Environmental, social and governance (ESG) matters have slipped down the priority list of ASX 200 companies amid geopolitical and economic challenges, according to a new report from KPMG.
The latest annual report on ASX200 corporate reporting trends found that the companies, which are considered “standards setters” on ESG matters, have been “occupied addressing challenging geopolitical and economic headwinds”.
This has seen ASX 200 companies “directing focus back to hard financials and pausing focus on ESG matters”, the report says.
Challenging headwinds
“While Australian corporates may have had attention diverted to address rising interest rates and inflation, supply chain disruption and labour force shortages, our analysis coupled with interviews with leaders across the corporate reporting supply chain, from report preparers, through auditor to users, points to increasing investor demand for ESG information in their primary report to their shareholders,” KPMG stated.
Nonetheless, the multinational said ASX200 companies have taken a lead role in addressing ESG matters, particularly when it comes to climate change.
“The ESG focus increased significantly in FY22, driven by global events, such as the physical and transitional impacts of climate change with increased flooding, fires; the ongoing impact of COVID-19; and the impact of war and other drivers of geopolitical instability on capital markets, energy availability and pricing, disrupted global supply chains and people.”
Climate reporting crucial
The report is further evidence that highly valuable listed businesses will have to take stronger action to curb their contributions to climate change and satisfy increasingly concerned shareholders.
The urgency led to the formation of the Task Force on Climate-Related Financial Disclosures, which made a gamut of recommendations for listed companies in terms of financial reporting.
The KMPG report found that less than four in 10 companies are keeping shareholders updated on their progress in implementing the recommendations.
The World Gold Council, in conjunction with engineering firm Stantec (TSX:STN), recently released a report that found several “key physical climate-related vulnerabilities” across the gold mining industry.
It outlined nine key vulnerabilities for gold mines around the globe, from water management and ground stability to biodiversity protection and worker health.
It comes as investments in green equities have more than tripled over the past decade, with a coalition of global investment groups coming together earlier this year to develop a new 14-point 'standard' for preventing corporations from lobbying to "delay, dilute, and block" climate action.
“Whilst companies have been drawn into responding to the short-term business impacts of external geopolitical and economic factors, they now need to also return their focus to identifying, addressing and reporting their progress and future plans to address all material ESG risks and opportunities on their own businesses, and where relevant across their value chain,” the KPMG report added.
Other findings
In other news, the KPMG report also examined ASX200 companies’ reporting against the Integrated Reporting Framework, the gold standard guide for financial reporting published by the International Financial Reporting Standards Foundation.
It found that only 14% of companies are referencing the framework in their annual reports to shareholders.
However, the majority (75%) are focusing their reporting on “value creation for shareholders and not just on historic financial earnings”.
- Daniel Paproth