The impact of COVID-19 and a push from regulators and investors for enhanced disclosures on Environmental, Social & Governance (ESG) issues have seen most of Australia’s top listed companies adopting the principles of ‘integrated reporting’ in their 2020 annual reports, a KPMG study shows.
KPMG’s seventh annual review of corporate reporting trends across the ASX200 shows a combination of short and longer-term focus during the crisis. Company reports to 30 June 2020 have provided detail on the financial impact of the pandemic on their revenues, cost base, asset valuations and funding, but have also focused on the actions taken to protect all the fundamental value drivers of the business for short-term business continuity and survival, the study finds.
Nick Ridehalgh, KPMG Better Business Reporting national leader, said: “Integrated reporting helps organisations better explain their business and how they effectively use key resources and stakeholder relationships – with investors, customers, employees, regulators and others – to create value over the short, medium and long term. Our study shows how ASX companies have used these principles in their 2020 reports to demonstrate how they have adapted their business models and strategic priorities, as required, to deal with the immediate impacts of the COVID-19 crisis, while supporting medium to longer-term recovery and growth.”
“In 2020, we have seen a seismic shift in business focus and thinking, driven at pace by the various global challenges – political, economic, health, technology, social or environmental. Australian business leaders are focused on protecting the fundamentals of their business to enable them to survive, and then grow over the longer term. Investors now understand that past financial performance is not an indication of future prospects, and that ESG and other ‘pre-financial’ data provides critical insights into how the business is set up for future success.”
“Internationally, from a government and regulatory perspective, in 2020 we have seen more urgent action to drive broader-based quality business information, including ESG, than at any time in the previous ten years since the GFC. They are finally working towards a global corporate reporting system that will be fit for purpose for 21st century capitals markets.”
In the report, KPMG interviews investment managers and asset owners on the importance of broader business information, including ESG data, in making their investment decisions.
Over 60 percent of the $3.135bn professionally managed funds under management (FUM) in Australia are designated as responsible investment – that is, certain ESG screening is undertaken before an investment is made (Responsible Investment Association Australasia report 2020). Fund managers of $1.149bn (37 percent of FUM) use ‘expanded’ responsible investment techniques in investment selection, for example considering the ‘net-impact’ of the organisation on the community or environment before considering undertaking more traditional financial analysis and investment.
Nick Ridehalgh said: “From a local regulatory perspective, last year’s significant amendments to the ASX Corporate Governance Principles & Recommendations are another key influence. These changes require listed corporations to reassess their underlying non-financial value-drivers and risks, and report more transparently on their performance and future prospects. These drivers are really the fundamentals of good business, around customers and communities, as well as technology and IP, use of scarce resources and impact on the environment. They are at the heart of integrated reporting.”
The study provides an overview of the rapid international developments in 2020 to transform the global corporate reporting system, with a particular focus on implementing a governance framework to oversee development of global sustainability standards and a new conceptual framework for ‘connected’ reporting , similar to those in place for financial reporting.
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