Australian companies must prepare for mandatory climate change disclosure, KPMG warns

One quarter of ASX-listed companies have reported no significant environmental or social risks, according to a new report by the consultancy for the market operator. That needs to change.

Australian companies need to be prepared for mandatory reporting of their environmental, social and climate change issues, warns KPMG. Picture: Getty Images

Companies need to be prepared for mandatory reporting of their environmental, social and climate change issues, a new KPMG report for the ASX has warned.

The report on how some 600 publicly-listed companies are reporting under the ASX’s corporate governance principles, says there have been “significant developments” over the past year in other regions including the US, Canada, Europe and New Zealand in moving towards more mandatory reporting on sustainability issues.

The report said these “provide early indication that the Australian government may make environmental and social disclosure mandatory in the future”.

The report noted that while the adoption of the reporting recommendations of the ASX Corporate Governance Council by some 600 ASX-listed companies was high, a quarter of those reporting said they had no material exposure to environmental or social risks.

“While acknowledging there is a significant breadth of entities with different circumstances and exposures within the sample, KPMG considers it unlikely that over 25 per cent of the sampled entities did not have any material social or environmental exposures,” the report reads.

The most common environmental exposures reported by companies included climate change and related impacts, biodiversity and water scarcity, while the most common social exposures included community engagement, diversity, equity and inclusion and health and safety.

The report noted that the reporting frameworks of ASX-listed companies on environmental and social issues varies considerably with ASX 200 companies having the most detailed disclosures. It found that around half of those reporting followed at least one internationally recognised framework.

“Sustainability reporting standards are being developed at a global level with the prospect of them being made mandatory,” said KPMG partner Julia Bilyanska.

Ms Bilyanska said the 25 per cent of companies which reported that they had no significant environmental or social risks needed to “reconsider their assessments in the current climate and look at approaches taken by their peers.”

The report detailed measures taken overseas in recent years by regulators increasing the pressure on companies to step up their disclosure levels on environmental and social issues.

These include an announcement by the US Securities and Exchange Commission in May, signalling plans for mandatory disclosure on ESG issues – including information on emissions in their portfolio investments – and an exposure draft on reporting by the European Financial Reporting Advisory Group in April.

The new KPMG report expects Australian officials to pay close attention to the SEC, in particular, and could “introduce mandatory disclosure in the future.”

Ms Bilyanska said investors and regulators around the world were “taking a keen interest” in reporting by companies on their environmental and social risks.

The survey showed that there had been a big increase in reporting on these issues by ASX-listed companies, up from 65 per cent in 2015 to 95 per cent last year.

Ms Bilyanska said that there were now global standards being developed on environmental reporting in the same way as those on financial reporting with the emergence of institutions such as the International Sustainability Standards Board.

“We think the Australian government will, at some point, mandate sustainability reporting, just to bring in consistency and comparability across the board,” she said. “Reporting rates are high, but there are so many different reporting frameworks which make it really difficult to compare.”

She said there had been many new developments in this area in the past 12 months alone.

Ms Bilyanska said the rapid change provided risks for some companies which were reporting laggards but provided opportunities for others to lead the way.

In contrast, the KPMG report found that there had been no significant increase in reporting by ASX-listed companies on their diversity policies over the past six years. The number of ASX-listed companies disclosing their diversity policy has only edged up from 87 per cent in 2015 to 88 per cent last year. The report found that there has been a fall in the disclosure of the proportion of women on boards, at senior executive levels and the general workforce.