ESG Reporting Fog: A Way Forward for Australian Management

The disclosure of environmental, social, and corporate governance (ESG) data is intended to improve transparency and inform investors about a company's ESG activities. However, the absence of mandatory reporting requirements and consistent standards and frameworks hinders comparability, and the lack of assurance raises concerns about credibility. The current study examines 21 different ESG metrics for the 100 largest companies in the largest exchanges in the Asia Pacific (APAC) region along with US and European controls. We confirm that comparability is a major issue because variation among overall ESG rating for the four most prominent ratings agencies was high. This highlights that companies may choose to report values from the rating agency that puts its company in the best light. The large amount of missing ESG information further suggests that much negative information is likely not being reported. Although the trend in assuring sustainability disclosures worldwide is increasing (KPMG, 2022), we find that only 30 percent of the APAC exchanges’ 100 largest public companies have their ESG reports independently audited, but that most (62%) of firm who choose to, use Big Four auditors. A uniform disclosure framework and assurance mandate are both necessary to facilitate comparability and reassure Australian investors that companies are not overstating or misrepresenting their ESG activities.