The Ethical Investor: Most ASX companies not doing enough on disclosures – with Perspektiv’s Katie Williams


A move by the ASX to make public companies more accountable for information they provide to investors has had mixed results – with only a minority achieving high levels of compliance with the new guidelines.

According to a research report prepared by Deakin University, more than a quarter of a sample of the 240 largest companies listed on the ASX have failed to make effective disclosures in relation to ASX Recommendation 4.3.

And most of them gave only vague or limited information about how they ensured the integrity of unaudited reports to investors.

Recommendation 4.3 came into effect for most companies listed on the ASX in 2021.

Essentially, the recommendation states:

“A public company should disclose its process for checking the integrity of any periodic company report that is not audited or verified by an external auditor.”

Periodic company reports are defined by the ASX as follows:

“Annual management report, annual and half-yearly financial statements, quarterly activity report, quarterly cash flow report, integrated report, sustainability report or similar periodic report of a company prepared for the benefit of investors”.

Which companies are making efforts?

Deakin’s analysis found that the majority of ASX 300 companies have indeed made efforts to disclose the processes they use to improve the integrity of their unaudited periodic corporate reports.

However, the results also revealed significant differences between companies in terms of the level and quality of their responses to Recommendation 4.3.

For example, 48% of the sampled companies made company-specific disclosures, but with limited detail on how their integrity improvement processes worked in practice.

15% of companies did not provide company-specific disclosures, instead using boilerplate disclosures or general statements that could apply to any company.

Only 61 companies (25%) of the 240 in the sample were rated because they provided clear and comprehensive descriptions of the processes they used to ensure the integrity of their unaudited periodic company reports.

Source: Deakins University

A more detailed comparison across the ASX 300 suggests that larger companies (79% of the ASX 100 and 78% of the ASX 101-200) versus smaller companies (61% of the ASX 201-300).

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Deakins singled out two companies that did particularly well in their response to Recommendation 4.3.

According to his research SCA Property Group (ASX:SCA) has a clear and comprehensive process to improve integrity when it comes to its unaudited periodic company reports.

Verification protocols performed by SCA management include an internal annual review of disclosures by the relevant internal team – e.g. finance, legal.

SCA’s directors then have an opportunity to comment on the relevant announcement and finally, once verified, all announcements are reviewed by the company’s CEO, CFO and General Counsel.

29 metals (ASX:29M) is another company that has done very well according to Deakin.

The company follows similar protocols to SCA, where it performs “check-and-check” verification against source documentation drawn from the company’s information management systems.

Why “G” in ESG should not be ignored

How important is the G in ESG?

Corresponding Kate WilliamsSenior Sustainability Advisor perspectivethe G is often the most understated when it comes to ESG.

Because governance—what it does and what it adds—can be hard to define.

Governance seems to capture our attention far less than environmental and social factors, but according to Williams, their role is crucial.

Governance are the internal mechanisms and structures that enable the company to formulate and implement its sustainability strategy.

It provides the framework for setting the right goals and creating the conditions for achieving them.

Williams says that sustainability governance is, at its core, a mindset.

It requires everyone in the company – starting with the board – to move from thinking about short-term financial results to long-term thinking about results for generations.

Accepting that risks to the planet and society are risks to the business. Away from shareholder primacy towards the interests of all stakeholders.

Interview with Katie Williams from Perspective

Perspective works with the private sector and government to enable better outcomes for people and the planet.

The company is based on the UN sustainability goals and advises customers from various industries.

William’s background is in legal practice and at Perspektiv her role is primarily advising clients on human rights issues.

She works with companies to help them understand how their operations can impact people who may be their own employees and the communities in which they operate.

Katie Williams from Perspective

How should we view investors and Company G in ESG?

“Just to take a step back, the concept of sustainability is often confused with ESG, but they’re not really exactly the same, they have different origins,” Williams said stick head.

“ESG comes from financial markets, and sustainability comes from a multi-stakeholder sustainable development context.

“Therefore, one can look at governance from the perspective of how companies are affected by social and environmental risks.

“Initially, that was the ESG approach and basically the question was, can the investor be satisfied that the governance structures are adequate to identify risks that could affect the financial condition of the company?

“But there is also another way of looking at governance that is geared towards the concept of sustainable development rather than ESG.

“And that’s when you look at it from the perspective of how the world is impacted by the business or the risks to society and the environment from the company’s activities.

“In other words, you’re looking at it from the other end of the telescope.

“And there’s a really nice convergence between those two paths, because when you think about it, the impact on people and the planet can also have an impact on the company’s own financial performance.”

But how do you measure governance?

“There are different ways you can measure it because there’s an alphabet soup of different reporting frameworks that are mostly voluntary,” Williams said.

“TCFD or the Task Force on Climate related Financial Disclosures is a big one and it’s all about how a company reports and discloses its exposure to risks related to climate change.

“TCFD is absolutely the standard bearer, although it specifically relates to the issue of climate change.

“ASX, ASIC and APRA have all expressed very clearly their expectations that public companies should adopt the TCFD framework.

“ESG ratings are another way to measure governance, but the problem with ESG ratings is that there is absolutely no one-size-fits-all approach right now.”

What do you think of Deakin’s research?

“This is a really interesting piece of research, and it’s so relevant to the issues we have right now with greenwashing,” Williams said.

“Good corporate governance means that the company discloses and reports matters that could have a material adverse effect on the company’s value or financial condition.

“And there is a legal basis for that.

“Companies have an obligation to provide reports in a way that is not misleading. Australian consumer law is relevant here.”

Which ESG reports should be subject to ASX Recommendation 4.3?

“Public companies that fully comply with the ASX Exchange Rules and the Corporate Governance Principles Recommendation should provide a list of the disclosures covered by this Recommendation,” Williams said.

“This should include, for example, the sustainability report if it has not been subject to third-party verification.

“The Modern Slavery Statement is also another clear example.”

What should be the consequences of not complying with the recommendation?

“The implications of this are potential legal action for greenwashing,” Williams said.

“Because when you make disclosures about your sustainability approach, your climate change policies and your net-zero commitments are the ones that face the greatest risk of greenwashing and litigation.

“So when you make these disclosures public, good corporate governance requires you to also clarify the basis on which you have prepared these statements.

“You might want to look at the Santos litigation, which is a real example of what’s happening right now.”

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