Corporate Sustainability

Australia's green business opportunity – HSBC has developed an infographic showcasing the latest drivers for the nation's sustainable future through green finance, clean energy or emission reductions
Download infographic

The Australian climate is changing on sustainable business

Australian companies are recognising the importance of being sustainable and that profit and purpose must go hand in hand. According to our recent survey of 100 Australian companies, there is a desire to enhance brand reputation and showcase company purpose and values through sustainable practices but the time and effort to implement these stands as the biggest barrier.

Sources: Bloomberg New Energy Outlook, August 2018, HSBC CMB Sustainable Finance Research 2018; FTSE Russell, May 2018; HSBC Navigator Survey, Oct 2018; TCFD, March 2018

Converging with global practice

It is now almost half a century since the highly influential economist Milton Friedman declared that the only social responsibility of business was to increase profits1.

But while the terminology relating to social responsibility can vary by industry and country, global business now faces an operating environment that increasingly requires a level of sustainable practices, integrated reporting, responsible investment principles and corporate social responsibility (CSR) that Friedman could scarcely have imagined.

On one side of the ledger, global diplomatic agreements are starting to flow into domestic regulation. On the other side, the rise in consumer and shareholder activism is forcing companies to review their practices regardless of regulation. Take the United Nations (UN) Sustainable Development Goals (SDGs) for example, which were formalised in 2015. Underlying the trend toward the adoption of new rules on sustainable business at the national level, the Australian Senate's Foreign Affairs, Defence and Trade Committee is due to report in 2019 on what governance structures and accountability measures are needed to ensure these goals are implemented by businesses.

The creation of the Task Force means global companies are under powerful scrutiny over whether their accounts reflect their real environmental risks, and that is also filtering down to the national level in places like Australia

Hamish Kelly, HSBC Managing Director and Head of Global Banking Australia

Perhaps the most powerful step towards a greater business focus on sustainable practices has been the launch of the Task Force on Climate-related Financial Disclosures (TCFD), which was a direct result of a decision made by the Group of 20 (G20) major economy leaders in 2015. Developed in response to global financial market concerns that assets were being mispriced because the full extent of climate risk was not being accounted for, the G20 developed this voluntary framework for companies to disclose the financial impact of climate-related risks and opportunities. It has now become a major measuring stick globally for whether companies are operating in a sustainable way.

To date, more than 450 global companies with a market capitalisation of more than $US7.9 trillion have publicly supported the TCFD global standard for reporting2.

As of September 2018, 24 ASX200 companies had formally registered support for the framework3:

  • AGL, APA Group, Aurizon, ANZ
  • BHP, Bluescope Steel
  • CBA
  • Dexus, Downer Group
  • IAG, Investa
  • Mirvac
  • NAB
  • Origin
  • Qantas, QBE
  • South32, Stockland, Suncorp, Sydney Airport
  • Transurban
  • Wesfarmers, Westpac and Woolworths

Although that is only a handful of companies so far, it signals that climate risks are increasingly being considered as part of corporate strategy4

AUSTRALIAN COUNCIL OF SUPERANNUATION INVESTORS

While Australia is an active participant in the development of the new global architecture for sustainable business, local companies generally only sit in the middle ranks of the various implementation measures, showing there is clear room for improvement.

  • Australia ranks 37th in the 2018 Global SDG Index, which measures country progress towards meeting the UN’s SDGs.
  • Its score of 72.9 sits it only just above the G20 average5.
  • Corporate sustainability reporting levels across ASX200 companies has improved since 2008 (see graph)
  • Meanwhile, only 73% of Australia’s top 100 institutions regard human rights as an issue according to KPMG’s 2017 biennial corporate responsibility survey, compared with 90% of the equivalent global group6.
  • In the same report, only 41 out of these Australian 100 institutions also acknowledged climate change as a financial risk in reporting, although this was not inconsistent with global levels.
However, where Australia has made greater progress is in playing a leading role in the green bond market and, more recently, the green loan market. It is now the second largest issuer of such bonds in the Asia Pacific region7, with $US6.3 billion issued since the first green bond in 2014. HSBC Australia and ANZ were also leads on the world’s first European SDG bond, launched in February 2018.While renewable energy has been the main destination for the funds raised, transport projects are now also prominent in the green bonds market8.

 

Business sees the benefit of thinking long-term

While Australia’s global rankings leave room for improvement, there is emerging evidence that domestic businesses are starting to take the SDGs into account in their strategic planning and feel that this has benefitted them in the marketplace. A 2017 survey by the Australian Center for Corporate Social Responsibility (ACCSR) found that around half of respondents were already mapping the SDGs against their business’ overall strategy, rather than just its corporate social responsibility policy, as had been the case in in the past9. And more than 50% said sustainability reporting should be mandatory, which would go well beyond existing regulation and stock exchange rules10.

Deloitte’s tenth annual review of CSR practice provides an insight into just where businesses think better CSR practice has helped and how a longer-term commitment appears to pay greater dividends11. Strengthened reputation and reduced risk emerge as the biggest benefits, with a significant improvement upon the first such survey results in 2008. Eighty-nine per cent of respondents felt their reputation had been improved compared with 70% ten years ago. And 84% felt they had reduced risk compared with 66 % ten years ago. The survey also found that early adopters of CSR practices (defined as pre-2012) received 4% greater benefits than late adopters, demonstrating the value of consistency and a long-term outlook in this field.

While businesses believe that more sustainable practices can enhance their reputation and reduce risks, they may also be more prepared to adopt these practices because of an emerging bottom line benefit.

  • Over 80% of the 8,500 companies who participated in HSBC’s 2018 Navigator survey, which covered 34 markets globally, said they are looking to make ethically or environmentally sustainable changes to improve their revenues and financial performance12.
  • Another 84% are making ethically or environmentally sustainable changes to their supply chains to support cost efficiencies.

A large driver of this change in business practice is the growing willingness of consumers to pay for sustainable products.

  • A 2018 survey by Hewlett Packard and Planet Ark found that 71% of consumers were prepared to pay between 5% and 25% more for sustainable products13
  • This is broadly in line with the preparedness of businesses to pay more for their inputs if they are producing sustainable products.
  • The survey also shows a striking parallel between consumers and businesses on their key priorities in the environmental and sustainability field: plastic in the ocean; waste going to landfill; and protecting natural environments.
This harmony may well provide a fertile foundation for lifting Australia’s global performance ranking in these areas.

Industry best practice

Click here to understand how sustainable practices are being adopted by a range of Australian companies

You are leaving the HSBC CMB website.

Please be aware that the external site policies will differ from our website terms and conditions and privacy policy. The next site will open in a new browser window or tab.

You are leaving the HSBC CMB website.

Please be aware that the external site policies will differ from our website terms and conditions and privacy policy. The next site will open in a new browser window or tab.