30 June Potential changes to Environmental, Social and Governance reporting June 30, 2022 By Sally Parker Environment, General ESG, AGL demerger, shareholders 0 Environmental, Social and Governance (ESG) isn’t new to Australia, but it’s expected to become a more important aspect of business in the coming years. With shareholders and institutional investors paying close attention to business activities with an ESG lens we can expect more focus on this area. A recent example is the HESTA superannuation fund choosing to very publicly vote against the AGL demerger proposal on ESG grounds. As in the example of AGL, pressure from investors on ESG issues can not only influence corporate strategy but actually change it completely. Internationally for example, investors have used their influence to require companies to commit to waste reduction and link achievement of reduction targets to executive compensation. In Australia, investors can exert their influence by having discussions with management, voting on specific issues at an AGM or even calling a general meeting and instigating resolutions to remove directors of the company. Under the Corporations Act 2001 (Cth), the power to call a general meeting is possible at the request of members who hold at least 5% of the votes. Investors are increasingly aware of their potential power and some are actively using it to ensure ESG agendas are paid more than lip service. Companies need to not only be aware of this risk, but actively manage it to ensure that their corporate strategy meets the expectations or requirements of significant shareholders. Traditionally an ESG rating system has been used to rank business performance in ESG matters, but there are shortfalls to this method that are increasingly being questioned. For example, there is no standard international method to calculate ratings that means they can be inconsistent. The ratings often also focus on the financial impact on the individual business rather than the impact on society and the environment as a whole. The International Sustainability Standards Board is currently reviewing standards with a view to establishing general requirements for sustainability and climate-related disclosures. This will build on the Taskforce on Climate-related Financial Disclosures. Currently in Australia, the Taskforce on Climate-related Financial Disclosures is voluntary but several countries are introducing mandatory disclosures and it’s expected that this may be considered here as well. While the International Sustainability Standards Board can’t mandate their requirements, the government may very well choose to. This would add to the existing ESG disclosure requirements that currently exist in Australia. The current ESG disclosure requirements focus on high profile or high risk issues, such as slavery and gender equality. The ESG Reporting Guide for Australian Companies provides some useful guidance for companies on what information investment analysts require and what indicators may be used to assess business performance against ESG issues. This is a helpful starting point for organisations looking to get ahead of potential changes to ESG reporting and to ensure investors have the information they need to make sound decisions. Related Articles How foreign investment changes may impact the mining and energy sector In early June 2020, the government announced a review of the foreign investment rules, expanding them to apply to all foreign investors in anything deemed a ‘sensitive national security business’. The changes are scheduled to come into effect on 1 January 2021. There are concerns that this will impact foreign investment in the mining and energy sectors, and in particular the critical minerals space. Proposed changes to offshore oil and gas decommissioning framework In December, the Department of Industry, Science, Energy and Resources released its consultation paper on enhancing Australia’s offshore oil and gas decommissioning framework. Submission - DISER Consultation Paper December 2020 ‘Enhancing Australia’s decommissioning framework for offshore oil and gas activities’ Changes to the Fair Work Act may benefit the energy and resources sector The energy and resources sector is a significant contributor to the economy, and its impact is estimated to continue to grow over the next decade. The Australian Resources and Energy Group (AMMA) estimates that the sector will add over 24,000 new workers by 2026 to support 98 new and expansion projects worth over $83 billion. The roles available could double depending not the construction and flow-on work required. Western Australia and Queensland are expected to benefit the most from these initiatives. Submission - Consultation on the Offshore Petroleum and Greenhouse Gas Storage Amendment (Titles Administration and Other Measures) Bill 2021 What is concerning mining and metals industry executives today? Recent surveys conducted in the mining and metals industry sector indicate that climate change, price volatility and the risk of a global depression are the top concerns for executives. The KMPG Mining Risk Forecast 2020/21 Report nominates climate change and price risks as top-of-mind for executives while a mid-year survey by White & Case found that the fear of a global recession was the most common concern amongst those surveyed. It’s worth noting that the KMPG survey was conducted before the COVID-19 pandemic. However, the concerns raised have ongoing relevance both now and into the future. Showing 0 Comment Comments are closed.