very similar levels of sustainability reporting amongst the top 100 public and top 100 private companies in Australia (48% and 47% respectively) based on those companies that published, or are expected to publish, sustainability reports for Most sustainability reporters publish stand-alone documents Of those top 500 companies that have already published a sustainability report for 2006, the majority (83%) have released a stand-alone sustainability report (i.e. separate to their annual report or other corporate communication). This finding is consistent with international trends. For example, KPMG s most recent triennial international survey in this space found that 80 percent of top 100 companies in the 16 countries surveyed issued separate sustainability reports. 3 It is interesting to note that, whilst issues such as climate change, have heightened investor interest in specific dimensions of non-financial performance, this is yet to translate into a formalised integration of sustainability performance in annual reports Comparison of sustainability reporting by public and private companies Top 100 Public Companies Stand alone sustainability report Top 100 Private Companies Style of sustainability report for those reporting in Top 500 Companies 70% 83% 30% 13% Integrated with annual report ibid

12 10 Sustainability Reporting in Australia 7. Web-based reporting is gathering pace, improving information accessibility The internet and associated electronic media formats (including PDF and html documents) continue to shape global trends in corporate disclosure and reporting strategies. Survey findings indicate that all top 500 companies (that have already published a sustainability report for 2006) have published an electronic version of their report, with some choosing not to release an associated report in hard-copy format. Observations indicate that many companies have developed sophisticated communication strategies in relation to the release of online sustainability-related information. This enables them to respond better to the needs of particular stakeholder groups, reduces the need for large print runs and increases the speed of responsiveness to emerging issues. Online reporting has also allowed stakeholders to access and compare sustainability reports and many companies now upload their sustainability reports to online, publicly accessible repositories. Use of GRI Guidelines in reports published by Top 500 companies 8. The GRI is widely adopted as a reporting guidance framework Since its launch in 2002, the GRI has emerged as an important, internationally recognised framework for sustainability reporting. 80% 70% 60% 40% 49% 51% 30% 20% 0% No reference to GRI guidelines In accordance with or reference to GRI guidelines The launch of the G3 version of the GRI guidelines (October 2006) will undoubtedly further entrench the leading position of the GRI. This latest version emphasises the importance of relevance analysis, encouraging companies to focus their reporting across areas of greatest interest to key stakeholder groups. Survey findings suggest that in Australia 70 percent of top 500 companies that produced a sustainability report for 2006 have followed or make reference to the GRI. This level of adoption represents an important progression within the standardisation of sustainability reporting and associated comparability of reports. Value of assurance Provides confidence to stakeholders, the board, and senior management as to the accuracy and credibility of information. Provides a tool to assist in mitigating risks associated with disclosure of inaccurate/ misleading information. Adds independent credibility to disclosed information. Provides feedback to the organisation, for example: identifies strengths and weaknesses enables rectification of identified errors prior to publication of report. 9. Sustainability report assurance Analysis suggests that the overall level of assurance on sustainability reporting is increasing. In 2006, 40 percent of sustainability reports (prepared by ASX500 companies) will be subject to independent assurance. This compares with 34 percent of reporting companies in 2004 and 28 percent in Independent assurance over data and other specific information contained within a sustainability report has the potential to deliver significant value both to users and the reporting organisation. However, significant variability currently exists in the nature, scope and quality of sustainability report assurance statements. This situation, whilst perhaps not surprising given the rapid emergence of sustainability reporting over the past 15 years, runs the risk of undermining the overall market credibility of such assurance and providing false confidence to some organisations as to the robustness of their reporting processes and reported information. Provides market insight. Provides feedback on the adequacy of established sustainability reporting processes. Helps establish future priorities and areas of focus.

13 Sustainability Reporting in Australia 11 KPMG s Sustainability Advisory Services team Sustainability-related issues are increasingly mainstream, impacting the investment value, general risk profile and potential liabilities of many organisations. KPMG understands these issues. Our Sustainability Advisory Services team assists clients across a range of industry sectors understand and respond to existing and emerging Environmental Social Governance (ESG) risks and associated sustainability-related issues. Examples of recent engagements include: working with a major Australian bank on ESG risk management practices reviewing the adequacy of stakeholder engagement processes for a major agribusiness client assisting an international mining client quantify the sustainability-related outcomes delivered by a portfolio of investment projects advising a government department on issues associated with carbon market developments providing sustainability report assurance services for an international airline assisting a major Australian corporate develop appropriate greenhouse gas management procedures and standards. We often work in multi-disciplinary teams to deliver against specific client requirements. Services provided by our Sustainability Advisory Services team include: Sustainability ESG risk and opportunity advisory Carbon advisory and assurance Stakeholder engagement advisory OHS risk advisory Environmental risk advisory Sustainability report advisory and assurance Due diligence assist

14 kpmg.com.au Contact us For further information about KPMG s Sustainability Advisory Services, please contact us: Margaret Smylie Lead Partner msmylie@kpmg.com.au Adelaide Coenraad Robberts Manager crobberts@kpmg.com.au Brisbane Geoff Hirst Associate Director ghirst@kpmg.com.au Perth Caron Cobarg Sugars Senior Manager ccobargsugar@kpmg.com.au Sydney Oliver Wild Manager, Sydney Tel: owild@kpmg.com.au Canberra Richard Hambly Senior Manager rhambly@kpmg.com.au Melbourne Rob Hogarth Partner Tel: rahogarth@kpmg.com.au Gary Veale Associate Director Tel: gveale@kpmg.com.au Tzila Katzel Manager tzilakatzel@kpmg.com.au 2007 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Printed in Australia. KPMG and the KPMG logo are registered trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation. October VIC11457RAS.