So, more companies are telling the market what they are doing about sustainability it might help their reputation, but it does nothing for their share price.
Research released this week by CPA Australia and the University of Sydney found that sustainability and triple-bottom-line reporting was unlikely to be rewarded by investors.
The research also established a Sustainability Disclosure Index (SDI) for the ASX top 100, compiled from their disclosures including annual reports and information from their websites.
Each company was awarded one point for each of the selected 40 Global Reporting Initiative (GRI) indicators they reported against.
The selected indicators from the GRI, a UN-backed organisation that works in co-operation with UN Secretary-General Kofi Annan’s Global Compact, covered environmental issues such as total water use and greenhouse gas emissions, and social issues such as workforce breakdown and rates of injuries and fatalities.
The top five on the list were headed by BHP Billiton, which achieved an SDI of 31. It was followed by Rio Tinto (24), Alumina (21), Westpac (17) and Warehouse Group (17).
AdvertisementSonic Health was at the bottom with a score of zero.
CPA president Mark Coughlin said the findings suggested that share price performance was unlikely to drive more extensive sustainability reporting. The data implied that investors were still trying to understand the significance of sustainability.
"It also suggests that financial markets are yet to find a way to appropriately value sustainability disclosures and the insights they provide," Mr Coughlin said.
However, higher levels of sustainability reporting were associated with stronger corporate governance and more robust financials.
According to the study, financially healthy companies were more likely to undertake sustainability or triple-bottom-line reports, where the focus included environmental and societal impacts as well as financial.
Higher levels of sustainability disclosure were associated with higher operating cash flows, working capital, retained earnings, asset backing per share, debt servicing capacity and capital expenditure.
These companies also had lower price to book value ratios, suggesting they were either better priced or conservatively valued.
This meant that companies with more extensive sustainability reporting were less likely to get into financial trouble.
That was supported by the study’s findings, which were calculated by taking financial and market-based data from 1998 to 2003, and then correlating distress probability scores and sustainability disclosure scores.
The study found that lower-risk scores were associated with higher sustainability scores.
Mr Coughlin said lower distress probabilities were seen as a proxy indicator of good corporate governance, so the research seemed to confirm that more extensive reporting was associated with good corporate governance.