Large companies must disclose climate strategies starting January 2025. Picture Getty
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- Sustainability is now a big part of ASX reporting
- Large companies must disclose climate strategies starting January 2025
- And here are 7 ESG challenges for ASX companies in FY25
With the earnings season in full swing for ASX companies, we’ve observed a shift in the focus of corporate reporting.
Only around 10 years ago, annual reports and AGMs were primarily about financials, but today, they include a lot of discussions on sustainability.
Commonwealth Bank (ASX:CBA) and AGL Energy (ASX:AGL), for instance, have each included broad ESG sections in their annual reports released this week.
The audience for these reports has also expanded beyond just investors to include unions, activists, regulators, employees, and consumers.
Trade unions in particular have been very vocal in recent years, particularly around these reporting dates.
In a media release this week, the ACTU criticised the CBA for its $9.8 billion profit, which it said came from wage theft, a big gender pay gap, and charging high fees to customers.
ACTU Assistant Secretary Joseph Mitchell said, “The Commonwealth Bank should pay its workers properly and close its unacceptable gender pay gap.”
Finance Sector Union National Secretary Julia Angrisano added, “Despite record profits, the richest bank has been stealing money from workers struggling with the rising cost of living.”
Despite these criticisms, it’s mostly investors who’ve been raising the bar on sustainability.
Investors are demanding clearer and more consistent information, and more of it, on the key issues companies face.
They also want to understand how a company’s sustainability strategies fit with its business model and, ultimately, how they contribute to long-term value creation.
Australia’s new climate reporting rules
In response to these demands, Australia’s new climate reporting rules – set to start on January 1, 2025 – will require large companies to provide detailed sustainability reports.
These reports will include their climate strategies and emissions data.
So who will be included in the new reporting requirements?
The new rules will impact around 6,000 entities, including many ASX-listed companies, demanding they report on climate risks, goals, and their overall environmental impact.
Specifically, large companies will be required to prepare them, and these will include listed and unlisted companies, financial institutions, and major superannuation entities.
While many ASX200 companies are already reporting on climate issues, experts say there’s still a gap in detailed disclosures, especially regarding Scope 3 emissions.
Large asset owners, such as those with over $5 billion in funds, will also need to report.
Small and medium-sized businesses below the size thresholds (see below) will not need to make these disclosures.
Who needs to report?
7 ESG challenges for ASX companies in FY25
With this new reporting regime set to start soon, Will Baylis and Naomi Bant from Martin Currie – a specialist Australian equities investment firm – have released a report highlighting 7 key areas they want ASX-listed companies to address in FY25.
1. Climate transition
Decarbonisation has of course been a significant topic for several years, and reporting is stepping up.
As of 1 July, the Government requires mandatory climate disclosures for Scope 1 and 2 emissions from major emitters and large organisations.
Next year’s reporting will be even more crucial, as companies must also assure material Scope 3 emissions, scenario analysis, and transition plans.
Currently, few companies share their scenario analysis, so this will mark a significant information shift.
2. Natural capital
Another critical focus is natural capital and biodiversity, however, with a short implementation timeline to mandatory climate reporting, companies may focus less on nature this year.
“We are hearing already that many companies are deprioritising biodiversity policy development,” said Martin Currie,
“And only five listed Australian companies have committed to early adoption of the Taskforce on Nature-related Financial Disclosures (TFND).”
3. Workplace safety
Workplace safety concerns have expanded beyond labour-intensive sectors like resources to industrial and consumer sectors, with a rise in injuries and deaths.
This spike is linked to increased mechanisation and automation, a growing migrant workforce, and the reliance on imported goods and online retail, which increases warehousing and manual handling.
High-quality training and education are crucial in all cases.
“We rate companies better when they are transparent about workplace safety,” said Martin Currie.
“Mining companies have traditionally been very transparent, but now all companies must acknowledge and mitigate the risks.”
4. First nations outcomes
Australian companies are increasingly focused on improving outcomes for First Nations people.
Resource companies have traditionally been leaders in this area, but more companies are expected to report their efforts this year.
These efforts are likely to include diversity initiatives, targeting Indigenous employment, training programs, and procurement.
According to Supply Nation’s Social Return on Investment report, for every dollar of revenue earned, Indigenous-owned businesses can create $4.40 in economic and social value for their communities.
5. Gender diversity
Diverse teams lead to better decision-making and business outcomes. While progress has been made on gender, much work remains.
Roughly half of the Australian workforce is female, whereas only 34% of board members are female, and 22% of CEOs are female.
“We are focused on seeing a better gender balance across the full workforce,” said Martin Currie.
“While improvements are being made at senior management and board levels, we want to better understand the pipeline of talent companies have for succession from the next generation.”
6. Ethical sourcing
Reporting requirements under Australia’s Modern Slavery Act reporting requirements have been in place for several years, and we are starting to see better disclosures from many companies around their related risk factors.
However, Australian supply chains weave through the highest risk region in the world.
“Companies must remain vigilant, as much work is still needed to eliminate modern slavery risk from their supply chains,” said Martin Currie.
A key recent change in May 2024 was the federal government’s legislation authorising the statutory appointment of an Australian Anti-Slavery Commissioner.
7. Greenwashing
With an increased sustainability focus expected within company annual reporting, continued scrutiny from both regulators and investors is expected.
Sustainability is not just a marketing tool; it requires genuine commitment and action.
“We are on the lookout for companies talking about sustainability without real action to back their claims.
“We seek concrete evidence that a company has implemented strong policies and processes to ensure they are doing what they say and being fully transparent about the associated risks and opportunities,” said Martin Currie.
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