ESG investing is becoming an increasingly important for listed companies, with guidance from the corporate regulator emphasising the need for all three pillars to be recognised more formally.
The Australian Securities and Investments Commission (ASIC) recently issued information on the practice of greenwashing, in which a company advertises green credentials that don’t exist, and company boards are taking notice.
ASIC has had an increased focus on greenwashing however it’s not necessarily through purposeful greenwashing; it is more a matter of companies not understanding the full extent of greenwashing and how it’s interpreted.
The measuring of ESG has also been a source of confusion for investors, however the possible introduction of mandatory ESG reporting could provide more clarity on the purported ESG credentials of a company.
Institutional investors in particular are increasingly placing a greater emphasis to ensure companies are satisfying the environmental, social and governance pillars before investing in the stock.
While many larger cap companies are already reporting on the environmental pillar, it is equally as important for all listed entities to demonstrate their adherence to the social and governance pillars.
There is a strong desire from company boards to do ‘social good’, an absence of which is increasingly considered a financial and reputational risk. These areas have moved beyond an annual mention at company board meetings, to being a key agenda item each month and the introduction of ESG and sustainability committees.
However, there are some pockets of the listed market which has been lagging in the adoption of ESG practices and reporting. The small cap sector of the market in particular is behind many of its mid and large cap peers, with some without even a climate change policy or position.
We believe that companies demonstrating good corporate citizenship and having the required governance framework is critical.
To find out more about ESG governance, please contact your local HLB Mann Judd firm.
This article was first published in the Spring 2022 issue of Financial Times.