The study, ‘Tip of the Iceberg’, conducted by economic consultant Econtech – believed to be the first of its kind in Australia – examines the costs and benefits of Sustainability Risk Reporting (SRR) to business and the overall economy.
It models the effects of a rise in the number of companies reporting on SRR, from the current 23% of the ASX 300 to 60% within three to five years.
At present levels and even with this conservative forecast, Australia lags significantly behind overseas reporting levels, notably Japan (80%) and the UK (71%).
Finsia CEO Stephen Harrison said the finance sector should review its approach to sustainability risk reporting in the light of the net benefits to business and the economy.
“These benefits arise because companies with sustainability risk reporting benefit from lower corporate borrowing costs due to reduced risk, and higher labour productivity and sales from the boost to their reputation with employees and customers,” he said.
It found that SRR provides benefits through channels such as a reduction in the risk premium of around 30 basis points, a lasting gain in labour productivity of around 0.8% and a brand-based price premium of around 2%.
The 40-page report noted the first two channels were likely to provide benefits both to individual companies and the economy generally while the third may provide companies that use SRR with an advantage over other companies in the same industry.
Workplace productivity gains were found due to more effective performance management, including enhanced resource allocation and application of technology, and a greater sense of corporate identity for workers and managers leading to efficiency gains.
Finsia also said while reporting requirements would vary across different jurisdictions and different industries, Australia must work towards establishing some minimum standards for reporting.
It added it is less concerned about the specific form of the reporting than the need to build momentum towards a “common and respected” SRR framework, backed by a “respected and appropriate” body.
Minimum requirements include voluntarily disclosure on issues including:
direct and indirect societal and environmental impacts of businesses activities, including those of their suppliers;
long-term performance of the business (5-10 years) in addition to conventional short-term 12 to 24 month reporting horizon; and
full disclosure of details of executive remuneration and performance management policies and linking them to the longer-term relative performance of the business.
