ESG challenges for ASX listed companies in FY25

3. Workplace safety

Workplace safety concerns have expanded beyond labour-intensive sectors like resources to industrial and consumer sectors, with a rise in injuries and deaths. This spike is linked to increased mechanisation and automation, a growing migrant workforce, and the reliance on imported goods and online retail, which increases warehousing and manual handling. High-quality training and education are crucial in all cases.

We rate companies better when they are transparent about workplace safety. Mining companies have traditionally been very transparent, but now all companies must acknowledge and mitigate the risks. Through our engagements, and also our proxy voting later in the year, we will assess whether workplace safety is appropriately owned at the highest organisational levels. One way to do this is for KPIs to be directly related to safety incidents, and for short-term incentives and remuneration to be impacted by workplace incidents. This accountability is crucial to business culture, ensuring that the health and safety of employees are prioritised alongside business growth and profit.

4. First nations outcomes

Australian companies are increasingly focused on improving outcomes for First Nations people. Resource companies have traditionally been leaders in this area, but more companies are expected to report their efforts this year. These efforts are likely to include diversity initiatives, targeting Indigenous employment, training programs, and procurement. According to Supply Nation’s Social Return on Investment (SROI) report¹ , for every dollar of revenue earned, Indigenous-owned businesses can create A$4.40 in economic and social value for their communities. More companies are also adopting a Reconciliation Action Plan (RAP)².

In 2023, we began assessing the status and effectiveness of the RAPs of our investee companies. Through our engagements, we will be continuing our monitoring and evaluations of how these RAPs are being implemented and will seek evidence of their impact, ensuring that companies are not only making commitments but also delivering tangible outcomes for First Nations communities.

5. Gender diversity

Diverse teams lead to better decision-making and business outcomes. While progress has been made on gender, much work remains. Roughly half of the Australian workforce is female, whereas only 34% of board members are female, and 22% of CEOs³ are female.

We are focused on seeing a better gender balance across the full workforce. While improvements are being made at senior management and board levels, we want to better understand the pipeline of talent companies have for succession from the next generation. This will be a key focus of our engagements, as building a diverse and inclusive culture at all levels is crucial for long-term success.

6. Ethical sourcing

Reporting requirements under Australia’s Modern Slavery Act reporting requirements have been in place for several years, and we are starting to see better disclosures from many companies around their related risk factors. However, Australian supply chains weave through the highest risk region in the world. Companies must remain vigilant, as much work is still needed to eliminate modern slavery risk from their supply chains. A key recent change in May 2024 was the federal government's legislation authorising the statutory appointment of an Australian Anti-Slavery Commissioner, who will be tasked with supporting victims and survivors, raising community awareness, and helping business address the risk of modern slavery practices in their operations ⁴.

We have found that the companies that are more transparent about modern slavery incidents, rather than trying to hide or downplay them, invest most in mitigation and have the most positive impact. Additionally, a company’s approach to modern slavery often reflects its overarching culture and policies around social and governance issues such as worker underpayment and substandard working conditions.

We will be using our engagements to push for positive change where policy and action are deficient versus our proprietary Best Practice Framework, initially built from our 2021 survey of ASX-listed companies.

7. Greenwashing

With an increased sustainability focus expected within company annual reporting, continued scrutiny from both regulators and investors is expected. Sustainability is not just a marketing tool; it requires genuine commitment and action.

We are on the lookout for companies talking about sustainability without real action to back their claims. We seek concrete evidence that a company has implemented strong policies and processes to ensure they are doing what they say and being fully transparent about the associated risks and opportunities. We will engage with boards, management, and sustainability officers of companies making unsubstantiated claims to ensure accountability and integrity in their practices.