Inclusion of economic, social and governance (ESG) risk in corporate governance planning isn’t just about helping to keep a company in the black, or about reducing it’s carbon or social footprint. It’s also about accounting for risks that result from operating in a global business context – and it’s surprising to find that almost half of Australia’s top ASX50 aren’t actively focusing on preparing their businesses for this.
A new report just released by CPA Australia, KPMG and GRI Focal Point Australia entitled From Tactical to Strategic: How Australian businesses create value from sustainability states that top Aussie companies are not only failing to address these risks, they are failing to see the inherent opportunities that could create long term value over the next 20 years.
The report focuses on the global megaforces that underpin international trade and development and they are explained below (by KPMG) as reference points for risks associated with a changing environment, rising costs, reputation, investor relations and governance.
As you can see above, these megaforces are becoming more and more important in our society; they are becoming real community issues, are being taken on boards by governments, and are the focus for high profile campaigns for the world’s biggest not-for-profits. For the purposes of this study, the strategic plans and operations of the ASX Top 50 were put to the test against these issues, and it was found (after a gruelling review of annual reports and reviews, sustainability reports and integrated reports) that whilst the majority of companies identified eight out of these ten megaforces, nearly half of them failed to do anything about it.
Whist it is required that ASX companies report on current ESG risks, there are no requirements stating that they have to take action on any of them. SustainingPeople reported on this some time ago, and it is alarming that nearly half of the largest companies in Australia are still not seizing the opportunities to mitigate these risks and create value for their companies into the future. At the release of this report, Victoria Whitaker, Head of GRI Focal Point Australia commented “This research shows that while the ASX50 broadly understand how they impact upon issues of sustainability, they are not yet fully grasping the impact of global sustainability issues upon their businesses. Moreover, companies are not yet articulating the value that sustainability creates for their business”.
Accommodating these megaforces into strategic planning in a meaningful way has the potential to save time and money now and in the future. Being prepared for these eventualities means that instead of playing catch-up when the international environment changes, your organisation will be flexible and nimble and able to immediately take advantage of new markets created by these forces.
The Australian business community can and must do better in this area; reporting on current action (or more likely inaction) is not enough but this will only change if enough ASX boards show the impetus to make changes and/or if the ASX and ASIC regulations require action to future proof its economy.
You can read more about the report here, at Pro Bono News Australia.