Australian Council of Superannuation Investors Corporate Sustainability Reporting in Australia An analysis of ASX200 disclosure Featuring climate-related risk July 2017 CORPORATE SUSTAINABILITY REPORTING IN AUSTRALIA: JULY 2017 | 1 CORPORATE SUSTAINABILITY REPORTING IN AUSTRALIA: JULY 2017 | 2 ABOUT ACSI Established in 2001, the Australian Council of Through ACSI, our members collaborate to achieve Superannuation Investors (ACSI) exists to provide a genuine, measurable and permanent improvements in strong, collective voice on environmental, social and the ESG practices and performance of the companies governance (ESG) issues on behalf of our members. they invest in. Our members include 37 Australian and international ACSI staff undertake a year-round program of research, asset owners and institutional investors. Collectively, engagement, advocacy and voting advice. These they manage over $1.5 trillion in assets and own on activities provide a solid basis for our members to average 10% of every ASX200 company. exercise their ownership rights. Our members believe that ESG risks and opportunities have a material impact on investment outcomes. As fiduciary investors, they have a responsibility to act to enhance the long-term value of the savings entrusted to them. Australian Council of Superannuation Investors Level 23 150 Lonsdale Street Melbourne, 3000 Website: www.acsi.org.au CORPORATE SUSTAINABILITY REPORTING IN AUSTRALIA: JULY 2017 | 3 FOREWORD: THEN, NOW & NEXT Ten years ago, ACSI published its first sustainability experience that some find this discomforting, and that it disclosure report, called "The Sustainability Reporting acts as a stimulus for change. Journey". Our objective was to establish a starting point Efforts to improve sustainability disclosure have yielded for measuring company practices and progress over time. solid progress since we first began researching this topic. This year, for the first time, we have included climate- Most companies now understand the value of related disclosure by the ASX200 in our report. This was sustainability disclosure. a direct response to increased interest from our members in climate-related risk. ACSI and its members are proud of the contribution we have made to improving sustainability disclosure over the As fiduciaries, our members are required to maximise past decade. Improvements include: long-term investment returns for their beneficiaries. Improved disclosure of climate-related risk enables them . The number of companies reporting to a "Leading" or to make decisions about climate-related exposure in their "Detailed" level has increased from 39 in 2008 to investment portfolios. 101 in 2016. The number of companies that did not report has Heightened investor expectations for improved climate- almost halved from 31 in 2008 to 16 in 2016. related disclosure are also evident globally. In May, a high-profile shareholder proposal brought the role of We are confident that market forces and shareholder institutional investors into sharp focus. Shareholders in pressure will encourage companies that do not report or ExxonMobil, the world's biggest publicly listed energy report at a basic level to improve. company, voted to require the company to disclose climate change impacts. From our perspective, the next challenge is to embed greater meaning into sustainability disclosures. Beyond Rather than a "tipping point" as some commentators acknowledging the material sustainability risks they face, opined, this occurrence was one of numerous actions by we want companies to articulate the steps they are taking institutional investors over many years to improve to address them and to set targets to improve. sustainability disclosure. ACSI, on behalf of our members, has actively participated in this process, through our In addition, the level of climate-related disclosures lags research, advocacy and engagement work. that of sustainability reporting. Seventy ASX200 companies did not measure greenhouse gas emissions, Our sustainability report is both an analytical record and a have a policy or statement on climate-related risk or a vehicle of change. Ten years of data allows us to identify trends related target in 2016. Disclosure of climate-related and changes over time and, importantly, weak reporters. governance and risk assessment is now a focus area for us. We use this data to encourage poor reporting companies to improve their disclosure, thereby facilitating stronger assessment and management of material sustainability risks. By rating the sustainability disclosure of each ASX200 company and benchmarking it against their sector and the Louise Davidson ASX200, we give companies an institutional investor’s Chief Executive Officer perspective on their performance. We know from 4 | CORPORATE SUSTAINABILITY REPORTING IN AUSTRALIA: JULY 2017 TABLE OF CONTENTS ABOUT ACSI ................................................................................................................................................................... 3 FOREWORD: THEN, NOW & NEXT ......................................................................................................................... 4 TABLE OF CONTENTS ................................................................................................................................................. 5 EXECUTIVE SUMMARY ............................................................................................................................................... 6 BACKGROUND & METHODOLOGY ........................................................................................................................ 8 Research methodology .............................................................................................................................................. 8 Disclosure not performance ..................................................................................................................................... 8 Levels of sustainability disclosure ........................................................................................................................... 8 Climate-related disclosure ........................................................................................................................................ 9 GLOBAL DEVELOPMENTS IN REPORTING ........................................................................................................ 10 Taskforce on Climate-related Financial Disclosures (TCFD) ........................................................................... 10 Integrated Reporting ............................................................................................................................................... 11 Sustainable Stock Exchanges Initiative ............................................................................................................... 11 United Nations Sustainable Development Goals (SDGs)................................................................................. 12 European Union (EU) Shareholder Rights Directive ......................................................................................... 12 RESEARCH FINDINGS: SUSTAINABILITY DISCLOSURE .................................................................................. 13 Key findings .............................................................................................................................................................. 13 Long term trends in sustainability disclosure ..................................................................................................... 14 ASX100 and ASX101-200 ..................................................................................................................................... 14 External verification ................................................................................................................................................ 15 Reporting frameworks ............................................................................................................................................ 16 Sectoral performance .............................................................................................................................................. 16 Leaders and laggards ............................................................................................................................................... 17 RESEARCH FINDINGS: CLIMATE RELATED DISCLOSURE.............................................................................. 19 Key findings .............................................................................................................................................................. 19 Sectoral performance .............................................................................................................................................. 20 APPENDIX A: 2016 ADDITIONS & REMOVALS TO THE ASX200 ................................................................. 22 APPENDIX B: COMPOSITION OF ASX200 .......................................................................................................... 23 CORPORATE SUSTAINABILITY REPORTING IN AUSTRALIA: JULY 2017 | 5 EXECUTIVE SUMMARY This report assesses the level of sustainability disclosure The best reporters use internationally recognised external by ASX200 companies for the 2016 reporting period. It is standards and/or verification th the 10 annual sustainability disclosure review ACSI has Global