Corporate sustainability disclosures need to be demystified – investors are demanding it, and mandatory regulations are on their way.
In line with their global peers, the Australian finance sector is now moving to develop their own sustainable finance taxonomy to classify what activities across the economy can be called sustainable. Looking ahead, this will underpin investment, lending, and underwriting decisions right across the sector. Alongside mandatory disclosures, the development of an Australian Sustainable Finance Taxonomy will drive real change for companies needing to respond to changing market and community expectations.
With regulatory scrutiny growing, EY Climate Change and Sustainability Services Partner Emma Herd – who are recently appointed onto the FRC – strongly encourages companies to build confidence and clarity in their reporting sooner rather than later.
“As long as climate and sustainability reporting are voluntary, it will remain challenging for companies to promote full and frank disclosure, putting them at a disadvantage to their competitors who choose not to report at all.
EY’s 2022 Corporate Reporting and Institutional Investor Survey shows the significant disconnect between companies and investors on disclosures. It uncovered that understanding real risk and impact in ESG and sustainability reporting continues to frustrate Australian investors, while many investors also remain highly suspicious of the propensity of companies to greenwash. The latest survey reveals:
- A disconnect between corporate words and actions: 80% of Australian investors believe companies are highly selective in what information they provide to their investors, raising concerns about greenwashing.
- Corporate Australia has a long way to go to build investor confidence and trust: 96% believe that unless this is a regulatory requirement to do so, most companies will only provide limited, decision useful ESG disclosure.
- Lacking in evidence: 40% of investors believe the lack of supporting evidence and assurance to provide trust in information is a challenge to the usefulness and effectiveness of the corporate ESG reporting they receive.
- Shying away from scrutiny: One in four (23%) organisations surveyed admitted their current ESG reporting would not stand up to basic assurance standards (reasonable assurance), compared with 41% globally.