On 13th November 2014 Sandfire Resources announced that it had filed proceedings in the Federal Court against ESG researcher Centre for Australian Ethical Research (CAER) in regards to research profiles that CAER had provided to ANU.
In taking legal action Sandfire Resources has not just focused on the output of ESG researchers but has drawn attention to the gap between the information companies provide and what investors need to make informed decisions.
One of the foundations of responsible investment has been the idea that investors should engage with companies. But what do we do with companies that do not respond to engagement requests?
Sandfire Resources may be upset at CAER’s review, but responsible investors have long been frustrated that listed companies willingly choose to ignore requests for information.
In 2008, I approached the Australian Council of Superannuation Investors with a proposal to develop a benchmark of sustainability reporting practices of ASX 100 companies. My argument to ACSI was that whilst there were good examples of sustainability reporting in the Australian market, many companies either did not report in any way on sustainability, or reported in a way that was of limited value to investors.
As responsible investment develops a key question for investors is how to address the impediments that exist to implementing environmental, social and governance (ESG) practices in the market.
How can investors who are trying to integrate ESG factors into portfolios do so if they don’t have relevant information from all players in the market?
By creating a benchmark of sustainability reporting this provided a mechanism for investors to review the sustainability reporting practices of companies over time.
ACSI’s first benchmark of sustainability reporting practices in 2008 found that sustainability reporting was distributed according to a bell shaped curve with outliers being best practice reporters (16%) and companies that provided no reporting (17%).
ACSI has now been producing an annual report on sustainability reporting for seven years. This year’s report found that 85% of ASX200 companies provide some level of reporting on sustainability factors. Interpreted another way, there are 15% of companies that still provide no reporting at all.
Frustrated at the lack of response from laggard companies, last year ACSI publicly disclosed the names of 8 companies that had been rated at ‘No Reporting’ for four or more consecutive years. In 2014, 5 of those companies now provide some level of sustainability reporting.
If companies such as Sandfire Resources take legal action when they are not happy with the output from an ESG researcher, should investors be taking legal action when they get no response from a company to their information requests?
A better way than institutionalising legal conflict could be to legislate sustainability reporting. This would be far more efficient. It would remove any debate about what information a company should provide. Legislation could simply require that all companies report according to the Global Reporting Initiative. Other countries have already gone down this path.
By taking legal action Sandfire Resources has opened up the debate on sustainability reporting. The way Sandfire has done this may not be optimal but it will put a spotlight on sustainability reporting. This is something that investors have been seeking for the last seven years.
Whatever the outcome of the legal action, we can guarantee that the bar on sustainability reporting will be raised in coming years. This may either be through companies voluntarily lifting their reporting standards, or through legislation.
ACSI Sustainability Reporting Journey 2014
ACSI Sustainability Reporting Journey 2008 – first report