The Australian Council of Super Investors (ACSI) last week released an insightful report on the supply-chain labour and human rights policies of companies in the S&P/ASX 200 Index.
It followed an ACSI study in late October on the bribery and corruption risk among the top 200 companies.
ACSI is leading the local push for listed companies to provide more detailed information on environmental, social and governance (ESG) risks, such as carbon exposures, human rights policies in offshore markets and safety records.
It wants companies to better explain their long-term ESG risks and for the investment community to better research and value them - a position that concerns many companies that do not want prescriptive ESG reporting thrust on them.
ACSI's members collectively manage more than $300 billion in funds.
The council's latest report benchmarked the supply-chain labour and human rights policies of Australia's largest listed companies against 2500 of the largest global companies.
It found ASX 200 companies lagged their peers in other listed markets, with only 17 per cent issuing a labour and human rights policy covering their supply chains, compared to 35 per cent in the global sample.
"A lack of strong standards in the management of supply-chain labour and human rights threatens company value and sustainable performance," ACSI chief executive Ann Byrne said.
"Consumers today take an interest in these issues and make purchasing decisions based on the ethics and values embedded into a company's policy, culture and operations. In such an environment, poor supply-chain labour and human rights practices reflect negligent risk management at a board level."
Australian companies lagged behind their global peers on several measures.
Only 13 per cent of Australia's largest companies had a documented policy on child labour risks, compared with 30 per cent of the largest global companies.
Only 13 per cent of local companies had policies on forced labour risks, compared to 29 per cent among global companies.
Australian companies were close to world standard on health and safety policies.
The performance was worse among smaller companies in the ASX 200.
For example, only 5 per cent of small-cap companies had documented human rights policies, compared to 21 per cent in the global comparison set of companies.
Only 4 per cent here had policies on child or forced labour. Mid-cap Australian companies performed better, but were still well below world standard on most measures.
The report said a modern company had a responsibility to ensure every member of its worldwide supply chain was afforded universal human rights, and that the modern investor had a responsibility to scrutinise companies on that issue.
"The outcomes for ASX 200 firms may appear surprising in light of what some see as Australia's leading role on many ESG issues," it said.
"Given the extent to which Australia currently lags and the relatively robust increases in global markets, it seems clear that ASX 200 companies are out of step on these issues ... this poses a potentially significant investment risk for ASX 200 shareholders.
"Australian companies that lack robust policies and procedures to mitigate labour and human rights abuses in their global supply chains are open to the kind of reputational and operational damage that has been experienced by a growing number of companies around the world."
ACSI research suggested boards of some listed Australian companies could be negligent if they were not disclosing material ESG risks to investors.
The big question is when will institutional investors take more forceful action against Australian companies that lag behind global standards on ESG reporting and disclosure?
The ACSI research report was sponsored by LUCRF Super and prepared by the Pensions and Capital Stewardship Project, Labour and Worklife Program, Harvard Law School.
