Corporate reporting – it’s time to tell the whole story

Anna Stewart

Head of Corporate Sustainability, ANZ

Shareholders and other stakeholders, large and small, are demanding more transparency from listed companies, well beyond the traditional, glossy annual report.

Like many ASX listed companies, ANZ delivers two main reports: an Annual Report, focused primarily on the financial performance of the bank, and a Corporate Sustainability Review, focussed on the bank’s social and environmental performance.

For many years, ANZ has also produced a Shareholder Review, essentially a shorter version of its two main reports. The aim is to give stakeholders the broader view of the company we know they want.

" Financial performance is clearly important to the success of [ANZ] but it isn’t the whole story.” - Anna Stewart

Financial performance is clearly important to the success of the bank but it isn’t the whole story and doesn’t reflect who we are as an organisation and the role we play in the community.

We know stakeholders are increasingly interested in a broader view - a more-holistic story about how we are creating value over time and the opportunities and challenges impacting our future. With this in mind, we’re moving towards more integrated reporting and we’ve replaced our Shareholder Review with a new Annual Review.

This new report provides not just broader detail about how we have performed this year but also case studies demonstrating how we are supporting our customers, our people and the community.

In writing the Annual Review we have drawn on aspects of the International Integrated Reporting Framework (<IR> Framework) to describe how our business model, strategy, governance and risk management processes are delivering value for our shareholders and other stakeholders.

In the context of our Annual Review, value is defined broadly and includes more than dividends.

It incorporates the ways in which ANZ contributes to the communities in which we operate through, for example, employment opportunities, our products and services, payment of taxes and wages and partnerships with community organisations to deliver financial education programs.

Again, we’re doing this because we know our stakeholders want to know more about how ANZ is responding to broader social issues as well as its financial numbers.

Holistic

The concept of integrated reporting has been around for a few years – and in some countries is now mandatory - however, very few Australian companies are producing integrated reports.

There are a number of reasons for this, not the least of which is because it can be a difficult thing to do. Moreover the <IR> Framework contains quite a bit of technical jargon.

Yet, at its core, the premise of integrated reporting is really not that complicated – it is about providing investors with a holistic story about a company so they are able to make a more informed decision about where to put their capital.

To create an integrated report a company must be able to tell an integrated story – one which demonstrates that environmental, social and governance considerations are fundamental to its strategy and financial success.

Transparent, useful reporting

ANZ has opted to move in a stepped way towards integrated reporting and we know it is going to take us more than one year to get it right.

We have focussed on key elements of the IR Framework, including information about our stakeholders and the issues that matter most to them and how we are responding.

We are disclosing our most material social and environmental issues and how these issues relate to the bank’s material risks and inform our strategy. We also look at the way our strategy is impacted by the external operating environment.

For example, macroeconomic conditions, increasing political and regulatory scrutiny, digital disruption and changing customer expectations all have the potential to challenge our ability to create positive outcomes.

It is important readers understand how we are addressing these issues to ensure they do not impede our ability to deliver financial performance and value to stakeholders.

Improving our climate-related financial disclosures

Climate risk disclosure is evolving and we acknowledge it can be difficult for stakeholders to compare information reported by different banks.

We are improving disclosure of our carbon strategy, management, metrics and targets and are the first bank to report in line with the Financial Stability Board’s (FSB) Task Force for Climate-Related Disclosures (TCFD) recommendations.

Using the FSB TCFD’s disclosure framework, we have begun discussions with some of our customers in emissions-intensive industries.

Their public disclosures under the framework will enable us to better understand how they are managing their climate-related risks and opportunities.

Energy and the coal sector: scenario testing

This year ANZ completed climate-related scenario testing of a group of customers that have some operations in the thermal coal supply chain.

This included Australian and international customers with operations in thermal coal extraction, coal rail transport, coal-associated ports and coal-fired power generators.

A reduction in the use of coal for electricity generation could have impacts on thermal coal companies. It is on that basis that we assessed our customers and gave consideration to the following issues:

• Their policies on climate change and whether they support government efforts to limit global warming to less than 2 degrees above pre-industrial levels;

• The actions they are taking to address the challenge of climate change, such as investments in lower carbon manufacturing processes, power generation and transport;

• Their resilience to future policy scenarios that may regulate greenhouse gas emissions;

• Whether they are ‘stress testing’ their portfolio against a range of possible policy scenarios that may impact their business model and profitability;

• Whether they factor a future carbon price into capital expenditure decisions;

• Their ability to diversify their business to invest in more efficient resource use and less emissions intensive products or processes; and

• The cost of future regulation on their business model and profitability.

For banks like ANZ, the greatest risk from lending to companies with operations in the thermal coal supply chain is that a reduction in the demand for their product may affect their ability to repay loans.

Our analysis revealed varying degrees of resilience for our thermal coal customers in managing the transition risks associated with climate change.

The two scenarios diverge in predicted coal demand over the medium term (5 year) horizon and risks were found to be higher for those companies with higher revenue reliance on thermal coal and with business strategies less prepared for this early shift to a low-carbon economy.

Note: the content above has been extracted from our forthcoming 2017 ANZ Corporate Sustainability Review, available on anz.com/cs in December.

Easier

At ANZ, we’ve also made changes to our Annual Report this year, simplifying it through the use of plain English and the removal of extraneous information. Despite being a compliance document, we want the Annual Report to be easier to understand and navigate.

In response to shareholder feedback, we have also sought to include a more transparent and accountable remuneration report, which clearly demonstrates the link between performance against the bank’s strategic financial and non-financial objectives and remuneration outcomes.

Much time and effort goes into our corporate reporting and we want it to be useful and informative. We also want it to tell more than just a story about profit and loss but also a story about ANZ – our purpose, our culture and values, our people and the positive contributions we are making to the communities in which we live and work.

Anna Stewart is Head of Corporate Sustainability at ANZ

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.