In an interview earlier this year with a corporate sustainability director of a leading Australian corporation, I had hoped to discuss the value of sustainability reporting. What was said I’ve heard on several occasions, but it still caught me off guard and raised a number of questions:
I understand the role of sustainability reporting as a proxy for good governance and moral seriousness but I think, if all organisations were completely honest about it, it’s a burden and the value is not proportionate to the burden.
Institutional investors in Australia are increasingly demanding that companies are transparent and accountable for their sustainability risks. Over the past year both the Australian Securities Investment Commission and the Australian Securities Exchange have begun asking listed companies to disclose their sustainability risks. They know that these affect a company’s bottom line.
There is now evidence to show that sustainability-related crises are strategic risks that have greater impact on company value than operational and financial risks. This is the result of the failure of management to adequately prepare and respond to a situation and its aftermath, resulting in a loss of investor confidence and decreased share price.
This year, the World Economic Forum’s Global Risks 2014, found that of the top 10 global risks of the highest concern to global business leaders during 2014, seven were sustainability-related: water crises (3); income disparity (4); climate change (5); extreme weather (6); governance failures (7); food crises (8); and political and social instability (10).
It appears to me that sustainability risks are managed largely in the same way as other risks; they are included on risk registers, their likelihood and impact are assessed and strategies are created to manage them. So why then are some sustainability risks left off? Why isn’t climate change recognised as a productivity risk (as opposed to a regulatory risk) on every risk register worldwide, when clearly scientists and many economists expect that it will have major impacts across the global economy?
The Global Reporting Initiative (GRI), together with KPMG Australia and CPA Australia, investigated how ASX 50 companies identify with sustainability risks and why. The resulting report, released this week, From Tactical to Strategic – How Australian Businesses Create Value from Sustainability (pdf) found that there is significant opportunity for Australian companies to be much more strategic in their approaches to sustainability and extract more value for the business.
We found that most deal with sustainability issues tactically – compliance and efficiency drivers dominate. Regarding urbanisation for example, companies tend to focus only on waste management and not infrastructure needs or social isolation. Regarding wealth, companies focus more on philanthropy and not the growing middle class. There are only a handful of ASX 50 companies that think about these issues in their complexity and understand their strategic sustainability risk exposures and opportunities.
Most of the companies investigated were failing to articulate the full value of sustainability activities for their business. The few leading companies that had a better understanding of their risks and opportunities in new products, markets and business models were those talking to investors, customers, employees, suppliers, regulators and communities.
For example, by working closer with its communities and stakeholders, property owner and developer Stockland is developing liveability metrics to help it benchmark and measure the quality of life and satisfaction within its communities.
In 2007, food retailer Woolworths established its Fresh Food Future programme to enhance the sustainability of Australian agriculture and safeguard Australia’s food security. Of the A$9m (£4.8m) spent in the five years to end fiscal year 13, two thirds were invested into 180 farm to adopt innovative farming methods, while the remaining has been invested in developing talent and leadership in agriculture to circumvent its ageing workforce.
To build the capacity of people and businesses to better withstand future natural disasters, the Australian Business Roundtable for Disaster Resilience and Safer Communities brings together ASX50 finance companies, Westpac and IAG, with the Australian Red Cross, Investa Property Group, Munich Re and Optus, to advocate for safer and more resilient communities in extreme weather events.
For these companies, the insights from stakeholders and an understanding of the sustainability context are framing their business cases for acting on sustainability issues. Understanding issues from their stakeholders’ perspective helps them identify impact points and solutions which in turn creates value for the business and better prepares it for the global forces that are likely to be felt by every business worldwide over the next 20 years.
Victoria Whitaker is head of the Global Reporting Initiative’s Focal Point Australia
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