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Accounting theory & Accountability essay on stock exchange

Require to perform analysis on company corporate governance report and sustainability report. (Look on the “ATT info file” and “Individual rubrics” for more details

Accounting Theory

Positive Accounting Theory (PAT) Part 1

The 5 key Learning Objectives in this lecture about PAT
At the conclusion of this lecture, you should have an appreciation of:
The principal arguments of a positive accounting theory
Links between accounting information and share markets
How contractual relationships impact on managerial accounting policy choice
How principals curb opportunistic behaviour by managers
The incentives that induce managers to contract
Institutional theory
Legitimacy theory and
Stakeholder theory

Types Of Theories
Positive Theories
Describes, explains or predicts activities
Help us understand what happens in the world
E.g. Agency theory

Positive Accounting Theory
Used to explain and predict accounting practice.
It examines a range of relationships between the entity and
suppliers of equity capital (owners),
managerial labour (management)
debt capital (lenders or debt holders)
based on the ‘rational economic person’ assumption

Contracting Theory
Suggests that the organisation is characterised as a legal ‘nexus of contracts’.
With contracting parties having rights and responsibilities under these contracts.
Positive accounting theory focuses on
managerial contracts, and
debt contracts,
These are agency contracts used to manage relationships where there is a separation between management and capital providers.

Agency Theory
Used to understand relationships whereby a principal employs the services of, and delegates the decision making authority to, an agent.
Creates a moral hazard.
Leads to 3 ‘costs’
Monitoring costs – the cost of observing the agent’s behaviour (e.g. Auditing)
Bonding costs – costs borne by the agent as a result of aligning their interests with the principal (e.g. manager has to prepare financial reports – a cost to the manager in terms of time and effort)
Residual loss – loss associated with not being able to fully align the interests of the principal with the agent

Agency Relationships – an outcome (adverse?) of Agency Theory
Agency Costs of Equity
Risk-Aversion – limited incentive to increase value of firm through investment in risky projects
Dividend Retention – reduced incentive to pay dividends or take on optimal levels of debt
Horizon Problem – short term focus on performance of firm
Over-consumption of Perquisites

Agency Relationships – the manager-shareholder implication
Reducing the agency costs of equity
Bonuses are usually tied to firm performance in some way to motivate managers to act in the owners’ interest
Bonuses can be paid in cash and/or shares/share options
Bonuses can be tied to:
Accounting numbers(such as net income, sales, return on assets)
Share price (market based performance measure)

Agency Relationships – the Shareholder-Debtholder dilemma
Agency costs of debt
Excessive dividend payments – reducing debtholder’s security
Asset substitution – firm invests in higher risk projects (no benefit to debtholder)
Under investment – where no incentive to invest in positive NPV projects
Claim dilution – issuing higher priority debt

Agency Relationships – minimising the Shareholder-Debtholder dilemma
Reducing the agency costs of debt
Debt-holders can Price Protect via increased interest charges or reduced amounts of loans provided
The interests of shareholders can be bonded to those of debtholders via restrictions in lending agreements (Loan Covenants)
Covenants often rely on numbers contained in financial statements
Covenants usually restrict the behaviour of managers acting on behalf of owners

The End

Accounting Theory

SOCIAL AND SUSTAINABILITY REPORTING, Part 2

Regulation of CSR reporting??
Social and environmental reporting within annual reports remains predominantly voluntary
Accounting standards
contingent liabilities IAS 37/AASB 137
Corporations Act
S299 (1) (f)
Details required of performance in relation to any specific environmental regulation

Other considerations when reporting CSR
Voluntary reporting
Stand-alone Report (The environment report) (70%)
Annual Report Section (22%)
Web-based corporate reporting (8%)
Guidance for voluntary environmental disclosure
international guidelines (GRI)
Australian government guidelines
industry guidelines

Global Reporting Initiative
Launched in 1997 as an initiative to develop a globally accepted reporting framework to enhance the quality of sustainability reporting
A joint initiative of the Coalition of Environmentally Responsible Economies (CERES) and the United Nations Environment Program (UNEP)
The aim is to enhance transparency, comparability and clarity, amongst other principles.

Global Reporting Initiative Cont
Sustainability reports based on the GRI Framework can be used to:
‘demonstrate organizational commitment to sustainable development, to compare organizational performance over time, and to measure organizational performance with respect to laws, norms, standards and voluntary initiatives’
THE GRI includes 55 core indicators and 29 additional indicators across environmental, economic and social performance areas (see Table 11.2).

Mandatory Sustainability Reporting Requirements
Australia
The Corporations Act 2001 requires directors to outline the company’s performance in relation to environmental regulations.
The National Greenhouse and Energy Reporting Act 2007 (NGER Act) introduced a national framework for reporting and dissemination of information about greenhouse gas (GHG) emissions and energy use by certain corporations.

Focuses on information needs of stakeholders with a financial interest
‘Materiality’ precludes reporting of social and environmental information – difficult to quantify costs
Liabilities often discounted to PV, future clean-up costs appear trivial
Issues with control
Limitations of traditional financial accounting

Triple-bottom-line reporting
Provides information about the interdependence of economic, environmental and social performance of an entity
Environmental = impact made through processes, products or services. These may include amount of energy consumed; emissions; effluents and waste management; land use and management of habitats
Social = involvement in shaping local, national and international public policy. This may include equality, health and safety; ratio of wages to cost of living; treatment of minorities
Economic = financial performance, activities relating to shaping demand for products and services, employee compensation, community contributions
No single uniform approach generally adopted by all firms
Reports include combination of financial information, quantified non-financial information and narrative descriptions

ENVIRONMENTAL
MANAGEMENT SYSTEMS
An EMS is a system that organisations implement to measure, record and manage their environmental performance.
In addition to providing organisations with an environmental management tool they also facilitate the organisation’s communication to stakeholders.
International standard ISO 14001 Environmental management governs EMSs.

Research evidence
Guthrie and Parker (1990)
Reported corporate social disclosure in Australia relatively low compared with UK and US
No Australian company provided ‘bad news’ about environment
Deegan and Rankin (1996)
20 companies successfully prosecuted for offences under environmental protection laws
Increase in reporting of favourable environmental information in year of EPA prosecution
EPA prosecuted firms provided greater amount of positive environmental disclosure than non-prosecuted firms
Positive environmental information significantly greater than negative information

Research evidence cont’d
Deegan, Rankin and Vought (2002)
Annual reports of Australian oil, mining and chemical companies involved in major environment incident or disaster
Companies provided significantly more total and positive disclosures after the incident than before
Disclosure appeared to be reaction to incident rather than to social or environmental issues generally

Current reporting practices
23% of Australian companies some sort of corporate social responsibility report
80% – Japan
71% – UK
32% – US (KPMG 2005 study)
Triple bottom line reporting
5% of top 500 companies publish reports
“Reports overwhelmingly biased towards positive information with negative information ignored or couched in positive terms” (CPA Australia)

Corporate report card
James Hardie
Underprovision of compensation for victims of its asbestos products
Nike
Exploitation of workers
BHP
OK Tedi Mine dumping 90 millions tons of waste per year into the river. Mine will close in 2012. Expected to take 300 years to clean up waste
BP
2010 Gulf of Mexico oil spill

The End

Accounting Theory

Positive Accounting Theory (PAT) Part 2

Institutional Theory
It considers how rules, norms and routines become established as authoritative guidelines, and considers how these elements are created, adopted and adapted over time.
Practices within organisations can be predicted from perceptions of legitimate behaviour derived from cultural values, industry tradition, entity value etc

Comparison of Agency and Institutional Theories

Legitimacy Theory
Based on the idea of a social contract
Relates to the explicit and implicit expectations society has about how businesses should act to ensure they survive into the future.
Organisations need to show they are operating in accordance with the expectations in the social contract.

Legitimacy Theory
Organisational legitimacy
The values and norm evident in the social contract have changed over time.
In the past legitimacy was considered only in terms of economic performance.
Now businesses are now expected to consider a range of issues, including the environmental and social consequences of their activities

Accounting Disclosures
and Legitimation
Lindblom identifies four ways an organisation can obtain or maintain legitimacy:
Seek to educate and inform society about actual changes in the organisation’s performance and activities
Seek to change the perceptions of society, but not actually change behaviour
Seek to manipulate perception by deflecting attention from the issue of concern to other related issues
Seek to change expectations of its performance.

Stakeholder Theory
Considers the relationships that exist between the organisation and its various stakeholders.
Stakeholders are ‘any group or individual who can affect or is affected by the achievements of an organisation’s objectives’
There are two versions of stakeholder theory
a normative theory, known as the ‘ethical branch’,
an empirical theory of management, which is a positive theory

Role of Accounting Information
in Stakeholder Theory
One important way of meeting stakeholders’ needs and expectations is providing information about organisational activities and performance.
Stakeholder theory has been used to examine disclosure of voluntary information to stakeholders, most commonly relating to social and environmental performance.

The End

Accounting Theory

SOCIAL AND SUSTAINABILITY REPORTING, Part 1

Learning Objectives
Corporate responsibility
What is meant by social responsibility reporting
Theoretical perspectives on what motivates firms to present social and environmental information
The difficulties in reporting social and environmental issues
Triple bottom line reporting
GRI Index
Research findings

What is meant by Social accounting??
Social accounting is accounting for different things in different media to different individuals for different purposes
Goes beyond financial measurement of economic events
Companies may refer to sustainability, social responsibility
,

The purpose of Social accounting
Purpose of social reporting is to provide:
A comprehensive view of the organisation and resources
A constraint on socially irresponsible corporate behaviour
Positive motivation for corporation
Providing information about social and environmental performance will increase the trust a community has in the organisation

WHAT IS SUSTAINABILITY?
Sustainable Development is ‘development that meets the needs of the present without compromising the ability of future generations to meet their own needs’ (Brundtland Commission)

WHAT IS SUSTAINABILITY? Cont
Encompasses issues such as
Intergenerational Equity
Intragenerational Equity
Eco-Justice
Eco-Efficiency
These are important national questions but also have siginficant corporate and individual elements.

The Sustainable Entity has a number of concerns
concerned with the following issues:
employees
health and safety
minority and equity issues
community
indigenous peoples
environment
energy use

SUSTAINABILITY REPORTING
A sustainability report refers to a report that not only presents information about the economic value of an entity, but provides information upon which stakeholders can also judge the environmental and social value of an entity.
Useful not only for reporting purposes but also performance measurement, accounting, auditing and reporting.

Benefits of Sustainability Reporting for Companies
Embedding sound corporate governance and ethics systems throughout all levels of an organisation.
Improved management of risk through enhanced management systems and performance monitoring.

Benefits of Sustainability Reporting for Companies Cont
Formalising and enhancing communication with key stakeholders such as the finance sector, suppliers, community and customers.
Attracting and retaining competent staff by demonstrating an organisation is focused on values and its long-term existence.
Ability to benchmark performance both within industries and across industries.

Integrated Reporting
An initiative of the International Integrated Reporting Committee with the aim of
To create a globally accepted integrated reporting framework which brings together financial, environmental, social and governance information in a clear, concise, consistent and comparable format.
To help with the development of more comprehensive and comprehensible information about organizations, prospective as well as retrospective, to meet the needs of the emerging, more sustainable, global economy.

Environmental Reporting
Environmental reporting is a subset of sustainability reporting.
To date, research has not drawn any clear conclusions as to the relationship between environmental performance and environmental disclosure.
Legitimacy theory would propose that entities with poor environmental performance would more likely produce greater levels, or higher quality environmental information to address potential legitimacy threats.

Environmental Reporting Cont
A number of studies however have found a relationship between more extensive quantifiable environmental disclosures and
good environmental performance
good economic performance

An alternative view…
Critical theory
Corporate self interest is the primary motivation behind good deeds
Voluntary disclosure option legitimates self interest and permits exploitation

The End

Accounting Theory and Accountability

Standard Setting (Godfrey Chapter 3)

The Learning Objectives for this lecture:
Applying theory to Accounting regulation
The Regulatory framework for financial reporting
The Institutional structure for setting accounting standards.

Defining Regulation
“[R]egulation is the policing, according to a rule, of a subject’s choice of activity, by an entity not directly party to or involved in the activity.”
Elements of regulation
Intention to intervene
Restriction on choice to achieve certain goals
Exercise of control by a party independent of those directly involved in the activity.

Theories Of Regulation
Accounting information is a ‘public good’
Managers have incentives to voluntarily provide accounting information, so why do observe the regulation of financial reporting?
Explanations are provided by:
– theory of efficient markets
– agency theory
– theories of regulation

The forces of supply and demand influence market behaviour and help keep markets efficient
This applies to the market for accounting information and should determine what accounting data should be supplied and what accounting practices should be used to prepare it
Theory of efficient markets

Theory of efficient markets Cont
The market for accounting data is not efficient
The ‘free-rider’ problem distorts the market
Users cannot agree on what they want
Accountants cannot agree on procedures
Firms must produce comparable data
The government must therefore intervene

Agency theory
The demand for accounting information:
for stewardship purposes (motivate the agent and distribute the risk efficiently)
for decision-making purposes (role of information – improve the allocation of resources and risks in the economy reducing uncertainty.)
A framework in which to study the relationship between those who provide accounting information – e.g. a manager – and those who use it – e.g. a shareholder or creditor

Theories Of Regulation
There are three theories of regulation:
– Public Interest Theory
– Regulatory Capture Theory
– Private Interest Theory

Public Interest Theory
Public Interest theory assumes:
Economic markets are generally not perfect
-lack of competition
– barriers to entry
-information asymmetry ( One party has more information)

Public Interest Theory Cont
Regulation is virtually costless
– public-good products (financial information to a single individual makes it costless to other individuals)
Concludes that regulation is supplied in response to the demands of the public for the correction of these inefficient or inequitable market practices.

Public Interest Theory Cont
Governments intervene:
– to get votes
– Because public interest groups demand intervention
– Because they are neutral arbiters

Regulatory Capture Theory
Regulatory Capture theory holds that regulation is supplied in response to demands of self interested groups trying to maximise the incomes or interests of their members.
– people are rational utility maximisers.
– The coercive power of government can be used to give valuable benefits to particular groups.
– Regulation can be viewed as a product that is governed by the laws of supply and demand

Regulatory capture theory Cont
The public interest is not protected because those being regulated come to control or dominate the regulator
The regulated protect or increase their wealth
Assumes the regulator has no independent role to play but is simply an arbiter between battling interest groups

Regulatory capture theory Cont
Professional accounting bodies or the corporate sector seek to control the setting of accounting standards

The End

Accounting Theory and Accountability

Standard Setting (Godfrey Chapter 3)

The Learning Objectives for this lecture:
Applying theory to Accounting regulation
The Regulatory framework for financial reporting
The Institutional structure for setting accounting standards.

Private interest theory
Governments are not independent arbiters, but are rationally self-interested
They seek re-election
They will ‘sell’ their power to coerce or transfer wealth to those most likely to achieve their re-election (if they are elected officials) or increase their wealth (if they are appointed officials) or both

Standard setting as a political process
Standard setting is a political process because it can affect many conflicting and self-interested groups
The regulator must make a political choice
The regulator must have a mandate to make social choices
The recognition of doubtful debts can affect entities differently

Political Nature of Setting Accounting Standards
There is a mix of private and public participation in the standard setting process.
Parties that have an interest in accounting standards often have conflicting interests. E.G
-internal stakeholders may like flexibility
– External stakeholders may like comparability
– Auditors like objective (auditable) reporting.

Financial Instruments
The adoption of IAS39 Financial Instruments – Recognition and Measurement in the EU has been a highly political process.

Intangible Assets
The adoption of IAS38 Intangible Assets in Australia illustrates the role of politics in the standard setting process.

Regulatory framework for financial reporting
A financial reporting environment is made up of:
legal setting
economic setting
political setting
social setting

Regulatory framework for financial reporting cont
The elements of a regulatory framework are :
statutory requirements
corporate governance
auditors and oversight
independent enforcement bodies

Institutional structure for setting accounting standards
Formation of IASC – 1973
Aimed to develop accounting standards for use throughout the world
IOSCO’s support for a set of core standards
IASC not independent so restructured in 2001 the IASB.
In 2002 the EC decided to adopt IASB standards in 2005 in EU.
Australia adopted IFRS on 1 January 2005
IASB and FASB convergence program – 2002 (Norwalk agreement)

Accounting Standards for the public sector
Individual countries must decide the extent to which IASB standards will be followed by public sector entities.
Australia has pursued one set of standards that can be used by both public and private sector entities.

What we have discussed in this session…
we reviewed theories proposed to explain the practice and regulation of financial reporting
we reviewed the regulatory framework for financial reporting and the institutional structure for setting accounting standards

The End

Accounting Theory and Accountability

Measurement – Historical Cost-Module 1

(Godfrey Chapter 6)

2
The 4 key Learning Objectives in this lecture about HC measurement
The principal assumptions underlying historical cost (HC)
Reasons for the dominance of the historical cost model
Criticisms of historical cost accounting
Alternatives to historical cost accounting – more detail in later lectures

Three main income and capital measurement systems
The historic cost accounting system emerged after the 1929 Wall Street collapse
In the 1960s several alternatives were developed
current cost accounting
financial capital maintenance (the purchasing power of the financial capital)
physical capital maintenance (the physical ability to produce goods and services)
exit price accounting
3

Historic cost accounting
BUS310 2013
4
Separation of ownership and control
information asymmetry
Most critical objective of accounting is accountability – stewardship (conservatism)
The income statement is paramount
transaction based
revenue recognition
matching
profit measurement

Historical Cost
Defined in the Conceptual Framework as:
Assets are recorded at the amount of cash or cash equivalents paid or the fair value of consideration given to acquire them at the time of their acquisition. Liabilities are recorded at the amount of proceeds received in exchange for the obligation, or in some circumstances (for example, income taxes), at the amounts of cash or cash equivalents expected to be paid to satisfy the liability in the normal course of business.

Arguments for historic cost accounting
Relevant in making economic decisions
Based on actual, not merely possible, transactions
Data have been found to be useful
The best understood concept of profit
Must guard data against internal modifications
Profit based on alternatives may not be useful
Market prices can be supplementary data
Insufficient evidence to reject it

Criticisms: Objective of accounting
Stewardship is only a secondary objective
Providing the decision making needs of users is the primary objective and historic cost data is a failure in this regard
Historic cost information is
not objective
can be easily manipulated
does not maintain the entity’s capital

Criticisms: Information for decision making
Is irrelevant when evaluating past decisions
After acquisition, historic cost data is fictional
Connected to inconsequential measures of capital
Produces only flawed measures of profit

Criticisms: Basis of historic cost
The going concern assumption does not justify the use of historic cost accounting
many businesses fail
no businesses continue indefinitely doing only or at all what they are presently doing
all businesses, except those presently existing, cease operations
All businesses have alternatives and choices going forward

Criticisms: Matching
Is a practical impossibility
Is totally arbitrary
The balance sheet is important
Resulted in non-assets being classified as assets and non-liabilities being classified as liabilities
Leads to volatility and smoothing
10

Criticisms: Notions of investor needs
Distorts and conceals
Its goals are ill-conceived
Creative accounting is commonplace
Incentives to produce misleading data
Today, investors pay little attention to historic cost accounting data about a firm

BUS310 2013
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The End

Accounting Theory and Accountability

Measurement – Historical Cost- Module 2

2
There is also ‘some’ predictive value in the use of Historical Cost
Using past earnings to predict future profit
Profit as a random walk – best estimate of future is current Profit
Using quarterly and segment data to predict annual profit
Useful in predicting annual profit
.

3
There is also ‘even more’ predictive value in the use of Historical Cost
Using financial ratios to predict financial distress – Eg Current ratio, liquidity ratio
Historical cost accounting information appears to be a good predictor of financial distress
Using past profits to predict future cash flows
Historical cost profits appear to be useful in predicting future cash flows based on cash receipts and cash payments

4
Is there ‘some’ objectivity in the use of Historical Cost??
Historical cost is an objective measure yet needs of users is objective and historical cost data is failure
However, application of historical cost model involves:
Estimation can be easily manipulated
Choice of methods (e.g. inventory valuation) eg FIFO/Weighted average
Other subjective judgments – Depreciation

5
Is there ‘some’ objectivity in the use of Historical Cost? Here is one example.
Example: Items may be included in the cost of an asset
Requires consideration of all outlays necessary to bring an asset to existing condition and location
E.G. 1: IAS 2/AASB 102 ‘Inventories’ – Para. 10
(a) the cost of purchase
(b) the cost of conversion
(c) other costs

6
Example: Other items may be included in the cost of an asset
E.G. 2: IAS 36/AASB 136 ‘impairment of assets’ Para. 6
‘recoverable amount’ of asset
Need to estimate future cash flows and subsequent sale price (judgement)
Estimates required to determine discounted future cash flows from non-current asset
Property/Plant and Equipment recognised at carry amount or recoverable amount
Is there ‘some’ objectivity in the use of Historical Cost? Here is another example.

7
There are a range of key ‘criticisms’ of this preoccupation with Historical Cost
Fails to satisfy it’s primary objective (stewardship)
Too many subjective judgments to fulfill the stewardship role?
Information for decision making
The model may lack future focus and therefore relevance for decision making

8
There are more ‘criticisms’ of this preoccupation with Historical Cost
Reliance on matching and going concern assumptions
Impossible to accurately match all costs
Going concern fallacy
Notions of investor needs
Distortion of or concealment of important company disclosures – forward looking information is more useful to economic decision making than past results

How is historical cost applied
BUS310 2013
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Subjectivity is involved in the determination of the acquisition cost of an item
Thereafter the measurements are even more subjective

10
Is there a ‘future’ for the continued use of Historical Cost?
Historical cost is under sustained attack
Increasing use of other valuation models (CCA)
Supported by standard setters
but not necessarily always the case
the case of “creeping” change
Not supported by the business community
More in later topics

11
What have we covered today??
Basic concepts support an historic cost approach – does it??
insufficient evidence to justify rejection – really???
satisfies some usefulness and predictive criteria
lacks objectivity
questionable relevance for decision making
distorts stakeholder requirements

BUS310 2013
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The End

Accounting Theory

International Accounting, Part 1

The 5 key Learning Objectives in this lecture about International Accounting
Nature of International Accounting
Diversity of International Accounting Practice
IFRS
Cultural Impact in accounting practice
MNC

DEFINITION OF
INTERNATIONAL ACCOUNTING
International accounting refers to a description or comparison of accounting in different countries and the accounting dimensions of international transactions.

DEFINITION OF
INTERNATIONAL ACCOUNTING
Can be defined at three levels:
Supranational, universal or world accounting
The company level standards, guidelines and practices that companies follow relating to their international business activities and accounting for foreign subsidiaries; and
Comparative or international accounting.

DIVERSITY OF INTERNATIONAL
ACCOUNTING PRACTICE
Variation in accounting requirements can result in significant differences being recorded in company accounts when they are required to report under the rules of different jurisdictions.
While there have been some moves to harmonise accounting practices globally, there are still a number of environmental and cultural factors which are likely to lead to diversity in accounting practices around the world.

ENVIRONMENTAL INFLUENCES
ON ACCOUNTING

ENVIRONMENTAL INFLUENCES
ON ACCOUNTING
In some countries financial reports are used to directly determine an entity’s tax liabilities.
This leads to variations in accounting policy choice even when the same standards are used.
Sources of finance differ across countries.
Major sources of finance may be banks, government, families and shareholders.
This leads to a difference in financial statement orientation

ENVIRONMENTAL INFLUENCES
ON ACCOUNTING
Different countries will have different
Political philosophies and objectives
Levels of economic growth and development (E.g China move from agriculture to manufacturing)
Economic systems (state ownership the state influences the nature of accounting requirements – e.g China.
Legal systems
Codified or civil law (e.g Europe – France and Germany)
Common law (e.g U.K, USA, Australia, New Zealand).
All of which will influence accounting practice.

Cultural Impact on
Accounting Practice
Gray adapted Hofstede’s categories to identify four accounting values
Professionalism (UK, USA, Aust) versus statutory control (developing countries (China, Malaysia), Continental Europe (Belgium, France)
Uniformity versus flexibility (tax systems – France uniformity versus USA flexible system)
Conservatism versus optimism (Europe more conservative than USA or UK)
Secrecy versus transparency (lower levels of disclosure in Japan and Europe compared to Australia and U.K).

Religion and How it Affects Accounting Practice
Religion is often seen as a subset of culture.
It can have a significant effect on business practice
For example in Islam
Islamic law regulates all aspects of life.
In addition certain Islamic economic and financial principles have a direct impact on accounting practices. Particularly
Requirement for zakat (a religious levy)
Prohibition on riba (usury)

The End

Accounting Theory and Accountability (Godfrey Chapter 6)

Measurement – Fair Value

Part 1

2
The 5 key Learning Objectives in this lecture about alternative measurements to HC
Role of Fair Value in accounting
Evaluate the traditional definitions of fair value
Key Aspects of the new definition of fair value
The nature of current cost accounting and exit price accounting
Criticisms of current cost and exit price accounting
Why these alternate models have not replaced historical cost
Changing responses to measurement issues in accounting standards

THE TRADITIONAL DEFINITION
The amount for which an asset could be exchanged, or a liability settled between knowledgeable, willing parties in an arms-length transaction.
IFRS 3/AASB 13

Shortcomings of the
Traditional Definition
Does not specify if the entity is buying or selling
What does “settling” a liability mean?
Does not refer to a ‘creditor’
At what stage of the hypothetical transaction is fair value measured
What does willing mean?
Could one party be desperate?

5
Current Cost Accounting uses buying prices to measure
Based on current market buying prices.
Non – monetary items valued at current cost.
Profit is determined by allocation (matching) based on current costs.
Holding decisions – Do we hold an asset or liability or dispose of them through sale of asset or repayment of debt.
holding gains/losses

IFRS 13/AASB 13
FAIR VALUE MEASUREMENT
Objectives
(a) to establish a single source of guidance for all fair value measurements required or permitted by IFRSs to reduce complexity and improve consistency in their application;
(b) to clarify the definition of fair value and related guidance in order to communicate the measurement objective more clearly; and
(c) to enhance disclosures about fair value to enable users of financial statements to assess the extent to which fair value is used and to inform them about the inputs used to derive those fair values.

Fair Value Defined
Fair value is
The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
(IFRS 13/AASB 13, Para. 9)

Objective of current cost accounting
CCA values assets at their current market buying price and profit is determined using matching expense allocations based on the current cost to buy
Profit is more precisely defined as the change in capital over the accounting period
Managers are better able to evaluate their past decisions and better use the firm’s resources to maximise future profits
Shareholders, investors and others are able to make better allocations of their resources

Objective of current cost accounting
Managers will examine
the current operating profit
the excess of the current value of the output sold over the current cost of the related inputs
realisable cost savings
increases in the current cost of assets held
holding gains/losses
realised/unrealised

Financial capital versus physical capital
Profit is the change in capital
Holding gains are included in profit under financial capital
Holding gains are excluded from profit under physical capital
10

Arguments for and against current cost
Recognition principle
violates the conservatism principle – but actual phenomena
are holding gains profits or revaluation adjustments?
Objectivity of current cost
lacks objectivity
Technological change
appears to ignore technological advances

More specific criticisms
Advocates of historic cost accounting
violates the realisation principle; subjectivity of increase
Comparisons of the results with historic cost
industry variations
Advocates of exit price
the logical expression of opportunity cost is the current selling price
the arbitrary allocation of expenses is still a problem issue
additivity problem exists
number of reasons for an asset having value to a business
irrelevant to most business decisions
physical capital concept fraught with weaknesses

The End

Accounting Theory and Accountability
(Godfrey Chapter 6)

Measurement – Fair Value

Part 2

The Focus on an Exit Price — Why?
An “exit price” embodies expectations about the future cash inflows and outflows associated with the asset or liability from the perspective of market participants at the measurement date.
It is current
It is specific

Exit price accounting
Exit price = selling price = fair market value
Has two major departures from historic cost accounting:
the values of non-monetary assets are selling prices and any changes are included in profit as unrealised gains
changes in the general purchasing power of money affect both financial capital and profits
4

Exit price accounting
Represents clean surplus accounting
The income statement explains all of the differences existing between the opening and closing balance sheets
5

Arguments for exit price accounting
Objectivity
market prices are relatively more objective than most believe
A measure of risk
can indicate the financial risk of purchasing an asset
6

Arguments against exit price accounting
Profit concept
does not provide a meaningful concept of profit
the critical event does not relate to the performance of the firm
does not produce realistic financial reports
Additivity
violates the principle of exclusion of anticipatory calculation that it claims to reject

Arguments against exit price accounting
The valuation of liabilities
valuing liabilities at face value and not market value is internally inconsistent
Current cost or exit price
at what stage of the operating cycle should exit price dominate asset valuation?
8

A global perspective and international financial reporting standards
Current cost in the United States
an experiment but abandoned (1976 -1984)
Current cost in the United Kingdom
implemented but abandoned (1975 – 1985)
Current cost in Australia
recommended but abandoned (1976 – 1980’s)
9

International accounting standards and current costs
IASB/FASB have agreed that fair value is the best measurement basis (2004)
the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction

International accounting standards and current costs
Historic cost accounting still generally applied
Distinct movement toward current value systems
IASB moving toward exit prices (2004)
But still a mixed valuation approach
Fair value means – current market entry price, current market selling price, historic cost and discounted future cash flows
There is no mention in the standards of capital maintenance concepts
11

A mixed measurement system and international standards
Market values – exit prices – are implied in the ‘fair value’ approach in international financial reporting standards
A lack of a theoretical concept of valuation, capital maintenance and profit measure, has resulted in a still mixed measurement system and a lack of consistency
12

The End

Accounting Theory

International Accounting, Part 2

INTERNATIONAL ADOPTION
OF IFRSs

Worldwide accounting diversity creates challenges for international business operations and investment.
It is costly for multinational enterprises to restate their accounts to meet the requirements of every jurisdiction in which they report
Investors also incur costs in comparing results of companies when their financial reports are prepared using different rules.
There has been a growing demand for international accounting standards.

Harmonisation, Convergence and Adoption – What’s the Difference?
An number of approaches have been taken to bring about adoption of international accounting
Harmonisation
implies reconciling different points of view and reducing diversity, while allowing countries to have different sets of accounting standards.
Convergence
A process that takes place over time, implies the adoption of one set of standards across the globe.

Benefits of IFRS Adoption
The adoption of IFRS provides a number of benefits including:
Providing a cost-effective way to institute a comprehensive system of accounting standards. (eliminate the set-up costs and immediately allow countries to become part of the mainstream of accepted international accounting standards)
Especially for developing countries.

Benefits of IFRS Adoption Cont
Enhanced the operation and globalisation of capital markets.
facilitate international transactions, pricing and resource allocation decisions and make international financial markets more efficient
increase the need for accounting standardisation for companies that raise outside capital
Reduced costs for financial report preparation.
Transportable accounting skills

Limitations of IFRS adoption
The adoption of IFRS may have limitations primarily concerning differences in business, financial and accounting culture from one country to another.
tax-collection systems are widely different in each country
political or economic accounting policy differences
strict national licensing requirements for auditors and accountants
still no guarantee of a high level of standardisation in financial reporting, even if IFRSs are adopted by all countries.

Limitations of IFRS adoption Cont
Certain standards and requirements may not reflect local situations.
E.g. Consolidation standards
Fair value rules
Implicit interest rate requirements

Adoption of IFRSs
Around the World
Table 12.1 lists a selection of IFRS users around the globe.
Jurisdictions will have differing degrees of convergence with IFRSs.
Nobes suggests that the factors that have previously been associated with international differences in accounting still can be used to explain differences in IFRS adoption practices across jurisdictions.

Use of IFRSs
Though widely adopted questions have been raised about whether adoption leads to convergence.
It has been pointed out that standards developed by the IASB are primarily aimed at countries with highly developed capital markets, and it can be questioned whether the resulting standards are optimal for developing and transitional economies that lack the infrastructure to monitor financial reporting decisions.

FASB AND IASB CONVERGENCE
Since 2002 efforts have been made to harmonise IFRS and FASB standards (remove difference between international standards and US GAAP – Norwalk Agreement)
At various times it has looked more or less likely that convergence would be achieved.
At present there appears to be significant resistance to the adoption of certain IFRS standards in the US including
Accounting for Leases
Accounting for Income Tax

MULTINATIONAL ORGANISATIONS
Multinational enterprises are particularly affected by the range of environmental factors and accounting systems in the different countries in which they operate. (tax, legal, reporting, currency)
They tend to be larger and have more complex business operations than their domestic counterparts.
There are particular issues around
Organisational culture (what decision making should be held in few key centres or spread across large number of units)
Intra-entity transactions in different operating units in different countries.
Transfer pricing (pricing of goods and services transferred between members of a corporate family)

The End

Accounting Theory

Reporting and Voluntary Disclosure Part 1

( Chapter 7)

Learning Objectives
Have an understanding of voluntary disclosure
Explain what is good corporate governance and why good corporate governance is needed
Recent developments and issues in corporate governance
Role and impact of accounting on corporate governance

Voluntary Disclosures
The annual report contains both mandated financial statements and voluntary disclosure.
Information outside the financial statements is not audited.
The annual report can be used as a marketing tool as well as a conveyor of a particular organisational image to its readers.

Voluntary Disclosures Cont
Narrative voluntary disclosures in annual reports used to report activities excluded by accounting standards from the financial statements.
Impression management used to improve corporate image.
Can be biased, even misleading.

Why Entities
Voluntarily Disclose
Mandated accounting information is constrained.
Definition of users is limited.
Organisations require and desire broad support.
They have multiple responsibilities.
Variety of information is necessary to satisfy and inform range of stakeholders.

Management Motivation
to Disclose
Deegan lists ten reasons for voluntarily disclosure
To comply with legal requirements
Because of economic rationality arguments
Because of accountability to stakeholders
Because of borrowing requirements
To comply with community expectations

Management Motivation
to Disclose
6. To ward off threats to organisational legitimacy.
7. To manage powerful stakeholders
8. To forestall regulation
9. to comply with industry requirements
10. to win reporting awards.

Management Motivation
to Disclose
O’Donovan’s research suggests that management discloses environmental information to:
Align management’s values with social values
Pre-empt attacks from pressure groups
Improve corporate reputations
Provide opportunities to lead debates
Secure endorsements
Demonstrate strong management principles
Demonstrate social responsibilities

Problems with the
Management of Corporations
Management self interest
Fraud
Perquisites
Anti-social corporate behaviour
Hiding or falsifying information
Perceived gap between performance and remuneration

Problems with the
Management of Corporations
These problems, real or perceived, can have wider ramifications.
Poor governance is linked to
Poorer firm performance
Increased regulation for all companies
Decreased consumer confidence
Reduced economic growth
It has even been implicated in a number of national and global financial crises

The End

Accounting Theory

Corporate Governance and Development and Issues and role of ethics Part 2

( Chapter 8)

WHAT IS
CORPORATE GOVERNANCE?
The procedures and processes according to which an organisation is directed and controlled.
The corporate governance structure specifies the distribution of rights and responsibilities among the different participants in the organisation — such as the board, managers, shareholders and other stakeholders — and lays down the rules and procedures for decision-making.

Advantages of Good
Corporate Governance
In a globalised and competitive environment good governance can be a significant advantage.
Good governance can
Reduce the cost of capital
Increase shareholder base
Manage increased scrutiny
Increase consumer confidence
Facilitate economic growth

THE NEED FOR CORPORATE GOVERNANCE SYSTEMS
The corporate structure requires governance
Separation between capital contributors and management
Under the best circumstances managers should act as though they had contributed the capital
It would appear this does not happen and managers may ‘bias’ or distort the financial statements

CORPORATE GOVERNANCE GUIDELINES AND PRACTICES
It is generally acknowledged that there is no ‘one’ system of corporate governance.
The practices and procedures required or desired will be affected by:
The nature of the particular corporation and its activities.
The environment in which the corporation operates.

THE GROWING INTEREST IN CORPORATE GOVERNANCE
Interest in corporate governance appears to be driven by
Highly publicised corporate misconduct
Agency problems
Realisation of other benefits

Elements of
Corporate Governance
Review Table 7.1 in the text.
Key elements
Controlling and directing the directors (and senior management)
ensure that the key managers make appropriate decisions
Role of shareholders (and other stakeholders)
ensure that shareholders have the ability to protect their interests in the corporation
Transparency and accountability
ensure that the stakeholders (including shareholders) are sufficiently informed about the activities of the company and its management

The Rules-Based Approach to Corporate Governance
Advantages
Provides a set of minimum corporate governance practices that must be followed by all corporations.
Aids enforcement and clarifies potential liability.
Disadvantages
Lowest common denominator approach
Encourages form over substance
Focus on legal liability not stakeholder interests

The Principles-Based Approach to Corporate Governance
Identifies general principles or objectives for the corporate governance system to aim to achieve.
Responsibility is placed on the managers to consider which practices are appropriate, given their circumstances.

The Principles-Based Approach to Corporate Governance
Advantages
Places a higher level of duty on directors to determine which corporate governance practices are required.
Its flexibility means that practices can be adapted for the particular circumstances and environment of the entity.
Disadvantages
Directors must interpret these principles and decide which corporate governance practices are needed.
It relies on their honesty, integrity and commitment to good governance.

DEVELOPMENTS AND ISSUES IN
CORPORATE GOVERNANCE
The global financial crisis has provided an impetus for regulators, corporations themselves and other organisations to reconsider aspects of corporate governance.
An OECD review concluded that while the espoused principles of corporate governance were sound, there was a ‘gap’ between the principles and their implementation.

Executive Remuneration
This is a contentious issue regularly scrutinised by public and the media.
Concerns have been raised about
The size of executive remuneration.
The apparent disconnect between performance and pay.
The use of public (bail-out) money to pay bonuses.
The connection between remuneration packages and rewarding short-term focus

Executive Remuneration Cont
In Australia, recent legislation includes
Increased disclosure
A ‘two-strikes’ rule where if more than 25% of shareholders vote against the remuneration report for two consecutive years, the board itself can be put up for re-election

ROLE OF ACCOUNTING AND FINANCIAL REPORTING IN CORPORATE GOVERNANCE
Accounting clearly has a central role in directing and controlling a corporation.
Management accounting provides a signicant part of the information on which company operations will be decided.
Financial accounting provides the means for outsiders to monitor the corporation and to assess how well those responsible for managing the corporation have performed.

There are two key ways in which accounting is used to direct and control the managers of a corporation.
Encourage appropriate decisions
Linking managers performance to rewards
Transparency and disclosure
Requiring specific disclosure about areas relevant to corporate governance. E.g.
AASB 124 Related Party Disclosures
AASB 2 Share-based Payment
Deterring, Preventing and Encouraging Certain Actions and Decisions

INTERNATIONAL PERSPECTIVES AND DEVELOPMENTS
The Anglo-Saxon model placing emphasis on shareholders interest dominates in the United States, Australia, Canada and the United Kingdom.
Asia is increasingly adopting the Anglo-Saxon shareholder model.
In Europe, there is more direct recognition of alternative stakeholders (such as employees in France and creditors in Germany).

What have we covered today?
Corporate Governance is a system of directing and controlling the corporation
Corporate governance principles and practices concentrate on directing and controlling directors and management, shareholders interests, and rights, transparency and accountability.
Corporate governance is influenced by the environment in which it operates
Accounting information is an important part of any corporate governance system
Good corporate governance is about people doing the right thing.

The End

BUS 304 Accounting Theory and Accountability

Research-Based group report–20%

Marking Guide

Student Name: ________________

Student Name: ____________

Student Name: ________________

2.5

D HD

3.5 4- 5

Objective/Criteria	Marks Allocated (Columns show maximum marks for each criteria)
Content The submission provides an appropriate answer for each question identified at the end of the case. Are the major issues covered?	F 2	P 2.5			C 3	D HD 3.5 4-5
Writing Style/Argument Are the arguments presented logically? Do the arguments present a balanced appraisal of the issues?			F 2		P 2.5		D HD 3.5 4- 5
Research Effort Has there been appropriate use of arguments from other sources than the case? Are the main arguments supported by appropriate theories? Has an appropriate reference style been used consistently?	D HD 3.5 4- 5
Overall Presentation Are there spelling errors or errors of grammar? Are the separate answers integrated to present a consistent approach? Is the report written in one voice? Is the report presented professionally?
Total Mark	8	10	12	14 16-20

Progress, prospects and impact
How business is preparing

for the Modern Slavery Act

th anniversary issue

The 2018 Annual Review of the State of CSR in

Australia

and New Zealand

Progress, prospects and impact | State of CSR

Sponsors:

Progress, prospects and impact | State of CSR

Contents

1 About this report

2 Introduction 9

3 Snapshot 10

4 Between the lines

5 The business case for CSR

6 Embedding CSR 1

7 The CSR Top Performers

8 The Modern Slavery Act

9 Priorities for the year ahead 2

10 CSR as a driver of innovation

New Zealand setting the pace

References and endnotes

4
Progress, prospects and impact | State of CSR

1. About this report
The tenth Annual Review of the State of CSR in Australia
and New Zealand remains the largest ongoing study of
organisational corporate social responsibility (CSR) practices,
trends, and capabilities in Australia and New Zealand.

Our aim in this report is to analyse key trends in CSR so
that CSR managers can make evidence-based decisions
that advance positive change in their organisations.
The first report in 2008 was widely praised as the
most significant study at the time to lay out what it
was like for CSR workers in the emerging fields of CSR
and sustainability as an organisational management
practice. Since then, this report has tracked the
development of CSR in Australia and New Zealand
and continues to highlight the most important issues
facing practitioners and business leaders.

Deloitte has supported leading organisations for many
years in their journeys towards more sustainable and
responsible business practices. Last year, we further
expanded our capability when the team from the
Australian Centre for Corporate Social Responsibility
(ACCSR) joined our Resilience and Sustainability
Services team.

Established by ACCSR in 2008, the 10th Annual Review
of the State of CSR in Australia and New Zealand is
proudly published by Deloitte. This 2018 report reflects
the talents of both the former ACCSR and and Deloitte
sustainability teams now working as one, under the
Deloitte banner.

Thank you to our sponsors who have worked with
us again this year: La Trobe Business School, Massey
University, the New Zealand Sustainable Business
Council and Wright Communications. We welcomed
the participation of Macquarie University through
its Faculty of Business and Commerce for the first
time. We are especially grateful for additional analysis
provided by Macquarie University and Massey
University. Finally, our deep gratitude to all the
respondents to our survey who have made this
year’s Annual Review possible.

Progress, prospects and impact | State of CSR

QLD

111

ACT

TAS

VIC

348

NSW

298

Method
An online survey was completed by 1,107 people
from Australia and New Zealand organisations
between 7th November and 22nd December 2017.
Respondents came from the former ACCSR’s
mailing list and from lists provided by organisations
participating in the CSR Top 10 ratings in Australia
and New Zealand (Chapter 7).

All respondents answered questions relating to
their organisation’s CSR management capabilities
(Chapter 6), however only those who said they were
working in CSR-related roles answered questions
about their organisation’s priorities in CSR (Chapter 9),
how CSR contributes to business innovation (Chapter
10), how CSR drives business outcomes (Chapter 5),
and the impending Modern Slavery Act (Chapter 8).

We define CSR as the organisational practices that
address the impact of an organisation on business,
society and the environment or seek to create positive
societal value through core business. In this report, we
use the terms CSR and sustainability interchangeably.

Respondents by
location with numbers
of participants from
each location. n=1107

6
Progress, prospects and impact | State of CSR

Chart 1: Respondents’ Industries

0% 5% 10% 15% 20% 25% 3

Accomodation and hospitatlity

Government administration

Communication services

Agriculture, forestry and fishing

Entertainment

Construction

Property and business services

Education

Other

Electricity, gas and water supply

Culteral and recreational services

Information technology

Energy and resources

Health and community services

Manufacturing

Transport and storage

Finance and insurance

Professional services

23%

10%

7%
7%
7%

2%
2%
2%
2%

Chart 2
Organisational size

Chart 1
Respondents’
industries1,2

13%

11%

2500–499

1000–2499

500–999

200–499

50–199

<49

45%

5000>

9
Progress, prospects and impact | State of CSR

2. Introduction

Decades ago, Australian business may have
understood its primary role in society as creating
employment and paying taxes so that economic
prosperity could be widely enjoyed and governments
could look after health, education and other
social issues.

Today, the direct and indirect impacts of business are
better understood to include social and environmental
as well as economic impacts. These impacts are
magnified by the effects of globalisation, and more
transparent through the speed of information flows
in a digital world. Today, the role of business in society
is larger and more complex than ever before and
expectations of business continue to rise.

Businesses and many other types of organisations
have responded to these changes by appointing
dedicated managers of corporate responsibility or
sustainability (described generically in this report
as CSR managers), and by creating programs of work
that mitigate or avoid negative impacts, amplify
the positive impacts, increase transparency, involve
affected stakeholders in decision making, or create
new products and services to meet rising demand
for sustainable consumption. These are signs of
maturity in understanding the new discourse of
business, which centres on business conduct,
adaptation for a carbon-constrained word,
and total value creation.

This report highlights how Australian and New Zealand
organisations have significantly improved their CSR
practices over the last decade and how prepared they
are for the challenges of today and tomorrow. We show
how CSR and sustainability practices have driven better
business outcomes and shed light on the changing
priorities of business.

As Australia looks set to introduce world-leading
legislation on modern slavery in 2018, we focus on
Australia’s preparedness for a step-change in business
action on human rights. We believe our results are the
first to be published on this question.

This report demonstrates Deloitte’s intention to lead in
practice, standards, and growing the positive impacts
of responsible and sustainable business.

We congratulate the organisations that participated in
the CSR Top Performers ratings and thank them for
supporting this work (see Chapter 7). Thank you to the
universities and other valued sponsors in Australia and
New Zealand, without whose collaboration and support
this report would not be possible.

The success of business has always depended
on playing a valuable role in society.

Paul Dobson
Partner, Sustainability Services
Deloitte Risk Advisory

Dr Leeora Black
Principal, Sustainability Services
Deloitte Risk Advisory

3. Snapshot

Business is underprepared
for the Modern Slavery Act

• Awareness is weak (57% of CSR managers)
and risks are likely under-estimated –

79%

of senior CSR managers think it is unlikely
there is any slavery in their supply chains
despite the high prevalence of modern
slavery in our closest trading region.

CSR continues to contribute
to organisational innovation.

Organisations with strong
CSR management capabilities
are more likely to enjoy improved
competitive advantage and reptuation.

Experience counts and persistence pays

• Organisations who appointed CSR managers
before 2012 get better outcomes from
CSR than organisations that began their
CSR journeys more recently.

Progress, prospects and impact | State of CSR
10

The business case for CSR has
strengthened over the last decade

• Four out of five organisations are reaping
reputation benefits and reducing risk as
a result of CSR.

• Improving competitive advantage through
CSR was the area of most improvement in
the business case for CSR.

Promoting diversity in the workplace
is now the top CSR priority in Australia.

Reducing environmental impacts
remains the top CSR priority for New Zealand.

Progress, prospects and impact | State of CSR
11

12
Progress, prospects and impact | State of CSR

4. Between the lines

Insights from Macquarie University, La Trobe Business School
and Massey University

The Faculty of Business and Economics at Macquarie
University is delighted to be a key sponsor of the
2018 Annual Review of the State of CSR in Australia
and New Zealand, partnering with Deloitte.

The publication of the 10th Annual Review provides a
natural point for reflection on continuity and change,
on progress made, and work still to do. The consistency
of the commitment of participants to knowledge
sharing and advancing practice is hugely impressive
and has grown significantly over time. Sharing
knowledge is critical to managing the complex issues
of CSR, and the State of CSR Annual Reviews have played
an important role in stimulating debate and building
capacity to advance CSR in Australia and New Zealand.

Re-reading the first two Annual Reviews, the emphasis
on supporting the development of CSR/sustainability
management as a profession is striking. In 2008, being
a CSR professional was a fairly lonely pursuit – in a
fifth of organisations, leading CSR fell upon a single
individual, and three in five companies employed a
team of five or fewer to manage their CSR. Since then,
enormous progress has been made in supporting the
development and organisational impact of a group of
passionate professionals.

One strong signal of success of the work undertaken
to build the capacity of the CSR profession is the
strengthening of the business case of CSR over
time. Today, more than four out of five companies
experience significant benefits from their CSR in the
form of reputation improvement, risk management
and improved competitive advantage. A strengthening
business case underpins increased business
commitment to CSR, as well as the social and
environmental change that this provokes.

While much has been achieved, the shifting
expectations and requirements of our societies
present some significant emerging challenges
for Australian and New Zealand companies. The
analysis in this report of awareness of, and perceived
preparedness for, the introduction of landmark
modern slavery legislation provides some food for
thought. The evidence suggests to me that companies’
awareness is lower than might be expected, and that
their estimates of their internally judged preparedness
is higher than is likely to be the case. I am hopeful that
the collective strength of this community will enable
Australian and New Zealand businesses to proudly
occupy a position of global leadership on this issue.

Professor Stephen Brammer
Executive Dean
Faculty of Business and Commerce
Macquarie University

Progress, prospects and impact | State of CSR

The La Trobe Business School is delighted to be a key
sponsor of the tenth Annual Review of the State of CSR in
Australia and New Zealand. The 2018 Review continues
to demonstrate leadership in CSR. Congratulations to
the CSR Top Performers in Australia and New Zealand.

For CSR practitioners the Annual Review highlights
the importance of moving from a risk minimisation
approach to CSR to one that adopts CSR as an
opportunity to build innovative product and
service delivery.

Consumers and communities are increasingly
propelling the business, government and not-for-profit
sectors to act responsibly and are driving a movement
which advocates transparency, responsible practices,
and diversity.

In an environment where social media can immediately
amplify one poor decision into a global incident, the
Annual Review demonstrates that organisations are
recognising the benefits of CSR for strengthening
their reputation. It highlights the key CSR capabilities
that lead to measurable business outcomes: building
stakeholder engagement and value through dialogue,
understanding stakeholder priorities, and working
with them collaboratively.

Reading the Annual Review should be mandatory for
all education providers to understand the importance
of incorporating these key skills into curriculum.

For policy makers, the Annual Review highlights the
support that organisations will require in building
business capabilities in tracking their supply chain.
The introduction of the Modern Slavery Act in Australia
will highlight human rights issues which continue to
be of concern for consumers, communities and key
advocacy groups.

Professor Suzanne Young
Head of Department of Management,
Sport and Tourism and Professor of Management
(Governance and CSR), La Trobe Business School (LBS)

The Massey Business School (MBS) is pleased to
partner with Deloitte for the 2018 Annual Review of
the State of CSR in Australia and New Zealand. At MBS,
CSR and sustainability are at the core of our teaching,
research and service. As part of our Responsibility
and Citizenship mandate, CSR is one of our key
research platforms.

The 2018 survey results support the rationale that
embedding CSR and sustainability could unlock
opportunities for businesses and organisations.
Without embedding CSR and sustainability, it will
be impossible to attract the right calibre of people
to work for them, and convince consumers to buy
their products and services. New Zealand companies
continue to appreciate the benefits of embedding CSR
and sustainability into their core business. Additionally,
New Zealand organisations prioritised reducing
negative environmental impacts, measuring the impact
of climate change, and improving waste reduction
and recycling initiatives. As noted in the report, there
have been tremendous progress in the last ten years,
thus, collaboration and partnerships between all
actors are crucial. To this end, we believe businesses,
organisations, NGOs, the public sector and universities
have to continue to work together to achieve the gains
and opportunities presented.

Our congratulations to all of the participants and in
particular to the New Zealand companies that continue
to improve their CSR and sustainability programs.

Professor Kambiz Maani
Professor of Systems Thinking & Science
and Associate Pro Vice-Chancellor (Research)
for Massey Business School
Massey University

Associate Professor Gabriel Eweje
Director, Sustainability and CSR
Research Group
School of Management, Massey
Business School Massey University

14
Progress, prospects and impact | State of CSR

5. The business
case for CSR
In 1970 the US economist Milton Friedman famously
proclaimed in the pages of the New York Times that the
only social responsibility of business is to increase profits.

Since then, the business case for CSR has become one
of the most-researched topics in CSR, and an enduring
theme in the Annual Review of the State of CSR. In
2008 we asked respondents what outcomes they
achieve as a result of CSR. Ten years on, we found that
companies are enjoying greater business benefits from
CSR, such as strengthened reputation, reduced risk,
strengthened competitive advantage, and new value
creation (see Chart 3). In 2008 we asked respondents
what outcomes they achieve as a result of CSR.

Strengthened competitive advantage is the area of
most improvement in the business case for CSR,
with the proportion of respondents reporting this
outcome increasing by nearly 9% (see Figure 4).

Chart 3: Business outcomes from CSR, comparison 2008 to 20

70%

84%

80%

58%

89%

49%

46%
59%

38%
49%

35%

36%

29%
29%Less government interference

Active groups more willing to negotiate

Reduced complaints/disagreements
with stakeholders

Reduced costs

New value through new products/markets

Strengthened competitive advantage

Reduced risk

Strengthened reputation

0% 20%

40% 60% 80% 100%

26% Litigation/strikes/boycotts avoided

2008, n=378 2018, n=446

69%

Chart 3
Business outcomes
from CSR, comparison
2008–2018

Progress, prospects and impact | State of CSR

2008
average rating

2018
average rating Difference

Change as a
% of 2018

Litigation, strikes or boycotts were avoided 3.47 3.40 -0.06 -1.85

Activist groups were willing to negotiate
with our organisation

3.52 3.62 0.10 2.74

There was less interference by government
in the management of our organisation

3.23 3.24 0.01 0.

Complaints and disagreements from
stakeholder oganisations were reduced

3.57 3.60 0.03 0.88

We reduced costs for our organisation 3.50 3.69 0.18 5.

We reduced risks for our organisation 3.94 4.13 0.19 4.87

We strengthened our competitive advantage 3.84 4.19 0.34 8.95

We strengthened our reputation 4.04 4.38 0.34 8.53

We created new value in the form
of new products, services or markets

3.69 3.97 0.28 7.63

Of the nine business benefits we measured, only
one – avoiding litigation, strikes and boycotts – has
declined in importance since 2018, with a small
decline of 1.85%. This is interesting given litigation
has been a more prominent feature in activist tactics
against corporations in recent years. For example,
two shareholders last year attempted to sue the
Commonwealth Bank of Australia over climate risk
disclosures3 , and Rio Tinto was among the mining
companies facing legal challenges in the Land and
Environment Court over proposed expansion4.
Our results suggest that corporations may be
under-estimating the power of CSR practices and
capabilities to help address rising stakeholder activism.

We classified each of these benefits of CSR into
two types of outcomes from CSR – gaining benefits
and avoiding losses. The benefits gained are more
powerful than the losses avoided. For example, as
Chart 4 shows, only modest improvements were
noted in reducing stakeholder complaints and avoiding
increased government requirements.

We may speculate on the reasons for this. Possibly,
government moves such as an inquiry into a Modern
Slavery Act in 2017 or the Financial Services Inquiry in

2018, are not equated with CSR, even though they are
arguably the consequences of long term poor business
conduct. Perhaps a narrow view of CSR sits behind
this result. A narrow view would see CSR as about
the traditional areas of philanthropy and community
investment, whereas a broader view would be
consistent with the International Guidance Standard on
Social Responsibility, ISO 26000, that examines every
part of organisational activity through a CSR lens.

The business outcomes of CSR were then further
analysed by whether they created benefits or avoided
losses, and by whether the organisation was an early
(pre 2012) or late (from 2012) adopter of CSR. Early
adopters realised 4% greater benefits from CSR
than late adopters, illustrating the importance of
consistency and a long term outlook for embedding
CSR practices in organisations. They were also 6%
more likely to realise market-oriented benefits like
competitive advantage and 3% more likely to realise
financial benefits such as reduced costs.

Chart 4
Change in business outcomes from 2008–2018

Progress, prospects and impact | State of CSR

6. Embedding CSR

The State of CSR Annual Review has been tracking
organisations’ CSR management capabilities since 2008.

CSR management capabilities show the embeddedness
of CSR culture and practices in an organisation. They
comprise four basic CSR management practices, which
are scored by the organisations’ employees. Scores
show how employees rate their own organisations
on the presence or absence of CSR practices as they
experience them, and tell us how much organisations
are walking the talk when it comes to CSR.

These practices are good predictors of improvements
in reputation, risk management, competitive advantage
and other business outcomes from CSR. Organisations
with higher scores are more likely to reap the benefits
of CSR (see Chapter 5).

Four management practices are basic to CSR success:
stakeholder engagement, integrating stakeholder
values into decision-making, having genuine dialogue
with stakeholders, and accountability for social
impacts. They are defined opposite.

CSR capabilities have strengthened over the last
decade, as shown in Chart 5 to Chart 8 (overleaf5).
These capabilities underpin performance and
organisations’ abilities to respond appropriately to
changing stakeholder and societal expectations.
The biggest growth in CSR capabilities was in the
sense of social accountability from 36% to 58%,
mirrored by the rise in sustainability reporting
over the last decade. However, social accountability
remains the weakest capability overall, and is
18% lower than the strongest capability,
stakeholder engagement (86%).

CSR management capabilities are typically calculated by finding the mean of all responses to all items. In Charts 5 to 8 we have applied
a different calculation to emphasise differences across years. In these figures we have taken scores of 4 or more out of 5 and divided
by the total number of respondents.

Progress, prospects and impact | State of CSR

Stakeholder
engagement
People in our organisation
understand the linkages and
interdependencies between
us and our stakeholders.
Our staff or members routinely
consider stakeholder needs in
business decisions.

Stakeholder
dialogue
We engage in open dialogue with
our stakeholders, treating them
as equal partners in issues of
mutual concern. We have clear
processes for stakeholder dialogue
and encourage equal control
over the discussion agenda and
communication process.

Sense of social
accountability
Our people believe that our
organisation is accountable
to stakeholders for its social
impacts and we effectively
report our social performance,
even when the news is not
all good.

Integrating
stakeholder values
Managers are able to effectively
detect and transmit value-
pertinent information about
stakeholders to all parts of the
organisation to assist
in business decision-making.

The four management
practices to CSR success

18
Progress, prospects and impact | State of CSR

Chart 6: Integrating stakeholder values 2008–2018

10%

20%

40%

50%

60%

30%

70%

2008

52.

60.1%

55.9%
52.1%

55.1%
58.9%

66.1% 68.1%

2010 2011 2014 2015 2016 2017 2018

Chart 5: Stakeholder engagement capability 2008–2018

65%

70%

75%

80%

85%

90%

2008

72.3%

75.5%
76.

73.8%

81.0%

84.8%

82.0%

86.0%

2010 2011 2014 2015 2016 2017 2018

Chart 6
Intergrating
stakeholder values
2008–2018

Chart 5
Stakeholder
engagement capability
2008–2018

Progress, prospects and impact | State of CSR

Chart 7: Stakeholder dialogue 2008–2018

10%

20%

40%

50%
60%
30%

80%
70%
2008

53.3%
56.0%

52.6% 54.8%

58.4%

60.7%
58.4%

67.3%

2010 2011 2014 2015 2016 2017 2018

Chart 8: Sense of social accountability 2008–2018

10%
20%

40%

50%

60%
30%

70%
2008

36.4%

41.2%

36.8%

44.3%
46.0%

47.7% 47.6%

58.4%
2010 2011 2014 2015 2016 2017 2018

Chart 7
Stakeholder dialogue
2008–2018

Chart 8
Social accountability
2008–2018

Progress, prospects and impact | State of CSR

Chart 9: CSR management capabilities by industry

76%

77%

78%

79%
79%
80%
80%

81%

82%

Energy and resources

Professional services

76% Property and business services

68%

20% 10% 0% 30% 40% 50% 60% 70% 80% 90%

Education
Health and community services
Entertainment

Information techonology

Cultural and recreational services

Finance and insurance

Transport and storage

Manufacturing

Electricity, gas and water supply

This year the electricity, gas and water supply industry
reported the strongest CSR management capabilities
(Chart 9), increasing from 74% in 2017 to 82% in
2018. This is significantly higher than the top industry
in 2017, which was information technology at 78%.
Manufacturing has increased its score since last year
from 73% to 81%. The education sector continues to
lag industry on CSR management capabilities with
68%, though an improvement from 66% when we last
reported it in 2016.

Chart 9
CSR management
capabilities by
industry, n=862

21
Progress, prospects and impact | State of CSR

22
Progress, prospects and impact | State of CSR

7. The CSR
top performers

Employees were asked to rate the extent to which
they agreed or disagreed with a series of statements
about CSR in their organisations. These results were
used to identify the extent to which CSR management
capabilities are embedded within their organisations.
For more information regarding the management
capabilities measured please see Chapter 6.

The CSR Top Performers in 2018 received a CSR
management capability score of 80% or above.

Thank you to all the participating companies and
their employees who made these assessments
possible by responding to the State of CSR survey,
and congratulations to the CSR Top Performers.

Organisations were once again invited to participate
in the CSR capabilities assessment through offering
the State of CSR survey to their employees.

Progress, prospects and impact | State of CSR

TOP PERFORMERS

New Zealand

Australia

24
Progress, prospects and impact | State of CSR

8. The Modern Slavery Act

The proposed Act will require organisations of a certain
size to provide a public report on what they are doing
to identify and combat any instances of modern slavery
in their operations or supply chains.

Modern slavery is a pernicious form of human rights
abuse with an estimated 40 million victims6. The
Global Slavery Index7 suggests that two-thirds of
modern slavery occurs in the Asia-Pacific region, where
many Australian supply chains extend. In Australia,
exploitative labour practices have been associated
with the construction, agriculture, manufacturing,
hospitality, cleaning and domestic work sectors,
as well as third-party labour suppliers8.

The Joint Standing Committee on Foreign Affairs,
Defence and Trade’s interim report9 defines modern
slavery as ‘a broad umbrella term used to describe a
number of crimes, including, but not limited to, human
trafficking, forced labour, sexual slavery, child labour
and trafficking, domestic servitude, forced marriage,
bonded labour including debt bondage, slavery and
other slavery-like practices’.

Having tracked the rising importance of human rights
since 2008, we were keen to understand how ready
business is for this heightened focus on human rights.
We asked those working in CSR about the proposed
Modern Slavery Act in the 2018 Annual Review.

Chart 10 shows that among people working in CSR,
only 57% were aware of the Government’s intention
to introduce a Modern Slavery Act in Australia.
Among the most senior CSR managers, 79% thought
it was unlikely there is slavery in their organisation’s
supply chains (see Chart 11). This suggests a large
knowledge gap among CSR workers. Modern slavery
is extensive – the ILO estimates there are 168 million
children aged between 5 and 17 years engaged in
child labour and over 20 million victims of forced labour
– and more likely to occur in the Asia-Pacific region
than anywhere else, a region that includes Australia’s
largest trading partners.

Australia is likely to introduce a Modern Slavery Act in 2018,
following two Government inquiries in 2017 by the Parliamentary
Joint Standing Committee on Foreign Affairs, Defence and Trade,
and the Attorney-General’s department.

Progress, prospects and impact | State of CSR

“Modern slavery is pervasive in corporate supply chains
in all regions of the world and amounts to an estimated
$150 billion (USD) of illicit profits a year.”

– Modern Slavery in Company Operations and Supply Chains,
Report by the Business and Human Rights Resource Centre and
the International Trade Union Confederation, September 2017

Chart 11: Likelihood of modern slavery in supply chain

0% 20%

10%

8% 27%

32%

31%

16%

10%16%

24% 28% 18% 6%

7% 5%

14%

40% 60% 80% 100%

Senior manager

Executive

Manager

12%

32%

Very likely No idea

Confident there is none Very unlikely Unlikely

Likely

Chart 10: Awareness of MSA by seniority

55%

60%
40%

45%

Senior manager

Manager

63%

37%

Executive

42%

58%

Other

0% 10% 20% 40% 30% 50% 60% 70%

NoYes

Chart 11
Perceived likelihood
of modern slavery
in supply chain,
n=313

Chart 10
Awareness of
MSA by seniority,
n=367

Progress, prospects and impact | State of CSR

Chart 12: Types of support required

36%
40%
42%
42%
45%
45%
55%

20% 10% 0% 30% 40% 50% 60% 70% 80% 60%

Information on how to combine MSA reporting
with our other types of reporting, sush as GRI

Advice on how to help our suppliers
improve their practices

Information sessions, seminars
or workshops

Simple reporting templates we can fill out

Advice on how to undertake human
rights due dilligence or assessments

Detailed written guidance on how
to comply with the MSA

Advice on how to develop a human rights
policy or grievance mechanism

Chart 13: Most trusted advisor for support

6%
6%

27%

28%

33%

5% 0 10% 20%

30%

GovernmentSubject matter experts
like consultants of lawyers
Universities

Professional or
industry associations
Other

“We are all going to have slavery
in our supply chains no matter
how good we think our corporate
responsibility is.”

Andrew Forrester
Chairman, Fortescue Mining Group
and Walk Free Foundation

Proposed Modern Slavery Act requirements
The Attorney General’s model proposes to apply
a mandatory annual modern slavery supply
chain reporting requirement to body corporate,
unincorporated associations and other entities
conducting business in Australia, with a threshold
figure of $100 million in revenue, though there is
support for a lower threshold. Entities will be required
to provide a Modern Slavery Statement to a central
repository, addressing a consolidated set of criteria.
These statements will need to be approved at the
equivalent board level and signed by the equivalent of
a director and be published on the company’s website.
These statements will be required to be released no
later than five months after the end of the financial
year. The Modern Slavery Act is expected to be passed
in FY19, and apply from FY20.

Companies will require support to comply with the
Modern Slavery Act. Chart 12 shows what types of
support they think they will need. Consultants, lawyers,
industry associations and government are among the
most trusted groups to provide that support (Chart 13).

Chart 13
Most trusted
advisor for support
n=451

Chart 12
Types of
support required10
n=367

Tips for preparing
for the Modern
Slavery Act:

The anticipated
Modern Slavery Act
reporting criteria are:

Many companies are preparing now for
the proposed Modern Slavery Act by
conducting risk assessments and making
improvements to processes, management
controls and reporting. Here are Deloitte’s
tips for getting started:

• Map your organisation’s human rights
risks including mapping procurement
categories to human rights issues and
assess relative risks

• Determine or review policies to avoid
complicity in human rights abuses and
ensure requirements are embedded
in supplier contracts, with appropriate
controls and support

• Assess suppliers’ current abilities
to deal with human rights risks

• Develop supplier engagement
programs to mitigate against
human rights risks

• Establish ongoing monitoring
of risks and compliance to
corporate policy.

1. The entity’s structure, its operations
and its supply chains

2. The modern slavery risks present
in the entity’s operations and
supply chains

3. The entity’s policies and processes
to address modern slavery in its
operations and supply chains and
their effectiveness (such as codes
of conduct, supplier contract terms
and training or staff)

4. The entity’s due diligence processes
relating to modern slavery in its
operations and supply chain and
their effectiveness.

27
Progress, prospects and impact | State of CSR

28
Progress, prospects and impact | State of CSR

9. Priorities for
the year ahead

Throughout this time, strengthening stakeholder
relationships has consistently topped the chart, with
managing regulatory impacts and reducing negative
environmental impacts regularly among the top issues.

Last year, managing the implications of technology shot
to third place, where it remains in 2018. More than half
say addressing the Sustainable Development Goals is a
high or very high priority.

Topping the list of issues for the first time in 2018,
with four in five saying it is a high or very high priority,
is promoting diversity and inclusion (Chart 14).
This issue has risen rapidly in importance since 2014
when we first measured it, from 50% rating it a high
or very high priority, to 80% in 2018. In this time,
Australian business has become more active and
vocal on diversity issues, recognising that Australia
is one of the most ethnically diverse countries in the
world. Business are also acting on a broad range of
social issues, as shown by business support for gay
marriage in the 2017 referendum.

This year we introduced two new issues in response to
developments in the human rights and climate change
reporting landscape: Preparing for the Modern Slavery
Act, and Addressing the requirements of the TCFD
(Taskforce on Climate-Related Financial Disclosures).
These issues were the lowest ranked across all
respondents, with 26% saying they are high or very
high priority issues. We expect these issues to rise in
priority in coming years.

For ten years, we have asked companies which sustainability
issues they will be prioritising over the coming 12 months.

Progress, prospects and impact | State of CSR

Chart 14: CSR Priority issues in 2018

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Preparing for the Modern Slavery Act in Australia

Adressing the requirements of the TCFD
(Task Force on Climate-Related Financial Disclosures)

Alleviating poverty within our sphere of influence

Working to address labour relations issues

Working to combat business corruption

Addressing economic inequality
within our sphere of influence

Addressing human rights issues
within our sphere of influence

Improving our supply chain policies or practices

Waste reduction or recycling initiatives

Adressing the Sustainable Developement Goals

Improving or beginning our organisation’s
sustainability reporting

Managing the impact of climate
change on our organisation

Measuring or quantifying the impacts
and outcomes of our CSR initiatives

Strengthening our social license to operate

Building internal understanding and support
for our CSR/sustainability approach

Reducing or eliminating any negative
environmental impacts of our organisation

Managing the implications of technology
(eg. data security, privacy)

Managing regulatory impacts

Building stronger relationships
with our stakeholders

Promoting diversity in the workplace

High priority Very high priority

37% 42%

30%42%

33% 37%

37% 29%

25%

20%

24%

19%

24%

39%

41%

35%

39%
31%

40%

35%

34%

36%

27%

23%

28%

23%
20%

15% 10%

6%
13%
10%

17%

14%
17%
16%
19%
20%

15%

Chart 14
Priority issues
in 2018, n=476

The TCFD was established in late 2015 by the
G20 Financial Stability Board to develop a
voluntary and consistent disclosure framework
for climate-related information that would better
serve investors, companies and regulators to
understand climate-related issues and their
potential financial impacts.

In June 2017 the Task Force released its final
report11 which recommends that organisations
adopt the TCFD disclosures in their mainstream
financial filings. The framework covers four areas:

• Governance: Disclose the organisation’s
governance around climate-related risks
and opportunities.

• Strategy: Disclose the actual and potential
impacts of climate-related risks and opportunities
on the organisation’s business, strategy, and
financial planning where such information is
available.

• Risk management: Disclose how the
organisation identifies, assesses, and manages
climate-related risks.

• Metrics & targets: Disclose the metrics and
targets used to assess and manage relevant
climate-related risks and opportunities where
such information is material.

Globally and locally many organisations have
made public statements in support of the
TCFD and in Australia and New Zealand many
organisations are assessing the framework
and starting to disclose in alignment with the
framework.

While adoption of the TCFD framework is
voluntary, it is becoming increasingly expected,
as investors and other stakeholders increase
their focus on understanding how organisations
are considering the impact of climate change
on their business from a strategic risk and
opportunity perspective in the short, medium
and longer terms.

Task Force of Climate-related Financial Disclosures
(TCFD): mainstreaming climate risk considerations

At Deloitte, we believe workplace diversity
recognises and leverages the different skills and
perspectives people bring to an organisation
through their gender, culture, physical and
mental ability, sexual orientation, age, socio-
economic background, language, religion,
education, and family/marital status. It also
includes the diverse ways of thinking and ways
of working. Through our extensive research, we
know that at the intersection of diversity and
inclusion lies an area rich with fresh, innovative
ideas and creativity – driving better employee
experiences and client outcomes.

Research shows that companies that are diverse
and inclusive significantly outperform their
peers and will be better positioned to thrive.
For example, research by Bersin and Deloitte12
shows that organisations with more inclusive
cultures are:

• 6 x more likely to be innovative
• 6 x more likely to be agile
• 3 x more likely to be high performing
• 2 x more likely to meet or exceed
financial targets.

Diversity and inclusion at Deloitte

Progress, prospects and impact | State of CSR
30

Progress, prospects and impact | State of CSR

Priorities show small variations across industries
We examined the top three priorities by industry
where there were at least 20 respondents per industry
(Chart 15). Promoting diversity in the workplace is
the top issue for professional services, transport and
storage, electricity, gas and water supply, and energy
and resources. Finance and insurance companies are
focused on managing the implications of technology
along with regulatory impacts. This reflects the digital

transformation sweeping through the industry.
Unsurprisingly, Information Technology’s top priority
is managing the implications of technology, a constant
for the industry. The top priority for the year ahead for
both cultural and recreational services, and health and
community services is building stronger relationships
with their stakeholders.

Industry Top priority Second priority Third priority

Cultural and
recreational
services

Building stronger
relationships with
our stakeholders

Managing the
implications of
technology (e.g., data
security, privacy)

Waste reduction or
recycling initiatives

Electricity, gas
and water supply

Promoting diversity
in the workplace

Managing regulatory
impacts

Strengthening our social
license to operate

Energy
and resources

Promoting diversity
in the workplace

Reducing or eliminating
any negative
environmental impacts
of our organisation

Managing regulatory
impacts

Finance
and insurance

Managing the
implications of
technology (e.g., data
security, privacy)
Managing regulatory
impacts
Promoting diversity
in the workplace

Health and
community
services

Building stronger
relationships with
our stakeholders

Addressing economic
inequality within our
sphere of influence

Addressing human rights
issues within our sphere
of influence

Information
technology

Managing the
implications of
technology (e.g., data
security, privacy)
Promoting diversity
in the workplace

Preparing for the
Modern Slavery Act
in Australia

Manufacturing
Reducing or eliminating
any negative
environmental impacts
of our organisation
Managing regulatory
impacts

Improving or beginning
our organisation’s
sustainability reporting

Professional
services

Promoting diversity
in the workplace
Building stronger
relationships with
our stakeholders
Managing the
implications of
technology (e.g., data
security, privacy)

Transport
and storage

Promoting diversity
in the workplace
Managing the
implications of
technology (e.g., data
security, privacy)
Reducing or eliminating
any negative
environmental impacts
of our organisation

Chart 15
Top three priorities
by industry

Progress, prospects and impact | State of CSR

Chart 16: CSR priorities comparison 2008 to 2018

23%

29%
40%

45%
35%

42%

49%
52%

65%
62%

54%
56%

65%

66%

Reducing or eliminating any negative
environmental impacts of our business

Improving or beginning our organisation’s
sustainability reporting
Building internal understanding and support
for our CSR/sustainability approach
Improving our supply chain policies or practices

Adressing human rights issues such as poverty
and equality within our sphere of influence

Working to address labour relation issues

Working to combat business corruption

0% 20% 30% 10% 40% 50% 60% 70%

2008, n=169 2018, n=287

CSR issues have become more important over
the last decade
Seven long-standing and central CSR issues have
increased in priority for CSR managers in the last
decade. None have declined significantly (Chart 16).
Corruption, labour relations and human rights have
all increased in importance for CSR managers
(corruption +19%; labour relations +11%; and
addressing human rights +10%).

Combatting corruption and anti-bribery has been an
important priority of government in the last decade13,
and business has accelerated their focus on this issue.
This has been accompanied by falling ratings and rising
scrutiny, as shown by the Transparency Corruption
Perceptions Index14 where Australia’s rating declined
from 87 in 200815 (rank of 9th least-corrupt nation)
to 77 (rank of 13th least-corrupt nation) in 201716.

Over this time, Australian companies’ reputations
were caught up in global issues including the Panama
Papers, fraudulent and corrupt behaviour in the
financial services sector such as NAB’s bribery ring17,
and CBA’s fraudulent behaviour in the company’s
financial planning arm18.

Human rights issues have increasingly assumed
centre stage among leading practitioners in the
corporate responsibility arena over the last five
years. The Sustainable Development Goals in 2016,
and the impending Modern Slavery Act in Australia,
have helped focus the attention of business on human
rights issues. We explore this further in Section 8.

Chart 16
CSR priorities
comparison
2008 to 2018

33
Progress, prospects and impact | State of CSR

Chart 17: CSR as a driver of innovation

63%
66%

69%

71%

51%

70%
CSR innovation in

market development

CSR innovation in
products and processes

0% 10% 20% 40% 30% 50% 60% 80% 70%

2015, n=5472012, n=334 2018, n=479

10. CSR as a driver
of innovation

Innovation has long been considered an important
aspect of CSR. Organisations need to create, change
and foster a corporate culture that integrates social
and environmental considerations into strategy and
operations to create new stakeholder value.

Since 2011 innovation has become even more central
to organisational strategies that address their role in
society, when Michael Porter and Mark Kramer coined
the concept “shared value19” . The concept has been
embraced by many businesses.

We have tracked the relationship between CSR
and innovation triennially since 2012, as shown in
Chart 17. Our results show that CSR continues to
drive innovation with significant increases since 2012.

As noted in Chapter 5, CSR is increasingly delivering
competitive advantage. To achieve this requires innovation.

Chart 17
CSR as a driver
of innovation

Progress, prospects and impact | State of CSR

Innovation in new
business markets
CSR practices have allowed our
organisation to access new
geographic markets, customers
or distribution channels.

Some industries are using CSR for innovation more
effectively than others. Chart 18 shows industry scores
where there were at least 20 respondents per industry
to these questions.

Chart 18: CSR innovation scores by industry in 2018

Health and community services
Professional services

Infomation technology

Electricity, gas and water supply 77%

74%

73%

72%

55% 60% 65% 70% 75% 80%

Energy and resources

Clutural and recreational services

Transport and strorage

Finance and insurance

Manufacturing 71%

71%
70%
70%
65%

Chart 18
CSR innovation
scores by industry
in 201820

“Shared Value is not about
sharing the value already
created by firms – a redistribution
approach. Shared Value is about
expanding the total pool of
economic and social value.”

Michael Porter and Mark Kramer,
Harvard Business Review, Feb 2011

Innovation in products
and processes
Our organisation considers CSR
issues when we develop and
produce products and services.
Our marketing emphasises CSR
aspects of our products and services.
Product market decisions take into
account CSR considerations.

Progress, prospects and impact | State of CSR

CASE STUDY 1

CSR innovation at Arup

1. How has CSR evolved at Arup over the
last 10 years?

Our CSR work started many years ago, when our
founder, engineer and philosopher Sir Ove Arup,
wrote the key speech setting out our organisation’s
values. A key focus of his was being a humane
organisation. A decade ago, our community
engagement work was grass roots, philanthropic
and ad-hoc in nature. However, over the years, Arup
realised we could have more of an impact if we not
only donated funds but also used our technical skills
with our partners to ‘shape a better world’. Similar
to lawyers or doctors, our engineers, planners and
designers have specialised skills that can add immense
value to people and places that wouldn’t otherwise
have access. Two years ago we came together globally
in order to align our efforts and be more strategic.
Now we have a global strategy looking at how we
can scale our impact, innovate and continually
refine our approach.

2. What CSR innovations are you most proud
of in the last 12-18 months?

We have designed an impact measurement framework
using a theory of change to test our hypothesis about
the outcomes of our work against the UN Sustainable
Development Goals (SDGs). Our focus has been on
creating impact at scale and working closely with
partners to ensure sustainability. But it’s the actual
projects that I get really excited about. For example,
we have technical specialists working on the design
for an Aboriginal Males Healing Centre in remote
Western Australia; we recently sent a team of people
on a mission to refugee camps in Cox’s Bazar in
Bangladesh training local people in bamboo design;
we are designing a sewerage supply system servicing

over 12,000 people in Papua New Guinea, and;
our digital team is working on mapping safe places
or women and girls in the City of Sydney – just to
name a few pro bono projects.

3. How does Arup incorporate CSR in to
business innovation?

Arup has adopted the UN SDG framework across
all of our work as a way to set project aspirations
and targets for the most important aspects of
social, environmental and economic sustainability.
Aligning our core business with the UN SDGs will
enable us to play to our strengths, maximise our
impact and achieve our mission to ‘shape a better
world’. We are also using our impact framework as
a way to feed lessons learnt and new knowledge
into our commercial projects adding more value
to clients and in turn the community.

4. What advice do you have for other companies
wanting to innovate through CSR activity?

Firstly, I think it’s important to understand the full
capability of your organisation’s product or service
offering and how this can be leveraged to create social
value. It’s helpful to engage a cross section of the
business in strategy development and product/service
design to closely align your efforts. Further, look for
partnering opportunities with organisations with a
values alignment and an appetite to take risks and
co-create scalable, impactful ‘shared value’ projects.
And finally, ensure you invest in your people and
provide clear avenues for staff participation inspiring
a culture of long term engagement.

Arup is a professional services firm providing services
to all aspects of the built environment. We spoke to
Sunny Oliver-Bennetts, Community Engagement
Manager Australasia.

36
Progress, prospects and impact | State of CSR

11. New Zealand
setting the pace

This year there were 243 respondents from New
Zealand, comprising 22% of total survey respondents.
This response rate has slightly declined from last year
when there were 359 New Zealand respondents, but is
above the 2016 response of 226.

CSR management capabilities
CSR capabilities have become better embedded
in New Zealand organisations over the past three
years rising from a score of 73% to 80%, as judged
by their employees. The largest improvement was in
stakeholder engagement which jumped from 80%
to 89%. While social accountability is still the lowest
ranked capability, it has risen 11% since 2016.

The results suggest a heightened engagement with
CSR. Results continue to reflect New Zealand’s strong
history in conservation and environmental protection
– it was the first country in the world to enshrine the
concept of sustainability in law21. These results are
further supported by Labour’s election win in 2017
and the subsequent establishment of the target of
carbon neutrality by 2050. This pledge has prompted
a number of companies to get on the front foot of
regulation and make similar commitments to cutting
emissions (see Fonterra case study).

New Zealand results streaked ahead in 2018 compared
with 2016 and 2017, demonstrating a dedicated uptake
of CSR practices.

Progress, prospects and impact | State of CSR

1. How has CSR evolved at Fonterra over the
last 10 years?

A key step for us was the adoption of ISO 26000 and
using its definition of social responsibility. It states
an organisation should take responsibility for its
impacts on society and the environment, considering
the expectations of stakeholders and contributing to
sustainable development.

This has helped increase our regular engagement with
stakeholders, to better understand their perspectives,
and analyse our performance across the range of
topics to ultimately prioritise our improvements.

Sustainability is now a core part of our strategic
planning cycle and called our Sustainable Co-operative
horizon. It has been a gradual process, embedding the
thinking more and more during that time. It is a work in
progress and one that we are still focused on.

2. Reducing environmental impacts is the top
CSR priority in New Zealand. How does
managing environmental impacts fit within
the broader responsibilities of Fonterra?

As a global food producer, we are in a privileged
position of delivering nutrition and with the
opportunity to make a positive difference to people’s
lives through our products. When we look at our
approach to sustainability we are looking at three
pillars. Improving the health and wellbeing of society
through our products. Making a positive contribution
to communities, including through positive livelihoods
for our farmers and employees. And recognising
we need to do this while still achieving a healthy
environment for farming and society.

3. Can you tell me about a recent environmental
achievement?

Nitrogen is one of the essential nutrients for growing
the pasture that feeds dairy cattle. However, if excess
nitrogen makes its way into waterways it can have
a detrimental effect. A significant concern for
New Zealand stakeholders.

Last year 95% of our farmers in New Zealand
participated in our Nitrogen Management Program.
Using the detailed information from our farmers we
can provide them with detailed performance reports.
These include estimates nitrogen losses, efficiency
and their performance relative to other local farmers,
allowing them to make year-on-year improvements.

CASE STUDY 2

CSR success at Fonterra
Fonterra is a New Zealand dairy co-operative. We spoke to
Gary Philip, General Manager, Group Social Responsibility
Performance and Reporting

Progress, prospects and impact | State of CSR

Chart 19.0: NZ CSR management capabilities

80%
75%
75%

80%
89%

73%

79%
Stakeholder values

Stakeholder engagement

73%
72%

78%
Genuine dialogue

70%
65%

76%
Social accountability

73%

80%
Grand total

60% 65% 70% 80% 75% 85% 90%

20172016 2018

Chart 19
Management
capabilities
amongst
New Zealand
companies

Progress, prospects and impact | State of CSR

Chart 20: New Zealand CSR priorities

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Preparing for the Modern Slavery Act in Australia
Alleviating poverty within our sphere of influence
Addressing economic inequality
within our sphere of influence

Adressing human rights issues
within our sphere of influence

Working to address labour relationships issues

Improving our supply chain policies or practices

Improving or beginning our
organisational’s sustainability reporting

Addressing the Sustainable Development Goals

Strengthening our social license to operate
Measuring or quantifying the impacts
and outcomes of our CSR initiatives
Waste reduction or recycling initiatives

Managing the implications of technology
e.g., data security, privacy

Building internal understanding and support
for our CSR/sustainability approach

Building stronger relationships with our stakeholders

Managing regulatory impacts
Managing the impact of climate
change on our organisation
Promoting diversity in the workplace

Reducing or eliminating any negative
environment impacts of our organisation

High priority Very high priority

47%

39%
40%
31%

38%

40%

26%

39%

44%

30%
41%
38%
35%

33%

31%
25%
16%
7%

Working to combat business corruption 14%

Adressing the requirements of the TCFD
(Task Force on Climate-Related Financial Disclosures) 20%

36%
41%
35%
39%
30%
27%
41%
27%

21%

8%
13%
13%
14%
12%
23%
25%

22%

34%
13%
9%

Chart 20
New Zealand
CSR priorities
n=106

40
Progress, prospects and impact | State of CSR

References and endnotes
1. Where an industry had fewer than 20 responses, we excluded
this information from industry analysis.

2. Professional services included engineering, accounting, legal
and management consulting.

3. https://www.theguardian.com/australia-news/2017/aug/08/
commonwealth-bank-shareholders-sue-over-inadequate-
disclosure-of-climate-change-risks

4. https://www.smh.com.au/environment/rio-tintos-warkworth-
coal-mine-faces-fresh-legal-challenge-20160229-gn6i47.html

5. CSR management capabilities are typically calculated by finding
the mean of all responses to all items. In Figures 5 to 8 we have
applied a different calculation to emphasise differences across
years. In these figures we have taken scores of 4 or more out of 5
and divided by the total number of respondents.

6. http://www.ilo.org/global/about-the-ilo/newsroom/news/
WCMS_574717/lang–en/index.htm

7. https://www.globalslaveryindex.org/findings/

8. Trading Lives Report, JFADT House Committee, http://www.
aphref.aph.gov.au-house-committee-jfadt-slavery_people_
trafficking-report-full

9. https://www.aph.gov.au/Parliamentary_Business/Committees/
Joint/Foreign_Affairs_Defence_and_Trade/ModernSlavery/Interim_
Report/section?id=committees%2Freportjnt%2F024092%2F24920

10. Modern Slavery Act results are only presented for Australian
respondents

11. https://www.fsb-tcfd.org/publications/final-recommendations-
report/

12. https://www2.deloitte.com/content/dam/Deloitte/us/
Documents/human-capital/hc-2017-global-human-capital-trends-
us

13. https://www.ag.gov.au/CrimeAndCorruption/AntiCorruption/
Pages/default.aspx

14. https://www.transparency.org/research/cpi

15. https://www.transparency.org/research/cpi/cpi_2008/0

16. https://www.transparency.org/news/feature/corruption_
perceptions_index_2017

17. https://www.theguardian.com/australia-news/2018/mar/13/
banking-royal-commission-public-hearings-open-on-litany-of-
misconduct

18. https://www.sbs.com.au/news/explainer-what-the-
commonwealth-bank-has-done-and-how-you-can-fix-it

19. Creating Shared Value, by Michael E Porter and Mark R Kramer,
Harvard Business Review, Jan-Feb 2011

20. Innovation scores are calculated as the mean of two variables:
innovation in products and processes; and innovation in new
business markets.

21. https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1752-1688.2001.
tb05511.

41
Progress, prospects and impact | State of CSR

Progress, prospects and impact | State of CSR

Paul Dobson
Partner
Deloitte Sustainability
padobson@deloitte.com.au

Juliet Burke
Partner
Consulting
julietbourke@deloitte.com.au

Chi Mun Woo
Partner
Sustainability Services
chimunwoo@deloitte.com.au

Dr Leeora Black
Principal
Deloitte Sustainability
leblack@deloitte.com.au

43
Progress, prospects and impact | State of CSR

This publication contains general information only, and none of Deloitte Touche Tohmatsu
Limited, its member firms, or their related entities (collectively the “Deloitte Network”) is,
by means of this publication, rendering professional advice or services. Before making
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MCBD_MEL_04/18_055573

Sustainability Reporting:
Practices, performance and potential
In association with GRI

CPA Australia Ltd (‘CPA Australia’) is one of the world’s largest accounting bodies representing more than 144,000 members of the financial, accounting and business profession
in 127 countries.

ISBN: 978-1-921742-42-

For information about CPA Australia, visit our website cpaaustralia.com.au

First published
CPA Australia Ltd
ACN 008 392 452
Level 20, 28 Freshwater Place
Southbank Vic

Australia

Legal notice

Save and except for third party content, all content in these materials is owned by or licensed to CPA Australia. All trade marks, service marks and trade names are proprietory to
CPA Australia. For permission to reproduce any material, a request in writing is to be made to the Legal Business Unit, CPA Australia Ltd, Level 20, 28 Freshwater Place, Southbank,
Victoria 3006.

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completeness of any information in these materials. No part of these materials are intended to be advice, whether legal or professional. Further, as laws change frequently,
you are advised to undertake your own research or to seek professional advice to keep abreast of any reforms and developments in the law.

To the extent permitted by applicable law, CPA Australia, its employees, agents and consultants exclude all liability for any loss or damage claims and expenses including but
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prohibits the exclusion of such liability, CPA Australia limits its liability to the re-supply of the information.

http://www. cpaaustralia.com.au

Contents

Foreword

About the authors

Acknowledgements 3

Overview

Key Highlights from the study 4

Background to the GRI 4

Method

Sample selection 6

Analysis of report content 6

General characteristics of reporting sample

Country reporting comparison

Reporting by section of GRI

Concluding Comments

Reporting scores and major factors influencing sustainability reporting in each country

Financial performance 17

Analyst and market variables 1

Concluding Comments

Identification and analysis of cross-sectional differences – countries, industries, size levels and other factors

Intra-country disclosures 20

Industry Differences

Firm size 21

High Growth/Low Growth 21

Correlations between GRI Disclosures and Selected Financial Performance Indicators

Conclusions

References

This report comes at a crucial stage in the development
of corporate and business reporting. The International
Integrated Reporting Council has recently undertaken
a number of important initiatives towards creating a
robust framework for the mainstream use of Integrated
Reporting. The Global Reporting Initiative (GRI) has also
made significant changes with the release of its updated
Sustainability Reporting Guidelines (G4).

This report, based on actual corporate disclosures in the
public domain, addresses the critical issue of organisational
capacity to report sustainability information.

Overall, we investigate what tends to get in the way of
non-financial reporting uptake, and explore the attributes
of companies that have already made significant inroads
in producing holistic and wide-ranging disclosures beyond
those mandated by regulation.

The innovative nature of this research provides a rich source
of comparison between three key financial markets –
Australia, Hong Kong and the United Kingdom. Specifically,
we find that companies across these markets tend to have
higher levels of governance and environmental disclosures.
In contrast, human rights, society and product responsibility
attracts low levels of disclosure. We also find that Australian
companies at this point in time are more likely to produce
an integrated report.

This research aims to help guide the future consideration of
appropriate policy-settings and competitive considerations
that will drive positive changes with the integration of
corporate reporting. This will become increasingly important
in the coming years as the traditional roles of accountants
broaden and change further.

Alex Malley FCPA
Chief Executive, CPA Australia

Foreword

Cornelia Beck is a lecturer in the Discipline of Accounting
at the University of Sydney Business School. Her primary
research interest lies in the narrative organisations use to
demonstrate their efforts in relation to environmental impact
minimisation and maintaining a sustainable future.

Geoff Frost is an Associate Professor in the Discipline of
Accounting at the University of Sydney Business School.
His current research interests include reporting and
accounting for sustainability activities, the accountant’s role
in the environmental management system, and the use of
alternative reporting mediums by reporting entities.

Stewart Jones is a Professor in the Discipline of Accounting
at the University of Sydney Business School. His current
research interests include corporate financial reporting,
credit risk modelling, accounting standards and accounting
theory as well as issues in sustainability reporting.

Acknowledgements
CPA Australia and the authors wish to acknowledge the
generous support of both the GRI Secretariat and GRI
Focal Point Australia by way of their review of drafts of the
report and in the provision of particular matters of technical
clarification. The conclusions and views expressed in the
report remain those of the authors and CPA Australia.

About the authors

This report presents the findings of an analysis of corporate
sustainability reporting in 2012. The study’s objective was
to review current sustainability reporting practices of a
sample of the top 40 companies listed in three jurisdictions;
Australia, Hong Kong and the United Kingdom. Sustainability
reporting by the sample companies was benchmarked
against the GRI G3.1 Guidelines. This report also provides
an analysis of sustainability reporting practices by
establishing relationships between sustainability reporting
and financial market characteristics. As such this report
provides an update to Jones, Frost, Loftus, & van der Laan’s
2005 study on Australian sustainability reporting practices
and extends their study’s scope beyond the Australian
context.

This report is structured as follows: The following section
will provide a background for the Global Reporting Initiative
(GRI) and the GRI Sustainability Reporting Guidelines before
the sample selection and methods of analysis are explained.
The findings are presented as country comparisons of
sustainability reporting practices and performance. Analysis
of reporting performance against financial variables provides
further insight into reporting similarities and differences
between a sample of the top 40 listed companies in
Australia, Hong Kong and the United Kingdom.

Key Highlights from the study

• The GRI Sustainability Reporting Guidelines are
acknowledged as a key framework for sustainability
reporting by companies in all three jurisdictions.

• Larger, multi-national firms show higher levels of
sustainability disclosures, with highest disclosure
levels in governance and environment. Companies
in the materials and energy industry produce more
sustainability information than other sectors.

• External Assurance is sought to varied levels
– and most pursued in the UK. Most external
assurance statements were provided by large
international accounting firms (Big Four organisations).
This represents a significant shift from previously
observed assurance practices in Australia.

• British companies produced more diverse sustainability
information and spread this information across more
GRI indicators than companies in other jurisdictions.

• Australian companies disclose most on
the environment. This observation is led by
reporting practices in the resources sector.

• Disclosure levels in Hong Kong were the lowest
in the sample. However, the most proficient
reporters in Hong Kong were on par with
leading reporters in Australia or the UK.

• Profitability and cash flow return are strongly
correlated with “GRI scores”’1, this including
analyst projections of future return on equity.

• Specific industry membership is an important
influencer of sustainability reporting behaviour,
particularly where, within some sectors, there is a
requirement to report on certain areas of activity.

Background to the GRI

The Global Reporting Initiative (GRI) was initiated as
a project group for the Coalition for Environmentally
Responsible Economies, CERES (Boston) in 1997
with the stated objective of developing a reporting
framework to report environmental information and
increase organisational accountability. The project group
launched their first version of a guideline in 2000. Those
guidelines were created based on the suggestions of
different stakeholder groups on how to improve reporting
on environmental performance. Following the launch, the
Initiative was set up as a separate not-for-profit organisation
with its headquarters in Amsterdam, The Netherlands.

Over time, GRI has become the most widely used reporting
framework for non-financial disclosures in the business
world. Indeed, it is now referred to as a de facto standard
for voluntary sustainability reporting. This position was
supported through a number of strategic alliances between
GRI and other key international initiatives such as the United
Nations Global Compact, the UN Environmental Program
and the OECD. Those alliances informed the content of
the revised Guidelines and, as such, the G3.1 Guidelines2
and sector supplements provide organisations with a single

1 ‘GRI score’ is developed as part of the study’s statistical analysis and is explained
in this report in the section Method under the heading Analysis of report content.

2 At the time of writing, and in particular when assembling data for the research, G3.1
was the applicable version of the Guidelines. The latest version, G4, was launched
by the GRI in May 2013. G4 provides transitional arrangement allowing reporters to
use of G3 and G3.1 for up to two full reporting cycles.

Overview

platform for sustainability reporting which satisfies the
GRI and, for example, the UN Global compact signatory
requirements. As such, the GRI has embedded a number
of initiatives and thus sustained its dominance as reporting
guidelines on the voluntary reporting market:

GRI has global strategic partnerships with the
Organization for Economic Co-operation and
Development, the United Nations Environment
program and the United Nations Global Compact.
Its Framework enjoys synergies with the guidance
of the International Finance Corporation, the
International Organization for Standardization’s
ISO 26000, the United Nations Conference on
Trade and Development, and the Earth Charter
Initiative. (GRI Website, accessed 29 January 2013)

Studies have shown that companies follow the Guidelines
with reference to the Application Levels C through B to A,
as a basis of demonstrating leadership in both practice
and reporting. This is despite the GRI stating that the G3.1
Application Level system in its graduated approach to the
number of Performance Indicators does not recognise or
‘award’ quality of disclosure. This combination of factors
has nonetheless led to criticism for its resemblance to
school marks and the inherent meaning attached (“A
is the best”). Moreover, the Application Level checking
process – which GRI has offered G3 and G3.1 reporters
and verifies a reporter’s self-declaration – is not designed
to give exhaustive appraisal of quality of reporting, particularly
in relation to some performance indicators, the application
of which is open to interpretation.3 (Beck, Dumay,
& Frost, 2010)

3 It is noteworthy that the G4 Guidelines adopt instead an “in accordance” approach
and that the Performance Indicators have been extensively revised to distinguish
between ‘what to report’ and ‘how to report’. These changes, along with further
development is assurance of sustainability reporting, should lead to a clearer
understanding of what is disclosed and the underlying basis of its preparation.

Most recently – in 2011, the GRI joined the call for
mandatory reporting on non-financial information. The
push for mandating sustainability information by the GRI is
explained through the following quote, which emphasises
the work already accomplished by the GRI:

Although reporting on sustainability impacts is
becoming increasingly commonplace, it is still not
a mainstream activity. At the Global Reporting
Initiative, we produce guidelines that enable all
companies and other organizations to produce
comparable reports on their sustainability
performance. We are not asking the European
Commission to reinvent the wheel, but to look
at what many big companies are already doing
and create new regulation that requires all large and
medium-sized companies to be transparent about
the impact they are having on the world. Only then
can we follow a clear path to a sustainable economy.
(T. Fogelberg, Deputy Chief Executive GRI quoted in
Press Release4, 4 February 2011, emphasis added)

Also see:
https://www.globalreporting.org/information/news-and-
press-center/Pages/EU-proposal-sparks-hope-for-new-era-
of-corporate-transparency.aspx

4 https://www.globalreporting.org/information/news-and-press-center/Pages/United-
call-for-mandatory-company-reporting.aspx accessed 29 January 2013

https://www.globalreporting.org/information/news-and-press-center/Pages/EU-proposal-sparks-hope-for-new-era-of-corporate-transparency.aspx

https://www.globalreporting.org/information/news-and-press-center/Pages/United-call-for-mandatory-company-reporting.aspx

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Sample selection

This study’s objective is to describe non-financial reporting
practices and content in three jurisdictions. The 2012
published annual and stand-alone sustainability reports
produced by a sample of the top 40 listed companies from
the Australian, Hong Kong and London stock exchanges
were analysed. The three countries informing this sample
are perceived to be at different stages in their respective
voluntary reporting histories (Gamble, Hsu, Devaun, &
Radtke, 1995), with the United Kingdom representing a
more mature jurisdiction in terms of sustainability reporting
practice than Australia and, ultimately, Hong Kong. As
such this sample provides a rich data set for inter-country
comparisons of reporting practice.

For each company identified, the latest annual and
sustainability (or equivalent) reports were downloaded from
the companies’ websites in 2012. The Hong Kong sample
was limited to the English version of the report which
concluded a final sample containing 116 companies for
2012. Of those 116 companies, 68 produced a separate
sustainability report, which means a total of 184 reports
were analysed. Every report was independently read and
the information content coded based on the GRI G3.1
Sustainability Reporting Guidelines.

Analysis of report content

The coding instrument was derived from the G3.1
Guidelines. It recorded each G3.1 reporting category data
points listing the individual indicators5, their definitions
and further explanations – which were taken from the
Technical Protocol Applying the Report Content Principles.6
Consequently, our analysis exercise of reporting practice
could observe a maximum of 125 observations for each
report; 123 standard disclosures,7 plus recording whether
the organisation follows the G3.1 Guidelines and discloses
its Application Level and the assurance provider (if the
report is assured), however excluding a limited number of
disclosures, such as whether there was a GRI Table, which
are not considered relevant to the statistical analysis.

5 T he indicators are organised into three categories; Economic, Environmental and
Social. The Social category is further subdivided in Labour Practices and Decent
Work, Human Rights, Society and Product Responsibility.

6 The Technical Protocol’s stated objective is to provide “process guidance on how
to define the content of a sustainability report” (TP page 2).

7 In the G3.1 Guidelines the Standard Disclosures are divided into 42 Profile
Disclosures and 84 Performance Indicators.

Each report was coded individually. If an organisation
produced more than one report, those analyses were
brought together, allowing the researchers to show
differences in the reports as well as to generate an
overall GRI score for the company.

The ‘GRI score’ is composed of a count of disclosure items
or reporting points against our ‘benchmark’8 maximum of
123 available from the GRI G3.1 Guidelines. The sample
firms include those which acknowledge reporting against
the GRI and firms which do not. The study is an analysis
of reporting practices by large listed companies using the
G3.1 Guidelines as a basis to determine level and type of
sustainability disclosure, rather than a study of self-declared
GRI reporters.

Further to recording the content following the descriptions
outlined in the G3.1 Guidelines, the analysis also recorded
whether the companies disclosed their level of GRI
disclosure, whether their report had been Application
Level checked by the GRI, whether the data had been
assured, and who the company engaged as their assurance
provider.9 All content is cross-referenced in a database to
the actual reports. This information allows for a cross check
of indicator definitions from an external perspective (i.e.
researchers) versus GRI if the analysis result differentiated
from the self-declared GRI Application Level.

The sample included a number of companies releasing
what was described as an integrated report (n=8, 7 of
those were produced by Australian companies). Those
were recorded as the annual report if only one report
was published for the year.

8 No inference is made that the GRI Guidelines provides a process of benchmarking.
A count of disclosure point nonetheless provides a valid basis for comparison within
the objectives of this study. The GRI score is a statistical measure essential to the
study’s analysis and should not be confused with the GRI’s own Application Level
checking processes.

9 This approach was taken as the literature demonstrates the differences between
Australia’s assurance market and the rest of the world. By having an identifier in the
coding, this study can shed further light into the impact of assurance provided by
Big4 accounting practices vs. assurance providers that are not Big4.

Method

Table 1 below provides an overview of a number of general reporting practices of the sample companies. The overview
shows the listing of country of the company, the reports produced (and analysed in this study as ‘AR’ for annual report
and ‘SR’ for sustainability report), whether the company refers to the GRI Guidelines in the preparation of their report (),
if it discloses the report’s GRI Application Level and where (+) signifies a disclosure that the SR has been externally
assured, along with naming the assurance provider.

Table 1: General characteristics of reporting – sample

Company Country Report
GRI

(Application
Level)

Auditor Assurance
Provider

AGL ENERGY LIMITED AUS
AR
SR ü (A+)

Deloitte
Net Balance

AMCOR LTD AUS
AR
SR ü (B+)

PWC
Net Balance

AMP LIMITED AUS AR Ernst & Young

ASX LIMITED AUS AR PWC

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED AUS
AR
SR ü (A+)

KPMG
Corporate Citizenship

BHP BILLITON LIMITED AUS
AR
SR ü (A+)

KPMG
KPMG

BRAMBLES LIMITED AUS AR PWC

CFS RETAIL PROPERTY TRUST AUS AR PWC

COCA-COLA AMATIL LIMITED AUS
AR
SR

Ernst & Young
n/a

COMMONWEALTH BANK OF AUSTRALIA AUS
AR
SR ü

PWC
KPMG

CROWN LIMITED AUS AR Ernst & Young

CSL LIMITED AUS
AR
SR ü (B)

Ernst & Young
n/a

FORTESCUE METALS GROUP LTD AUS
AR
SR ü

BDO
n/a

GOODMAN GROUP PTY LTD AUS
AR
SR

KPMG
n/a

ILUKA RESOURCES LIMITED AUS
AR
SR

PWC
n/a

INCITEC PIVOT LIMITED AUS
AR
SR ü (C)

KPMG
n/a

INSURANCE AUSTRALIA GROUP LIMITED AUS
AR
SR ü

KPMG
KPMG

LEIGHTON HOLDINGS LIMITED AUS AR KPMG

MACQUARIE GROUP LIMITED AUS AR ü (C+) PWC

NATIONAL AUSTRALIA BANK LIMITED AUS
AR
SR ü (A+)

Ernst & Young
KPMG

General characteristics of reporting sample

8
Company Country Report
GRI
(Application
Level)
Auditor Assurance
Provider

NEW HOPE CORPORATION LIMITED AUS AR PWC

NEWCREST MINING LIMITED AUS
AR
SR ü (A+)

Ernst & Young
Environmental Resources
Management

ORICA LIMITED AUS AR ü (B) KPMG

ORIGIN ENERGY LIMITED AUS
AR
SR ü

KPMG
n/a

QBE INSURANCE GROUP LIMITED AUS AR PWC

QR NATIONAL LIMITED AUS AR PWC

SANTOS LIMITED AUS
AR
SR ü (A+)

Ernst & Young
Net Balance

SONIC HEALTHCARE LIMITED AUS
AR
SR

PWC
n/a

STOCKLAND CORPORATION LTD AUS
AR
SR ü (A+)

KPMG
Net Balance

SUNCORP GROUP LIMITED AUS
AR
SR

KPMG
n/a

SYDNEY AIRPORT HOLDINGS LIMITED AUS
AR
SR

KPMG
n/a

TELSTRA CORPORATION LIMITED AUS
AR
SR ü (C+)

Ernst & Young
Banarra

THE GPT GROUP AUS AR PWC

TRANSURBAN GROUP AUS
AR
SR ü (A+)

PWC
Net Balance

WESFARMERS LIMITED AUS
AR
SR ü (B+)

Ernst & Young
Net Balance

WESTFIELD GROUP AUS
AR
SR

ü (C)
ü (C)

Ernst & Young
n/a

WESTPAC BANKING CORPORATION AUS
AR
SR ü (A+)

PWC
KPMG

WOODSIDE PETROLEUM LTD. AUS
AR
SR ü (B+)

Ernst & Young
Ernst & Young

WOOLWORTHS LTD AUS
AR
SR

Deloitte
Net Balance

WORLEYPARSONS LIMITED AUS AR Ernst & Young

ANGLO AMERICAN PLC GBR
AR
SR ü (A+)

Deloitte
PWC

ANTOFAGASTA PLC GBR AR Deloitte

ASSOCIATED BRITISH FOODS PLC

GBR
AR
SR

KPMG
KPMG

ASTRAZENECA PLC GBR AR KPMG

9
Company Country Report
GRI
(Application
Level)
Auditor Assurance
Provider

AVIVA PLC GBR
AR
SR

Ernst & Young
Ernst & Young

BAE SYSTEMS PLC GBR AR KPMG

BARCLAYS PLC GBR
AR
SR ü (B+)

PWC
Ernst & Young

BG GROUP PLC GBR
AR
SR ü (A+)

PWC
Two Tomorrows Ltd

BP P.L.C. GBR
AR
SR ü (A+)

Ernst & Young
Ernst & Young

BRITISH AMERICAN TOBACCO P.L.C. GBR
AR
SR ü

PWC
Ernst & Young

BRITISH SKY BROADCASTING GROUP PLC GBR AR Deloitte

BT GROUP PLC GBR
AR
SR ü (A+)

PWC
Lloyd’s Register
Quality Assurance Ltd

CARNIVAL PLC GBR AR PWC

CENTRICA PLC GBR
AR
SR

PWC
Deloitte

DIAGEO PLC GBR
AR
SR ü (B+)

KPMG
KPMG

EURASIAN NATURAL RESOURCES CORPORATION PLC GBR
AR
SR

PWC
PWC

FRESNILLO PLC GBR AR Ernst & Young

GLAXOSMITHKLINE PLC GBR
AR
SR ü

PWC
SGS

HSBC HOLDINGS PLC GBR
AR
SR ü

KPMG
PWC

IMPERIAL TOBACCO GROUP PLC GBR AR ü (B) PWC

LLOYDS BANKING GROUP PLC GBR
AR
SR

PWC
Deloitte

NATIONAL GRID PLC GBR AR PWC

PEARSON PLC GBR AR KPMG

PRUDENTIAL PUBLIC LIMITED COMPANY GBR AR KPMG

RECKITT BENCKISER GROUP PLC GBR
AR
SR ü (A+)

PWC
PWC

RIO TINTO PLC GBR
AR
SR ü (A+)

PWC
PWC

ROLLS-ROYCE HOLDINGS PLC GBR AR KPMG

ROYAL DUTCH SHELL PLC GBR
AR
SR ü (A+)

PWC
Lloyd’s Register
Quality Assurance Ltd

SABMILLER PLC GBR
AR
SR ü (B+)

PWC
Corporate Citizenship

Company Country Report
GRI
(Application
Level)
Auditor Assurance
Provider

SSE PLC GBR AR KPMG

STANDARD CHARTERED PLC GBR
AR
SR

KPMG
n/a

TESCO PLC GBR
AR
SR ü (B)

KPMG
Environmental Resources
Management Ltd

THE ROYAL BANK OF SCOTLAND GROUP PUBLIC
LIMITED COMPANY

GBR
AR
SR

Deloitte
Deloitte

TULLOW OIL PLC GBR
AR
SR ü (B+)

Deloitte
Deloitte

UNILEVER PLC GBR
AR
SR ü (B+)

PWC
PWC

VODAFONE GROUP PUBLIC LIMITED COMPANY GBR
AR
SR ü (B+)

Deloitte
Ernst & Young

WM MORRISON SUPERMARKETS P L C GBR
AR
SR

KPMG
n/a

XSTRATA PLC GBR
AR
SR ü (A+)

Ernst & Young
Ernst & Young

AIA GROUP LIMITED

HKG AR PWC

BEIJING ENTERPRISES HOLDINGS LIMITED HKG AR Ernst & Young

BOC HONG KONG (HOLDINGS) LIMITED HKG
AR
SR

PWC
n/a

CATHAY PACIFIC AIRWAYS LIMITED HKG
AR
SR ü (A+)

KPMG
PWC

CHEUNG KONG (HOLDINGS) LIMITED HKG AR Deloitte

CHINA MERCHANTS HOLDINGS (INTERNATIONAL)
COMPANY LIMITED

HKG AR PWC

CHINA MOBILE LIMITED HKG
AR
SR

KPMG
n/a

CHINA OVERSEAS LAND & INVESTMENT LIMITED HKG AR Deloitte

CHINA RESOURCES ENTERPRISE LIMITED HKG AR Deloitte

CHINA UNICOM (HONG KONG) LIMITED HKG AR PWC

CLP HOLDINGS LIMITED HKG
AR
SR

PWC
SustainAsia Ltd

CNOOC LIMITED HKG
AR
SR

Ernst & Young
n/a

GALAXY ENTERTAINMENT GROUP LIMITED HKG AR PWC

GUANGDONG INVESTMENT LIMITED HKG AR Ernst & Young

HANG LUNG GROUP LIMITED HKG AR KPMG

HANG LUNG PROPERTIES LIMITED HKG AR KPMG

HENDERSON LAND DEVELOPMENT COMPANY LIMITED HKG AR KPMG

HONG KONG EXCHANGES AND CLEARING LIMITED HKG
AR
SR ü (A+)

PWC
Hong Kong Quality
Assurance Agency

Company Country Report
GRI
(Application
Level)
Auditor Assurance
Provider

HUTCHISON WHAMPOA LIMITED HKG AR PWC

HYSAN DEVELOPMENT COMPANY LIMITED HKG AR

Deloitte
n/a

LENOVO GROUP LIMITED HKG
AR
SR ü (C)

PWC
n/a

MTR CORPORATION LIMITED HKG
AR
SR ü (A+)

KPMG
PWC

NEW WORLD DEVELOPMENT COMPANY LIMITED HKG AR PWC

POWER ASSETS HOLDINGS LIMITED HKG
AR
SR ü (A+)

KPMG
Hong Kong Quality
Assurance Agency

SINA CORPORATION HKG AR

SINO LAND COMPANY LIMITED HKG
AR
SR ü (B)

Deloitte
n/a

SINO-OCEAN LAND HOLDINGS LIMITED HKG
AR
SR

PWC
n/a

SJM HOLDINGS LIMITED HKG AR Deloitte

SUN ART RETAIL GROUP LIMITED HKG AR Deloitte

SUN HUNG KAI PROPERTIES LIMITED HKG
AR
SR ü

Deloitte
The Business
Environment Council

SWIRE PACIFIC LIMITED HKG AR ü (C+) PWC

THE BANK OF EAST ASIA, LIMITED HKG AR KPMG

THE HONG KONG AND CHINA GAS COMPANY LIMITED HKG
AR
SR

PWC
n/a

THE LINK REAL ESTATE INVESTMENT TRUST HKG
AR
SR ü (B+)

PWC
Bureau Venitas Hong
Kong

THE WHARF (HOLDINGS) LIMITED HKG AR KPMG

TSIM SHA TSUI PROPERTIES LIMITED HKG AR Deloitte

WHEELOCK AND COMPANY LIMITED HKG AR KPMG

The table above shows that not every company that
produces a sustainability report necessarily follows the
GRI Guidelines or acknowledges the G3.1 as the framework
for preparing the report. Assurance of sustainability reports
is varied – from no external assurance to using specialist
services. There appears a dominance of the Big Four in the
assurance of sustainability reports within this sample.
Analysis presented later in this report shows reporting
practice for all sample reports based on the G3.1 Guidelines
to allow comparisons between the companies.

In the following section the empirical findings are presented.
We first set out the descriptive statistics which is followed
by the multiple regression analysis.

Country reporting comparison

The sample comprises 116 public companies drawn from
the top 40 firms (based on market capitalisation) on the
ASX, London FTSE and the Hong Kong Stock Exchange
(SEHK). From the 116 sampled firms, 40 firms were listed
on the ASX, while 38 firms were listed on the London
FTSE and 38 firms were listed on the SEHK. Industry
classification for each sampled firm was based on the
Global Industry Coding Standard (GICS). Across the sample
as a whole, the highest industry concentrations of sampled
firms were found in the following sectors: financial sector
(n=41), consumer staples sector (n=14), materials sector
(n=13), industrials sector (n=13) and energy sector (n=10).
The lowest industry concentrations were found in the
utilities sector (n=8), consumer discretionary sector (n=6),
telecommunications sector (n=5), healthcare sector (n=4)
and the information technology sector (n=2). Table 2
displays the distribution of sampled firms across industry
background and country.

The sampled companies show a good distribution across
industries, but there are some noticeable concentrations
within particular sectors at the country level. For instance,
there is a strong a concentration of energy and materials
companies in the Australian and UK sub-samples, but with
very little representation of these sectors in the Hong Kong
sub-sample. By contrast, there is a stronger concentration
of financial and information technology firms in the Hong
Kong sub-sample which might be expected given the
economic demographics of this jurisdiction.

Table 2: Intra-Country Distribution of Sampled Firms
Across Industries

Industry sector: Australia
United

Kingdom
Hong
Kong

Consumer discretionary 1 4 2

Consumer staples 3 8 2

Energy 5 4 1

Financials 15 7 19

Healthcare 2 2 0

Industrials 5 2 6

Information technology 0 0 2

Materials 7 6 0

Telecommunications 1 2 2

Utilities

1 3 4

Total 40 38 38

Of the 40 Australian companies, 30 produced a separate
sustainability report to their annual report. Of those, 20
were produced using the G3.1 Guidelines. Fifteen companies
in Hong Kong produced a separate sustainability report, 13
of which were prepared according to the G3.1 Guidelines
and of the 38 United Kingdom companies, 24 produced a
separate sustainability report in 2012, 19 of them were
GRI Application Level checked.

Reporting by section of GRI

Having presented an overview of the sample constitution
and characteristics, we evaluate the sustainability reporting
practices overall (see Table 3) and per country (Figure 1)
and industry (Figure 2). Table 3 displays the means,
medians, standard deviations, minimum and maximum
values for the sustainability disclosure variables examined
in this study, including total GRI score,10 Total Disclosure
Score – Annual Report (AR),11 Total Disclosure Score –
Sustainability Report (SR),12 and the components making
up the overall GRI score.13

As can be seen from Table 3, the median total GRI score
across the sample was 44.5 (mean 48.04) from a theoretical
maximum possible value of 123. The range of GRI scores
is from 16 to 101. All companies in the sample (116 in
total) disclosed sustainability information through the
annual report (the median score is 33 across the sample)
whereas a smaller number of firms (68 in total) produced
a sustainability report (SR). On average, sustainability
disclosures tended to be higher in the SR than the AR,
with a median score of 39.

Table 3 also provides the individual breakdowns of
GRI scores. The strongest contributors to the overall
performance of the GRI score is Total Profile (median
score of 8), Governance (median score of 7), and Total
Environmental Indicators (median score of 5). The lowest
scoring factors are Total Human Rights (median score
of zero), Total Strategy (median score of 1), Total Product
Responsibility (median score of 1), Total Society (median
score of 2), and Total Economic Indicators (median score
of 2).

10 Measured as the total of G3.1 items per report (maximum of disclosures per report
123 – refer ‘Analysis of report content’ for discussion of the basis of this count).

11 This indicates the total number of disclosures on G3.1 items in the annual reports.

12 This indicates the total number of disclosures as per G3.1 in the sustainability
reports.

13 Including Total Strategy, Total Profile, Total Report Profile, Total Report Boundaries,
Total Governance, Total External Initiatives, Total Stakeholder Engagement, Total
Economic Indicators, Total Environmental Indicators, Total Social Indicators, Total
Human Rights, Total Society and Total Product Responsibility.

Table 3: Sustainability disclosure scores across – sample

N
Mean Median

Std.
Deviation

Minimum Maximum
Theoretical
Maximum

Valid Missing

Total GRI Score 116 0 48.04 44.50 18.885 16 101 1

Total Disclosure Score
(AR)

116 0 34.22 33.00 9.752 16 63

Total Disclosure Score
(SR)

68 48 42.03 39.00 18.362 11 101

Total Strategy 116 0 1.0948 1.0000 .82334 .00 2.00 2.00

Total Profile 116 0 7.7241 8.0000 1.36787 3.00 9.00 9.00

Total Report Profile 116 0 3.0690 3.0000 .52294 1.00 4.00 4.00

Total Report
Boundaries

116 0 4.6207 5.0000 1.93213 .00 8.00 8.00

Total Governance 116 0 7.2759 7.0000 1.65548 3.00 10.00 10.00

Total External Initiatives 116 0 1.6983 2.0000 .97106 .00 4.00 4.00

Total Stakeholder
Engagement

116 0 2.1466 2.5000 1.67464 .00 4.00 4.00

Total Economic
Indicators

116 0 2.4914 2.0000 1.19779 .00 6.00 9.00

Total Environmental
Indicators

116 0 7.1207 5.0000 6.25009 .00 29.00 30.00

Total Social Indicators 116 0 3.2155 3.0000 2.50150 .00 10.00 15.00

Total Human Rights 116 0 .9052 .0000 1.54345 .00 7.00 11.00

Total Society 116 0 2.0259 2.0000 1.89490 .00 7.00 10.00

Total Product
Responsibility

116 0 1.5603 1.0000 1.93498 .00 9.00 9.00

The total GRI disclosure score was further disaggregated to
determine any systematic disclosure patterns, particularly
across countries and industry background. Figure 1
below displays a boxplot of the total GRI score across
countries sampled in the study. The boxplot displays five
statistics (minimum, first quartile, median, third quartile, and
maximum). Figure 1 indicates that the UK has higher GRI
disclosure scores overall (median 51), followed by Australia
(median 45.5) and Hong Kong (median 39.5). The Australian
sub-sample has more overall dispersion in the distribution of
GRI scores, and includes the highest and lowest GRI scores
in the sample. The Hong Kong sub-sample has the lowest
median GRI score and the lowest sample dispersion overall.

Figure 1: Total GRI disclosure scores by country

Hong Kong

Hong Kong
Australia
UK
Australia

Country

Legend:

To
ta

l G
R

I S
co

100

Figure 2 displays a boxplot across industry sectors
based on Global Industry Classification Standard. Figure 2
indicates that the highest median GRI scores are documented
for the materials sector (median GRI score of 65), which are
followed by (in order of magnitude): energy sector (median
score of 58.5), healthcare sector (median score of 54),
telecommunications (median score of 51) consumer staples
(median score of 51), information technology (median
score of 43) and financials (median score of 41.5). Figure
2 also indicates that the lowest median GRI scores can
be found for the consumer discretionary (median score
of 30.5) and industrial sectors (median score of 38).

Figure 2: Total GRI disclosure scores by sector

ConsDiscretionary Energy Financials Healthcare Industrials Material Telecommunication Utilities

Info Technology

Sector

To
ta
l G
R
I S
co
re
50
75
100

ConsStaples

Cons Discretionary

ConsStaples

Energy

Legend:

Financials

Healthcare

Industrials

Materials

Info Technology

Telecommunications

Utilities

Concluding comments
Reporting differences between the three jurisdictions have
been identified. The Hong Kong sample shows the lowest
GRI scores with the lowest median of all three countries.
The sustainability reporters with the greatest depth and
extent of reporting (as per G3.1 Guidelines) for Hong Kong,
however, shows the same sustainability disclosure levels as
the high disclosure level performers of the United Kingdom
sample. The Australian sample provided the largest reporting
dispersion, indicating a very mixed uptake of sustainability
reporting in Australia. The United Kingdom sample had a
high, but condensed, dispersion and the overall highest
median of the three countries. This indicates that United Kingdom
companies produced more diverse sustainability information
and spread this information across more indicators than in other jurisdictions.

Differences can also be linked to industry – with materials
and energy producing more sustainability information than
the other sectors. The Hong Kong sample did not contain
any materials company, so this could explain the overall
lower median to some extent.

Table 4 displays the means, medians, standard deviations
and ranges for key financial performance and market
variables of the sampled companies. As can be seen from
Table 4, the median market capitalisation across the sample
ranges from US$3.1B to US$255.1B, with the
median market capitalization being US$31.41B. The
median market capitalisations for the Australian and Hong
Kong sub-samples were similar (US$21.85B vs US$23.68B
respectively) with the median market capitalisation of the
United Kingdom sub-sample was significantly higher at US$49.22B.

Financial performance
In terms of financial performance metrics, Table 4 indicates
that the median leverage ratio (total debt to total equity)
is 49.28 per cent. The mean value of the sample is significantly
higher (103.85 per cent) owing to the effects of banks and other
financial institutions being included in the sample. The
UK sub-sample has the highest median leverage ratio of
70.29 per cent while the Hong Kong sub-sample evidences the
lowest median leverage of 39.10 per cent (the median value was
54.11 per cent for the Australian sub-sample). The median total
debt to total assets ratio across the sample is also quite
conservative with a median of 21.15 per cent. The median rate
of return on assets (ROA) is 6 per cent across the sample, with
the highest ROA evidenced in the Hong Kong sub-sample
of 7.02 per cent and the lowest ROA for the Australian sub-sample
(median 5.15 per cent). The median pre-tax return on equity
ROE across the sample is 16.47 per cent, with the highest ROE
displayed in the UK sub-sample (median of 22.03 per cent) and
the lowest pre-tax ROE found in the Hong Kong sample
with a median of 14.03 per cent (the median value for the
Australian sub-sample was 14.42 per cent). Median cash flow
returns (operating cash flow divided by total assets) are also
fairly robust at 7.53 per cent. The UK sub-sample evidenced the
highest cash flow returns of 11.08 per cent with the Hong Kong
sub-sample having the lowest median of 4.99 per cent (the median
cash flow returns for the Australian sub-sample is 6.82 per cent).
In conclusion, the financial performance of the sampled
companies appears broadly consistent across what
would be expected in a large company bias – conservative
leverage, and solid but not spectacular levels of profitability
and cash flow.

Reporting scores and major factors
influencing sustainability reporting
in each country

Table 4: Financial and Market Characteristics of Sampled Companies

N
Mean Median Minimum Maximum

Valid Missing

Firm Size:

Market capitalisation (US)
million

116 0 31419.38 17875.12 3146.97 225112.56

Profitability:

ROA 116 0 6.64 6.00 -19.93 32.86

Pre-tax ROE 116 0 22.58 16.47 -25.89 151.15

EBITDA Growth 1YR 116 0 24.63 7.03 -80.77 1543.45

Profit Margin:

Gross Proft Margin 116 0 34.19 36.44 .00 86.93

Net Profit Margin 116 0 27.96 15.09 -62.57 444.59

Accumulated Profitability:

Retained Earnings to
Total Assets

108 8 26.80 18.78 -60.31 581.89

Cash Flow Performance:

Cash Flow to Total Assets 116 0 9.16 7.53 -.73 47.10

Cash Flow Growth 3 YRS 116 0 10.42 5.53 -42.73 234.14

Capital Structure and Gearing:

Total Debt to Assets 116 0 22.11 21.15 .00 56.99

Gearing 116 0 103.85 49.20 .00 816.79

Liquidity and Solvency:

Quick ratio 95 21 1.15 .80 .10 17.68

Interest Cover 116 0 1902.44 7.57 .49 213240.55

Analyst Consensus Estimates:

Number of Analysts 116 0 20.94 20 1.00 37.00

Recommendation Mean 116 0 2.53 2.51 1.00 3.45

Price Target Appreciation (%) 115 1 -6.97 3.77 -98.42 49.02

Consensus EPS Growth (1Yr) 116 0 7.14 6.00 -89.78 213.16

Consensus CPS Growth (1Yr) 104 12 231.73 4.31 -568.08 21715.38

Consensus SPS Growth (1Yr) 116 0 5.81 4.83 -52.52 59.98

Consensus ROE Forecast (1Yr) 116 0 15.87 12.27 -.17 90.25

Investment Returns and Volatility:

Total Return (1 Year) 116 0 21.18 18.42 -52.73 109.43

Beta 112 4 .93 .91 .05 2.50

Dividend Returns:

Dividend Yield 114 2 3.60 3.44 .00 9.52

Valuation Fundamentals:

Price to Book 115 1 2.48 1.6911 .42 14.60

Price to Free Cash Flow 102 14 1783.15 30.83 .86 155718.40

Market Cap to Debt 112 4 18.05 2.75 .05 1430.44

Analyst and market variables
In terms of the price-to-book ratio, a fundamental measure
of valuation and implied future ROE,14 the
overall sample indicates a median price-to-book of 1.69
times. The UK sub-sample evidenced the highest median
price-to-book 1.94, however this does not necessarily
signal any potential over-valuation, particularly if higher
price-to-book ratios are associated with higher expected
ROE (i.e. investors are paying a premium on the
expectation of higher future profitability). This appears
to be reflected in the results in Table 4. While the median
consensus forecast of ROE across the sample is 12.27 per
cent, the median consensus ROE forecast for the UK
sub-sample is 15 per cent, which is in line with the higher
price-to-book ratio. The Hong Kong sub-sample has the
lowest price-to-book ratio (median 1.33) but this is in line
with the lower analyst expectation of future ROEs
(median value is 7.31 per cent). The median price-to-book ratio
for the Australian sub-sample is 1.77 and the median value
of analyst projected ROE is 12.27 per cent. In terms of the price
earnings ratio, the median PE value across the entire sample
is 15.72 times, and there appears to be little difference
across the national sub-samples (i.e. the highest PE ratio
of 16.12 was found for the Hong Kong sub-sample) and the
lowest median PE was 15.27 times for the UK sub-sample,
whereas the median PE ratio for the Australian sub-sample
was 15.33. In short, conventional price multiples do not
suggest any evidence of under or over-pricing across
the sampled firms.

As might be expected in a sample of larger companies,
there would be a higher number of analysts following the
companies (e.g. providing buy/hold/sell recommendations
and financial estimates such as earnings per share (EPS)
growth). In fact, the median number of analysts following
each sampled firm is around 20, which is well above the all
company average. The UK sub-sample indicated the
highest analyst following (median of 28.5 analysts) while
Australia evidenced the lowest analyst following (median 15
analysts). Consensus analyst forecasts of future earnings
growth (EPS for the next fiscal period) is a fairly modest at a
median value of 6 per cent, which seems to be reflected in the
conservative PE ratios of sampled firms (lower PE ratios imply
lower expectations of future EPS growth and vice versa).

Furthermore, analyst estimates of future earnings and cash
flow growth appear to be broadly in line with the previous
year’s actual growth in EBITDA (median 7.03 per cent from

14 Under conventional valuation models, higher price to book theoretical implies
higher expected ROEs (Palepu and Healy, 2006).

Table 4) and cash flow gowth over the previous three years of
5.53 per cent. Consensus estimates for future cash flow gowthis
also quite modest across the sample, with a median of 4.31
per cent. The median total investor returns over the previous
fiscal year was 18.42 per cent, reflecting the broad based
recovery in global stock markets.

As might be expected of larger companies, the median beta,
indicating a stock’s volatility relative to the overall market, is .91.
The Australian sub-sample has the lowest median beta of .76
while Hong Kong sub-sample evidenced the highest of 1.016,
which might reflect the more subdued capital market conditions
in Australia (the Australian sub-sample evidenced the lowest
total returns over the previous period of 14.88 per cent, while
Hong Kong had the highest total returns of 24.92 per cent).

Based on consensus target prices at the time the sample was
generated, average forecast stock price growth for the sample
was a relatively modest 3.77 per cent. Across nations, analysts
forecasted that the Australian sub-sample would have the
highest expected stock price growth (median price appreciated
forecasted at 5.47 per cent) followed by Hong Kong (median
forecast 3.09 per cent) while the UK sub-sample was expected
to have very little stock price appreciation over the next fiscal
period (median .18 per cent). This result appears to be reflected
in analyst forecasts on EPS growth, with Hong Kong and
Australia predicted to have the highest median EPS forecasts
(7.51 per cent and 7.28 per cent respectively) with the UK was
expected to have the lowest forecasted EPS growth (median
2.74 per cent).

Concluding comments
The sample comprises 116 public companies drawn from
the top 40 firms (based on market capitalisation) on the
ASX, London FTSE and the SEHK. While the British
sample provides a diverse industry representation,
the Australian and Hong Kong samples are
biased towards the financial industry. This is due to the
composition of the respective stock listings. Hong Kong
does not have any materials in their top 40 companies,
whereas this industry sector is represented in both the
UK and Australia. Industry has been found to be influencing
sustainability disclosure practice (Gao, Heravi, & Xiao, 2005
and as such the relationship will be investigated further in
this report.

Identification and analysis of cross-sectional
differences – countries, industries, size levels
and other factors

Cross sectional differences in GRI disclosure scores across
countries, industries, size levels and other relevant factors
are evaluated using one-way analysis of variance (ANOVA).
One way ANOVA is used to determine whether there are
any statistically significant differences between the means
of two or more unrelated or independent groups.

Intra-country disclosures
Table 5 indicates that there are a number of
statistically significant differences in GRI disclosure score
across the sampled countries (suggesting that the mean
GRI scores across each country are different). While the
total GRI score is not statistically significant across the
country sub-samples, indicating that there are no significant
differences in overall sustainability reporting against
the G3.1 Guidelines between the countries, the level of
disclosure from the annual report is significant (F=3.57,
p=.031). Several factors making up the overall GRI score
are also significant across countries, including Total Strategy
(F=2.39, p=.09), Total Profile (F=21.29, p=.000), Total
Report Boundaries (F=14.58, p=.000), Total Governance
(F=11.96, p=.000), Total External Initiatives (F=3.45,
p=.035), Total Stakeholder Engagement (F=7.26, p=.001),
Total Human Rights (F=2.73, p=.069) and Total Society
(F=7.42, p=.001).

The omnibus F-statistic15 shows whether there are
significant differences in the mean disclosure scores in all
countries, but does not isolate where individual mean
differences are most prominent across countries. The UK
sub-sample has statistically higher means than the Australia
and Hong Kong sub-samples, indicating that UK
companies’ sustainability reporting is more aligned to G3.1,
but the mean differences in disclosure scores are greatest
between the UK and Hong Kong. This could support the
thesis that British companies are more advanced in their
sustainability reporting practices and application of G3.1
than companies from Hong Kong, and to a lesser extent
Australia.

15 The F-statistic indicates whether the variances between the means of two
populations are significantly different. We call it an omnibus test because it is a
generic test that shows whether there is an overall difference across the means.

Table 5 also displays statistically significant differences
between countries for individual disclosure categories
(i.e. Strategy and Analysis – Total Strategy, Organisational
Profile – Total Profile, Report Parameters – Total Boundaries,
Governance – Total Governance, Commitments to
external initiatives – Total External Initiatives, Stakeholder
Engagement – Total Stakeholder Engagement, Total
Economic, Total Environmental Indicators, Total Social
Indicators and its sub-categories of Total Labor Practices
and Decent Work, Total Human Rights, Total Society
and Total Product Responsibility.

Disclosures for Total Strategy showed the strongest
statistical differences between the UK and Hong Kong
sub-samples, with the Hong Kong sub-sample having the
lowest score for Total Strategy disclosure (mean difference
= .39 p=.091).16 With the Total Profile score, the Hong
Kong sub-sample has statistically higher disclosure scores
than Australia and the UK but the mean differences
are greatest between Australia and Hong Kong (mean
difference = 1.68, p=.000).

With respect to reporting boundaries, the Hong Kong
sub-sample has statistically higher disclosures scores
than the UK and Australia, with the greatest statistical
differences evidenced between the UK and Hong Kong
sub-samples (mean difference = 1.89, p=.000). With
respect to Total Governance, Australia has the highest
mean disclosure score, and the statistical significance is
greatest relative to the Hong Kong sub-sample, which has
the lowest mean score (mean difference = 1.67, p=.000).
The UK sub-sample evidenced the highest disclosures
on external initiatives, and Hong Kong the lowest score
(mean difference = .52, p=.046). The UK sub-sample also
evidenced the highest score on stakeholder engagement
and Hong Kong the lowest (mean difference = 1.34,
p=.001). With respect to environmental indicators, the
Australian sub-sample has the highest disclosure score,
and the Hong Kong sub-sample the lowest (mean difference
= 3.16, p=.056). The UK evidenced the highest
disclosure score on human rights, and the Hong Kong sub-
sample the lowest (mean difference = .81, p=.055) however
there are no statistically significant differences between
Australia and Hong Kong on the human rights score.
Likewise, with society disclosures, the UK has the highest
score and Hong Kong the lowest (mean difference = 1.57,
p=.001).

16 The value .39 is calculated as 1.2632 minus .8684 from Table 5.

Industry differences
One-way ANOVA was also used to compare disclosures
scores across industry groups. The omnibus F-statistic
indicates that there are significant differences across
industry groups displayed in Figure 2. The largest
mean differences across industry groups is found for the
total GRI score (F=4.57, p=.000), the total GRI disclosure
by AR report (F=2.41, p=.016), total strategy (F=2.54,
p=.011), total governance (F=2.36, p=.018), total
stakeholder engagement (F=2.05, p=.041), total
economic indicators (F=3.48, p=.001), total environmental
indicators (F=5.37, p=.001), total human rights (F=4.28,
p=.000) and total society (F=5.78, p=.000).

Firm size
The one-way ANOVA results suggest a strong size
effect dominating GRI disclosures, a result that is
somewhat surprising considering the sample is made
up of predominantly larger firms. Previous research has
identified significant size differences in GRI disclosures
across small and large public companies. In this study,
we find that size variations are detectable even within the
largest public companies which to our knowledge has not
been previously documented. This finding reinforces the
importance of firm size as an important determinant in
sustainability disclosures. For the purposes of the ANOVA
analysis, the sample was ranked by quartiles based on
market capitalisation. The largest firms in the sample were
defined as having a market capitalisations greater than
US$40B (n=29). The medium range was defined as firms
having a market capitalization between US$8B and US$
40B (n=60), while the small range was defined as firms
with market capitalization of less than US$8B (n=27).

The one-way ANOVA results indicate significant
differences in the total GRI score across size categories
(F=10.17, p=.000), total disclosure scores in the
annual report (F=5.27, p=.007), total strategy (F=4.43,
p=.014), total external initiatives (F=9.47,p=.000),
total stakeholder engagement (F=12.92, p=.000),
total economic indicators (F=4.32, p=.016), total
environmental indicators (F=8.45, p=.000), total human
rights (F=3.35, p=.039) and total society (F=4.31, p=.016).

High growth/Low growth
High growth firms are often viewed as a proxy for the
investment opportunity set. For the purposes of this
study, firms were ranked into quartiles based on consensus
expectations of future EPS growth. Higher growth is
defined as the consensus EPS forecasts being greater
than 10 per cent (n=41). Medium growth is defined as the
consensus EPS forecasts being between 0 and 10 per cent
(n=32); and low growth firms are based on firms with
less than or equal to zero expected growth (n=43). The
one-way ANOVA results were most significant across
the total GRI score (F=3.95, p=.022), total disclosure by
the annual report (F=2.55, p=.08), total strategy score
(F=2.93, p=.057), total economic indicators score (F=3.90,
p=.023), total environmental indicators score (F=5.09,
p=.008) and total society score (F=4.09, p=.019).

Table 5: One-way ANOVA tests of GRI scores across countries

One-Way ANOVA N Mean
Std.

Deviation
F value

(p value)
Std. Error Minimum Maximum

Total GRI Score

Australia 40 49.78 22.630 3.578 16 101

Hong Kong 38 43.29 15.835 2.569 19 84

UK 38 50.97 16.811 1.87 2.727 17 89

Total 116 48.04 18.885 1.753 16 101

Total Disclosure
Score (AR)

Australia 40 31.13 9.482 1.499 16 53

Hong Kong 38 34.89 8.366 1.357 19 62

UK 38 36.79 10.642 **3.578 1.726 17 63

Total 116 34.22 9.752 .905 16 63

Total Disclosure
Score (SR)

Australia 27 45.19 21.237 4.087 13 101

Hong Kong 15 43.93 15.696 4.053 12 76

UK 26 37.65 16.241 1.226 3.185 11 73

Total 68 42.03 18.362 2.227 11 101

Total Strategy

Australia 40 1.1500 .83359 .13180 .00 2.00

Hong Kong 38 .8684 .77707 .12606 .00 2.00

UK 38 1.2632 .82803 *2.376 .13432 .00 2.00

Total 116 1.0948 .82334 .07645 .00 2.00

Total Profile

Australia 40 7.0250 1.77573 .28077 3.00 9.00

Hong Kong 38 8.7105 .45961 .07456 8.00 9.00

UK 38 7.4737 .82975 ***21.299 .13460 6.00 9.00

Total 116 7.7241 1.36787 .12700 3.00 9.00

Total Report
Profile

Australia 40 3.1500 .57957 .09164 2.00 4.00

Hong Kong 38 3.1053 .55941 .09075 1.00 4.00

UK 38 2.9474 .39915 1.616 .06475 2.00 4.00

Total 116 3.0690 .52294 .04855 1.00 4.00

Total Report
Boundaries

Australia 40 4.0500 2.25263 .35617 .00 8.00

Hong Kong 38 5.8684 1.01798 .16514 2.00 7.00

UK 38 3.9737 1.68438 ***14.587 .27324 1.00 7.00

Total 116 4.6207 1.93213 .17939 .00 8.00

Total Governance

Australia 40 8.1250 1.43558 .22699 5.00 10.00

Hong Kong 38 6.4474 1.15542 .18743 4.00 9.00

UK 38 7.2105 1.87671 ***11.967 .30444 3.00 10.00

Total 116 7.2759 1.65548 .15371 3.00 10.00

Total External
Initiatives

Australia 40 1.8250 .93060 .14714 .00 3.00

Hong Kong 38 1.3684 1.02459 .16621 .00 3.00

UK 38 1.8947 .89411 **3.452 .14504 .00 4.00

Total 116 1.6983 .97106 .09016 .00 4.00

Total Stakeholder
Engage

Australia 40 2.3500 1.47718 .23356 .00 4.00

Hong Kong 38 1.3684 1.63444 .26514 .00 4.00

UK 38 2.7105 1.65885 ***7.266 .26910 .00 4.00

Total 116 2.1466 1.67464 .15549 .00 4.00

23
One-Way ANOVA N Mean
Std.
Deviation
F value
(p value)
Std. Error Minimum Maximum
Total Economic
Indicators

Australia 40 2.3250 1.55889 .24648 .00 6.00

Hong Kong 38 2.5789 .72154 .11705 2.00 4.00

UK 38 2.5789 1.15388 .585 .18718 1.00 5.00

Total 116 2.4914 1.19779 .11121 .00 6.00

Total
Environmental
Indicators

Australia 40 8.3250 7.25855 1.14768 .00 29.00

Hong Kong 38 5.1579 5.35510 .86871 .00 18.00

UK 38 7.8158 5.58403 *2.948 .90585 .00 21.00

Total 116 7.1207 6.25009 .58031 .00 29.00

Total Social
Indicators

Australia 40 3.0250 2.77800 .43924 .00 9.00

Hong Kong 38 3.3421 2.37414 .38514 .00 10.00

UK 38 3.2895 2.36995 .179 .38446 .00 8.00

Total 116 3.2155 2.50150 .23226 .00 10.00

Total Human
Rights

Australia 40 .9000 1.83694 .29045 .00 7.00

Hong Kong 38 .5000 1.03323 .16761 .00 3.00

UK 38 1.3158 1.56145 *2.734 .25330 .00 6.00

Total 116 .9052 1.54345 .14331 .00 7.00

Total Society

Australia 40 2.1250 2.05298 .32461 .00 7.00

Hong Kong 38 1.1842 1.55712 .25260 .00 5.00

UK 38 2.7632 1.73102 ***7.426 .28081 .00 7.00

Total 116 2.0259 1.89490 .17594 .00 7.00

Total Product
Responsibility

Australia 40 2.0000 2.56205 .40510 .00 9.00

Hong Kong 38 1.2105 1.31843 .21388 .00 6.00

UK 38 1.4474 1.62243 1.740 .26319 .00 6.00

Total 116 1.5603 1.93498 .17966 .00 9.00

*sig less than .1, **sig less than .05, ***sig less than .01.

Table 6 Panel A provides non-parametric correlations
(Spearman rho rank-order coefficients) between GRI
disclosures scores and selected financial performance
indicators.17 Table 6 Panels B-D show the same correlations
at the country level. While many financial performance
indicators were not found to be highly correlated with GRI
scores, Table 6 Panel A indicates that profitability and
cash flow return measures are strongly correlated. For
instance, both ROE and analysts projection of future ROE
are strongly correlated with overall GRI scores, including
many categories making up the GRI score, such as the
Total Strategy score, Total Governance, Total External
Initiatives, Total Environmental Indicators, Total Social
Indicators, and the Total Human Rights score. Most of
these disclosure scores are also highly correlated with cash
flow returns. However, at the country level (see Panels B-D)
the correlations were strongest in the Australian and UK
sub-samples. Notably, correlations between cash flow
returns and the GRI score was highest in the UK subsample
at 60.8 per cent, whereas correlations between forecast
ROE and the GRI was highest in the Australian
subsample at 29 per cent.

Table 6 Panel A results also indicate that market
capitalisation is positively correlated with the overall GRI
score and most of the individual factors making up the
GRI score. The correlations between market capitalisation
and GRI scores (including the individual factors making
up the GRI score) are noticeably stronger in the Australian
subsample (see Panel B of Table 6). Type of assurance
provider is also highly correlated with GRI scores. For
instance, if the assurer of the sustainability report is an
accounting firm (versus a non-accounting firm provider),
overall GRI scores tend to be higher, particularly for the total
GRI score, and individual disclosures categories such as
total strategy, external initiatives, stakeholder engagement,
environmental indicators, human rights, total society and
product responsibility. Furthermore, industry background
has a strong correlation with GRI disclosure.

17 Spearman rho is a measure of statistical dependence between two variables.
Spearman rho makes no assumption about the underlying frequency distribution
of the data (the only assumption is the data is at least ordinal).

The correlations between type of assurer and GRI scores
is noticeably higher and more consistent (in direction)
in the Australian and Hong Kong sub-samples. Table 6
Panel A indicates that the industry dummy (coded 1 if a
firm belongs to the energy or materials sector, and zero
otherwise) is strongly correlated with overall GRI disclosure
scores, and individual disclosure categories such as Total
Strategy, Governance, Economic Indicators, Environmental
Indicators, Social Indicators, Human Rights and Total
Society. Overall, these correlations are noticeably stronger
in the UK sub-sample relative to the Australian and Hong
Kong sub-samples. Previous research has shown that
industry membership influences sustainability disclosure
behaviour, with more disclosure in environmentally sensitive
industries (Brammer & Pavelin, 2006; Gao et al., 2005).
The operations underlying the business activity will also
drive reporting with certain sectors being required to report
on certain areas (e.g. mining companies in Australia have
to report to the national pollution index).

Correlations between GRI Disclosures and
Selected Financial Performance Indicators

Table 6: Panel A: Spearman rho correlations between GRI disclosures and selected financial performance indicators
(Whole Sample)

Market

Cap
Gearing ROE

Quick
Ratio

ROE
F1Y

ROA EBITTA
CFO

Assets
Assurance

Industry
Dummy

Total GRI Score .483** -.005 .259** -.069 .220* .283** .371** .345** .320** .388**

Total Strategy .257** .057 .238* -.008 .207* .192* .281** .295** .230* .311**

Total Profile .031 -.265** .120 .062 -.103 .259** -.226* -.034 -.114 -.035

Total Report Profile .068 -.062 .193* -.015 .153 .262** .062 .199* -.109 .047

Total Report
Boundaries

.128 -.123 .168 -.010 .049 .270** .003 .079 .011 .036

Total Governance .183* .062 .188* -.017 .280** .123 .279** .302** .009 .288**

Total External
Initiatives

.450** .155 .210* -.148 .268** .115 .326** .095 .349** .160

Total Stakeholder
Engagement

.440** .163 .134 -.083 .150 .074 .306** .226* .356** .178

Total Economic
Indicators

.234* -.063 .188* -.144 .006 .186* .176 .264** .119 .233*

Total Environmental
Indicators

.447** -.009 .198* -.049 .200* .280** .389** .326** .277** .396**

Total Social
Indicators

.165 -.124 .192* .050 .110 .253** .172 .218* .145 .239**

Total Human Rights .300** -.114 .276** -.111 .184* .258** .292** .364** .241** .424**

Total Society .378** .015 .171 -.067 .164 .173 .368** .386** .268** .375**

Total Product
Responsibility

.307** .142 .052 -.233* .097 .013 .115 .075 .244** -.089

Table 6: Panel B: Spearman rho correlations between GRI disclosures and selected financial performance indicators
(Australia)

Market
Cap

Gearing ROE
Quick
Ratio

ROE
F1Y
ROA EBITTA
CFO
Assets
Assurance
Industry
Dummy

Total GRI Score .558** -.010 .297 -.454* .290 .266 .230 .353* .396* .310

Total Strategy .141 .055 .248 -.374 .233 .126 .059 .269 .225 .346*

Total Profile .462** -.045 .432** -.411* .300 .315* .116 .291 .219 .099

Total Report Profile .032 -.097 .136 .023 .122 .261 .041 .301 0.00 0.000

Total Report
Boundaries

.509** .037 .221 -.421* .227 .168 .178 .158 .421** .134

Total Governance .238 .024 .146 -.127 .134 .107 -.036 .179 .026 0.000

Total External
Initiatives

.706** .181 .228 -.306 .329* .087 .268 .015 .476** .067

Total Stakeholder
Engagement

.182 -.085 .047 -.280 .020 .079 -.027 .251 .317* .058

Total Economic
Indicators

.512** .084 .310 -.477* .275 .238 .252 .339* .240 .218

Total Environmental
Indicators

.526** .075 .198 -.394* .211 .206 .257 .284 .352* .382*

Total Social
Indicators

.303 -.138 .333* -.333 .307 .322* .273 .391* .360* .130

Market
Cap
Gearing ROE
Quick
Ratio
ROE
F1Y
ROA EBITTA
CFO
Assets
Assurance
Industry
Dummy

Total Human Rights .219 -.220 .220 -.400* .110 .182 .065 .251 .317* .307

Total Society .430** -.140 .266 -.403* .190 .236 .204 .403** .241 .333*

Total Product
Responsibility

.485** .033 .078 -.417* .076 .093 .104 .168 .282 .103

Table 6: Panel C: Spearman rho correlations between GRI disclosures and selected financial performance indicators
(Hong Kong)

Market
Cap
Gearing ROE
Quick
Ratio
ROE
F1Y
ROA EBITTA
CFO
Assets
Assurance
Industry
Dummy

Total GRI Score .386* -.084 .051 .012 .133 .254 .280 .072 .35* .158

Total Strategy .229 .029 .162 .074 .166 .287 .372* .163 .33* .232

Total Profile .204 -.013 .026 .073 -.108 .124 -.122 -.357* .15 .105

Total Report Profile .227 .114 .099 -.292 .069 .229 .199 .037 .18 -.051

Total Report
Boundaries

.290 .274 .335* .149 .175 .201 .394* -.051 .32* .008

Total Governance .316 -.045 .080 -.212 .048 .146 .037 -.018 .24 .102

Total External
Initiatives

.314 -.088 .044 -.048 .139 .200 .157 -.119 .35* -.069

Total Stakeholder
Engagement

.360* -.034 .056 .289 .144 .205 .386* .146 .36* .163

Total Economic
Indicators

.110 -.081 -.059 -.253 -.080 -.028 .212 .248 .29 -.143

Total Environmental
Indicators

.415** -.190 -.010 .077 .108 .350* .184 .142 .30 .197

Total Social
Indicators

-.007 .057 -.113 -.032 .012 .084 .138 -.154 .34* -.008

Total Human Rights .150 -.267 .204 .201 .065 .246 .207 .191 .19 .358*

Total Society .358* -.012 -.281 .022 -.053 .009 .116 .134 36* .139

Total Product
Responsibility

.225 -.036 .045 -.108 -.029 -.005 .191 .094 .35* -.217

Table 6: Panel D: Spearman rho correlations between GRI disclosures and selected financial performance indicators
(United Kingdom)

Market
Cap
Gearing ROE
Quick
Ratio
ROE
F1Y
ROA EBITTA
CFO
Assets
Assurance
Industry
Dummy

Total GRI Score .432** -.198 .337* .406* .082 .415** .606** .608** .253 .606**

Total Strategy .228 -.048 .187 .315 .080 .236 .252 .361* .180 .219

Total Profile -.310 -.260 .208 .394* .046 .349* .383* .324* -.017 .322*

Total Report Profile .368* -.119 .501** .254 .454** .446** .166 .470** -.204 .232

Total Report
Boundaries

-.027 -.151 .272 .335 .264 .387* .347 .513** .066 .371*

Total Governance .210 -.130 .336* .389* .332* .356* .278 .479** -.225 .402*

Total External
Initiatives

.301 .153 .206 .030 .127 .125 .330 .272 .296 .181

Total Stakeholder
Engagement

.575** .264 .031 -.027 -.019 -.049 .199 .103 .359* .111

Total Economic
Indicators

-.031 -.142 .171 .277 -.101 .220 .365* .378* .110 .477**

Total Environmental
Indicators

.444** -.207 .312 .339 .089 .389* .650** .531** .215 .473**

Total Social
Indicators

.160 -.181 .215 .601** .044 .325* .446* .492** .029 .575**

Total Human Rights .210 -.206 .240 .259 .073 .330* .291 .511** .087 .610**

Total Society -.060 -.252 .279 .580** .058 .298 .507** .542** .155 .446**

Total Product
Responsibility

.132 .347* .059 -.046 .234 -.003 .229 .040 .322* -.337*

Conclusions

The results of the analysis identify differences of reporting
practices both between countries and also between
the levels of disclosure for each of the GRI categories.
Other apparent differences relate to: the GRI Guidelines
as a reference point for sustainability reporting (the
Hong Kong sample shows that companies either use
the GRI Guidelines and declare their application level or
do not refer to the Guidelines at all); the assurance of
sustainability reports where the Australian sample shows
lower levels of external assurance of their sustainability
reports than the UK and Hong Kong. We observed
lower disclosure levels in Hong Kong. There were,
however, outliers to this finding; these were companies
that are affected internationally by environmental and
social constraints, such as Cathay Pacific who through
their business will be affected by carbon legislation
in Europe and Australia and as such increased the
scores of the Hong Kong sample. The observation
of larger, multi-national firms having higher levels of
disclosure generally held true within all three samples.

Governance and environmental disclosures attracted the
highest disclosures in all sample sets. The higher levels
of environmental disclosures could be explained by a
number of factors: the greater number of observations
points, a long history of environmental/sustainability
reporting practices by many companies (particularly in the
resources sector), an increase in scrutiny and associated
regulation/risk with respect to climate change and GHG
emissions. The higher levels of governance disclosures
may be explained by the observation that many of the
disclosure categories overlapped with regulatory reporting
requirements. This was highlighted by observation of
the increased levels of governance reporting in the
annual reporting for many companies. Similarities were
also identified – Human Rights, Society and Product
Responsibility attracted low disclosure scores across the
sample set. This would suggest either companies are
not yet faced with pressure to disclose on these issues
or they are deemed not material for disclosing entities.

This study analysed reports against the GRI G3.1
Guidelines regardless of whether they were prepared
against the Guidelines or not. Findings raise questions on
the use of the Technical Protocol for Applying the Reporting
Content Principles and understanding of the scope of the
Application Level Check undertaken by the GRI. Some
A+ reporters were found not to satisfy the reporting
requirements of the disclosure items according to both
the Technical Protocol and some Indicator Protocols, yet
were able to self-declare at this level. Tighter definitions
or clearer instructions on how to apply the definitions,

especially if an indicator contains a number of disclosure
components (e.g. LA1) are needed.18 This also highlights
the issue of perception between the nature and purpose of
the Application Levels and the expectation of full disclosure
from the potential user. Confusion between volume of
reporting and quality of reporting also seems apparent.

The analysis of reporting practice also showed different
developments in presenting sustainability information. Within
the sample of companies on the three stock exchanges,
Australian companies were more likely to produce an
‘integrated report’. Those were mainly produced in lieu
of the sustainability report rather than replacing the annual
report. No company of the Hong Kong sample produced
an ‘integrated report’ in 2012. This suggests that, for those firms
that have ‘matured’ sustainability reporting models, the
shift towards ‘integrated reporting’ is already occurring.

In the UK, 95 per cent of sustainability reports were externally
assured. 60 per cent of Australian and 47 per cent of Hong Kong
companies sought external assurance for their sustainability
reports. External assurance was sought in majority from
Big Four providers, which establishes a change in previously
perceived assurance patterns, especially in Australia.
The choice of assurance provider was influential on the
spread of disclosure with our analysis indicating that using
an accounting firm’s assurance services resulted in a
higher GRI score. This confirms the importance of clear
guidelines or standards for assurance of sustainability
information and as such supports the involvement
of the professional bodies and the GRI with the IIRC
to develop a framework for integrated reporting.

Overall it has been identified within the sample analysed
that all firms reported some level of sustainability information.
However it is surprising that even within the top 40 listed
organisations within the three jurisdictions there remains
considerable diversity and firms with very low levels of
sustainability reporting. This diversity of observations is
surprising as size of firm remains a significant determinant
of level of disclosure. The divergence between jurisdictions
does suggest that local factors play a significant role in
influencing levels of reporting – further highlighted by those
multi-nationals not restricted by local expectations who are
the leading reporters. Finally, it is also significant to note
that those areas where there is increased regulatory
direction on reporting that we observe consistent and
considerable disclosure; once again highlighting that
voluntary disclosure alone cannot guarantee complete
and comparable reporting practices.

18 All Indicator Protocols have been reviewed as part of the G4 development with the
view, among other objectives, to eliminating ambiguities and uncertainty of exact
reporting points.

Beck, C., Dumay, J., & Frost, G. (2010).
Corporate non-financial reporting processes. An analysis
of the emerging modes by which organisations engage
with their stakeholders. Sydney, New South Wales: CPA Australia.

Brammer, S., & Pavelin, S. (2006).
Voluntary environmental disclosures by large UK companies.
Journal of Business Finance & Accounting, 33(7),
1168-1188.

Gamble, G. O., Hsu, K., Devaun, K., & Radtke, R. R. (1995).
Environmental Disclosures In Annual Reports and 10Ks:
An Examination. Accounting Horizons, 9(3), 34-54.

Gao, S. S., Heravi, S., & Xiao, J. Z. (2005).
Determinants of corporate social and environmental
reporting in Hong Kong: a research note.
Accounting Forum, 29(2), 233-242.

Jones, S., Frost, G., Loftus, J., & van der Laan, S. (2005).
Sustainability Reporting. Practices, Performance and
Potential. Melbourne, VIC: CPA Australia.

Papelu, K.G., Healy, P.M. & Bernard, V.L. (2006).
Business Analysis and Valuation. Cram101 Incorporated

References

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Foreword
About the authors
Acknowledgements
Overview
Key Highlights from the study
Background to the GRI
Method
Sample selection
Analysis of report content
General Characteristics of reporting sample
Country reporting comparison
Reporting by section of GRI
Concluding Comments

Reporting scores and major factors influencing sustainability reporting
in each country

Financial performance
Analyst and market variables
Concluding Comments

Identification and analysis of cross-sectional differences – countries, industries, size levels and other factors
Intra-country disclosures
Industry Differences
Firm size
High Growth/Low Growth

Correlations between GRI Disclosures and Selected Financial Performance Indicators
Conclusions

Untitled
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https://www.globalreporting.org/information/news-andpress-center/Pages/EU-proposal-sparks-hope-for-new-eraof-corporate-transparency.aspx

Sustainability reporting
in

Australia:

jumping into
the mainstream

2 Sustainability reporting in Australia

Sustainability reporting in Australia 1

Compared to the development of financial reporting,
the evolution of non-financial reporting has been
rapid and fragmented. There are many regulations,
reporting frameworks and tools which influence the
corporate reporting process on environmental, social
and governance issues (ESG). The resulting reporting
landscape has been described in recent reports by the
Business and Sustainable Development Commission1
and ACCA2 as complex and overwhelming. As such, there
have been calls for more harmonization and alignment.

What are the objectives of the
Reporting Exchange?
The primary objective of the Reporting Exchange is
to provide much-needed clarity to people who write
corporate reports. The Reporting Exchange helps
them understand what, where and how to report on
sustainability issues while supporting clearer, more
concise and better-informed sustainability reporting.

The Reporting Exchange summarizes and connects
ESG reporting requirements and resources from
across 60 countries and 70 sectors. Better quality
reporting practices can support better internal and
external decision-making on sustainability-related risks
and opportunities which, in turn, can influence capital
allocations by investors – making more sustainable
businesses more successful.

The Reporting Exchange also provides the evidence
base to help drive action towards a more harmonized,
aligned and effective corporate reporting environment.
The platform maps the reporting provisions on
sustainability across the world’s largest economies,
showing how and where they link and align.
The Reporting Exchange has also been designed
as an open and collaborative space for the many people
and organizations active in corporate reporting. It allows
the latest developments, insights and good practices to
be easily shared across geographic borders and sectoral
boundaries. This will help accelerate harmonization and
alignment of corporate ESG at a global scale.

About this report
This paper surveys the non-financial reporting landscape
of Australia using data and insights from the Reporting
Exchange. With WBCSD’s Global Network Partner,
Sustainable Business Australia (SBA), we explore the
challenges and opportunities for corporate reporting
in the country, drawing on international best practice to
provide suggested steps to ensure Australia is a global
leader in sustainable finance.

Introduction:
the Reporting Exchange
In 2017, the World Business Council for Sustainable
Development (WBCSD), in partnership with the Climate
Disclosure Standards Board (CDSB) and Ecodesk,
launched the Reporting Exchange. This free, online
platform was designed to help business navigate the
often-confusing world of corporate reporting.

https://sba.asn.au/

Sustainability reporting in Australia

Moving towards
sustainable finance

In a report published in 2017, McKinsey & Co. found that
over a quarter of assets under management globally are
invested considering ESG factors4. In addition to ethical
principles, this growth has been largely the result of
traditional economic principles – risk and returns.

The World Economic Forum concluded earlier this year
that environmental and social risks make up four of
the top five global risks in terms of impact, and three
of the top five in terms of likelihood5. Businesses and
investors are increasingly becoming aware of these risks.

While many are concerned about the impact of business
on the environment or the workforce – such as through
pollution incidents or labor abuses – there is also a
growing understanding of the impact of ESG risks on
business itself.

The Task Force on Climate-related Financial Disclosure
(TCFD), for example, asks companies and investors
to report on how climate change will impact their
revenues, expenditures, assets, liabilities, access to
capital and financing6.

In addition, recognition of emerging markets and
products, social license to operate and a host of other
factors are establishing a clearer connection between
ESG criteria and corporate financial performance.

For example, research by academics such as George
Serafeim is continuing to cement this connection7 and in
the most comprehensive study to date, researchers from
Deutsche Asset & Wealth Management and the University
of Hamburg conducted a meta-analysis of over 2,000
studies on this topic. They concluded that the majority of
studies found a positive relationship between ESG and
financial performance over time – regardless of regions
and asset classes8.

Despite the interest in sustainable investment, there
appears to be a disconnect on ESG issues between
corporates and investors. Though corporate disclosure
on ESG issues is certainty increasing – 85% of S&P
500 companies issued a sustainability report in 2017
compared with under 20% in 20119 – the quality,
consistency and comparability of reporting requires
further development.

“85% of S&P 500 companies
issued a sustainability report
in 2017 compared with under
20% in 2011.”

Investors are realizing the importance of
sustainability and environmental, social
and governance (ESG) issues3.

https://www.mckinsey.com/industries/private-equity-and-principal-investors/our-insights/from-why-to-why-not-sustainable-investing-as-the-new-normal

http://www3.weforum.org/docs/WEF_GRR18_Report

https://www.reportingexchange.com/reportingProvision/1746?entityVersionID=2566

Sustainability reporting in Australia 3

PwC’s Governance Insights Center found that only
29% of investors are confident in the quality of
ESG information reported, while just 8% thought
the information issued allowed them to compare
companies10. Overall, the authors found that 21% of
investors were somewhat satisfied with current practices,
with close to three-quarters somewhat dissatisfied or
neutral regarding ESG reporting practices.

One of the issues regularly found in associated studies is
that the reporting landscape is not currently capable
of delivering ESG information that is comprehensive,
consistent and comparable enough for investors.
Though more work needs to be done to ensure financial
markets are truly sustainable and oriented towards
long-term value creation, WBCSD and COSO’s work to
integrate ESG risks into enterprise risk management are
steps in the right direction11.

The issues mentioned above apply globally, specifically
in Australia.

The Australian business community is highly vulnerable
to the worsening extreme weather and other effects
that climate change will bring12. Significantly, Australia’s
Senate Economics References Committee last year
recommended that the government act to ensure that
assessing and taking account of carbon risk becomes
a business norm, including the implementation of the
TCFD recommendations13.

As such, Australia’s largest investors are calling for
change. As part of a global coalition, 23 Australian
institutional investors, including Australian Ethical
Investment, Australian Super, HESTA and VicSuper,
issued a call in June for the G7 to step up action on
climate change, including the improvement of corporate
reporting14. These 23 investors, who manage close to
USD $2 trillion in assets, understand the importance of
ESG issues to the long-term value of Australian business.

As a leader in the Asia-Pacific region with an active and
pronounced finance sector, Australia is well-positioned
to spearhead sustainable finance. This will require
improvements across the financial system, including
the regulation and standards that determine how ESG
information and data are disclosed by companies and
interpreted by investors.

“Only 29% of investors are
confident in the quality of ESG
information reported.”

http://www.coso.org

Sustainability reporting in Australia

Australia’s reporting
landscape

While these provisions are split 50:50 between mandatory
and voluntary obligations for companies, there are seven
key reporting requirements, which are all mandatory
for applicable companies. Over half of the provisions
identified are resources designed to help companies
implement the seven requirements and support more
general sustainability disclosure.

The most common channels (45%) for ESG disclosure are
specialist systems. These refer to reported sustainability
information and data which are specifically directed to the
authority or regulator demanding it, rather than investors
or other stakeholders.

Despite this, the Australian reporting landscape is
more focused on reporting ESG information through
mainstream annual reports when compared to other
countries on the Reporting Exchange. This could be
because of a greater focus on investors as the chosen
audience for ESG reporting in Australia.

As with most countries, environmental issues are
the most common focus of reporting in Australia.
In contrast, governance is the second most popular
focus, ahead of social issues. Zooming into specific
subject areas of reporting, corporate accountability
is the most common subject of disclosure in Australia.

The Australian Securities Exchange’s (ASX) Listing
Rules and Corporate Governance Principles and
Recommendations are two of the most important

reporting provisions for Australian publicly-listed
companies. Recommendation 7.4 in the latter
recommends that listed entities disclose whether they
are exposed to any material economic, environmental or
social risks and how they manage them. Additionally, the
Listing Rules require companies to disclose how they
meet these recommendations and where they do not, to
disclose the reason for divergence.

Over 80% of reporting provisions in Australia are at least
partly concerned with environmental issues, with climate
change and emissions/pollution being the second and
third most popular subject areas respectively, behind
corporate accountability.

The National Greenhouse and Energy Reporting (NGER)
Act, passed in 2007, is the most prominent reporting
requirement in Australia. NGER creates a mandatory,
national reporting framework for the largest
500 corporate entities by greenhouse gas emissions
and energy production/consumption to report this data.
From 2012 (until its repeal in 2014), a carbon pricing
mechanism was integrated into the NGER system.
The repeal is among the reasons why Australia has
been ranked as a “very low-performing” country in
Germanwatch’s analysis of countries tackling climate
change15. However, the reporting requirement still exists
and represents the longest unbroken national mandatory
GHG reporting scheme in the world.

Research for the Reporting Exchange shows that
there are 22 ESG reporting provisions in Australia.

https://www.reportingexchange.com/reportingProvision/862?entityVersionID=98

https://www.reportingexchange.com/reportingProvision/862?entityVersionID=985

https://www.reportingexchange.com/reportingProvision/863?entityVersionID=986

https://www.reportingexchange.com/reportingProvision/872?entityVersionID=4505

Sustainability reporting in Australia 5

Reporting provisions

On the social side, the Workplace Gender Equality Act
is a significant requirement for Australian business.
The provision requires companies with over 100
employees to report against a set of standardized
gender equality indicators, which include composition
of workforce and governing bodies, remuneration,
availability of flexible working arrangements, gender-
based harassment and discrimination. The reporting
requirement was the inspiration for the UK’s Gender Pay
Gap Reporting, whose scope for disclosure is far narrower
than the Workplace Gender Equality Act.

There’s a wide variety of reporting and management
resources available to support these reporting
requirements and to encourage understanding and
engagement with sustainability issues.

For instance, the Australian Financial Services Council
and Council of Superannuation Investors have prepared
the ESG Reporting Guide, which aims to assist companies
in disclosing their ESG risks in a consistent and
comparable manner.

There are also sectoral and subject-specific initiatives.
The Minerals Council of Australia published their
Framework for Sustainable Development, which covers
a wide range of ESG issues focused on the mining and
associated equipment, technology and services sectors.
Estimates show these sectors contribute to around 15%
of Australia’s economy and 10% of the country’s full time
employment16, making this provision particularly relevant.
Similarly, the Australian Water Accounting Standards
Board has created standards that aim to bring reliability
and commonality for an issue of growing importance for
investors in Australia and beyond17.

Australia:
SDG focus

1111

5 5

2
10

SDG1 SDG2 SDG3
SDG4 SDG5 SDG6
SDG7 SDG8 SDG9
SDG10 SDG11 SDG12
SDG13 SDG14 SDG

SDG16 SDG

0 5 10 15

Australia:
ESG focus

Social
Governance

Environmental

https://www.reportingexchange.com/reportingProvision/874?entityVersionID=997

https://www.reportingexchange.com/reportingProvision/507?entityVersionID=4525

https://www.reportingexchange.com/reportingProvision/873?entityVersionID=996

https://www.reportingexchange.com/organisation/26655

https://www.reportingexchange.com/organisation/26475?entityVersionID=121

Sustainability reporting in Australia 6

How does Australia
measure up?

South Africa and Australia share close political and
economic ties, have large extractive industries and
similarly sized stock exchanges. Singapore also has
a vibrant financial sector like Australia’s and the Singapore
Exchange is a regional rival to Australia Securities
Exchange18.

Our research shows that the number of corporate ESG
reporting provisions for each of these three countries is
similar. The greatest difference is in the composition of
these provisions – over 80% of provisions in South Africa
are reporting requirements, compared to less than one-
third in Australia. Singapore also has a greater proportion
of reporting requirements than Australia.

There are also differences in ESG focuses for corporate
disclosure. All three countries give weight to disclosure
on environmental issues, but social sustainability is much
more prominent in South Africa.

At the same time, Singapore’s environmental focus has
strengthened in 2018 with the introduction of a carbon
tax for large direct emitters. The Singaporean Government
has estimated that 40 companies, accounting for around

80% of the country’s GHG emissions, will be affected20.
This contrasts markedly with Australia’s where there is a
particular focus on corporate governance.

Regulators in South Africa have used corporate reporting
to increase transparency and encourage change for
issues related to socio-economic inequality, working
conditions, training, and community prevalence of HIV
and tuberculosis. Much like the Australian Workplace
Gender Equality Act, these requirements look to tackle
structural issues that hinder equality and success and
show how corporate reporting can be applied to confront
other social issues in Australia.

Compared to Australia, Singapore and South Africa have
a smaller proportion of reporting provisions aiming to
integrate ESG data into mainstream reports. Instead, they
focus on disclosing directly to authorities and regulators.
Both Singapore and South Africa have mandated
companies to produce corporate sustainability
disclosures aimed at investors as well as other
stakeholders.

For instance, all companies listed on the Singapore
Exchange must produce a sustainability report through
Listing rule 711A and B. The reports must note and
explain the material ESG factors identified by the
company, outline the policies and practices relating to
each factor while setting sustainability targets for the
forthcoming year.

To investigate how Australia stacks up against
other countries, we have chosen to explore
two countries whose economies overlap with
Australia’s in different ways.

Country GDP
(in billions)19

Reporting
provisions

Reporting
requirements

Australia 1,379.5 22 7
Singapore 332.9 21 12
South Africa 349.3 24 20

https://www.reportingexchange.com/reportingProvision/456?entityVersionID=4520

Sustainability reporting in Australia 7

In South Africa, several reporting provisions promote
integrated reporting, a form of corporate disclosure that
has developed around the King Code and its unique and
recognized form of corporate governance.

Integrated reporting aims to contextualize a company’s
financial performance with wider and interconnected
sustainability information to provide stakeholders a more
holistic understanding of value-creation.

All companies listed on the Johannesburg Stock Exchange
are required to disclose according to the principles
and recommendation of the King Code, which means
sustainability information and metrics are integrated into
the annual disclosure of South Africa’s largest public
companies. South Africa’s wider financial system is
encouraged to act with regard to sustainable and long-
term value creation under provisions such as the Pension
Funds Act and the Code for Responsible Investing.

Australia Singapore South Africa
Accountability Emissions/pollution Employment conditions,

policies and practices
Climate change Waste Accountability
Water Employment conditions,

policies and practices
Effectiveness

Emissions/pollution Water Leadership

1
12

7
2
12

2 2
2

Singapore:
SDG focus

0 5 10 15 20

Singapore:
ESG focus

SDG1 SDG2 SDG3
SDG4 SDG5 SDG6
SDG7 SDG8 SDG9
SDG10 SDG11 SDG12
SDG13 SDG14 SDG15
SDG16 SDG17

3 1

20
5
2
17

1 3

South Africa:

SDG focus

South Africa:
ESG focus

0 5 10 15 20
SDG1 SDG2 SDG3
SDG4 SDG5 SDG6
SDG7 SDG8 SDG9
SDG10 SDG11 SDG12
SDG13 SDG14 SDG15
SDG16 SDG17
Social
Governance

Environmental

Social
Governance

Environmental

Reporting provisionsReporting provisions

Social
Governance
Environmental

Key subject areas for sustainability reporting

https://www.reportingexchange.com/reportingProvision/1413?entityVersionID=4521

https://www.reportingexchange.com/reportingProvision/1403?entityVersionID=1537

https://www.reportingexchange.com/reportingProvision/1396?entityVersionID=1530

https://www.reportingexchange.com/reportingProvision/1397?entityVersionID=1531

Sustainability reporting in Australia 8

Data snapshot

Provision
type

Reporting
obligation

Reporting
channel

Reporting requirement
Reporting resource
Management resource

Mandatory
Voluntary
Comply or explain

Mainstream
Integrated
No requirement
Sustainability
Specialist

3 1
20
5
2
17
1 3
4
16
3 1
20
5
2
17
1 3
4
16
3 1
20
5
2
17
1 3
4
16

Provision type
Reporting provisions can be grouped into three distinct
categories, reporting requirement, reporting resource,
management resource, each of which has different
ambitions within corporate sustainability and reporting.

Reporting obligation
Reporting provisions may be mandatory or voluntary for
companies to follow. In addition, provisions may follow a
comply or explain obligation, which requires companies to
disclose reasons for non-compliance.

Reporting channel
Reporting provisions request disclosure of sustainability
information and data through different routes and towards
different audiences.

South Africa:

Sustainability reporting in Australia 9

3
7

12
1111
5 5
2
10
Provision
type
3
7
12
1111
5 5
2
10
Reporting
obligation
3
7
12
1111
5 5
2
10
Reporting
channel
Reporting requirement
Reporting resource
Management resource
Mandatory
Voluntary
Comply or explain
Mainstream
Integrated
No requirement
Sustainability
Specialist
Provision
type
Reporting
obligation
Reporting
channel
Reporting requirement
Reporting resource
Management resource
Mandatory
Voluntary
Comply or explain
Mainstream
Integrated
No requirement
Sustainability
Specialist
8
1
12
7
2
12
2 2
2
15
8
1
12
7
2
12
2 2
2
15
8
1
12
7
2
12
2 2
2
15

Singapore:

Australia:

Sustainability reporting in Australia 10

A view from Sustainable
Business Australia

While financial value continues to dominate and financial
capital remains at the heart of business and markets, it
is also apparent that focusing solely on financial results
produces a very narrow picture of how companies relate
to the world around them.

This is particularly relevant in circumstances where
governance issues arising from poor conduct or culture
and a perceived lack of accountability. As a case in point,
after a string of revelations surround the Commonwealth
Bank of Australia in early 2018, the country’s largest bank,
the Australian Prudential Regulation Authority released
a report into the prudential controls of the bank21.
This report makes an overarching conclusion that
“[the bank’s] continued financial success dulled the
senses of the institution,” especially in relation to the
management of non-financial risks.

The report also highlighted a number of prominent
cultural deficiencies, such as a widespread sense of
complacency, a reactive stance in dealing with risks, being
insular and not learning from experiences and mistakes,
and fostering work environments which lessened the
opportunity for constructive criticism, timely decision-
making and a focus on outcomes.

While the standards of corporate governance and
reporting in Australia remain high by international
standards, there is a growing need for Australia regulators,
market overseers and companies to update Australia’s
corporate reporting landscape to address the fast
emerging domestic and global issues on economic, social
and environmental performance.

There is a growing imperative for companies in Australia
and around the world to explicitly report on issues
such as their corporate values and culture, anti-bribery
and corruption policies, cyber risks and various
facets of gender equality. In Australia, there is momentum
for corporate disclosure on issues such as modern
slavery within supply chains and corporate exposure to
climate risk.

The challenge is how to embed greater value into
Australian companies’ sustainability disclosures.

Beyond acknowledging the material sustainability risks
they face, Australian companies need to articulate the
steps they are taking to address them, set targets to
improve and show how they build resilience into their
strategic decision-making. This will allow investors and
other stakeholders to more accurately assess risk,
measure performance, allocate financial capital and
identify market opportunities in Australia.

In particular, the level of climate-related disclosures lags
that of sustainability reporting more generally22. Recent
analysis shows that a significant number of ASX200
companies did not measure greenhouse gas emissions,
have a policy or statement on climate-related risk or a
related target. Disclosure of climate-related governance
and risk assessment is now a focus area for investors,
activists, regulators and policymakers alike. Why?
Because such information is increasingly understood as
an important lens through which to assess a company’s
true value.

As our Australian society and economy addresses these
challenges and opportunities – including that of its low-
carbon transition – the need for enhanced corporate
transparency is vital for identifying risk and for realizing
new dimensions for growth.

Non-financial reporting has grown rapidly around
the world. Value is now perceived much more
broadly than it was in the past.

Sustainability reporting in Australia 11

Conclusion

The Reporting Exchange shows that there are already
over 1,000 reporting requirements in 60 of the world’s
most important economies. But, more work is needed to
improve, align and harmonize these reporting provisions
within and between countries.

In Australia, corporate reporting centers on environmental
issues, such as climate change and water. It’s also
focused on corporate governance.

Notably, there is a greater tendency for companies to
disclose sustainability information and data through their
mainstream reports in Australia, with the ASX playing an
important role. This is because disclosing through the
mainstream report brings ESG risks and opportunities to
the investor community’s attention – potentially affecting
the allocation of capital.

In considering steps forward, there’s inspiration from of
South Africa and Singapore.

In tackling important social issues such as racialized
inequality and HIV, South Africa has embraced the power
of corporate reporting. This shows how Australia can
expand its work around inequality into other areas of
social sustainability such as modern slavery.

In Singapore, a carbon tax that will affect 80% of
the country’s GHG emissions, shows a clear intent
to continue to develop its climate change strategy.
More broadly, South Africa is integrating sustainability
throughout their financial system, ensuring companies
and investors are governed, act and report with an
understanding of their ESG risks and opportunities.
Climate risk is also a huge factor for reporting in Australia.

As such, and because of the TCFD, investors and
governing bodies in Australia are demanding regulatory
change. If climate and other important sustainability
issues are going to become the corporate reporting
norm in Australia, businesses, investors, regulators
and standard setters must act. In doing so, Australia
and its business community will foster long-term and
sustainable growth.

As the risks and opportunities of ESG issues become
increasingly significant, companies and investors,
governments, stock exchanges and standard
setters around the world are acting to ensure a more
sustainable financial system. Corporate reporting is
and will be a key component of this action.

Sustainability reporting in Australia 12

References
[1] The Business and Sustainable Development
Commission (2017), Better Business, Better World

[2] ACCA and CDSB (2016), Mapping the sustainability
reporting landscape: Lost in the right direction

[3] Financial Times (2017), The ethical investment boom

[4] McKinsey & Company (2017), From ‘why’ to ‘why not’:
Sustainable investing as the new normal

[5] World Economic Forum (2018), The Global Risks
Report 2018

[6] Task Force on Climate-related Financial Disclosures
(2017), Recommendations of the Task Force on Climate-
related Financial Disclosures

[7] Serafeim, G. (2014), Turning a Profit While Doing Good:
Aligning Sustainability with Corporate Performance

[8] Friede, G., Busch, T., Bassen, A. (2015), ESG and
financial performance: aggregated evidence from more
than 2000 empirical studies

[9] Governance & Accountability Institute (2018), Flash
Report: 85% of S&P 500 Index Companies Publish
Sustainability Reports in 2017

[10] PwC Governance Insights Centre (2016), Investors,
corporates and ESG: bridging the gap

[11] COSO and WBCSD (2018), Enterprise Risk
Management: Applying enterprise risk management
to environmental, social and governance-related risks
(Preliminary Draft)

[12] Climate Council (2017), Critical Decade 2017:
Accelerating Climate Action

[13] Senate Economics References Committee (2017),
Carbon risk: a burning issue

[14] The Investor Agenda (2018), Global Investor
Statement to Governments on Climate Change

[15] Germanwatch, CAN and NewClimate Institute (2017),
Climate Change Performance Index: Results 2018

[16] Deloitte (2017), Mining and METS: engines of
economic growth and prosperity for Australians

[17] Financial Times (2018), The new oil: how investors
keep water flowing

[18] Financial Times (2018), Australia seeks crown as
‘Nasdaq of Asia Pacific’

[19] International Monetary Fund (2018), World Economic
Outlook Database: Gross domestic product

[20] Singapore Ministry of Communications and
Information (2018), Working with business to tackle
climate change and safeguard our environment

[21] Prudential Inquiry into the Commonwealth Bank of
Australia (2018), Final Report

[22] Australian Council of Superannuation Investors
(2017), Corporate Sustainability Reporting in Australia

http://report.businesscommission.org/report

https://www.cdsb.net/sites/default/files/acca_cdsb_mapping_the_sustainability_landscape_lost_in_the_right_direction

https://www.ft.com/content/9254dfd2-8e4e-11e7-a352-e46f43c5825d

https://www.mckinsey.com/industries/private-equity-and-principal-investors/our-insights/from-why-to-why-not-sustainable-investing-as-the-new-normal

http://www3.weforum.org/docs/WEF_GRR18_Report

https://www.fsb-tcfd.org/wp-content/uploads/2017/06/FINAL-TCFD-Report-062817

https://www.brookings.edu/research/turning-a-profit-while-doing-good-aligning-sustainability-with-corporate-performance/

https://www.tandfonline.com/doi/pdf/10.1080/20430795.2015.1118917?needAccess=true

https://www.ga-institute.com/press-releases/article/flash-report-85-of-sp-500-indexR-companies-publish-sustainability-reports-in-2017.html

https://www.pwc.com/us/en/governance-insights-center/publications/assets/investors-corporates-and-esg-bridging-the-gap

http://docs.wbcsd.org/2018/02/COSO_WBCSD_ESGERM

https://www.climatecouncil.org.au/uploads/6d762163fc81535d1813585d8ad43854

https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/Carbonriskdisclosure45/Report

https://theinvestoragenda.org/wp-content/uploads/2018/05/GISGCC-FINAL-for-G7-with-signatories-1

https://www.climate-change-performance-index.org/sites/default/files/documents/the_climate_change_performance_index_2018

https://www2.deloitte.com/content/dam/Deloitte/au/Documents/Economics/deloitte-au-economics-mining-mets-economic-growth-prosperity-engines-170317

https://www.ft.com/content/c63d219c-536f-11e8-b3ee-41e0209208ec

https://www.ft.com/content/97e28ade-0712-11e8-9650-9c0ad2d7c5b5

http://www.imf.org/external/pubs/ft/weo/2018/01/weodata/weorept.aspx?sy=2017&ey=2017&scsm=1&ssd=1&sort=country&ds=.&br=1&c=512%2C946%2C914%2C137%2C612%2C546%2C614%2C962%2C311%2C674%2C213%2C676%2C911%2C548%2C193%2C556%2C122%2C678%2C912%2C181%2C313%2C867%2C419%2C682%2C513%2C684%2C316%2C273%2C913%2C868%2C124%2C921%2C339%2C948%2C638%2C943%2C514%2C686%2C218%2C688%2C963%2C518%2C616%2C728%2C223%2C836%2C516%2C558%2C918%2C138%2C748%2C196%2C618%2C278%2C624%2C692%2C522%2C694%2C622%2C142%2C156%2C449%2C626%2C564%2C628%2C565%2C228%2C283%2C924%2C853%2C233%2C288%2C632%2C293%2C636%2C566%2C634%2C964%2C238%2C182%2C662%2C359%2C960%2C453%2C423%2C968%2C935%2C922%2C128%2C714%2C611%2C862%2C321%2C135%2C243%2C716%2C248%2C456%2C469%2C722%2C253%2C942%2C642%2C718%2C643%2C724%2C939%2C576%2C644%2C936%2C819%2C961%2C172%2C813%2C132%2C726%2C646%2C199%2C648%2C733%2C915%2C184%2C134%2C524%2C652%2C361%2C174%2C362%2C328%2C364%2C258%2C732%2C656%2C366%2C654%2C734%2C336%2C144%2C263%2C146%2C268%2C463%2C532%2C528%2C944%2C923%2C176%2C738%2C534%2C578%2C536%2C537%2C429%2C742%2C433%2C866%2C178%2C369%2C436%2C744%2C136%2C186%2C343%2C925%2C158%2C869%2C439%2C746%2C916%2C926%2C664%2C466%2C826%2C112%2C542%2C111%2C967%2C298%2C443%2C927%2C917%2C846%2C544%2C299%2C941%2C582%2C446%2C474%2C666%2C754%2C668%2C698%2C672&s=NGDPD&grp=0&a=&pr.x=45&pr.y=14

https://www.gov.sg/microsites/budget2018/press-room/news/content/working-with-businesses-to-tackle-climate-change-and-safeguard-our-environment

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https://www.acsi.org.au/images/stories/ACSIDocuments/generalresearchpublic/2017-Sustainability-Report-FINAL

Sustainability reporting in Australia 13

Disclaimer
This publication is released in the name of WBCSD. It
does not, however, necessarily mean that every member
company agrees with every word. This publication has
been prepared for general guidance on matters of interest
only, and does not constitute professional advice. You
should not act upon the information contained in this
publication without obtaining specific professional advice.
No representation or warranty (express or implied) is given
as to the accuracy or completeness of the information
contained in this publication, and, to the extent permitted
by law, WBCSD, its members, employees and agents do
not accept or assume any liability, responsibility or duty
of care for any consequences of you or anyone else
acting, or refraining to act, in reliance on the information
contained in this.

About the World Business Council for
Sustainable Development (WBCSD)
WBCSD is a global, CEO-led organization of over 200
leading businesses working together to accelerate the
transition to a sustainable world. We help make our
member companies more successful and sustainable
by focusing on the maximum positive impact for
shareholders, the environment and societies. Our
member companies come from all business sectors and
all major economies, representing a combined revenue of
more than USD $8.5 trillion and 19 million employees.

Our global network of almost 70 national business
councils gives our members unparalleled reach across
the globe. WBCSD is uniquely positioned to work with
member companies along and across value chains
to deliver impactful business solutions to the most
challenging sustainability issues. Together, we are the
leading voice of business for sustainability: united by our
vision of a world where more than 9 billion people are
all living well and within the boundaries of our planet, by
2050. www.wbcsd.org

For more information contact Johanna Tähtinen
tahtinen@wbcsd.org

About the Climate Disclosure Standards
Board (CDSB)
The Climate Disclosure Standards Board (CDSB) is an
international consortium of business and environmental
NGOs committed to advancing and aligning the global
mainstream corporate reporting model to equate natural
capital with financial capital. Recognizing that information
about natural capital and financial capital is equally
essential for an understanding of corporate performance,
our work builds trust and transparency needed to foster
resilient capital markets.

For more information contact Gemma Clements
gemma.clements@cdsb.net

About Sustainable Business Australia
SBA was established in Australia in 1991, and is the peak
body for support and advocacy for sustainable business
activities in Australia. In 2014 SBA was appointed
Australia’s Global Partner for World Business Council for
Sustainable Development (WBCSD).

SBA’s members include leading Australian businesses,
from all sectors, who share a commitment to economic,
environmental and social development. SBA represents
member companies, public sector enterprises and
institutions, BINGOs and community organizations,
which in turn represent 100,000 + Australian employees.
www.sba.asn.au

Acknowledgments

http://www.wbcsd.org

mailto:tahtinen%40wbcsd.org%20?subject=

mailto:gemma.clements%40cdsb.net%20?subject=

http://www.sba.asn.au

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email to hello@reportingexchange.com

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