2015

ESG REPORTING
GUIDE FOR
AUSTRALIAN
COMPANIES
ABOUT FSC ABOUT ACSI
The Financial Services Council (FSC) has over 115 members The Australian Council of Superannuation Investors (ACSI)
representing Australia’s retail and wholesale funds represents 29 Australian superannuation funds and six major
management businesses, superannuation funds, life insurers, international pension funds with a combined $1.5 trillion under
financial advisory networks, licensed trustee companies and management.
public trustees. The industry is responsible for investing more
We help our members manage long-term investment risks, in
than $2.6 trillion on behalf of 11.5 million Australians. The pool
the belief that companies with good ESG practices are, over time,
of funds under management is larger than Australia’s GDP
more sustainable and provide better risk-adjusted returns. ACSI
and the capitalisation of the Australian Securities Exchange
engages strongly and constructively with major listed companies
and is the third largest pool of managed funds in the world.
on ESG issues; provides vital research, policy and voting advice
The Financial Services Council promotes best practice for the
for our members; and interacts with the regulators to ensure
financial services industry by setting mandatory Standards
markets are focused on the long term benefits of investors.
for its members and providing Guidance Notes to assist in
operational efficiency. Our mission is to enhance the sustainable and enduring value of
the retirement savings entrusted to our members.
CONTENTS
PAGE 03. Welcome and introduction

PAGE 04. Background

PAGE 04. 1. Why use the Guide?

PAGE 07. 2. Getting started and following through

PAGE 11. 3. Application of the Guide

PAGE 18. 4. Conclusion

PAGE 19. 5. Resources

01.
WELCOME AND INTRODUCTION
The Australian Council of Superannuation Investors the selection and holding of stocks in their portfolios, and
(ACSI) and the Financial Services Council (FSC) in their investable universe. This information also prompts
are pleased to provide this update to the ESG investment managers, broker analysts and asset owners
Reporting Guide for Australian Companies. (principally superannuation funds) to constructively engage
with companies on these matters.
Investment managers (represented by the FSC) and
asset owners (represented by ACSI) recognise that Companies need consistency in the information required
environmental, social and governance (ESG) factors are by institutional investors, and for reporting obligations not
of vital importance to the financial performance of the to impose undue costs, competitive disadvantages or
companies in which they invest both in the short and long other commercial burdens.
term.
Recognising both perspectives, ACSI and the FSC
While there are a variety of ESG factors at play at any have jointly updated this Guide to highlight the types
given time, it is unquestionable that many of these factors of information needed by our member organisations to
impact on the ability of companies and their investors to understand, price, analyse and manage ESG investment
achieve sustainable growth and prosperity. risks.

Institutional investors and companies seek to find This Guide is designed to complement the reporting
common ground to define the ways in which ESG factors requirements of other best practice guides such
influence their shared goals. They require a shared as the ASX Corporate Governance Principles and
understanding of how to report on ESG factors and their Recommendations, and the existing best practice guides
financial materiality. issued by each of our Councils.

This Guide has been updated for this purpose. We look forward to continuing improvements in ESG
disclosure levels, consistency and quality of engagement
Investors need accurate, timely and comparable information
between Australian companies and their institutional
to identify and manage exposure to ESG investment risks.
investors.
Such information assists investment managers to decide

Louise Davidson Sally Loane

CEO, ACSI CEO, FSC

AUSTRALIAN COUNCIL OF
SUPERANNUATION INVESTORS

03.
 BACKGROUND
In 2011 the Australian Council of Superannuation Investors (“ACSI”) and the Financial Services
Council (“FSC”) published the first edition of the ESG Reporting Guide for Australian Companies
(“The Guide”). The Guide was designed to help companies disclose environmental, social and
governance (“ESG”) risks to investors in a consistent and comparable manner across different
companies and sectors, giving investors and asset owners a fuller understanding of a company’s
risk profile and future growth prospects.

1. WHY USE THE GUIDE?

Since the release of the first guide, ESG disclosure practices • In the United States, the Sustainability Accounting
(both in Australia and overseas) have evolved significantly, Standards Board (SASB) has issued standards for
due to growing recognition from investors, regulators and 45 industries in 6 sectors. By 2016, standards for
companies about the importance of disclosure of these more than 80 industries in 10 sectors will be available;
issues. Of particular note:
• The Sustainable Stock Exchanges Initiative
• In Australia, the ASX Corporate Governance (SSE), co-convened by the UN-supported Principles
Council Principles & Recommendations (3rd for Responsible Investment, the United Nations
Edition), published in 2014 and taking effect from the Conference on Trade and Development, the United
first full financial year commencing on or after 1 July Nations Environment Programme Finance Initiative
2014, includes a new Recommendation 7.4 explicitly and the UN Global Compact, has launched its Model
requiring that: Guidance for exchanges to lay out the business case
for reporting ESG information and basic principles to
guide the reporting process.

“A listed entity should disclose whether it While many companies have embraced GRI reporting
over recent years, and some have begun to embrace
has any material exposure to economic, the <IR> Framework as well, many other companies
are still unsure of what ESG risks to disclose. This
environmental and social sustainability risks is especially so among newly-listed companies, and
and, if it does, how it manages or intends to among those entering market indices such as the
ASX200 or ASX300, which are commonly used
manage those risks”. as investment benchmarks by institutional investors
and which generally entail an uplift in disclosure
expectations of institutional investors. The Guide has
been designed to help companies in these categories
• At an international level, the Global Reporting meet those investor expectations.
Initiative (GRI) in 2013 released its fourth generation In 2015, according to recent research undertaken by
of reporting guidelines (“G4”), listing over 400 ACSI, 13% of ASX200 companies still do not provide
indicators on corporate sustainability performance; any meaningful reporting on sustainability factors,
• The International Integrated Reporting Council while a further 17% provide only a rudimentary level of
(IIRC) has issued its <IR> Framework, with many disclosure.1 These results highlight the need for further
efforts still underway to harmonise this framework with practical guidance tailored for Australian companies
traditional financial reporting, accounting standards and and their investor needs, complementing the GRI, <IR>
the like at the international level; and other reporting frameworks.

04.
 1.1 Link with Existing Governance Guidance These frameworks provide extensive information on
particular aspects of ESG disclosure, and where appropriate,
Detailed guidance relating to Australian listed
companies should be aiming to report against them.
companies’ corporate governance policies and
practices is already contained in the ASX Corporate We recognise that many companies already publicly
Governance Principles, as well as in ACSI’s regularly- disclose ESG related information described in this
updated Governance Guidelines.2 Guide, and in many cases information over and above
the minimum levels suggested. Those companies are
This Guide is not intended to replicate or replace anything in
not expected to disclose anything more (or less), but we
those existing documents relating to core governance issues
do ask that they ensure that their information is readily
such as board structure, diversity, executive remuneration
accessible.
and the like. Rather, this Guide specifically addresses
institutional investors’ expectations regarding the disclosure 1.3 Who does this Guide apply to?
of material company-specific ESG risks and opportunities,
The Guide was created to provide a reporting guide
to a level sufficient for investors to fully understand, price
for all Australian listed companies. We recognise that
and manage those risks and opportunities. The provision
some companies, especially those at the smaller market
of this information will assist investors to better understand
capitalisation end of the market, may find full ESG
and compare company level information, and allow asset
disclosure to be a challenge at the beginning of their
owners (such as superannuation funds) to engage more
reporting journey. However, companies also need to be
constructively with companies on ESG matters.
aware that the issues raised in the Guide are the base
In this way, the Guide is intended to complement and level of information that investment analysts require to
enhance the existing body of contemporary corporate make stock selection decisions. We encourage these
governance best practice material in Australia. In particular, companies to progressively embrace the principles of risk
ACSI and FSC believe the Guide will be of assistance reporting as they meet their obligations under Principle 7
to listed companies in addressing the new disclosure of the ASX Corporate Governance Council Principles and
requirements of Recommendation 7.4 of the ASX Recommendations.
Principles, noted above.
1.4 How should it be applied?
1.2 A Positive Step for Companies
The format of reporting is at the discretion of the company.
In addition to providing investors with a more comprehensive High quality reporting of ESG issues can come in a variety
understanding of a company’s risk profile, disclosing of forms. The investor bodies publishing this Guide are in
this information is an opportunity for a company’s board no way seeking to impose uniform templates or disclosure
and management to demonstrate strategic thinking for ‘checklists’ on companies. Companies should focus
long-term financial sustainability that goes beyond the on providing quality, accurate, consistent and relevant
achievement of short-term financial targets. It is for these information on their business operations. Any reporting
reasons we believe companies that provide insightful ESG should be easy to locate within a company’s communications
disclosure can broaden their potential appeal to providers of such as in the annual report or on the company website.
long-term equity capital.
1.5 When do we expect to see this happen?
ACSI and the FSC are confident that the views presented in
Reporting on ESG risks and opportunities should ideally
the Guide will assist companies to streamline their reporting
be released, at or around the time that the annual report
as well as reduce the volume of ad hoc information requests
is released and updated throughout the year via website
that are made by the investor community. Where applicable,
disclosure as required. Where companies produce a
the Guide draws upon various existing sources, including the:
sustainability report, we strongly encourage announcement
• Global Reporting Initiative3; of the release of their sustainability report to the ASX.
• International Integrated Reporting Council Framework4;
• Carbon Disclosure Project5;
• International Corporate Governance Network6;
• Global Framework for Climate Risk Disclosure7;
• Sustainable Accounting Standards Board8; and
• Sustainable Stock Exchanges Initiative.9

1. ACSI (April 2015) Corporate Reporting in Australia, The Sustainability Reporting Journey, Disclosure of sustainability risks among S&P/ASX200 companies. Available at http://acsi.org.au/images/stories/
ACSIDocuments/detailed_research_papers/Sustainability_Reporting_Journey_2015.Apr15.pdf
2. New 2015 edition available at www.acsi,org.au
3. See: https://www.globalreporting.org/Pages/default.aspx for information on the Global Reporting Initiative
4. See: http://integratedreporting.org/ for information on the Integrated Reporting Council Framework
5. See: https://www.cdp.net/login for information on the Carbon Disclosure Project
6. See: https://www.icgn.org/ for information on the International Corporate Governance Network
7. See: http://www.unepfi.org/fileadmin/documents/global_framework.pdf for the Global Framework for Climate Risk Disclosure
8. See http://www.sasb.org/ for Sustainable Accounting Standards information
9. See http://www.sseinitiative.org/exchanges-providing-guidance-on-sustainability-reporting/

05.
 2. GETTING STARTED AND
FOLLOWING THROUGH
2.1 Define your business and operations ESG risks are material, where a reasonable person would
consider the information to have an impact on a company’s
Companies should clearly define their business and hence
valuation or the sustainability of its operations. The risk(s)
reporting boundaries in relation to included and excluded
could have an immediate or foreseeable impact on
business entities (e.g. subsidiaries and JVs) and activities.
earnings, an impact on a balance sheet, or an impact on
In general, more comprehensive reporting encompassing the sustainability of its operations. This is a useful approach
the full geographical span of the company’s operations, to consider. More detailed guidance on materiality can be
subsidiary as well as parent entities, supply chain information found in the GRI (G4) Implementation Manual10 and on the
and time-spans beyond the annual report period alone, SASB website11.
are beneficial to investors. As highlighted by a number of
Thinking about the future business environment or impact of
recent examples, ESG risks that manifest in a company’s
megatrends on your company may also help you to identify
supply chain or excluded business entities can still have a
and determine material issues. Megatrends are major global
material impact on shareholders.
societal and transformative forces that present material long
2.2 Identify your key stakeholders or short term risks and opportunities to companies and their
shareholders. These may include:
An important consideration for companies is to think
through who their key stakeholders are and how they will • Ageing demographics;
engage with them and take their concerns and feedback • Urbanisation;
into consideration. Stakeholders may include employees,
• Digitisation;
customers, suppliers, distributors, community, unions,
shareholders and governments. It is important to note that • Cybersecurity;
this Guide is designed to meet investor expectations. We • Climate change;
recognise that companies have many other stakeholders. • Population growth;
This Guide does not seek to address the reporting
• Wealth distribution;
requirements of other stakeholders.
• Water scarcity;
2.3 Determine what is material
• Material resource scarcity;
Investors and asset owners strive to understand corporate • Ecosystem decline; and
business models and strategy, what underlies success,
• Food security.
differentiates them from the competition and issues that
could potentially lead to significant loss of shareholder Many investors are interested in identifying the long-term
value. Useful reporting seeks to identify, measure and societal and environmental trends that are likely to affect
disclose information (including ESG risks) which in the businesses in which they invest and understanding
turn informs investors and other stakeholders about how the board views such issues. This is not about
the future sustainability and profitability of a company. companies disclosing a forecast about their future value,
but rather a discussion based on all available information
While it is incumbent upon companies to identify material
and technology to hand at present, as it relates to scenario
ESG risks or opportunities, engagement with stakeholders
planning for the future. Investors want to understand what
will be of benefit. A careful review of ESG risks will be
strategies companies have in place to face future business
required to assess which risks are impacting or will impact
environments and how these will be managed.
the business or supply chain and what that impact might be.
Principle 7 of the ASX’s Corporate Governance Principles Materiality of ESG risks will vary greatly between companies.
and Recommendations requires companies to disclose Companies are expected to report on indicators which are
‘material’ risks or opportunities. material to their business and strategy.

10. See: https://www.globalreporting.org/resourcelibrary/GRIG4-Part2-Implementation-Manual.pdf for the GRI G4 Implementation Manual

11. See http://www.sasb.org/materiality/sasb-materiality-map/ for the SASB Materiality MapTM visual tools
06.
2.4 Identify how to measure and report material risks Where they do exist, companies should follow
generally accepted standards for measuring and
Having established what ESG risks are material and
presenting metrics. There are a number of mandated
therefore pursuant to ASX Principle 7.4 what disclosure is
key performance indicators (KPI) that companies
required, companies then need to consider how to measure
are required to report to regulators. For example on
and report the ESG risks and measures to manage them.
human capital to the Workplace Gender Equality
Investors value good quality, accurate, consistent and Agency. Others include measurement of greenhouse
relevant ESG information over volumes of marketing material. gas and energy information in accordance with the
Qualitative information is important to capture company Measurement Determination under the National
strategies, initiatives and understanding of ESG risks; Greenhouse and Energy Reporting Act 2007.
however quantitative data is particularly useful. For example
Furthermore, understanding a company’s governance
time series/trend data reported consistently year to year.
and accountability mechanisms concerning E and S
With regard to quantitative reporting, should companies issues provides investors with insight as to how the
change ESG risk reporting methodology, the rationale for board and management prioritise such issues. A lack
the change should be explained. Companies should provide of disclosure on the governance of E and S issues may
current ESG information and targets, as well as report indicate a lack of understanding and awareness of how
historical performance against previously-stated targets. material E and S issues may affect the business.

The absence of generally accepted standards for The following is an example of how an ESG disclosure on
measuring and presenting environmental, social and the risk of loss of human capital through a poor approach
governance metrics creates challenges for investors in to diversity may appear in company reporting:
interpreting performance.

Managing our greatest assets: our people

We believe in our people and are interested in ensuring a workplace that enables good decision making, fosters
innovation and high productivity. Strong diversity policies and practises are an important aspect of our approach to
human capital management – to attract and retain high-quality employees is of vital importance to our business.

How are we managing the gender diversity of our people?

• The company’s Diversity Policy (provide link) encourages retention of female employees through a number
of initiatives including flexible work arrangements, maternity leave, return-to-work financial incentives etc.
• Performance against diversity targets is a performance metric in executive variable compensation (detail
provided).
• The Board has direct oversight over diversity through the following reporting line (detail provided).

07.
 How are we tracking?

% of women in senior management

30%

25%

20%
18%
17% 17% 17%
25% Target
15% 15% 15%
14%
13%
12% Achieved
11% 11%
10%

5%

0%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

% of women returning after maternity leave

45%

40%

35%

30%

25% Target

20%
Achieved
15%

10%

5%

0 2005 2006 2007 2008 2005 2009 2010 2011 2012 2013 2014 2015 2016 2017

08.
2.5 Report the framework and standards used to
measure ESG risks

Companies should describe to investors and other

stakeholders any standards that they have applied to
determine materiality and in the preparation of ESG key
metrics. Where an external standard has not been applied,
companies should detail key definitions and assumptions
used in metrics. A brief ‘basis of preparation’ explanation
should be made available alongside the ESG risk
disclosure. Example statement may include the following:

We review annually our “Disclosure on Sustainable

Management” series of publications. These
publications are prepared in accordance with the
Global Reporting Initiative G4 guidelines.

Useful information for companies to disclose to investors in

this regard includes:

• Internal processes for identifying and reporting material

ESG risks, opportunities, targets or goals;

• How such risks and opportunities are reported to

the Board, senior management and various internal
committees (e.g. Risk Oversight committees);

• Decision-making frameworks on how material ESG risks

are managed;

• Person(s) responsible or accountable for ESG related

issues within the business including at the Executive level
and/ or Board/ Committee level.

2.5.1 Assurance

Companies could consider disclosing information about

internal assurance processes or consider independent
external assurance to provide investors with a greater
degree of comfort over the integrity of information disclosed.

09.
 3. APPLICATION OF THE GUIDE
This Guide broadly divides ESG issues between
environmental, social and governance themes, for ease of
illustrating what may be important for a company to report.

Investors in putting this Guide together are looking

for information on relevant, material investment risks.
Hence reporting will vary significantly across sectors and
companies. The descriptions of these themes and the
metrics suggested for their assessment are not intended to
be exhaustive. Rather, they represent a starting framework
for identification and disclosure of ESG issues, upon which
companies can build to develop a set of disclosures that
reflects what is material for them. Although, we do
not expect all companies to report on all factors, it
is expected that, where material, companies make
every effort to ensure the appropriate level of
disclosures.

Corporate governance is just as critical as the governance

of environmental and social factors. Investors’ expectations
with respect to Corporate Governance have already been
comprehensively documented elsewhere. In particular,
the ASX Corporate Governance Principles and ACSI’s
Governance Guidelines provide good guidance. For
completeness, this ESG Guide also refers to Corporate
Governance as per below.

Environment
• Environmental management
• Climate change

Social
• Human capital management (including Occupational
Health and Safety)
• Other stakeholder management

Corporate Governance
• Corporate Governance

10.
ENVIRONMENT
Environmental management
Context – why is it important to investors? and/or social license to operate – this can capacity or track record in the management of
Operational activities which impact on the manifest as reputational damage, operational environmental considerations presents a higher
environment within a company’s supply chain, delays, product boycotts, new regulation, etc. risk for investors.
direct operations or products can have far
reaching implications to shareholder value Investors are also becoming increasingly Reporting should be tailored to each business
including: aware of the potential negative impacts on a - pollution, water and other environmental
company’s social license to operate of long-term considerations will be more relevant and
• Production disruptions as the incident is environmental externalities that result due to material for certain sectors and businesses
investigated and new safeguards are put in company operations, including the depletion while investors will be less concerned with
place; of scarce resources (for example fresh water, companies with a small current or anticipated
• Capital costs associated with remediation; arable land, etc.) and the disposal of future environmental footprint.
• Compensation costs to affected environmental waste.
communities, business partners and
employees; A company with significant environmental
• The impact on the company’s regulatory impact that demonstrates a lack of commitment,

Commonly reported indicators

Investors want to know: 2. Policies and systems related to environmental • Energy consumption information including
1. Track record of environmental incidents, management, commensurate with the renewables;
including information such as: circumstances (materiality) specific to the • Water consumption; and
• Fines and non-monetary sanctions for business. Considerations include: • Waste production.
non-compliance with environmental laws • Biodiversity impact management;
and regulations; • Water management;
• Environmental provisions as reported on • Hazardous waste management;
the balance sheet; • Involvement in toxic materials.
• Number and severity of breaches of
environmental license conditions; 3. Environmental data, if the company has a
• Proportion of operations with ISO 14001 significant environmental footprint or is exposed
certification; to material environmental risk or externality
• Process safety incident reporting. discussed above. For example:

Resources
ISO 14001 Environmental Management System Standard: www.iso.org
Process Safety Leading and Lagging Metrics published by the Centre for Chemical Process Safety provides an excellent overview of metrics related to process safety
http://www.aiche.org/uploadedFiles/CCPS/Metrics/CCPS_ProcessSafety_Metrics_2011_FINAL.pdf
The Australian Government publishes a range of reports on water use and conservation initiatives at http://www.environment.gov.au/water/ including the Oct 2006 Water
Efficiency Guide for use in building management. http://www.environment.gov.au/settlements/chemicals/hazardous-waste/index.html has more information on waste and
recycling.

Leading Reporter
Orica’s 2014 Sustainability Report provides investors with details relating to:
- Instances of non-compliance with environmental license conditions
- Containment losses experienced
- Number of process safety incidents
See: http://www.orica.com/Sustainability#.VaNdv_mqpBc

BHP Billiton 2014 Sustainability Report: see: http://www.bhpbilliton.com/home/society/reports/Pages/Roll%20up%20Pages/2014-BHP-Billiton-Sustainability-Report.aspx

provides details of waste produced, recycled or sent to land fill. They also provide information on water recycled and re-used including targets for the future.

11.
 ENVIRONMENT
Climate change
Context – why is it important to investors? these companies on how these risks are being A company that fails to understand its carbon
With many countries announcing targets to managed. emissions, exposure to regulatory and other
reduce carbon emissions to address climate indirect impacts could risk:
change, the risk of climate change regulation However over the long-term many other indirect • Higher costs as the cost of complying with
impacting companies is only likely to grow. risks will impact a broader range of companies. carbon regulation increases;
While the regulatory mechanisms (carbon price, For example over time consumption patterns • Loss of market share as customers move to
emission abatement grants, “pollution” controls, will change in favour of low-carbon goods low-emissions suppliers;
etc.) to achieve emissions reductions may change and services, leading to significant changes in • Damage to assets as the physical impacts of
over time, the long-term trend is clear. industry structure. Also the physical effects of climate change increase.
climate change such as changes in weather
Clearly this risk (especially in the short and patterns, storm intensity and sea level rise may
medium-term) is more relevant and material put assets at risk. We encourage all companies
for certain sectors or companies, for example to consider these long-term trends as they apply
those heavily involved in fossil fuels. Therefore to their business and disclose where a material
investors expect far greater disclosure from risk exists.

Commonly reported indicators

Investors look for: risk – for example if major clients are involved in • Steps to manage the physical risks from
1. Direct and indirect (for example product) fossil fuels climate change;
carbon emissions (e.g. via the Carbon Disclosure 3. Measures to address these risks, • Measures to reduce indirect exposure
Project - see resources below), other data commensurate with the relevance and to climate change risk.
and information to inform investors of each materiality to each business; for example:
company’s risk • Opportunities to reduce carbon emissions and
2. Other indirect exposure to climate change energy use;

Resources
The Carbon Disclosure Project provides a framework for reporting carbon emissions and climate change risk: www.cdproject.org
The US Securities and Exchange Commission has published guidance on climate change disclosure: http://www.sec.gov/rules/interp/2010/33-9106.pdf
The Global Reporting Initiative is a widely-used framework for sustainability reporting: www.globalreporting.org

Leading reporter
AGL Energy 2014 Sustainability Report: see: http://agl2014.sustainability-report.com.au/ publishes extensive equity-accounted data, see: http://agl2014.sustainability-report.
com.au/data-centre/environment#tab-90 on its carbon emissions.

12.
SOCIAL
Human capital management
Context – why is it important to investors? markets / loss of key talent; reputational damage for OH&S incidents
Human capital management (HCM) is central • Industrial disputation and poor employee such as worker fatalities;
to execution of business strategy, expansion, relations; • Labour and human rights – On the surface,
innovation, and business continuity, and is • Encourage increased regulation or investment in companies with lower-cost
therefore a key area of investor attention. Human regulator action; and supply lines (for example products or
capital is an intangible asset of every company • Reputational damage. services sourced from low-income
that investment markets demonstrably ascribe countries or poorly paid domestic
a value to. Many companies face additional HCM risks that workforces) represents an upside for
can impact shareholders even more acutely. In investors as a function of company cost
For all companies, strong HCM controls and particular: savings. Closer inspection reveals that
practices contribute to employee productivity shareholders may be exposed to increased
and loyalty. In contrast poor HCM can lead to: • Workplace or Occupational Health and risks from poor working conditions,
Safety (OH&S) risks, both at project unacceptable OH&S and human rights
• Failure to meet strategic objectives and and employee level – companies outcomes. These risks are principally
project targets; employing workers or contractors in high- legislative, operational and reputational.
• Contribute to business disruption; risk occupations often have a higher cost Adequate reporting of these risks is
• Poor morale, engagement and base in workers compensation premiums, important for investors in undertaking
sub-optimal productivity; safety equipment, and safety processes, cost-benefit assessments.
• Inability to attract skills in tight labour and face (often severe) operational and

Commonly reported indicators

Investors look for evidence of the following: diversity, anti-discrimination, flexible • Rate of return from maternity/parental leave;
working, training and development, etc.; • Professional development training data;
Qualitative indicators: • OH&S policies and systems (for all • % women at Board and Senior
• Board oversight of HCM; companies); management levels;
• Integration of HCM and people risks into • Policies and systems to manage supply • Remuneration levels for male and female
risk management processes; chain issues (including contractors and employees;
• Executive remuneration linked to subcontractors). • OH&S performance indicators such as
achievement of HCM objectives; injury fatalities, frequency rates, near
• Policies and systems to encourage Quantitative indicators: misses and severity indicators;
employee satisfaction / engagement • Voluntary turnover rates; • Results of supply chain audits.
outcomes, and key drivers of same - • Employee engagement / satisfaction;

Resources
Global Reporting Initiative (Labour Practices and Decent Work). See: http://www.globalreporting.org
Good Health and Safety Means Good Business (WorkSafe Australia 2006). See: www.worksafe.vic.gov.au/__data/assets/pdf_file/0004/21658/ohs_public_reporting.pdf
AS/NZS 4801 is the Australian (and NZ) Standard for Occupational Health and Safety Management Systems. http://www.healthsafety.com.au/as4801/
Safe Work Australia has many free resources and tools. See: http://www.safeworkaustralia.gov.au
Australian Petroleum Production and Exploration Association Limited Safety Incident Reporting Guideline 2005 with edits in July 2013. See: http://www.appea.com.au/wp-
content/uploads/2013/04/APPEA-Safety-Incident Reporting-Guidelines-2005-with-edits-July-2013.pdf

Leading reporters
Downer EDI Ltd reports year on year indicator data on workplace health and safety, along with the absence of fines or prosecutions. Commentary provides insight into
safety governance to enhance risk management, and the responsibilities of business leaders. Performance and the area for performance improvements going forward is
discussed along with initiatives implemented which enhance business-specific risk management. See: http://www.downergroup.com/Resources/Documents/Sustainability/
Reports/2014/2014-Sustainability-Report_FINAL.pdf

National Australia Bank. Refer to NAB’s 2014 Dig Deeper Paper. See: http://cr.nab.com.au/download-centre

13.
 SOCIAL
Other stakeholder accountability
Context – why is it important to investors? impact of an initial loss of turnover. Measures Community stakeholders directly impacted by
In addition to a company’s human capital, an to safeguard product/service quality should be company operations
absence of accountability to a company’s other critical to any business, however these risks can Land owners/ occupiers and other community
key stakeholders (such as customers, suppliers, be more acute where: groups can be directly impacted by company
government, and the broader community) is • Customers are vulnerable, disadvantaged, operations. These groups have also become
being recognised by investors as a source of risk. or otherwise viewed as more susceptible increasingly empowered with the help of NGOs
to product/service failings or poor company and social media. Consequently it is now the
This is central to a company’s ‘social license conduct; and/or norm for many companies to closely manage
to operate’ – it is now widely established that • A product or service is especially reputation- these risks.
corporations adhering to a narrow view of sensitive, e.g. food, health care, financial
providing accountability only to shareholders products/advice.
risk loss of shareholder value. This is a broader
obligation than a company and its officers simply ‘B2B’ (business-to-business) companies are
complying with all relevant laws. A company’s less exposed to this social license risk.
social license is inextricably linked to its brand
and reputation – intangible assets which all Suppliers
companies need to nurture and protect. In seeking to maximise shareholder value,
companies that exploit dominant market
By ignoring the stakeholder interests below, positions beyond what is legally and socially
reputational and brand damage, product acceptable risk reputational damage and/or
boycotts, new or increased regulatory hurdles or regulatory action to curb this misuse of market
costs can result. power. The social license risk to shareholders
of exploiting suppliers is commensurate with
Customers the perceived vulnerability of the supplier, for
Product or service failings can inflict broader example if smaller or otherwise disadvantaged
damage to a company beyond the direct financial relative to the company.

Broader community and other stakeholders

Tax • Inflate projects costs and reduce profitability; • Government or regulator business or
Optimisation of company tax arrangements • Increase risks and costs resulting from contracts;
to maximise shareholder value may invite prosecution; • High community-impact sectors such as
controversy if it involves persistently low effective • Create brand damage; resource extraction;
tax rates and/or shifting earnings away from • Be an indicator of poor corporate culture; • Sectors vulnerable to criminal activity such
their point of origin. These companies should • Generate an unsustainable business as money laundering or concealment of
explain their approach to managing this trade-off environment by perpetuating poverty, assets, e.g. gambling, financials.
between shareholder value and social license entrenching corruption and having other
risk (which may manifest in government/ adverse impacts in low-income countries.
regulatory action).
Investors are looking for information from
Other corporate conduct issues companies who are, at least at face-value,
Poor corporate conduct (such as involvement in at high risk of adverse corporate conduct,
bribery and corruption) is a relevant investment specifically, involvement in:
risk, as it can: • Countries at high corruption risk;

14.
SOCIAL
Other stakeholder accountability continued
Commonly reported indicators • Other processes to manage stakeholder risk, linkages with remuneration);
Investors look for: e.g. community involvement, partnerships, • Whistleblower policies and systems;
• Main sources of stakeholder risk as they local employment; • Reporting on previous incidents and
apply to the business and governance • Corporate codes of conduct and other associated costs.
oversight of these risks; significant policies, the extent of their
• Stakeholder engagement mechanisms e.g. application, associated training and
meetings, surveys, briefings, use of online indications of importance (for example Board
media; or senior management responsibility,

Resources
The Global Reporting Initiative is a widely-used framework for sustainability reporting: www.globalreporting.org
Group of 100, “Sustainability: a guide to triple bottom line reporting” (2008): http://group100.com.au/
BSR, Five Step Approach to Stakeholder engagement (2011)
http://www.bsr.org/en/our-insights/report-view/bsrs-five-step-approach-to-stakeholder-engagement

Leading reporters
Westpac Banking Corporation is recognized by the Group of 100 as a leading practice reporter in the Financial Services Industry sector. Westpac has reported on
stakeholder engagement in its 2014 Annual Review and Sustainability Report. See: http://www.westpac.com.au/about-westpac/sustainability-and-community/reporting-
our-performance/stakeholder-impact-reports/

RIO and BHP have published extensive code of conduct documents outlining their standards, who they apply to, membership of global transparency initiatives,
whistleblower policy, staff training, reporting of breaches and so on.

15.
 CORPORATE GOVERNANCE
Context – why is it important to investors?
Applicable law and standards (see resources the “If not, why not?” regime are encouraged to
below) already extensively cover Corporate provide a thorough explanation for same.
Governance practices and disclosure, hence are
not reproduced in this Guide. Under this category Failure of the board to address these issues has
investors will seek to gain an understanding contributed to many of the high profile corporate
of the company’s governance practices. These collapses over the past decade. Investors
practices provide insight into the quality of require reporting on corporate governance to
management in the company, and the quality better understand the framework, policies, and
of risk oversight by the board who are the incentives in place to ensure best performance
representatives of shareholders. by the company.

In particular, companies that fail to comply with Best practice guidelines for corporate
ASX standards (see resources below) under governance reporting can be found below.

Resources
The ASX Corporate Governance Principles and Recommendations supplement black letter law in the Corporations Act in Australia: http://www.asx.com.au/documents/
asx-compliance/cgc-principles-and-recommendations-3rd-edn.pdf
The Australian Council of Superannuation Investors publish Governance guidelines for listed company boards. http://www.acsi.org.au/acsi-guidelines23/acsi-
governance-guidelines.html

16.
4. CONCLUSION
Appropriate management of ESG issues continues to be an essential ingredient for the establishment of long term
sustainable returns. The Global Financial Crisis, along with a number of recent individual company environmental and
social events, have once again reminded investors that investment considerations cover a broad range of risks and
opportunities that affect the value of companies.

This Guide aims to assist companies with the view of investors on the information needed to assess ESG risks and
opportunities which can be factored into short, medium, and long term valuations. All companies should provide disclosure
on material ESG considerations.

Research into corporate reporting practices shows that over a third of the S&P/ASX 200 fail to provide meaningful
information on ESG considerations. One of the aims of this Guide is to assist these companies in beginning to report
meaningful ESG data.

The Financial Services Council and the Australian Council of Superannuation Investors thanks the many individual industry
associations, organisations and institutions that provided input into this guide.

17.
 5. RESOURCES
• The International <IR> Framework, International Integrated Performance/ Industry guidelines and standards
Reporting Council (IIRC), 2013. • Consumer Goods Forum www.theconsumergoodsforum.com
• Corporate Ecoforum and World Environment Centre. (2015). • International Petroleum Industry Environmental Conservation
Sustainability and the CFO: Challenges, Opportunities and Next Association www.ipieca.org
Challenges. • International Council on Mining and Metals www.icmm.org
• CPA Australia, GRI Focal Point Australia, KPMG Australia. (2014). • Greenhouse Gas Protocol www.ghgprotocol.org
From Tactical to Strategic: How Australian Businesses create value • Roundtable on Sustainable Palm Oil www.rspo.org
from sustainability. • WBCSD Cement Sustainability Initiative www.wbcsdcement.org
• United Nations Principles of Responsible Investment. (2014). • Roundtable on Responsible Soy www.responsiblesoy.org/en
Principle of Responsible Investment Fact Sheet. • The Marine Stewardship Council Certification www.msc.org
• AA1000 AccountAbility Principles Standard 2008, AccountAbility, • Forestry Stewardship Council Certification https://au.fsc.org/
2008.
• G4 Sustainability Reporting Guidelines: Reporting Principles and Stakeholder engagement
Standard Disclosures, Global Reporting Initiatives, 2013. • AA1000 Stakeholder Engagement Standard (AA1000SES),
• G4 Sustainability Reporting Guidelines: Implementation Manual, AccountAbility, 2008.
Global Reporting Initiatives, 2013. • BSR, Five Step Approach to Stakeholder engagement, BSR, 2011
• Integrated Governance: A New Model of Governance for
Sustainability, UNEP Finance Initiative, 2014. Materiality
• Sustainability Accounting Standards Board www.sasb.org • Redefining Materiality II: Why it Matters, Who’s Involved, and What It
• Carbon Disclosure Project www.cdp.net Means for Corporate Leader and Boards, AccountAbility, 2013.
• Sustainable Stock Exchanges Initiative www.sseinitiative.org • Sustainable Insight: The essentials of materiality assessment,
KPMG International, 2014.
• The Materiality Report: Aligning Strategy, Performance and
Reporting, AccountAbility, BT Group Plc and LRQA, 2006.

18.
Financial Services Council Australian Council of Superannuation Investors
Level 24, 44 Market Street Ground Floor, 215 Spring Street
Sydney NSW 2000 Melbourne Victoria 3000
Australia Australia

www.fsc.org.au www.acsi.org.au

While all due care has been taken in the preparation of this report, none of the Financial Services Council and ACSI make any
representation or warranty in relation to the accuracy or completeness of the information contained in this report. Commentary,
information or material contained in this report is of a general nature only. This report does not in any way constitute investment, legal
or taxation advice and is not a substitute for specific professional advice. No person should undertake or refrain from any action based
on the information in this report without seeking advice from an appropriately qualified professional. The Financial Services Council
and ACSI accept no responsibility for any loss or damage caused as a result of the use or reliance on this report by any person.