ASX-listed companies need to reveal their sustainability risks or explain why they have not.

By Cameron Jewell

1 April 2014 — An update to the Australian Securities Exchange’s Corporate Governance Principles and Recommendations means companies must now disclose environmental, economic and social sustainability risks, or explain why they have not.

The new recommendation 7.4 states: “A listed entity should disclose whether it has any material exposure to economic, environmental and social sustainability risks and, if it does, how it manages those risks.”

This adds new force to the ASX Corporate Governance Council’s previous guidelines, which listed environment and sustainability among a list of risks that companies “may” consider.

“The previous guidance left it open for companies to consider environmental, social and economic risks despite their materiality to the business performance,” said Andrew Petersen, chief executive of business thinktank Sustainable Business Australia. “As a result, only around seven per cent of listed companies produced any sustainability disclosure.”

The ASX now joins BM&F Bovespa Brazil, Johannesburg Stock Exchange, Shenzhen Stock Exchange and the Shanghai Stock Exchange in requiring companies to disclose their sustainability performance.

“The introduction of this recommendation is an important recognition by the ASX Corporate Governance Council of the potential impact of environmental, social and broader economic issues on the financial bottom line” said Victoria Whitaker, head of Australia for the Global Reporting Initiative.

“There is plenty of research now which shows that companies that consider their environmental, social and economic impacts and performance perform better financially. They attract long-term investors and their share price experiences less volatility. And they contribute to the transition to a sustainable and resilient economy.”

Not-for-profit organisation CDP said the new requirement was based on demand from global investors who were seeking greater transparency on economic, environmental and social issues, as these could affect a company’s prospects and influence investment decisions, especially by institutional investors.

“CDP is highly supportive of the ASX’s efforts to improve corporate environmental reporting,” CDP director – Australia and New Zealand James Day said. “While a number of ASX companies are improving their disclosure of environmental risks, most need to do more.

“CDP believes this move by the ASX could help to improve the resilience and financial performance of ASX-listed companies over time.”