GHG supplants cyber as key business priority for 2024: Survey

Reduction of greenhouse gas (GHG) emissions and alignment with the Paris Agreement’s climate change mitigation goals have displaced cybersecurity as the leading ESG priority for companies over the next 12 to 18 months, results from Perennial Partner’s annual Better Future Survey have shown.

Nearly half the respondents to the latest survey – in its fifth edition this year – selected ‘GHG emissions’ as a top three ESG concern, placing it at the top of the priority list.

‘Cybersecurity’ and ‘diversity and inclusion’ ranked second and third, respectively, as the “most material topics to Australian listed corporates in 2024”.

Biodiversity came in as the fourth key concern this year, with a quarter of corporates listing it as a theme of priority on a forward-looking basis.

The survey sought feedback from 200 ASX-listed corporates covering all key sectors, with around a quarter of respondents coming from firms with a market cap of more than $5 billion.

Commenting on the survey results, Emilie O’Neill, co-head of ESG and equities analyst of Perennial’s Better Future Trust arm, said the shift in rankings likely represents “the increasing national focus on environmental concerns as well as global reporting standards increasingly prioritising environmental reporting”.

An encouraging trend emerging from the latest survey, she noted, was the clear increase in ESG accountability, with a growing number of dedicated ESG staff being appointed alongside greater senior and board-level oversight of ESG priorities.

Three-quarters (75%) of businesses now have a dedicated ESG/sustainability person or team for ESG matters, the survey showed – a significant increase on the 2022 results, in which fewer than half had a dedicated resource.

The percentage of companies with a dedicated senior executive responsible for ESG/sustainability also increased slightly to 78%, from 71% in 2022, O’Neill noted. Companies with a dedicated board member also increased to 50% in 2023 from 44% in 2022.

ESG as a core KPI

ESG-based key performance indicators (KPIs) are increasingly common within organisations, survey results revealed. The focus of these ESG-focused KPIs, nevertheless, remains on short-term incentives (STIs).

“Pleasingly, 62% of companies have ESG or sustainability as a specific KPI versus 45% in 2022,” O’Neill said. However, she noted “a significant size effect in the data, with 63% of smaller companies indicating that they do not have remuneration associated with ESG as a KPI compared with 24% of larger companies.”

Nearly two-thirds (61%) of companies also stated their belief that ESG and sustainability practices provide profit opportunities for their business, though 83% did indicate that tackling these issues would mean additional cost.

Three-quarters (75%) recognised that investors have become more focused on businesses’ ESG & sustainability practices over the last 12 months.

Given a ranking out of 10 for importance to their businesses over the next five to 10 years, respondents ranked ESG and sustainability 7.5.

Around three-quarters of surveyed businesses also revealed that they have or intend to have their ESG information verified by an auditor in the next 18 months.

Businesses still struggling with ESG reporting

Companies identified challenges with navigating reporting frameworks and information disclosure, likely due to a lack of globally consistent sustainability reporting methods, according to O’Neill.

This was likely to be improved by the incoming International Sustainability Standards Board (ISSB) standards, she added.

“Most respondents identified that ISSB will help to standardise ESG disclosures, while 13% think it will increase the reporting burden for corporates. Additionally, 44% agreed or strongly agreed that sustainability reporting has become burdensome, up from 33% in 2022 and 2021,” O’Neill said.

The survey found that GRI became the most used framework for reporting ESG information in 2023. Task Force for Climate-Related Financial Disclosures (TCFD) and Workplace Gender Equality Agency (WGEA) followed closely behind.

Outside of ESG matters, around half of the companies surveyed stated that they have a Reconciliation Action Plan (RAP) in place, with another 16% expecting to launch an RAP in the next 18 months. Indigenous Relations remained rated as the fifth most important priority this year, consistent with 2022 results.

Meanwhile, on cyber and data privacy, the survey also questioned companies on their dedicated spend over the past 12 months, with 44% of companies reporting that they have invested up to $5 million on cyber or data protection initiatives, with almost 10% recording a spend of between $10-20 million. Around 6% of reporting businesses spent over $200 million on cyber initiatives.

Perennial said it was “pleasing to see corporates’ continued commitment to ESG and sustainability matters, and the progress and appetite for improved ESG and sustainability performance amongst smaller companies.

“We think this is indicative of strong corporate management.”

Perennial Better Future, part of the Perennial Partners group, bills itself as “part of the next generation of authentic ESG investors”, with a focus on responsible investments that “deliver strong, consistent returns for our investors”.

The firm stresses its commitment to “integrating and considering ESG and sustainability across all elements of the investment process”.