As a result of COVID-19 and a push from both regulators and investors for enhanced disclosures on climate and other non-financial risks, most of Australia’s largest listed companies and many large scale non-listed organisations adopted integrated reporting principles when drafting their 2020 annual reports.
Organisations have of course provided detail on the financial impact of the pandemic on their revenues, cost base, asset valuations and funding, but the focus of their discussion has been on the actions taken to protect all the fundamental value drivers of the business for short term business continuity and survival, while adapting their business models and strategic priorities, as required, to support medium to longer term recovery and growth.
KPMG’s seventh annual survey of corporate reporting trends in Australia, covering reports to 30 June 2020, includes interviews with investment managers and asset owners that are using broader business information, including Environmental, Social and Governance (ESG) data, to inform their investment philosophy, strategy and decisions. These investors provide thought-provoking insights for boards and executives of corporates and financial institutions to consider when assessing the importance of broader business disclosures, with an immediate focus on quality ESG strategy and data.
The quality of disclosures in the annual report continues to improve
- 79% of ASX200 companies focused reporting on longer-term value for investors and other stakeholders, rather than just short-term financial earnings. This statistic jumps to over 90% for ASX50 companies.
- 96% of ASX200 (from March 2020) reported on the actions taken to protect employees and/or customers as a result of COVID-19, with over half also discussing activities to support other key stakeholders, including suppliers, partners and the broader community, address the health and economic impact of the pandemic.
- 60% of the ASX200 (85% of the ASX50) enhanced their disclosures on climate change risk. Disclosures addressed actions taken and the impact of the 2019/20 Australian bushfires on the business, as well as expanded disclosures on future climate change risk and risk mitigation activities as required by ASIC, the ASX Corporate Governance Council and the Taskforce for Climate-related Financial Disclosures (TCFD).
Non-financial information is critical for investors
- Impact investing is emerging, where companies are included in the investment universe because they have a ‘positive net impact’ on society and/or the environment; negative screening is also used as a first step to remove specific activities from the potential universe.
- ESG integration is an investment strategy that is used as an additional investment lens to give greater insight into the potential value/ risk in company performance. Understanding management’s strategic response to key ESG issues is a critical indicator.
Global move towards integrated reporting
- A transformation of the global reporting system is taking place, with significant work being undertaken to improve the governance and standard setting over ‘Non-Financial Information’.
We encourage organisations to continue to improve the quality of their reporting and move towards adopting the principles of integrated reporting to provide more meaningful corporate reporting on the business and its ability to create sustainable value now and into the future for investors and other important stakeholders.