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Chapter Eight - Encouraging corporate responsibility
8.1
Term of reference (e) of this inquiry requires the
committee to consider 'any alternative mechanisms, including voluntary measures
that may enhance consideration of stakeholder interests by incorporated entities
and/or their directors.'
8.2
With growing international recognition of the
importance of non-financial factors to overall company performance, there is a
risk that if Australian companies do not keep pace with their overseas
counterparts, potential business and investment opportunities may be lost
abroad. Therefore, although in the committee's view it is not appropriate to
mandate the consideration of stakeholder interests into directors' duties,
there is a need to consider seriously options to encourage greater uptake and
disclosure of corporate responsibility activities.
8.3
In earlier chapters the committee concluded that
amendment to directors' duties is not required and that there should be a
continuation of the voluntary approach to sustainability reporting. The committee
now turns its attention to the various ways in which corporate responsibility
should be encouraged in Australia.
This chapter considers in turn the role of investors, business and industry,
community groups and government.
Institutional investors
8.4
Chapter 5 outlined a relatively low level of interest by
Australian institutional investors in the social and environmental performance
of the companies in which they invest. There is however a growing realisation amongst
institutional investors of the potential financial impact posed by
non-financial risks. As a result institutional investors are beginning to take
the issue of corporate responsibility more seriously.
8.5
The main reason that institutional investors have not
had a stronger interest in non-financial risk management to date is due to a
lack of comparable and robust information on these issues. As the Financial
Services Institute of Australasia recognised:
The responsibility for identifying and managing these risks does not,
however, rest with corporations alone. The financial services industry – from
fund managers and their buy-side analysts, investment banks and client advisory
divisions – all have a responsibility to source, analyse and report to
investors on all matters of risk that impact on company operations, both in the
current reporting season and over a long-term horizon.[393]
8.6
To seek to improve this situation the committee has
made two recommendations in earlier chapters of this report: that Australian institutional
investors become signatories to the UN Principles
for Responsible Investment (chapter 5); and for the inclusion of
further guidance on the disclosure of a
company's top five sustainability risks and associated management
strategies (chapter 7). If adopted, these two recommendations will give
the investment sector greater access to, and increase the interest in, the
non-financial affairs of companies.
8.7
In addition to these two recommendations the committee
believes there is scope to educate institutional investors better in relation
to the potential financial impacts of non-financial risks. There is scope for both
companies and investors, as well as other stakeholders, to understand better the
often intangible benefits of 'corporate responsibility activities'.
Recommendations regarding these two areas are discussed below in a section on
education. If adopted, institutional investors and relevant industry
associations are encouraged to support and engage in these initiatives.
Business and industry initiatives
8.8
During the course of this inquiry the committee heard
many encouraging and inspirational examples of the activities that corporations
are undertaking under the broad banner of 'corporate responsibility'. These
activities are often win-win situations whereby companies benefit from improving
relations with key stakeholders, and stakeholders benefit from corporate
support and expertise.
8.9
There were also numerous suggestions of ways in which
business collaborations could leverage each other's knowledge and experiences
of corporate responsibility, thus leading to improved performance.
An industry-led corporate
responsibility network
8.10
Prominent amongst these was the suggestion of a
focussed industry network to concentrate the efforts of the business community.
Mr Mather
of BT Governance Advisory Service
(BTGAS) described the current problems associated with a lack of a common
business voice:
There is a lot of talk going on at the moment, in relation to
industry groups, in regard to corporate responsibility. In fact, from a
meal-ticket perspective, there is no better meal ticket than organising
conferences in this particular area! That is a problem in itself, because it
results in fragmentation and a cottage-industry approach.[394]
8.11
Mr Mather
went on to recommend the formation of a market-led taskforce. Ms
Bisset of the National Australia Bank also
recognised the current fragmented approach and the benefits of a broadly-based
business group to encourage corporate responsibility:
there is some [corporate responsibility] activity, but it tends
to be sector specific. At the moment, nothing has really brought cross-industry
activity apart from going to workshops and conferences and sharing in that sort
of informal way. So I think there would be benefit in having some sort of
formal group that encouraged that sharing. ... I think any knowledge exchange
and best practice sharing activity where organisations come together ... is
always useful, particularly when organisations are first starting on that
journey. And then you can raise the bar through the sharing of best practice.[395]
8.12
The committee heard of overseas examples of industry
networks. Several submissions referred to the Business in the Community (BITC)
initiative in the United Kingdom.
BITC describes itself as 'a unique independent business led charity whose
purpose is to inspire, engage, and support and challenge companies, to
continually improve the impact they have on society.'[396]
8.13
BITC provides a platform for collaboration between
businesses and for sharing best practice. It works with business to develop
practical and sustainable solutions to manage and embed responsible business
practice.[397]
8.14
According to researchers from Monash University, BITC
was established in 1982 'in response to perceived failures of business against
a backdrop of rising unemployment and urban rioting and attempts to integrate
considerations of societal impacts into business strategy'.[398]
8.15
The Australian Business and Community Network (ABCN)
advised the committee that 'Companies join BITC because they recognise the
value of integrating policy and practice and the internal dialogue this prompts'.[399] The ABCN provided further
description:
...membership [of BITC) provides a unique platform for ...
dialogue to identify and address key challenges facing business and society, as
well as an opportunity to connect with a network of international partners. BITC
member companies employ over 15.7 million people across 200 countries. In the UK,
their members employ over 1 in 5 of the private sector workforce.[400]
8.16
In addition to BITC, the committee also heard of the
European business network CSR Europe. During the inquiry the committee met with
a representative of CSR Europe, who provided the following information:
CSR Europe is the leading European business network for
corporate social responsibility with over 60 leading multinational corporations
as members. Since its inception in 1995 by the then European Commission
President Jacques Delors and leading European companies, the mission of CSR
Europe has been to help companies integrate corporate social responsibility
(CSR) into the way they do business, every day.
Our practices are not only based upon the sharing of CSR
solutions and shaping the modern day business and political agenda on
sustainability and competitiveness, but we also offer practical approaches such
as stake-holder engagement, helpdesk services, and business exchanges and
seminars.[401]
8.17
CSR Europe was originally established as a voluntary
European-wide business network with the backing of, and seed funding from, the
European Commission. In the past decade its membership has grown from seven
founding members to over 60 multinational organisations. CSR Europe is
affiliated with 22 national partner organisations including the UK's
BITC. Through this extended network CSR Europe acts as an umbrella
organisation, representing and assisting around 1800 enterprises across Europe.
Committee view
8.18
The committee notes these models of industry networks,
and considers that such a network in Australia
would provide a valuable service to both those organisations already actively
engaged in corporate responsibility and those that may be looking to integrate
corporate responsibility into their business operations and strategies. The
committee notes in particular the BITC model, which provides a model of a
business led network which has grown from industry itself.
Recommendation 13
8.19
The committee recommends that the Australian Government
provide seed funding to establish an organisation, the Australian Corporate
Responsibility Network, to be modelled on the United Kingdom initiative
Business in the Community.
8.20
The proposed Australian Corporate Responsibility
Network should equip its member companies with the expertise to design and
implement successful, corporate responsibility business policies, practices and
processes that are an integral part of business operations and strategies. It
should provide practical resources and services, including expertise, advisory
services, and training.
8.21
The proposed Network should be structured so that it
has the ability to manage specific sector based (such as an investors' network
or an SME network) or issue based (such as workplace safety or energy
efficiency) subgroups.
8.22
The proposed Network would be an industry vehicle to
raise the level of collective corporate responsibility performance in Australia.
As such there should be a clear expectation that after an initial period of
funding from public sources, the initiative will be self-funded through
membership contributions. There should also be a clear expectation that
founding members should make a meaningful contribution to demonstrate their
genuine commitment.
8.23
The committee expects that to be successful the
proposed Network will need the support of relevant industry associations. The
Network should seek to establish linkages with similar business networks
elsewhere in the world, including BITC in the UK, CSR Europe, Business for
Social Responsibility in the US, and comparable organisations in Asia.
Remuneration
8.24
Chapter 3 points out that there are strong market
drivers that influence companies to take a short term view. One element of this
market dynamic is short term remuneration packages. The committee heard
evidence of the strong short term incentives included in many company directors'
and executives' remuneration packages. According to Mr Mather
of BTGAS the typical incentive package is based on the company's 12–36 month return
to shareholders.[402] The committee
was also told of how these short term incentives work against corporate
responsibility initiatives and to the detriment of long term shareholder value
and company profitability.[403]
8.25
Evidence of some emerging and innovative remuneration
components that are linked to specific community, market, environmental, health
and safety targets was also presented to the committee. Mr
Horne of Alcoa for instance outlined the
significant proportion of an employee's performance incentive that can be
directly linked to corporate responsibility targets:
The incentive compensation portion is between two and five per
cent at [the supervisor or superintendent] level, ranging to above 30 per cent
the higher the individual works in the organisation.[404]
8.26
Mr Horne's
evidence is consistent with that of other witnesses which suggests that
employees that are higher in an organisation are more likely to have a
component of their remuneration linked to long-term and corporate
responsibility performance.
8.27
Mr Mather
also provided an example:
where the chief executive's performance bonus is measured
against, in part, international ratings in relation to global responsibility; I
think in that case it is the Dow Jones sustainability index.[405]
8.28
Such incentives appear to be effective in refocusing
management decisions. When asked by the committee Chair 'has this actually
changed managers' approach in practice?' Mr
Horne of Alcoa responded 'absolutely'.[406]
Committee view
8.29
The committee notes that providing financial incentives
to company directors, executives and managers is an effective way to encourage
companies to take a longer term view, which will ultimately be in the better
interests of the company, its shareholders and company stakeholders.
Recommendation 14
8.30
The committee recommends that investors, stakeholders and
relevant business associations should encourage companies to include long term (beyond
a three to five year timeframe) and corporate responsibility performance
measures as part of the remuneration packages of company directors, executive
officers and managers.
Sectoral initiatives
8.31
During the course of the inquiry the committee heard
evidence of a range of sectoral initiatives to encourage greater participation
in corporate responsibility activities. These included initiatives in the mining
and finance industries.
Mining sector
8.32
The committee was referred to Enduring value: the Australian minerals industry framework for sustainable
development, an initiative of the Minerals Council of Australia (MCA) in
2004. This initiative requires signatories (a condition of MCA membership) to
assess the systems used to manage key operational risks and publicly report
sustainability information based on the GRI indicators. According to Ms
Cohen of the WA Chamber of Minerals and
Energy, Enduring Value:
provides a framework for incorporating sustainable development
in business operations, and many companies are framing their activities around
that initiative and the principles within that document and also reporting
along those lines.[407]
Finance sector
8.33
Various members of Australia's
finance sector (including banks, credit unions, super funds and insurers) are
also involved in the United Nations
Environment Programme Finance Initiative (UNEP FI). This initiative is designed to 'identify, promote and realise the
adoption of best environmental and sustainability practice at all levels of
financial institution operations.'[408]
Nine Australian financial institutions are signatories to the UNEP FI, which commits them to the integration of environmental considerations
into all aspects of their operations and services.
8.34
Several large Australian finance sector organisations
have also made significant contributions to the development and testing of the
GRI's Financial Services Sector Supplement.
8.35
Another important finance sector initiative that was
brought to the committee's attention is the recent launch of a Credit Union CSR
Toolkit developed by the Credit Union Foundation Australia.[409] The Toolkit is designed to allow
the 151 credit unions across Australia
to plan and report more effectively on their corporate responsibility
activities. This initiative is particularly important as it enables credit
unions and other small to medium enterprises an accessible and cost-effective way
to engage in sustainability activities and reporting.
Committee view
8.36
The committee is strongly supportive of such sector
specific initiatives. Because particular industries often face similar
stakeholder and sustainability reporting issues, a sectoral approach will often
be an effective and efficient way to improve. A sectoral approach allows
organisations to benchmark their performance against their peers thus creating
competitive tension, leading to best practice. This trend is in evidence in sustainability
awards, and also in recognition received by, and sustainability reporting rate
of, actively engaged sectors such mining and finance.
8.37
The committee also notes comments from prominent associations
such as the BCA that 'given the importance of improving understanding of the
benefits of CSR, the BCA will do what it can to encourage Members to better
publicise their CSR activities.'[410]
8.38
The committee believes there is a role for industry
associations and peak bodies to promote actively the benefits of corporate
responsibility to, and encourage greater engagement by, their members.
Recommendation 15
8.39
The committee recommends that industry associations and
peak bodies actively promote corporate responsibility to their members.
Communication of corporate responsibility information
8.40
The current inefficiencies
in the communication of corporate responsibility information to financial
markets were raised as an issue during the inquiry.
8.41
On the one hand, there is evidence that many companies
find onerous the task of providing sustainability information, often in
response to surveys. Sustainable Asset Management, which conducts
sustainability assessments of Australian companies, has an annual sustainability
survey which includes 70-90 questions.[411]
On its own this would not be an overly burdensome undertaking. However,
companies often receive several if not many similar questionnaires annually
from ratings and research agencies, fund managers, and representative bodies.
Boral described the problem as 'survey fatigue'.[412]
8.42
Conversely, fund mangers, institutional investors and
other stakeholders spend considerable time attempting to source corporate
responsibility information, and are often not satisfied with the information
they eventually receive.
8.43
To address this issue a market-based, industry initiative
was recommended to the committee. The Australian Banker's Association (ABA) recommended
an online tool modelled on the London
Stock Exchange's Corporate Responsibility Exchange to enhance and streamline the dissemination of policies
and practices in the area of corporate responsibility. In making this
recommendation the ABA drew upon
the experience of its members operating in the UK
market. ABA's submission explains:
This market driven approach may also give greater credibility
and rigour to benchmarks of corporate responsibility practices.
The ABA would
envisage that this mechanism would complement existing reporting and disclosure
practices and would not impose additional regulatory burdens on listed
companies. Experience in the UK
suggests that indeed this approach has reduced the burden on companies that
receive many requests for information from market analysts, benchmarking
researchers, etc.[413]
Committee view
8.44
In the committee's view a central, web-based location
for sustainability information would be a cost-effective way for companies to
respond to multiple requests for information. It would also allow immediate
access to information for interested market participants as well as concerned
community stakeholders.
8.45
The committee considers that the Australian Stock
Exchange would be the most appropriate body for developing and administering
this web-based tool. To ensure that the web-based tool meets the needs of
various interest groups, the ASX should consult with companies, institutional
investors and rating agencies in its development. In this process the
developers should bear in mind the need to provide any quantitative information
in a format that is accessible and useful to investors and analysts.
Recommendation 16
8.46
The committee recommends that the Australian Stock
Exchange, in consultation with companies, institutional investors and
rating agencies, establish and operate a central web-based tool for the
dissemination of sustainability information, based on the London
Stock Exchange's Corporate Responsibility Exchange. The Australian Government
should consider whether both facilitation and seed funding is required to
establish such a service.
Dissemination of best practice
information to business
8.47
In a later section of this chapter the committee
addresses the engagement of not-for-profit organisations, and recommends that
best practice examples of corporate responsibility business partnerships
between not-for-profits and the private sector be promoted. The committee is
also of the view that best practice examples could be promoted across the spectrum
of corporate responsibility activities. The promotion and publication of the
many innovative initiatives that are being implemented across corporate Australia
would encourage all to consider such actions and would ultimately raise the
standard of corporate responsibility throughout Australia.
Examples of best practice initiatives that were brought to the committee's
attention include:
- Commitment by several mining
companies to spend not less than one per cent of their annual pre-tax profits
on sustainable development;
- Inclusion of longer term,
sustainability performance indicators in directors and senior managers'
remuneration packages;
- Effective
stakeholder engagement strategies; and
- Mutually
beneficial community business partnerships such as:
- The Smith Family's partnership with BHP Billiton
in the Learning for Life literacy program
- Habitat for Humanity's partnership with a wide
range of corporate partners and low-income families to build affordable homes
- The Body Shop's support for The Big Issue
magazine which supports hundreds of homeless people in Australia
- Sustainable supply chain management
initiatives from organisations such as Westpac.
8.48
The committee is of the view that the business-led
Australian Corporate Responsibility Network, proposed earlier in this chapter,
would be the appropriate organisation to undertake the role of publicising and
promoting examples of best practice across the spectrum of corporate
responsibility activities and across industry sectors. Such an approach would complement
rather than duplicate the Prime Minister's Community Business Partnership
Awards (mentioned previously and detailed later in this chapter), by
communicating the profile of successes with greater impact than is presently
the case. As Dr Simons
of the Smith Family put it in evidence:
The [Prime Minister's Business Community Partnership Awards] are
fine as far as they go but we would like to see some way of communicating in a
more consistent and regular fashion the importance of this...[414]
Recommendation 17
8.49
The committee recommends that the proposed Australian
Corporate Responsibility Network publicise and promote best practice examples
across the spectrum of corporate responsibility activities and across industry
sectors.
Initiatives of community and not-for-profit organisations
8.50
The committee also heard evidence regarding the community
and not-for-profit sector's own management of non-financial impacts and risks.
The question of whether not-for-profit organisations should meet the same
standards as profit-driven corporations was discussed, particularly in the
context of the not-for-profit sector needing to legitimise their own advocacy
of these principles by setting a good example. The committee recognises that
corporations may feel unfairly targeted by measures affecting their interests
that do not apply equally to not-for-profit incorporated entities of similar
size.
8.51
In evidence, the Brotherhood of St Laurence suggested
that for-profit companies, rather than non governmental organisations (NGOs) or
other community organisations such as churches, should be the principal focus
of efforts to ensure corporate responsibility:
I do not think that is highly relevant to this inquiry at this
time. We see growing pressure on enterprises to demonstrate that they are good
corporate citizens, that they have a considered an active approach to promoting
corporate social responsibility and good governance, and that that be monitored
independently and reported against. Those very same tools of a CSR framework
are increasingly being applied to the NGO sector...from my observations working
for the non-government sector, I can assure you that the rigours and demands on
us to be more accountable, open and transparent about how we conduct our own
affairs and our business are very strong.[415]
8.52
However, other witnesses indicated that the
not-for-profit sector had to place greater importance on leading by example. Ms
Cox told the committee that:
I would say that the not-for-profit area should have been
offering leadership on what good corporate citizenship was about. Instead of
that, they think they are doing good because they are set up to do good, but
they do not actually examine what they are doing. I think they could probably
add something—this was one of the points I made recently, and not very
popularly, at an ACOSS congress. I said that the not-for-profit section should
actually be providing some leadership in deciding what good corporate ethics
could be. Some of the big not-for-profits...are very lax in terms of what they
do in their own internal management. They prate ethics on their websites, and
even publicly at conferences, but they run themselves like a corporation, a
fairly hard-nosed corporation, and I think that they lose out on the capacity
for being other things.[416]
8.53
The Smith Family told the committee that they were
leading the not-for-profit sector in corporate governance:
...before we undertook the change agenda that has been driving
our shift from a traditional welfare organisation to a social enterprise with a
preventive early intervention strategy focusing on education and lifelong
learning, the very first task was to look at our corporate governance. We
developed a model that we believe to this day is cutting edge in the not-for-profit
sector. That was a proactive move to make sure that if we were going to talk
about corporate responsibility we had all of the previous or prior work that
needed to be in place within the Smith Family situated there.[417]
8.54
The Australian Council of Social Service (ACOSS) suggested
that many NGOs are keen to implement corporate responsibility initiatives, but those
with limited resources often found this to be a difficult burden:
There are a few things...that distinguish them from companies
operating for profit. One is that directors are almost always unpaid or
voluntary, yet they carry the same weight of responsibility, which needs to be
taken into account when you are looking at additional responsibilities. Many
organisations are small, with extremely limited resources, and are entirely
reliant on government funding that often does not keep up with CPI. That means
they have very limited control over their purchasing practices and very little
market power, which places them in a more difficult position when it comes to issues
such as where products come from.
A further issue is that the legislative environment is very
complex...That means that the general compliance costs of running an
organisation in the not-for-profit sector are often higher and are often borne
in some part by volunteers. I think many organisations are willing to engage in
corporate social responsibility but they require more information and support
than many private sector corporations in order to achieve that shift.[418]
8.55
ACOSS representatives also told the committee that
while most not-for-profit organisations implemented good corporate practices
internally, this is not universal:
As within any sector, you would find some variations in
practice. I think that, in general, not-for-profit organisations try to do well
by their employees. The salary levels are so low and the funding levels are so
low that you have really serious labour force issues, so when you find a staff
member you want to try and retain them. But it would be unfair to say that
there is not a variation in practice across the sector.[419]
Committee view
8.56
The committee notes that in general, corporate
responsibility alerts for-profit corporations, which were traditionally
focussed on economic considerations, to the social and environmental impact of
their operations. In the same vein, not-for-profit corporations which were
generally alert to the social or environmental factors (depending on their area
of expertise) should use the concept of corporate responsibility to alert them
to the economic and social or environmental impacts of their operations too. The
committee is of the view that the not-for-profit sector must endeavour to meet
the same standards as those expected of the for-profit sector.
Recommendation 18
8.57
The committee recommends that the corporate not-for-profit
sector should endeavour to meet the same standards as the corporate for-profit
sector in considering the interests of stakeholders.
8.58
Furthermore the Australian Government should consider
options to encourage NGOs to implement corporate responsibility initiatives
within their own operations. These should include options to educate NGOs of
the benefits of corporate responsibility and to provide best practice examples
of corporate responsibility business partnerships between NGOs and the for-profit
sector. The committee makes several recommendations along these lines in a
later section of this chapter in relation to the role of government in
providing education on corporate responsibility.
The role of government
8.59
Above and beyond its legislative and regulatory role, it
is clear from the evidence that government has a role in facilitating and promoting
corporate responsibility. This expectation is demonstrated in the results from
CPA Australia's Confidence in
Corporate Reporting 2005 survey. The report found that government was
nominated as the third most responsible entity (slightly behind company boards
and CEOs) when respondents were asked 'who could be responsible for a company
meeting its environmental and social obligations'.[420]
8.60
The Australian Government is currently undertaking a
range of activities designed to promote corporate responsibility, including the
Prime Minister's Community Business Partnership and various sustainability initiatives.
These activities, which are discussed below, broadly fall into three
categories: leadership, education and recognition. A fourth category – incentives
– is subsequently discussed.
8.61
Other sustainability initiatives which were discussed
in earlier chapters include: Senator Campbell's
reference to the ASX Corporation Governance Council; publishing sustainability
reporting surveys and guidelines; engaging the finance sector; and promoting
the OECD Guidelines for Multinational Enterprises.
Prime Minister's Community Business
Partnership[421]
8.62
Established by the Prime Minister in 1999, the Prime
Minister's Community Business Partnership (the Partnership) is a group of
prominent Australians from the community and business sectors who work to:
- foster community business partnerships;
- act as a 'thinktank' on philanthropic matters;
and
- promote corporate giving and corporate social responsibility.
8.63
Both the Prime Minister and the Minister for Families, Community
Services and Indigenous Affairs are actively involved in the Partnership as
Chair and Deputy Chair, respectively. The Partnership is supported by a
secretariat based in the Department of
Families, Community Services and Indigenous Affairs (FaCSIA).
8.64
The work of the Partnership is underpinned by the
concept of the 'social coalition' – the idea that government, community and
business have a responsibility to the wider community, and that through working
together to address societal challenges, better outcomes will be achieved. Dr
Simons of the Smith Family commented on the
benefits of this approach:
The social coalition prompted by the Prime Minister's community
business partnerships scheme is a form of CSR that moves beyond isolated
instances of corporate philanthropy to strategic, longer term and active
partnerships.[422]
8.65
The Partnership's work program focuses on the strategies
of recognition and awareness raising, facilitation and advocacy.
Prime Minister's Awards for Excellence in Community Business
Partnerships
8.66
Since the Awards were established in 1999, over 1500 outstanding
community business partnerships have been recognised for their contribution to
addressing community concerns. Several submitters to this inquiry have been
recognised in past years.
8.67
The Awards are divided into Small, Medium and Large business categories,
and are presented at the state and territory level and at a national level. According
to FaCSIA 'the Awards have
succeeded in generating a greater understanding of the relationships and
interdependencies between communities, business and governments.'[423]
Facilitation
8.68
The Workplace Giving Australia initiative encourages medium and large
businesses to establish a workplace giving program to enable employees
to make regular pre-tax donations to charitable organisations.
8.69
A National
Community Business Partnerships Brokerage Service was seed-funded through
the Partnership in 2003. Since its establishment, this Brokerage Service has facilitated
the development or expansion of around 200 community business partnerships across
Australia. The
service provides advice and information about establishing and maintaining
community business partnerships to small and medium sized businesses and
community groups and assists them to identify partners.
Education
8.70
In 2005 the Partnership funded a comprehensive study, the
Giving Australia: Research on Philanthropy in Australia project, which surveyed the
contributions of money and time by Australian individuals and businesses. Other
major awareness activities undertaken by the Partnership include: National Community Business Partnerships
Week; the Corporate Social
Responsibility Essay Competition; and the sponsorships of various conferences
and seminars. The essay competition provides an opportunity for both high
school and university students to express their opinions about the role of
business in society. To date over 800 students have entered the competition,
writing essays on a range of issues relating to corporate social
responsibility.[424]
8.71
In general, evidence to the committee suggested that the
work of the Partnership was seen as a positive step by the Australian Government
to promote corporate responsibility. However, there were some suggestions to
broaden the scope of the Partnership beyond what some submitters saw as a narrow
focus on philanthropic matters. For example Amnesty International submitted:
Since 1999 the Australian Government has taken a strong stand to
support initiatives like corporate philanthropy and workplace giving, through
the Prime Minister's Community Business Partnership. We believe the opportunity
is for the Australian Government to extend the Community Business Partnership
into a wider campaign aiming to improve standards of corporate behaviour.[425]
8.72
However other submitters, such as Ms
Mostyn of Insurance Australia Group (IAG)
pointed out that the Partnership had already begun to broaden. Ms
Mostyn said 'I think there has been a shift [in
the Partnership] over time that makes it a much more interesting model of
sustainable business than philanthropy.'[426]
Committee view
8.73
The committee is strongly supportive of the various
activities of the Partnership, and believes that it is a most effective vehicle
to recognise and promote innovative collaborations between corporate Australia
and the community sector. The committee notes evidence that the Partnership
appears to be changing its focus over time towards the promotion of a more
sustainable business model, and the committee strongly supports this trend.
Recommendation 19
8.74
The committee recommends that the Prime Minister's
Community Business Partnership continue to move beyond its initial focus on
philanthropy, towards a broader sustainability framework.
Leadership – sustainability in government
8.75
Several submissions suggested that government should
take a stronger leadership role in corporate responsibility so as to set an
example for corporate Australia.
The committee received evidence of the various activities that government
departments are undertaking in this regard.
Sustainability reporting by
government agencies
8.76
FaCSIA
and DEH recently commenced sustainability reporting of their
activities and operations, in 2003 and 2004 respectively. Both departments
submitted that they found their
respective sustainability reporting has led to improved business operations, with FaCSIA stating
'the processes to enable reporting have improved key business systems,
resulting in improved sustainability outcomes and savings to the department.'[427]
Other government agencies including the Department of Defence, CSIRO, and the
Australian Nuclear Science and Technology Organisation have prepared reports on
various aspects of their non-financial performance.
8.77
The committee notes the findings from the December 2005
Australian National Audit Office report, Cross Portfolio Audit of Green
Office Procurement (the ANAO
report), which shows that the rate of sustainability reporting within
government departments is well below that of corporate Australia. By
comparison with the top 500 Australian companies reporting rate of 23 per cent,
the government agency rate is around 3 per cent.[428] A DEH representative explained that
part of the reason for this trend is that:
Government is not reporting to the investment community in the
same way. You do not look at alternative investments in government agencies in
the same way as you look at investments in the private sector, so there are
different contexts and environments...[429]
8.78
DEH went on to explain that there are specific
areas of non-financial performance where the public sector disclosure goes
beyond the private sector. The example he gave was the very detailed whole-of-government
energy report which the Australian Government produces annually and which
exceeds what most companies would produce. The ANOA report also indicates that 'Reporting
on environmental performance is likely to improve in some Australian Government
bodies in the future with 11 respondents indicating that they were planning a
triple bottom line report within the next three years.'[430]
Improving sustainability
performance of government agencies
8.79
DEH works with agencies across the Australian Government
to improve environmental performance. It provides advice on best practice
environmental management systems and public sustainability reporting, and
encourages consideration of relevant environmental impacts in Australian
Government purchasing.
8.80
FaCSIA has a workplace giving program in place where
staff can choose to donate funds to a charity of their choice from their
pre-tax pay. FaCSIA also supports staff to give to the community in other ways
such as allowing staff to take up to three days per year of paid leave to
volunteer for charities.
8.81
The Australian Government is a large purchaser of goods
and services, from office supplies to building management services. The ANAO
report found that in 2003–04 the Australian Government spent $17 billion on
procurement.[431] Its purchasing
decisions therefore have the ability to influence market direction.
8.82
The Australian Government has a green procurement
policy which indicates that it is seeking to be at the forefront in
environmental purchasing practice through:
- buying goods and services that seek to minimise
possible environmental impact;
- working with industry to encourage continuous
reduction in the adverse environmental impact of goods and services; and
- assessing the environmental impact of goods and
services against informed and internationally recognised standards and methods.[432]
8.83
The ANAO report concluded that, despite a small number
of better practice examples of green office procurement across the Australian
Government:
...overall there were significant shortcomings identified in
terms of the application of whole of life cycle costing and in the management
of the environmental impacts of procurement decisions. Compliance with
Australian Government policy requirements has improved over time in areas such
as energy efficiency in buildings with important greenhouse gas emissions and
cost savings being achieved.[433]
8.84
In relation to Environmental Management Systems (EMSs) of
government agencies the ANAO report found:
Implementing EMSs (one
of the key management controls designed to improve environmental performance)
has been slow and few agencies have met the timetable originally envisaged by
the Government. In addition, the audit has highlighted the absence of specific
requirements in areas such as waste management and water conservation and
shortcomings in agencies meeting the Government's stated objective to be at the
forefront of environmental purchasing practices. As a consequence, sustainable
development has not, as yet, been fully integrated into Australian Government
operations.[434]
8.85
Of particular concern is the wasteful use of public
funds, with the ANAO finding that 'financial savings of almost $10 million
per annum could be achieved if agencies were more proactive in energy and water
conservation in particular.'[435]
8.86
In addition to the issue of government agencies and
their sustainability and green procurement reporting, the committee notes that
there are legislative requirements and government policies in existence that
specifically address environmental performance by government agencies. Section
516A of the Environment Protection and
Biodiversity Conservation Act 1999 (EPBC Act) requires Australian
Government agencies to report on the effect of their actions on the environment
and identify any measures to minimise the impact of these actions on the
environment. Less than half of the ANAO survey respondents (41 per cent)
indicated that they had reported the effect of their procurement actions on the
environment.
8.87
DEH officials presented evidence to the committee that
apart from the requirement under section 516A of the EPBC Act there is no
reporting requirement regarding government policies on departmental
environmental performance in areas such as:
- implementation
of Environmental Management Systems;
- providing instructions or internal
policies on whole of life cycle costing; and
- green
vehicle purchasing.[436]
8.88
In each of these areas the ANAO report found
'significant shortcomings'[437] in
government departments' compliance with these government policies. The
committee notes that some government agencies are failing to comply with
government policy and that there is no mandatory requirement for disclosure.
Committee view
8.89
The committee would like to see the rate of government
agency sustainability reporting to continue to rise into the future. In this
regard the committee is encouraged that more government agencies have plans to
undertake sustainability reporting in the near future.
8.90
The committee commends those agencies which are
reporting in accordance with requirements under section 516A of the EPBC Act,
and those that are complying with and reporting on their compliance with
government policies on departmental environmental performance. The committee
expects those agencies that are not complying to commence doing so.
8.91
The committee believes that government agencies should
demonstrate leadership by improving their performance in the area of green
procurement and implementation of environmental management systems. The
committee acknowledges the efforts of those agencies already taking steps in
this regard. The committee also endorses the recommendations of the ANAO
report.
Recommendation
20
8.92
The committee recommends that, in order to show greater
leadership and to encourage more agencies to disclose their sustainability
performance, the Australian Government establish:
-
voluntary sustainability reporting targets for
government agencies;
-
voluntary targets for government agency procurement in areas such as water, waste,
energy, vehicles, equipment and consumables; and
-
a requirement for each government agency to
disclose such targets and to detail progress towards achieving these in its
annual report.
Investment – Future fund
8.93
As discussed in chapter 5, in order for the Government
to show significant leadership in the responsible investment of public funds,
the committee has recommended that the Future Fund adopt the UN's voluntary Principles of Responsible Investment to
guide its investment practices.
A coordinating government
department?
8.94
Many submitters recognised that the current delivery of
government corporate responsibility programs occurs in a seemingly
uncoordinated fashion amongst a number of government departments. For example,
the Insurance Australia Group submitted:
Currently, a limited number of government agencies have specific
agendas to drive some CR and related activities. In the Commonwealth, examples
include the Department of Environment and Heritage, the Department of Family
and Community Services and the Australian Greenhouse Office, which all deliver
a variety of programs aimed at providing incentives for corporate
responsibility activity.[438]
8.95
A similar comment was made by the Australian Centre for
Corporate Social Responsibility:
The Australian Government may have numerous ways in which it
encourages corporate social responsibility, but a lack of coherence and focus
of initiatives and policies makes this difficult to ascertain.[439]
8.96
The committee considers that this sporadic approach
detracts from the leadership role that government should play in the field of
corporate responsibility. The committee believes that the approach taken by the
UK government,
which has consolidated the government's sustainability initiatives within the
Department of Trade and Industry, is one approach to consider. The alternative
is to use a whole-of-government approach.
Recommendation 21
8.97
The committee recommends that the Australian
Government's various corporate responsibility programs be co-ordinated through
a whole-of-government approach.
A minister for corporate
responsibility?
8.98
Several submissions suggested that the Australian Government
should raise the profile of corporate responsibility by appointing a minister
for corporate responsibility, as the UK
and France have
done.[440]
8.99
In this regard the committee notes that various government
ministers already play a significant role in promoting corporate
responsibility. For example ANZ Bank representative Mr
Brown noted the role being played by the
Parliamentary Secretary to the Treasurer:
Chris Pearce,
the Parliamentary Secretary to the Treasurer, has been playing a very active
role in relation to encouragement and recognition already and has made a range
of speeches which are directly relevant to the financial services sector, which
we very much welcome. He has already been very active, and if one was looking
for an immediate model here, that is certainly one that we would identify.[441]
8.100
Earlier in this report the committee has noted the
initiative of the Minister for the Environment and Heritage, Senator
Campbell of referring matters concerning
sustainability reporting to the ASX Corporate Governance Council.
Committee view
8.101
The committee is of the view that given the broad
nature of corporate responsibility it is more appropriate to allow existing government
ministers to deal with the particular aspects of corporate responsibility which
lie within their area of expertise.
Education
8.102
The committee regularly heard that encouraging
corporate responsibility through the education of directors, investors and other
stakeholders was a key role for government. For example Mr
Sheehy of Chartered Secretaries Australia stated
'we most definitely think that there would be a role for government in the
education and encouragement process.'[442]
8.103
The Australian Government is already taking a
lead role in education on corporate responsibility, as outlined above in the
section on the Prime Minister's Community Business Partnership. Another
important example is DEH's support for the Australian Research Institute in Education for Sustainability (ARIES)
at Macquarie University, which is working with Australian
business schools on how to teach sustainability in business education. Following
a review of the current level of sustainability education in Australian MBA
courses, the department is working closely with ARIES and five of Australia's
leading business schools[443] to
effect change in the syllabus within a two year period. Pending progress of the
study, additional business schools may be invited to participate in the project
in 2006.[444]
8.104
Several submitters also suggested that there is a role
for business associations such as the Australian Institute of Company
Directors, the Business Council of Australia and the Chartered Secretaries of
Australia in educating their members on corporate responsibility and disclosing
non-financial information.[445]
Committee view
8.105
The committee agrees that government has a strong role
to play in educating both directors and company stakeholders to raise their
awareness of corporate responsibility. Clearly it is already doing so in a
number of areas (outlined above). Based on the evidence received, the committee
is recommending further educational initiatives relating to four specific areas
of corporate responsibility:
- educate mainstream investors;
-
conduct research into the benefits of corporate
responsibility;
-
promote the Global Reporting Initiative; and
-
educate not-for-profit organisations.
8.106
In each of these areas, the development of educational
programs and material should occur in consultation and collaboration with relevant
business groups.
Educate mainstream investors
8.107
A recurring theme throughout the inquiry was the need to
educate financial market participants in order for them to value non-financial
risks better. For example Ms Bisset
of the National Australia Bank put the
point clearly and succinctly:
We still have a very important role in educating mainstream
analysts about the value of [non-financial] information, so they are able to
get a good assessment of our performance as a business now and in the future.[446]
8.108
An official of the Treasury agreed that this is an area
where the government can play a leadership role:
I think there is an issue of education of institutional
investors. I mentioned earlier that there is a growing view amongst
institutional investors that they need to start thinking about things like the
greenhouse impact of the companies they are investing in if they are going to
grow value in these companies over a very long time. To the extent that
government can take a leadership role in providing information and making that
kind of analysis easier, I think that would be a very useful path to go down.[447]
8.109
The committee acknowledges previous work undertaken in
this area, funded by government, including the 'Mays Report'. This study
examined sustainability issues through the eyes of investors, and aimed to contribute
to awareness of sustainability as an investment tool. Despite this and other
studies, the committee is of the view that there remains a need for financial
market analysts to be educated better in the impact of non-financial risks.
8.110
In chapter 5 of this report the committee recommended
that 'institutional investors in Australia seriously consider becoming
signatories to the United Nations Principles for Responsible Investment.' The
committee believes there would be value in the government promoting these
principles to institutional investors in Australia, because it would lead to a
greater degree of adoption.
Recommendation 22
8.111
The committee recommends that the Australian
Government, in consultation with the investment community, develop educational
material:
-
regarding the materiality of non-financial
risks, for use by institutional investors and fund managers; and
-
to promote the United Nations Principles for
Responsible Investment to institutional investors and fund managers.
8.112
Mainstream investors should also be educated in
relation to the digital enhancements being incorporated into the GRI Framework
through its third revision (G3). The committee also notes the comments of the National
Institute of Accountants regarding the role of accountants:
We believe that it is the role of the accounting profession in
particular to seriously consider the way in which stakeholders, shareholders
and others should be educated in the community. There is a fundamental
rationale for this. When you empower the owners of companies with knowledge,
they are then equipped with the capacity to ask better questions of those who
are directors of the companies that they own shares in.[448]
Researching the benefits of
corporate responsibility
8.113
During its public hearings the committee invited
Treasury officials to comment on their submission which suggested that while the
costs of sustainability reporting are reasonably quantifiable, it may be more
difficult to assess the benefit to the community.[449] In response a Treasury official indicated
that quantifying the benefits of sustainability reporting:
...is a problem we have throughout the
corporate governance area. While we can always estimate the cost to some degree
of accuracy, it is very difficult to estimate the benefits of improved
governance. You might cite things like increased access to finance, improved
longer term performance, increased access to foreign markets and greater access
to employees. It is very difficult to put a dollar figure on those to measure
up against the dollar figure of perhaps having people there fulfilling these
reporting requirements.[450]
8.114
The ASX submission supports this view, stating that the
'ASX believes further work needs to be done on the specific benefits to the
markets of additional disclosure when weighed against the compliance costs of
introducing more disclosure requirements.'[451]
8.115
Without a reasonably clear picture of what both sides
of cost-benefit analysis on sustainability reporting might look like, it is
very difficult to assess accurately the economic implications of various
sustainability reporting policy scenarios. For this reason, and to provide
further empirical analysis into the corporate responsibility debate, the committee
makes the following recommendation.
Recommendation 23
8.116
The committee recommends that the Australian
Government, in consultation with relevant sections of the business community,
undertake research into quantifying the benefits of corporate responsibility
and sustainability reporting.
8.117
This analysis should be carried out both in terms of
the benefits for individual companies and for the national economy. The
benefits to the national economy might include developing Australia's
international profile and competitive position in the global marketplace,
increasing its attractiveness as an investment market and partner for regional
or international initiatives. The analysis should also be made publicly
available. The committee notes that this approach has been used successfully in
the UK.[452]
Promotion of the Global Reporting
Initiative
8.118
The GRI is widely recognised as the international
standard for sustainability reporting. However, as discussed in chapter 7 the committee
believes that it is too early to recommend it as the voluntary Australian
standard.
8.119
Nonetheless, the committee agrees with many submitters
who put the view that the government should actively promote the GRI Framework.
For example BHP Billiton submitted 'active promotion of the [GRI] is
considered particularly appropriate as it
has evolved through an extensive multi-stakeholder engagement program.'[453]
8.120
IAG agreed with the proposition, indicating that it
would be particularly valuable for SMEs.
The one problem we have in Australia on which the government
could take a leadership role is...[education] of the small business community
around how thinking about some of those aspects of the GRI will make them
better businesses, and provision of tools and education would lift the behaviour
of smaller companies that struggle with these things and see them purely as
punitive regulatory or reporting requirements as opposed to an opportunity to
grow better businesses. Education and an understanding of why the GRI can
transform a business and play a key role in long-term value would be useful.[454]
8.121
Finally, officials from the Treasury also strongly endorsed
the government supporting further education in this area:
One of the key advantages [in adopting the GRI]...is that you
want information that can be presented to investors in other countries and is
comparable with what they are asking from their own large corporations and the
GRI would certainly seem to get you there. I think there is a role for the
government to play where there are costs that can be removed by the government,
perhaps in providing advice on how to apply GRI. I think it would be very
useful if the government could make people who were interested in non-financial
reporting aware of GRI and how to use it.[455]
Recommendation 24
8.122
Although recommending that it is premature to adopt the
Global Reporting Initiative Framework, the committee recommends that in
addition to the continued monitoring of its uptake, the Australian Government
provide guidance to the business community, including the small business
community, on how to apply the Global Reporting Initiative Framework.
8.123
In this regard the committee notes the development
within the most recent revision of the GRI framework, the G3 initiative, to
include reporting and awareness programs.[456]
The Government should seek to integrate its efforts as far as possible with
these activities under the G3.
Promotion of the UN Global Compact
8.124
In chapter 6 the committee referred to the UN Gobal
Compact, an initiative of the UN that facilitates a network of UN agencies,
governments, business, labour, and non-government organisations to encourage
companies to adopt ten principles in the area of human rights, labour,
environment, and anti-corruption. As previously noted, a number of Australian
companies are signatories to the UN Global Compact including Shell Australia,
BHP Billiton, and Westpac.
8.125
The committee supports the UN Global Compact and
acknowledges those Australian corporations that have become signatories. The
committee also notes the positive linkages between the Global Compact, the GRI
and the recently released UN Principles for Responsible Investment. The
committee believes there would be value in encouraging more Australian
companies to participate in the UN Global Compact.
Recommendation 25
8.126
The committee recommends that the Australian Government
develop educational material to promote the UN Global Compact and to encourage
Australian companies to become signatories where it is appropriate for them.
Facilitate and coordinate
participation in international initiatives
8.127
As well as directly promoting various international
initiatives, the government should also facilitate the involvement of Australia's
private sector in international corporate responsibility processes.
International initiatives such as the GRI, the UN Principles of Responsible
Investment and the United Nations Environment Program Finance Initiative can be
highly influential in setting the policy direction across the globe. Therefore,
if Australian interests are to be considered in the development of such
international initiatives, Australian companies must be active participants.
8.128
Australian companies have participated in a number of
international initiatives such as the preparation of GRI sector supplements, on
a voluntarily basis. However, there has not been a coordinated approach to
engagement in international corporate responsibility initiatives. The committee
is of the view that government should play a role in facilitating and coordinating
the participation of Australian corporations, to ensure Australian interests
are considered and protected.
Recommendation 26
8.129
To protect Australia's
interests, the committee recommends that where appropriate, the Australian
Government facilitate and coordinate the participation of Australian
corporations in international corporate responsibility initiatives.
Educate not-for-profit
organisations
8.130
As discussed above in relation to the not-for-profit
sector, the committee is of the view that the Australian Government should
consider options to encourage not-for-profit organisations to implement
corporate responsibility initiatives within their own operations. These should
include options to educate them on the benefits of corporate responsibility and
to provide best practice examples of corporate responsibility business
partnerships between the for-profit and not-for-profit sector.
Recommendation 27
8.131
The committee recommends that the Australian Government,
in collaboration with relevant not-for-profit organisations, develop
educational materials for not-for-profit organisations to promote the benefits
of corporate responsibility within their own organisations.
Recognition
8.132
Many submitters also saw a role for government in the recognition
of best practice initiatives. For example Mr
Brown of the ANZ Bank commented that:
Recognition ... is very important and can play a useful role in
the debate by setting out that this is an action or organisation which has been
recognised as better, or best practice, or practising new models. That is very
useful for encouraging developments in the private sector.[457]
Committee view
8.133
The committee is of the view that Prime Minister's
Awards for Excellence in Community Business Partnerships already provide strong
recognition for best practice examples of corporate responsibility. This view
is supported by evidence from Mr Gosman,
a former employee of Cisco:
Cisco won the Prime Minister's award on a number of occasions
for the work that it does with the Smith Family. Anecdotally, that went around
the whole telecommunications industry. That had the effect of lifting the bar
for all players, because it is a competitive industry. There is a degree of
jealousy. They saw the amount of recognition that Cisco received for what I
think was a fantastic program, and it actually led to a lot of other companies
looking at how they could move into that space and replicate some of what Cisco
was achieving.[458]
8.134
For this reason the committee believes that the government
is already recognising organisations that have achieved best practice in
corporate responsibility.
Incentives
8.135
Various submitters suggested that the government should
provide financial incentives to encourage corporate responsibility, or
conversely, to remove existing incentives that work against corporate
responsibility. An example which was considered during the inquiry was a
revision to the capital gains tax arrangements.
Capital Gains Tax
8.136
Currently, investors receive a one-off capital gains
tax concession if they hold a company's shares for a period of 12 months.
Beyond that period no additional incentive applies. As a result, once investors
reach the 12-month qualifying period, the current arrangements encourage
investors to trade their shares rather than hold them for a longer term.
8.137
The recent Warburton-Hendry review of Australia's
tax regime found that Australia's
capital gains tax arrangements were comparatively high and did not reduce over
time as is the case in countries such as Denmark
and the United Kingdom.[459]
8.138
The suggestion to modify the existing capital gains tax
arrangements was suggested to the committee by the Australian Conservation
Foundation (ACF). Mr Berger,
the ACF's Legal Adviser, described the proposal in the following terms:
I would encourage the
committee to examine the possibility of utilising the capital gains tax system
to refocus Australian corporate behaviour on the long term. If you can envision
a capital gains tax system where the amount of tax payable is calibrated to the
holding period of an investment such that the longer you hold an investment the
lower your capital gains tax rate is, you would really instil a deep change in
the attitude of funds managers, analysts, corporate executives, trustees and
the entire investment value chain. In turn, that would drive a longer term time
horizon, a better assessment of long-term investment risk and opportunities and
a far deeper and more meaningful consideration of environmental and social
concerns.[460]
8.139
Mr Mather of BTGAS indicated that modifying existing
capital gains tax arrangements would not dramatically change the investment
decisions of institutional investors because '[institutions are] already
holding stock for a long time anyway, regardless of the capital gains tax
implications, because of risk diversification.'[461]
8.140
Mr Agland
of the National Institute of Accountants dismissed the proposal, arguing that
changing the tax rules is not the best way to encourage investors to look at a
company's sustainability performance:
If you want them to take a broader look at what their company is
all about and why they are investing in it, then they need to have an
appreciation for things other than their own financial returns. I do not see
merely changing the tax rules as being the catalyst for changing that mentality
and it is changing that mentality that will have a broader impact than simply
scaling back the [capital gains tax] requirement.[462]
8.141
The Treasury was not supportive of a stepped rate for
capital gains tax to reflect a longer term holding of shares. In response to a
question taken on notice, Treasury advised that the existing capital gains tax
discount, which reduced tax payable by half after 12 months ownership, reduces
the incidence of investors becoming 'locked in' to the investment. The Treasury
explained the concept of 'lock in':
A CGT liability generally arises only when the investor sells an
asset or realises it in some other way. This can cause some investors to retain
ownership of assets for as long as possible so as not to trigger a CGT
liability where they might obtain better returns before tax elsewhere. In other
words, they can become 'locked in' to the investment.[463]
8.142
The Treasury went on to indicate that 'lock in' was not
desirable, because it 'can distort investment decisions to the detriment of
both the investor and the Australian economy by limiting economic growth'. The
Treasury pointed out that:
The CGT discount reduces lock-in. This is because the taxpayer
pays tax on only half the capital gain after 12 months. On the other hand,
having a stepped-rate system would significantly increase the incentive to lock
in. This is because some taxpayers would be motivated not to sell their
investments until they were CGT-exempt.
Investors would tend to reject opportunities that might arise
within the higher-taxable period for fear of incurring a CGT liability. This
would be despite the fact that there might be sound commercial reasons for
selling.[464]
Committee view
8.143
In considering the proposal to change existing capital
gains tax arrangements, the committee notes the concerns raised by Treasury,
and the views expressed by some submitters that such changes would not
dramatically change the decisions of institutional investors. The committee
also notes that changing tax arrangements always has the potential for
unintended consequences. On balance, the committee is not convinced that
changing existing capital gains tax arrangements would achieve the suggested
benefits in relation to the particular matter relevant to this inquiry. The
committee makes no comment on the broader issues relating to capital gains tax
reform.
8.144
The introduction or removal of other incentives such as
a concession on research and development into innovative partnerships,[465] or revisions to the fringe benefits
tax on fleet vehicles[466] were not
attractive options in the committee's view.
8.145
In chapter 6, the committee recognised the high initial
barrier facing new entrants that may be considering sustainability reporting.
In the committee's view there would be merit in investigating whether a
write-off incentive to overcome this initial hurdle would be an effective
mechanism to accelerate corporate responsibility and sustainability reporting
in Australia.
Recommendation 28
8.146
The committee recommends that as a way of facilitating
greater uptake of sustainability reporting, the Australian Government should
examine the feasibility of introducing inflated write-off arrangements for the
year-one costs of initiating sustainability reports, to assist companies that
commence sustainability reporting for the first time.
Regulatory
relief
8.147
The committee also heard a suggestion to encourage
greater uptake of corporate responsibility activities and sustainability
reporting through regulatory relief. Dr Longstaff
of the St James Ethics Centre suggested that 'businesses undertaking these
commitments should be eligible for "regulatory relief" – moving from
highly prescriptive regimes to a 'principles based' system of co-regulation.'[467]
8.148
In evidence Dr Longstaff
gave the example of the Victorian Environment Protection Authority providing
regulatory relief for a five-year record of achieving a very high standard in
environmental audits. He added that:
Governments and particularly their regulatory agencies do not
have unlimited budgets, and they have to make prudent decisions about where
they focus their attention. We are saying that one of the things they might
take account of is that, if they have a very high level of performance in an
instrument like the Corporate Responsibility Index, it is indicative of there
being a safer climate in which they operate.[468]
8.149
Dr Henderson
of the Global Reporting Initiative also supported regulatory relief as a
mechanism to encourage greater sustainability reporting. She used the example
of the NSW Environment Protection Agency, which offers incentives such as lower
fees to companies which reduce their pollution.[469]
Committee
view
8.150
The committee supports the concept of regulatory
relief. It would provide the dual benefits of generating greater uptake of
corporate responsibility and also reducing the regulatory burden on business.
Essentially this suggestion can be seen as a cost-effective option for
encouraging corporate responsibility.
Recommendation 29
8.151
The committee recommends that the Australian Government
consider options for providing regulatory relief to corporations which
voluntarily undertake specified corporate responsibility activities.
8.152
The regulatory relief should be linked to the types of
activities that companies are undertaking, that is in the non-financial sphere.
The sort of activities that may be eligible for regulatory relief could
include:
- Voluntarily participating in the Corporate
Responsibility Index for a specified period;
-
Voluntarily undertaking sustainability reporting
for a specified period;
-
Becoming a signatory to, and implementing the UN
Compact or Principles for Responsible Investment; and
-
Adopting a particular sustainability reporting
framework that encompasses the information already required under specific mandatory
disclosure requirements (such as OH&S).
8.153
The committee is of the view that applications for
regulatory relief should be subject to verification by ASIC.
8.154
It would be possible to broaden the scope of regulatory
relief as a company's commitment, both in terms of duration and level of
participation, increased.
SENATOR
GRANT CHAPMAN
CHAIRMAN
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