ASX 50 skims the surface of sustainability

SUSTAINABILITY in the ASX 50 is about efficiency and tactical measures rather than strategic value creation, soon to be released in-depth research reveals.
ASX 50 skims the surface of sustainability ASX 50 skims the surface of sustainability ASX 50 skims the surface of sustainability ASX 50 skims the surface of sustainability ASX 50 skims the surface of sustainability

Global Reporting Initiative local lead Victoria Whitaker.

Richard Collins

The top 50 include BHP Billiton, Origin Energy, AGL Energy, Oil Search, Santos, Orica, Rio Tinto Group, Newcrest Mining, Fortescue Metals Group, Iluka Resources and WorleyParsons.

Victoria Whitaker, Australian lead of the Global Reporting Initiative, gave the Australia Sustainability in Business conference a sneak preview of the research with KPMG and CPA Australia, which will be released in December.

They assessed the ASX reports from the top 50 companies and interviewed the best exponents to distil the lessons on how companies are managing sustainability risks – a hot topic with new ASX reporting guidelines – and also how they are creating value.

“This we thought was important because [value] really is what investors want to know. When ESG investors look into sustainability they want to know why you are doing it, they want to know how it is going to create value for your business,” she said.

First they charted how well the companies stacked up against the 10 global megaforces KPMG identified in its 2012 research, Expect the unexpected: building business value in a changing world.

The issues, either driving mankind’s escalating footprint or eroding nature’s ecosystem services, will impact all companies, to a greater or lesser degree, over the next 20 years.

“We found overall the ASX 50 actually did quite well in identifying with these issues. We found companies that on average companies identified eight out of 10 megaforces, but when we dug a bit deeper it was quite superficial how it was done,” Whitaker said.

“We found, for example, that when they looked at urbanisation they only looked at waste management. When they looked at water scarcity they were only concerned with water efficiency, not the ability to obtain water into the future. When they looked at wealth, they were largely concerned with philanthropy and not so much the growing inequality worldwide or the increasing middle class.

“So as you can see, what we found was everything was efficiency oriented … and very tactical. There was an opportunity to think more strategically and take this to another level, understand the sustainability context and how these issues will impact on the business, whereas the disclosures tended to be about how the businesses impacted upon these issues.”

Next they mapped the results against a handful of key business value drivers identified in the UN Environment Program’s The business case for the green economy report in 2012. They included more resilient supply chains, sales growth and duration of sales, and mitigation against the negative financial risk from environmental impact.

“We tried to identify that when these companies looked at the megaforces, which value drives did they attribute to why they are doing it. We found that they didn’t, largely … for seven of the 10 megaforces, less than half the companies identified a value driver,” she said.

“Twenty-two of the 50 companies identified less than one value driver per the megaforce. For many of the megaforces with which they identified, they did not identify any value driver for why they are doing [some project].”

Brand value and reputation was the most cited value driver for any specific sustainability activity, which reinforces a lot of existing research. Oddly, despite the rhetoric around investor attraction, it was the least cited value. It was most cited in terms of energy and fuel, but only by four companies.

The research also found the firms that identified with the most megaforces also drove the most value from their sustainability actions.

“Those that identified many issues also drove value through many areas of their business with regards to sustainability. Those that identified fewer issues also had few value drivers articulated within their reports,” she said.

Interviews with some of the companies that identified the most issues and value drivers determined four “common enabling factors”: good governance (including board oversight and executive remuneration), deep and early stakeholder processes, longer time horizons and robust measurement and reporting.