In December 2023, the Deakin Integrated Reporting Centre (DIRC) published a comprehensive analysis of sustainability reporting practices and associated external assurance, by the largest 300 companies listed on the Australian Stock Exchange (ASX 300) in 2022. The DIRC is jointly funded by the Association of Chartered Certified Accountants (ACCA), Chartered Accountants Australia and New Zealand (CA ANZ) and KPMG.

“In an era of increasing transparency and accountability, it’s vital for companies to communicate their sustainable business practices through the lens of sustainability reporting.”

The study presents a comprehensive analysis of sustainability reporting practices across three key benchmarks: 1. Location of sustainability reporting. 2. Mentioning and explicitly adhering to sustainability reporting frameworks. 3. Sustainability assurance practices.

According to the study, the data suggests that while entities of all sizes are integrating financial and sustainability information, the incidence of reporting appears to be greater for larger entities. The study also observed a higher proportion of companies making no sustainability reporting within the Consumer Discretionary, IT and Health Care industry sectors. Sustainability disclosures were found in a mixture of three platforms: annual reports only, standalone sustainability reports, and in both annual and sustainability reports. The location of sustainability reporting provides insights into companies’ approaches to communicating their commitment to sustainability and its integration into their core operations.

An innovative feature of this study is the analysis of language to differentiate between companies that simply mention a “framework” within their reporting, and companies that explicitly specify how sustainability reporting has been conducted in accordance with a particular framework. Explicit disclosure of adherence to a framework is a key performance indicator, providing more confidence in the authenticity and integrity of sustainability reporting. However, companies who merely cite sustainability frameworks without the genuine commitment to act sustainably could be interpreted as providing misinformation regarding their sustainability efforts – a practice known as ‘greenwashing’.

Unstructured and inconsistent sustainability disclosures, lacking a clear alignment with any existing sustainability framework, could potentially undermine the integrity of a company’s sustainability efforts, and impact investors’ ability to make informed judgements. The study revealed that while almost 99% of investors incorporated sustainability reporting into their investment decision making, 73% stated current reporting did not meet their expectation. Additionally, 76% of investors believed companies were highly selective about what they disclosed, raising concerns about ‘greenwashing’.

Another performance indicator in the study involved identifying companies that had subjected their sustainability reporting to external assurance. Only 30% of companies (73 of 242) subjected some or all of their sustainability information to assurance. This result reveals that most of the sustainability information provided by Australia’s largest companies is not subject to independent assurance. Only 4 of 73 companies chose to have their entire reports containing the sustainability information externally assured.

These results suggest that within the current voluntary reporting landscape, Australia’s largest companies are yet to fully embrace a comprehensive and robust approach to ensure the credibility of sustainability reporting. While many of Australia’s largest companies displayed limited adherence to sustainability frameworks in 2022, the landscape is presently evolving with the establishment of global standards. The results also show that Australia is actively considering the adoption of these global standards. It is important to note these findings as Australia prepares for climate-related financial reporting set to commence from 1 July 2024, and how these may be implemented in individual practices.