Damien Cottier

Australian corporates are shifting their focus away from governance and towards environmental and social factors within the ESG space, according to new research from Perennial.

Perennial’s second annual Sustainable Future Survey shows greenhouse gas emissions are now the most important ESG area of focus for Australian corporates in the next 12-18 months, up from fourth place in 2019.  Worker rights/modern slavery was in second place this year, while indigenous relations also increased in priority.

Damian Cottier, Portfolio Manager of Perennial’s Sustainable Future Strategies, said: “Issues such as climate change, modern slavery and indigenous relations have been garnering a great deal of media and shareholder attention in 2020.  Our survey results capture how Australian corporates are moving to address these issues.”

ESG is becoming more of a strategic focus for many listed companies as they increasingly recognise the positive business outcomes that can result. 72% of survey participants have a corporate strategy specifically referencing ESG or sustainability.

Mr Cottier said that while respondents may be skewed towards those focussed on ESG, it is clear increasing investor and consumer pressure is encouraging more sustainable business practices.  Some 90% of respondents agree that engagement with investors on sustainability and ESG issues is beneficial for their company, up from 85% last year.

Environmental targets on the rise

The environment continues to be a key component of ESG, with more corporates disclosing and measuring targets associated with greenhouse gas emissions.   The number of companies producing waste targets has increased by 7% to 60%.

The survey also found that over half (55%) of respondents agree that a national energy policy would provide a clearer pathway for sustainable investment, helping corporates to plan and invest for a more sustainable future.

Diversity drops down list of priorities

In 2019, diversity was the most critical ESG area of focus for respondents but has dropped to fifth place this year.

“While other issues appear to have overtaken diversity, gender diversity at manager and executive level remains a challenge for Australian corporations,” according to Emilie O’Neill, Perennial’s ESG Analyst. “Respondents appear to place emphasis on increasing gender diversity in executive ranks, with 53% of respondents strongly agreeing this is an area of focus compared to 35% who strongly agree that increasing diversity at entry-level of employment is a focus.

“The result responses suggest some of the key barriers are attracting a gender diverse talent pool within certain industries and strong competition for top female talent.”

Remuneration still a grey area

Remuneration policies are still creating confusion for many Australian businesses, with only half of the respondents agreeing that investors have consistent and clear expectations regarding remuneration policy.

“We think this is a key area to watch going forward given investors have conflicting attitudes towards management incentives – particularly in a COVID-19 impacted environment,” Cottier said.

Perennial has designed the survey to check the ESG ‘pulse’ of Australia’s major businesses.  Around 250 ASX-listed companies were invited to complete the survey in June 2020 during the midst of the Coronavirus pandemic.  Respondents came from a range of industries broadly representative of the Australian index.

“The findings of the report assist us in engaging with companies in our Sustainable Future Strategies; The Perennial Smaller Companies Sustainable Future Trust and the eInvest Future Impact Small Caps Fund (ASX:IMPQ)”, said O’Neill.

“Overall, it is interesting to see the changes in ESG focus areas for ASX-listed companies,” said Cottier. “ESG issues are having a greater impact on share prices, and stakeholders are increasing their expectations.  Companies are looking at ways to improve, albeit there is still some way to go.”

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