The sustainability reporting debate has gone up several notches, with the Australian Council of Superannuation Investors (ACSI) warning it might publicly name listed companies that ignore calls from the investment community for better disclosure in this area.
ACSI, which represents about 40 industry funds with a total of more than $300 billion in funds under management, this month released its fifth annual analysis of sustainability reporting practices and disclosure of companies in the S&P/ASX 200 Index.
The council again found more than half of Australia's largest listed companies did not provide meaningful sustainability disclosure around environmental, social and governance (ESG) risks that could materially affect the share price.
It believes ESG risks affect the long-term viability of companies and better disclosure is needed to help institutional investors make informed investment decisions.
ACSI considers only 18 per cent of ASX 200 companies (mostly from the top 50) have best-practice sustainability reporting.
It said the number of companies structuring their sustainability reporting to the Global Reporting Initiative had stalled in the past three years.
This suggests some large listed companies are breaching their continuous disclosure obligations by not disclosing sustainability risks, such as carbon exposures, that are material to the share price.
KPMG research released earlier this year found Australian companies were increasingly falling behind other countries regarding sustainability reporting.
"Despite ACSI's annual communication with ASX 200 company chairmen regarding their [company's] reporting level and the importance of sound disclosure around sustainability risk and performance, these results confirm the concerns of investors have not been addressed," ACSI chief executive Ann Byrne said.
"In light of these findings, ACSI is considering publicly naming companies that continue to provide little or no reporting on sustainability in future research reports."
ACSI's threat will not please chairmen of ASX 200 companies. Boards are concerned a prescriptive, rules-based approach to sustainability reporting will provide more information for shareholder activists and class-action promoters to seek damages from companies, and that activist groups, such as environment lobbyists, will seize on sustainability information to bully companies.
Its view, shared by a growing number of institutional investors worldwide, is that large companies should provide more detailed and quantifiable information on their sustainability risks.
Superannuation funds, rightly, want companies to disclose sustainability risks that could affect the share price, and quantify their approach to managing these risks, so that industry comparisons can be made.
ACSI's good work on this topic has shown that, for all the talk about sustainability reporting, few companies take it seriously.
This is a key issue for fund managers.
Prominent institutional investors, such as Industry Funds Management, have criticised super funds and fund managers for not paying enough attention to sustainability risks.
There is a view super funds should be more aggressive about cancelling investment mandates for fund managers that do not consider corporate sustainability.
This push is slowly trickling through the investment community.
More investment banks now provide sharebroking research on ESG issues and some have attempted to incorporate their findings into company valuations.
But it is early days at best. Most analysts and fund managers still base company valuations on traditional metrics, such as earnings, and focus less on sustainability.
The issue of lax sustainability reporting, it seems, is finally coming to a head.
On launching the Sustainability Reporting Journey series in 2008, ACSI expected to see clear improvement of sustainability reporting over five years.
It has become more vocal about the lack of progress each year, to the point where it could name and shame the worst offenders next year.
"[The latest report] raises a number of concerns," Byrne said.
"There has been no consistent trend towards improved reporting, and the majority of companies continue to provide average-to-poor sustainability reporting. Overall, the vast majority of disclosure continues to be of questionable quality, with companies often neglecting to address material sustainability risks and providing little or no information on sustainability performance."
