Introduction
Thanks Catherine for the introduction.
I would like to thank GRI for inviting me to present the opening address to the conference today - the largest forum to date focussing on integrated reporting and sustainability in Australia and the region.
Today's conference is a prime opportunity to gather everyone passionate about the future of corporate reporting - to share ideas in fostering a business culture that promotes a sustainable economy.
2012 marks the 20th anniversary of the 1992 United Nations Conference on Environment and Development (UNCED), and the 10th anniversary of the 2002 World Summit on Sustainable Development (WSSD). In June this year, Brazil will also host the Rio +20 United Nations Conference of Sustainable Development.
Sustainable development has no doubt become a key item on the global agenda.
The number of GRI sustainability reports is growing year after year globally and in Australia. In 2010, 1616 reports were produced globally in accordance with GRI standards, of which 51 were produced by Australian companies.
I hope today's conference will be the start of renewed interest and a strong push of momentum for sustainability reporting in Australia.
How we got here...
The idea that companies should report beyond financial performance has been around for quite some time.
The very first corporate social responsibility reports appeared several decades ago - largely as a marketing tool by large multinational companies to build repute with their shareholders and customers, by demonstrating how the company had contributed to the community, and how the company had factored for environmental concerns in its everyday operations. The reports were largely focussed on what the company had achieved for the community and the environment, and generally failed to provide a balanced view of how the company's operations were impacting the environment.
But we have come a long way from that.
Corporate social responsibility reporting ... triple bottom line reporting... sustainability reporting ... and now integrated reporting ... these ideas around reporting on sustainability issues have evolved over the past decades, and will continue evolving as ideas about sustainability and factors that threaten it change.
The Global Financial Crisis bridged the transition from reporting on sustainability issues, to reporting on how the businesses considers both the sustainability of the environment, and the sustainability of the business -and this was how the concept of integrated reporting attracted renewed interest.
Investors and other stakeholders found that traditional financial reports do not provide a comprehensive picture of businesses, and do not provide sufficient information for investors to form a view on whether the business is sustainable in its operations. Stakeholders need to understand businesses' risks, business model, and how the business focuses on sustainable business practices.
A comprehensive picture of businesses
Sustainability concerns have become a pressing challenge for the global economy.
Governments, investors, businesses and the general community can no longer ignore the fact that sustainability has become a matter of urgency, and are seeking to actively address such concerns in their decision-making.
This trend has shaped the investor's notion of 'company value'. But also to how sustainable these profits will be in the long run.
'Company value' no longer refers solely to the profitability of a company. But also to how sustainable these profits will be in the long run. Are firms generating short-run profits at the expense of not considering long-run risks in financial and environmental terms - as showed up in many cases in the GFC.
While financial performance will always be a key consideration for investors, more and more investors account for a business' environmental, social and governance aspects in their assessment of company value, which in turn guides them in their investment decision.
The Global Financial Crisis also provided evidence that financial reports in its current form do not give a comprehensive picture of the business. The GFC proved to businesses that a focus on short-term financial performance at the expense of longer-term considerations is not sustainable in the long run.
The GFC also reminded the community that investors play a large role in deciding how the world's limited resources are best allocated, and as a result non-financial performance should be accounted for in investment decisions.
In the adverse economic circumstances of late, key stakeholders are very wary of another bout of the GFC. The consequence - is higher expectations of corporate reporting. Investors are now demanding information on factors beyond the profitability sphere - demanding to know how companies have created value for the community in the environmental and societal space, demanding information about how short-term and long-term trade-offs have been managed, and information on how companies manage risks and opportunities.
This demand for additional information is especially strong for large companies with large market shares in the supply of mainstream goods and services, and are widely traded.
Companies have recognised this growing trend in the investor community, and are seeking to address these expectations for additional information.
A global standard for sustainability reporting
In the global economy we have today, businesses and investors connect between different parts of the world. To effectively conduct business and invest, there needs to be one set of standards to which businesses follow in its reporting - so that every business is competing on a level-playing field and investors can readily understand and compare reports from businesses everywhere.
The GRI Guidelines remain the only universal set of sustainability guidelines, and over 2000 sustainability reports have been produced to date in accordance with the GRI Guidelines.
I congratulate GRI for developing these standards, and actively reviewing these standards to ensure that they are up-to-date. The next generation of GRI Guidelines - the G4, is expected to be released next year. We welcome the continuing development of the GRI standards and encourage the participation of stakeholders in Australia in shaping their development.
Integrated reporting
There is growing evidence that many companies are integrating the consideration of broader community interests into their core business strategies, rather than treating such issues as additional and separate.
This reflects the relatively new concept of integrated reporting, which is beginning to gain momentum within the international investor community.
Integrated reporting reflects the growing trend that reporting on sustainability issues is not only about meeting the reporting expectations of investors. Integrated reporting is a process, not a product. The report that is periodically delivered to stakeholders is merely an output which reports on the ongoing process. It is a report which should report on an organisations' current state and future prospects, and this involves the risks, opportunities, details of its business model, impact on the society and wider environment, and more.
If companies report on how its business affects the society and environment, this can then guide company directors in their day-to-day operations and overall business strategy. Reporting on these additional measures of performance, will give business the information they need to allow them to change the way they operate and how decisions are made.
Traditionally, companies made decisions based on how it would affect its bottom line, because that was the single most important factor that investors considered when they evaluated the company. However, today businesses recognise that their business activities need to account for much more than the bottom line, and that they need to develop resilience and flexibility for unpredictable events, and build the capacity to anticipate and adapt... and they need to give their stakeholders the confidence they are doing this by reporting on it.
We are seeing evidence for this in the global movement towards sustainability and integrated reporting that will no doubt impact upon how Australian businesses operate, and consequently on the strategic direction of companies.
For example, the International Integrated Reporting Council (IIRC), launched in 2010, has begun a program to develop the integrated reporting framework. It released a discussion paper late last year, to which 16 Australian organisations provided submissions - this makes us the top three countries who have provided submissions to the paper, along with UK and the US. The IIRC is currently conducting a pilot program, in which three Australian companies - Stockland, National Australia Bank, and BankMecu, are involved.
On a domestic level, the Financial Reporting Council (FRC) has formed a taskforce to consider the issue of integrated reporting. The Taskforce provided a submission to the IIRC discussion paper, and is actively monitoring the developments in integrated reporting.
Australian businesses and sustainability reporting
The Australian Council of Superannuation Investors produces an annual research paper which reports on the sustainability reporting practices of the ASX200 companies.
The report found that there is a gradual move towards sustainability reporting amongst these companies, with 40 companies reporting in accordance to GRI standards. This represents 70% of all sustainability reports released by the ASX200 in 2011. This also represents double the number of companies reporting to GRI standards in 2008, when the research was first conducted.
How do we rank internationally?
The KPMG International Survey of Corporate Responsibility Reporting 2011 ranked Australia 23rd in terms of the percentage of companies reporting on their corporate responsibility initiatives in 2011; and 8th in terms of the percentage of companies that conduct assurance activities on their corporate responsibility reports.
The findings of the report suggest that although Australian companies still lag behind the rest of the developed world in the number of companies engaging in sustainability reporting, companies that report on sustainability issues report with a relatively high quality.
These are encouraging signs that the benefits of integrated reporting are understood by Australia's larger companies, and that a significant effort is being put into ensuring that the reporting is done well. Hopefully, more can be done to make such reporting more accessible to smaller entities.
The role of the Government in the transition to a sustainable economy
While the Government is a big supporter of sustainability reporting, we believe that at this moment in time, benefits to the economy through sustainable reporting is best achieved as a voluntary initiative for businesses.
If company directors recognise the need to report on sustainability issues (either because of growing stakeholder pressure, or the realisation that the business is being adversely affected as a result of the lack of attention to sustainability issues); and as a result, voluntarily engage in sustainability reporting - then this is a clear sign that the company has already begun to move towards sustainable thinking.
Companies like these who voluntarily produce sustainability reports, are likely to already have sustainability awareness embedded into their strategic direction and everyday business. This is the result we want to achieve through sustainability reporting.
A one-size-fits-all, mandated approach to sustainability reporting may result in a ticking-the-box attitude to sustainability reporting. This may inhibit the cultural change in company Boardrooms that we want to see accompany the production of sustainability reports.
Therefore the Government considers our role to not be to impose mandatory reporting requirements on businesses, but to be active in encouraging and supporting businesses to produce sustainability reports in accordance to GRI guidelines. Having businesses determine materiality in what to report is crucial to not imposing an undue regulatory burden on our businesses.
The Government is pleased to have provided tangible financial support for the St James Ethics Centre's Responsible Business Practice initiative, which encompasses the UN Global Compact, Corporate Responsibility Index, the Good Business Register, and of course the GRI.
Our funding of such initiatives are an example of one way which the Government is encouraging Australian businesses to engage in sustainability reporting, and report according to GRI standards.
Other ways we are considering to encourage businesses to engage in sustainability reporting includes through leading by example.
While Australian Government entities are currently undertaking sustainability reporting to some extent, there is currently no consistent guideline for Government agencies to report on sustainability issues. My colleagues in the Department of Finance and Deregulation are looking at this and other things to consider in introducing a sustainability reporting framework aligned with independently developed principles, such as the GRI.
I understand that Tim Youngberry from the Department of Finance and Regulation will provide more detail on this work in his presentation later in the Conference.
Australia's Economy
We're seeing powerful forces at work in the global economy and this means difficult transitions for some sectors here at home.
Our high terms of trade and our relative strengths mean that our dollar is at very high levels, and this is putting pressure on trade exposed sectors.
Despite recent signs of stabilisation in the global economy, there is still a lot of ongoing global uncertainty, which has dampened global demand, reinforced consumer caution and made businesses more hesitant in their hiring.
So it's not at all surprising that we're seeing some patchiness in recent economic data, as global headwinds and the troubles in Europe add to existing pressures faced by some sectors.
But Australians should have every reason to be confident in our strong economic fundamentals.
We have solid growth, low unemployment, contained inflation, a huge pipeline of investment and very low debt.
In particular Australia has:
- solid growth - with GDP now 7.4% higher than its pre-GFC levels, while many advanced economies are still behind the starting line;
- a low unemployment rate (5.2%) - less than half the rate seen in Europe (10.7%) and significantly below other advanced economies;
- contained inflation - with underlying inflation sitting squarely in the RBA's target band [2.6%];
- a cash rate sitting at 4.25% - significantly lower than the 6.75% that was inherited under the Opposition;
- an unprecedented investment pipeline - $455 billion in resources alone;
- very low debt - net debt less than a tenth of the level across major advanced economies; and
- a triple A rating by all three global ratings agencies, for the first time in our history.
Australia's strong fundamentals - along with our proven track record - make us uniquely placed to deal with the worst that the world can throw at us.
Conclusion
I thank GRI once again for leading the international movement towards sustainability reporting.
Sustainable development has been an issue that has become a more urgent priority on everyone's agendas. And now, as governments around the world deal with the fall-out of the GFC, the need for tools such as integrated reporting has become more important than ever.
We call for a global policy framework which promotes and encourages publicly listed and large private companies to consider sustainability issues, and to report how sustainability issues is embedded into their operation of the business, in a consistent and comparable manner.
The Government looks forward to working with you to engage in sensible and informed conversation about how to best promote sustainable thinking amongst our businesses. We encourage Australian companies to lead the push towards greater sustainability and be actively involved in the conservations happening on the international level.
It must be a joint effort between Government, industry, NGOs, and the wider community, so that we are able to provide the results in a practical way that balances the interests of all parties. Thank you.