And not just think about it.
Pressure to do so is coming both from their customers and society more broadly, as represented by the Government.
For example, one area that is currently being mandated in New Zealand is the area of climate-related disclosures. In October last year the Government introduced the Financial Sector Amendment Bill that gave the External Reporting Board (XRB) a mandate to develop climate disclosures for companies with a market capitalisation of more than $60 million, large licensed insurers, registered banks, credit unions, building societies and managers of investment schemes with more than $1 billion in assets.
The XRB is currently asking for submissions on the second document on climate risk disclosures, specifically dealing with strategy, metrics and targets of disclosures. It is proposed the organisations disclose their climate change related risks, think about the impact of those risks in relation to the strategic direction of the organisation and the financial planning for that. In addition, metrics are suggested that involve organisations measuring and disclosing all scopes of a carbon footprint and targets. Finally, in risk management it is suggested that organisations disclose on processes for identifying and managing climate risks and how they are integrated into the organisation’s risk management. For more detail on the disclosures and on how to write a submission see the XRB website.
This is all broadly part of what is referred to as environmental, social and governance, or ESG — the non-financial impacts of an organisation. It has become the norm for many large and particularly public companies to disclose or report on the environmental and social impacts of the organisation as well as the governance structures in place to manage all organisational activities.
ESG provides a statement of ‘‘purpose’’ from the organisation with regards to its position and reporting on environmental and social impacts. There are now many different standards and frameworks in this area that are primarily designed for the organisation to report on many different indicators. The reporting or disclosure provides investors with transparent, high quality and consistent information with regards to ESG matters in order for them to make an informed investment decision.
Typically, ESG principles are applied to investment decisions and indeed evidence shows that those companies that actively report on ESG factors have a broader understanding of their businesses and context and as a result investors have more confidence in those organisations. Hence we see increasing ESG reporting by organisations and better understanding of the meanings of such disclosures by investors and other stakeholders.
ESG factors for reporting are wide ranging and increasingly being mandated through regulatory requirements.
Another area to watch out for new regulatory mandates is in the area of modern slavery. According to the Global Slavery Index (globalslaveryindex.org), in 2016 on any given day, 40.3 people, including children, were victims of modern slavery. Women and girls dominate the statistics by constituting just over 70 per cent of slaves. In a report and assessment in 2019 by ‘‘Walk Free’’, modern slavery was found to be a ‘‘present and persistent issue in the Pacific region’’. Modern slavery includes forced labour, human trafficking and slavery and slavery-like practices (taken from Walk Free the Minderoo Foundation).
In September last year, Assoc Prof Stringer, Dr Burmester and Prof Michailova, from the Centre for Research on Modern Slavery at the University of Auckland Business School, with Dr Harre, from LawAid International, produced a white paper arguing for New Zealand to develop due diligence legislation to define modern slavery in the New Zealand context, require organisations to disclose and take direct action on slavery and develop penalties for any local involvement in slavery activities (particularly large organisations). Due diligence legislation would require organisations to move beyond transparency to actively prevent modern slavery in their supply and value chains.
Australia introduced their Modern Slavery Act in 2018 with reporting mandated from businesses with an annual consolidated income of more than $100 million. Regular statements are required from such entities annually and require them to review their supply chains regularly and thoroughly.
It is estimated that there are about 15,000 people impacted by slavery in Australia (www.walkfree.org) and significantly 62% of global modern slavery occurs in the Pacific and South East Asia region.
Given the moves overseas to require organisations to disclose and act on modern slavery, we would expect that here in Aotearoa there would be some changes in the near horizon, particularly as it relates to sustainable development goal (SDG) number eight (decent work and economic growth) and SDG number 16 (peace, justice and strong institutions).
To be prepared for such changes it is recommended for those larger organisations to start to actively monitor their supply chains and develop ways to systematically collect information on a regular basis to track slavery (or its absence).
If aspects of slavery are found, being transparent and developing clear processes to deal with with these issues would be recommended. Furthermore, it would be useful for any New Zealand-based company that has globally based supply chains to develop methods to be able to systematically collect data on aspects of slavery.
Turning a blind eye or thinking that slavery has been abolished is no longer appropriate. Doing everything practicable to find, disclose and eradicate slavery while embedding good practice for human rights and then reporting on this is not only an ethical stance, but it also meets ESG guidelines and positions an organisation for increasingly discerning investors.
Associate Professor Sara Walton is the director of the master of sustainable business at the University of Otago and the co-director of He Kaupapa Hononga Otago’s Climate Change Research Network.
