Emilie O’Neill

The Perennial Better Future Trust took some significant steps in 2023 to increase the number of women at both board and executive levels in its portfolio companies.

The 2023 Perennial Better Future Impact Statement, highlights that another 8 female non-executive directors were appointed at 7 companies in the Trust’s portfolio. Since the Trust’s inception in February 2018, a total 73 female directors have been appointed to company boards in the portfolio.

The Trust’s Co-Head of ESG and Equities Analyst Emilie O’Neill says, “Enhancing the role of women at a board and executive level is a real focus and now we are seeing a marked improvement in achieving gender balance.”

“In the companies we invest in, women comprise 32 per cent of the management teams and 39 per cent of board positions. In addition, 18 per cent of our portfolio companies have a female chair compared with 12 per cent in the ASX Small Ordinaries benchmark.”

While Madeleine Huynh, ESG and Equities Analyst for the Better Future Strategy, says many of these appointments have occurred after active involvement by the Trust. “In March 2023, we hosted our Inaugural Perennial Diverse Boards Speed Networking Event as a collaborative effort between Perennial Better Future, Perennial Private Investments and Perennial Smaller Companies boutiques that connected 13 portfolio companies with 16 female directors.”

In 2022, Perennial became an active member of the 40:40 Vision, an investor-led initiative working towards gender-balanced executive teams by 2030. The Vision seeks to bring transparency and accountability to companies’ commitments to gender diversity in senior leadership and calls for at least 40 per cent women in executive teams by 2030. [40:40 stands for 40 per cent women, 40 per cent men and 20 per cent any gender.]

Huynh adds, “We aim to continue facilitating valuable connections with the goal of increasing gender diversity on boards. We have been appointed the lead investor for several portfolio companies for the 40:40 Vision and have been taking charge of conversations with these corporates on enhancing the representation of women in their executive teams.”

O’Neill concludes: “The Trust believes the collective support of the ASX300 and investors are critical to achieving gender-balanced executive teams that will help strengthen corporate governance and performance for shareholders.

While there are positive diversity outcomes noted in the report, the report also highlights other ESG progress across portfolio companies achieved in the period. In 2023, the Perennial Better Future team conducted 109 dedicated ESG engagements with management teams and boards across 44 portfolio companies. Key topics discussed included Cyber Security, Gender Diversity, Greenhouse Gas (GHG) emissions disclosures & alignment with the Paris Agreement and Modern Slavery & Ethical Supply Chain. As at 31 December 2023, the weighted carbon intensity (WACI) of the portfolio was 82.9% less than the ASX Small Ordinaries benchmark and 84.2% less than the ASX300 (based on Scope 1 and 2 CO₂ emissions).

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Emilie O’Neill

Greenhouse Gas (GHG) emissions and alignment with the Paris Agreement have displaced cyber security as the key ESG priority for companies over the next 12 to 18 months in the annual 2023 Perennial Better Future Survey.

Nearly half the respondents to the Survey selected GHG emissions as a top three issue. Emilie O’Neill, Co-Head of ESG and Equities Analyst of the Perennial Better Future Trust, said: “This may represent the increasing national focus on environmental concerns as well as global reporting standards increasingly prioritising environmental reporting.”

Cyber security was placed second and diversity and inclusion third in the Survey, O’Neill stated that an encouraging trend evident from the Survey was increased ESG accountability, with more dedicated ESG staff and increasing senior and board level oversight.

“ESG-based KPIs are increasingly more common, although the focus remains on STI (short-term incentive) KPIs. Pleasingly, 62 per cent of companies have ESG or sustainability as a specific KPI versus 45 per cent in 2022. But there is a significant size effect in the data, with 63 per cent of smaller companies indicating that they do not have remuneration associated with ESG as a KPI compared with 24 per cent of larger companies.”

She added that 75 per cent of companies now have a dedicated ESG/Sustainability person or team dedicated to ESG matters. “This represents an increase on 2022 results, in which 49 per cent had a dedicated resource – indicating the increasing importance corporates and other stakeholders place on these issues.

“The percentage of companies with a dedicated senior executive responsible for ESG/ Sustainability increased slightly to 78 per cent from 71 per cent in 2022, important for top-down accountability. Companies with a dedicated board member also increased to 50 per cent in 2023 from 44 per cent in 2022.”

O’Neill said that nearly two-thirds of companies believed that ESG and Sustainability provided profit opportunities for their business, while 83 per cent indicated tackling these issues meant additional costs. When asked how important respondents think ESG and Sustainability will be to their business in the next five to 10 years, they were ranked 7.5 out of 10.

She said due to the lack of globally consistent sustainability reporting methods, companies found it challenging to navigate reporting frameworks and information disclosure, although this was likely to be improved by the incoming ISSB (International Sustainability Standards Board) standards.

“Most respondents identified that ISSB will help to standardise ESG disclosures, while 13 per cent think it will increase the reporting burden for corporates. Additionally, 44 per cent agreed or strongly agreed that sustainability reporting has become burdensome, up from 33 per cent in 2022 and 2021.”

The survey found that GRI became the most used framework for reporting ESG information in 2023. Task Force for Climate-Related Financial Disclosures (TCFD) and Workplace Gender Equality Agency (WGEA) followed closely behind.

The use of Sustainability Accounting Standards Board (SASB) increased significantly on 2022, and the Taskforce on Nature-related Financial Disclosures (TNFD) remained a minority. This year, slightly less companies did not report ESG or sustainability related information aligned with reporting standards at 22 per cent.

Half the companies surveyed have a Reconciliation Action Plan (RAP), with another 16 per cent expect to launch a RAP in the next 18 months.

Achieving gender diversity targets at a board and executive level remain a key focus, with difficulties in finding gender diverse talent pools the biggest stumbling block.

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Damien Cottier

The Perennial Better Future Strategy has reached its five-year milestone with ~$250 million in funds under management and a track record of outperforming the Small Cap Accumulation benchmark.

The Fund, which sits under the Perennial Partners umbrella, pursues strong, consistent returns while investing in mainly smaller and mid cap companies positively shaping a better future.

Since inception over five years ago the Perennial Better Future Trust has delivered 7.2% p.a. return after fees, outperforming its benchmark, the S&P/ASX Small Ordinaries Accumulation Index, by 3.9% p.a. (as at 31 March 2023).

With an authentic approach to sustainable investment, the strategy invests in areas such as healthcare, education, renewable energy, technology improving energy efficiency, resource use or reducing greenhouse gas emissions, environmental services, companies contributing to social welfare outcomes, including improving the safety, health or well-being of workers. Approximately 50% of the portfolio lay within these higher impact sectors (as at 31 March 2023).

Marking the fifth year, the Better Future team has calculated the total impact of the strategy since inception and the results are compelling.

Perennial Better Future Portfolio Manager, Damian Cottier, says: “The portfolio has derived meaningful impact over the five years since its inception. This is a characteristic we have grown to understand our clients value greatly.

It is pleasing to have demonstrated outperformance over the medium and long term while providing positive social and environmental outcomes.”

As a result of investing in Better Future enablers – companies that typically have a relatively lower environmental footprint – the carbon intensity of the portfolio is 83.1% less than the benchmark.^[1]

Over the past five years, the Better Future team has demonstrated its thought leadership in the ESG investing landscape, through participation in industry initiatives including educational webinars, panel presentations, surveys and collaborative industry groups such as Climate Action 100+ and IAST-APAC.

Additionally, since inception, the team has conducted over 1,000 meetings with portfolio companies, including over 250 dedicated ESG meetings. The Better Future team believes that company engagement is crucial in helping companies to progress their ESG practices and ultimately, generate improved ESG outcomes.

Recent engagement areas of focus include:

• gender diversity at both the board and senior executive level. Since inception, 68 female directors have been appointed to the boards of companies held in the Better Future Trust, typically following the team’s engagement. In March 2023, Perennial Better Future, in collaboration with Perennial Smaller Companies and Perennial Private Investments held the Inaugural Perennial Diverse Boards Event – an event constructed of boards in our portfolio in need of greater diversity to meet potential female directors.  It featured 14 investee companies and 16 directors in a “speed networking” format;
• disclosure of greenhouse gas emissions and setting of reduction targets; and
• modern slavery.

Emilie O’Neill, Co-Head of ESG and Equities Analyst concluded, “We are extremely pleased to have been able to provide institutional, wholesale and retail investors access to companies shaping a better future within the Australian marketplace.”

The Better Future Trust is certified by the Responsible Investment Association of Australia and was the winner of the “Sustainable and Responsible Investment – Growth” category at the Zenith Fund Awards in 2022.  It has a “Recommended” Investment rating from both Zenith and Lonsec.  It has an “Impact” Sustainability rating from Lonsec and a “5 bees” Sustainability Score from Lonsec – each of which is the the highest rating available.

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Emilie O’Neill

Cyber Security emerged as the pivotal ESG theme in the 2022 Perennial Better Future Survey, while greenhouse gas (GHG) emissions and diversity still command strong corporate attention. ESG is still front and centre for ASX listed corporates with 78% of respondents indicating that their business strategy specifically references ESG and Sustainability.

The survey, encompassing 55 ASX-listed companies from a cross section of market cap sizes and industry sectors, revealed strong progress on ESG initiatives. This was despite a challenging macro environment, including tighter monetary policy, inflationary pressures and rising energy prices.   

Co-Head of ESG at the Perennial Better Future Trust, Emilie O’Neill, says: “We have seen ESG priorities move around from year to year, and generally Greenhouse Gas (GHG) Emissions, Diversity, Governance and Modern Slavery are considered the most important to ASX-listed corporates. However, in 2022, Cyber Security emerged as the most important theme.”

The emergence of Cyber Security, up from fourth position in 2021 and consistent across larger and smaller companies, comes as no surprise given the raft of recent cyber-attacks. Many reported concerns in this area, including reputational risks, fines and regulatory attention, customer loss and litigation.  

Damian Cottier, Co-Head of ESG and Portfolio Manager on the Perennial Better Future Trust added: “The survey seeks to gaze into the collective mind of corporate Australia to understand how deeply it is concerned with ESG and Sustainability. 

We had a really broad range of companies participate – from the major banks to microcap stocks.  The outcomes are fascinating on a whole range of issues, and it is intriguing to see how thinking has changed in each of the four years since the survey was first conducted.”

The survey covers a wide range of areas including:

• Who is responsible for ESG and how are companies resourced to grapple with ESG and sustainability issues?
• The extent to which ESG and sustainability outcomes are embedded in corporate remuneration.
• What are companies measuring and targeting in relation to greenhouse gases and other ESG-related metrics?
• How companies engage with investors on ESG and do they think it is worthwhile?
• How are companies thinking about Reconciliation?
• What are companies doing to address Modern Slavery risks?
• How are companies thinking about gender diversity and the inhibitors to greater diversity?

For instance, although gender diversity remains a critical ESG issue, achieving parity is still proving difficult for corporate Australia.  

“Industry difficulties in attracting gender diverse talent pools was the biggest inhibitor to achieving a gender diverse workplace in 2022, consistent with prior years. Competition for top female talent remained in second position and intensified in 2022. Lack of university graduates remained stable,” O’Neill said.  

Another interesting area of focus was on Reconciliation. Our survey found that although only 24% of companies surveyed had launched a Reconciliation Action Plan (RAP), an additional 25% were planning to in the next 18 months. The Perennial Better Future team has made this an engagement area of focus.

We were also pleased with the sustainability progress of smaller companies. When asked whether they have experienced positive business outcomes as a result of focussing on ESG & Sustainability 78% of smaller companies agreed which was a higher percentage than larger companies. Cottier commented “This is encouraging and suggests smaller companies are seeing the importance of improving ESG performance where smaller companies have historically lagged.”

Read the report.

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Damien Cottier

An accelerated shift from awareness to action on Environmental, Social and Governance (ESG) and sustainability among ASX listed companies is underway, and there is a heightened focus on these issues by all stakeholder groups, according to new survey findings from Perennial Better Future.

For the first time since the survey began, greenhouse gas emissions, including alignment with the Paris Agreement, was listed by ASX companies’ respondents as the biggest area of focus and improvement. Diversity moved to second place from third in 2020, and Governance moved to third place from first last year.

“Against the difficult backdrop of COVID-19 and all the challenges it has presented, ASX respondents said greenhouse gas emissions will be the number one priority in the next 12-18 months. This demonstrates Australian companies are starting to come to grips with the urgency and opportunity of acting on climate risk,” said Perennial Better Future’s Co-Head of ESG Emilie O’Neill.

In its third year, the Perennial Better Future Survey conducts an ‘ESG pulse’ check on Australia’s listed companies to understand where they have been, where they are now and where they are going regarding ESG.

Increasing action at senior management levels

While results from previous Perennial Better Future Surveys clearly showed attention to ESG matters among Australia’s listed companies, this year’s results strongly point to more tangible actions occurring.

“This year’s results revealed the pandemic has not stopped boards and senior management seeking to improve ESG practices and policies,” said O’Neill.

More than 88% of respondents confirmed their company had a board member or senior executive responsible for ESG. Further, 81% of companies have a business strategy that specifically references ESG and sustainability. This is consistent across both large and smaller companies.

Importantly, companies are seeing real-world results from focusing on ESG and sustainability – more than 80% confirmed positive business outcomes.

Further, 93% confirmed engaging with investors on ESG and sustainability issues as beneficial to the company.

Current and emerging issues on the radar

The role of proxy advisors has been in the spotlight recently and 40% of respondents agreed they feel increasing pressure on their remuneration policy and corporate governance practices from proxy advisors.  However, other stakeholders such as shareholders and remuneration consultants are still viewed as the most critical in regard to implementing remuneration policy.

When it comes to inhibitors to ASX companies achieving a gender diverse workplace, industry difficulties in attracting a gender diverse talent pool topped the chart. Increasing gender diversity at a senior level has consistently been a focus for ASX companies over the past three years.  However, there has been an increase in focus on achieving gender diversity amongst entry-level positions.

Cybersecurity was a new option in this year’s survey and ranked equal third with Modern Slavery, in areas that will become more material in the coming years.

“Cybersecurity has emerged as a critical issue for companies, a concern heightened by the shift to remote working during the pandemic,” said O’Neill.

“Given the likelihood of greater investor and other stakeholder interest in relation to ESG matters, we look forward to continuing to track how ASX companies progress,” said Damian Cottier, Portfolio Manager of the Perennial Better Future Strategies.  “We will continue to engage with companies to encourage them to play a greater role in positively shaping a better future,” he concluded.

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