ACTU Investors forum Sydney 2011 Risk and governance

ACTU Investors forum Sydney 2011 Risk and governance priorities in an uncertain environment Jo-anne Schofield, Catalyst Australia Inc. www. catalyst. org. au

Sources Catalyst ‘Full disclosure’ series: 1. How corporations tell their story 2. Human rights at work 3. Who’s in charge of the corporation? www. catalyst. org. au Banarra Consulting & CFMEU Mining and Energy Labour Practices in Sustainability Reporting www. banarra. org. au

Establishing brand Collapse in public trust Lavish spending to manage reputation. Strong local take-up UN PRI Global CEOs • 96% want sustainability to be fully integrated into core business • 88% support integration through the supply chain

ESG risk management tools Global Reporting Initiative (GRI) & OECD Trade Union Checklist - UN Global Compact - UN Principles for Responsible Investment - SA 8000 Labor practices standard - ISO 14001 environmental certification standard - ISO 2600 guidance on social responsibility - Carbon disclosure project - Extractive Industries Transparency Initiative. Plus National systems, eg Australian Corporate Responsibility Index

Depends on disclosure 37% of Australian firms produce a stand alone report about environmental and social activities. Less than half (42%) gain external assurance Voluntary corporate self-engagement with ethics– “misguided and naïve”…. Australian Wheat Board - self assessing while paying bribes to the regime in Iraq. Justine Nolan 2008

Corporate ethics as a social risk Governance failures in the GFC took place in “some of the most sophisticated banks operating in some of the most developed governance environments in the world” (World Bank) Lack of disclosure was a major issue. One in four older workers in the US burned through all of his or her retirement savings between Dec 2007 and June 2009.

Expanding the risk paradigm Our globalised marketplace requires a stronger ethical orientation …. . [An ] expanded risk paradigm must include … issues in the environment, social and governance realms. ” The Global Compact: Global Sustainability in the 21 st Century, January 2009 Compliance is not just ticking boxes…. It’s a “commitment to an ethical framework for decision making…” …the investing community [should] foster more than a tick the box process Hon Prof Neville Owen, ACSI Conference March 2011

Stakeholder engagement Unions and workers are vital stakeholders in the sustainability reporting process but are generally not engaged in this process in the Australian context There is a high potential to include stakeholders under the GRI, but few Australian companies in a recent sample consulted widely. Only 2 of 10 companies included unions in their list of stakeholder groups Banarra Consulting 2011

Unseen risks? Banarra Review Lack of engagement with workers = low compliance with benchmarks around decent work, collectively bargaining and other key GRI indicators. • 5 of 10 companies reported on bargaining rights • 2 of 10 reported workforce representation on health and safety committees Australian firms are not keeping pace with global movement to GRI in relation to labour standards.

Unseen risks Supply chain • GRI guidelines overlook several important ILO standard • Only one of 10 companies reported against the GRI indicator on supplier human rights. • Nokia / Apple / Australian Meat and Livestock Corp. Gender diversity • Surging public policy interest in this area – new ASX guidelines drive change. • Catalyst research: Independence without diversity.

Future issues for Catalyst What gives? Tax paid by Australian firms – with Australian School of Taxation, UNSW – August 2011 Serious about sustainability? with Centre for Corporate Governance, UTS – September 2011 How green is my company? (late 2011)

“The risks and uncertainties shared by all require a shared response…. Overly zealous or misplaced risk management can stifle innovation and creativity … but we can … take a long, hard look at what kinds of risk are best managed at an individual, government or business level. John Quiggin, The risk society: social democracy in an uncertain world, 2007