Assessing the state of play of corporate responsibility

4 May 2021

How investor activism is driving action in ESG, increasing supply chain transparency and encouraging corporates to improve product traceability and working conditions

Ethical investing has played an influential role in shaping society as we know it today. Dating back hundreds of years and with its roots in religious motivations, it has catalysed the evolution of what society considers acceptable practice by industries, businesses and governments.

The 1960s civil rights movement in the US, corporate retreat from involvement in the Vietnam War in the 1970s, ending of apartheid in South Africa in the 1990s, and recent action on climate change have all been furthered by direct action targeting specific corporations or countries – or both.

What started as a reactionary response has, however, fast become a way of pre-emptively shaping corporate strategy and steering global attention.

Coming full circle

Economic deregulation in the 1980s accelerated the rise of the global economy and a move away from state-led economics towards one with corporations taking a lead role. Accompanying this was a shift in responsibility for setting standards of corporate behaviour from government to companies themselves.1

As trade and investment liberalism expanded cross-border economic activity and increased the use of international supply chains, public interest in the social and environmental practices of business grew with it. Hastened by a series of corporate scandals, many began introducing new voluntary codes of conduct outlining their positions in these areas.2

In the wake of a series of prominent accounting-related failures at the turn of the century and failures of risk management that precipitated the 2008 global financial crisis, corporations switched their focus on to strengthening their internal governance.

With the ‘G’ embedded and well understood, the pendulum is swinging towards the ‘E’ and ‘S’ in ESG. The movement of climate change from being a fabled possibility to a very real and immediate threat has brought environmental practices back under the spotlight.

At the same time, the growing vocality of social justice movements is putting pressure on organisations to make their position on a range of societal issues known.3

Delivering returns

Taking a position also makes commercial sense, according to Macquarie research categorising Australian listed companies according to a range of ESG factors. Those with the highest rankings have delivered an annualised return of 5.1 per cent more than companies at the opposite end of the scale.

The research – which looks at 237 ASX-listed corporates – also finds a consistent relationship between the ESG scores given to a company and its share price performance over the past decade. The strongest association is between shareholder returns and scores for governance – indicating that the priority given to strengthening internal controls over the past few decades is paying off – but positive correlations also exist between social and environmental scores.

Investing for good

“Strong growth in ESG investing has been driven by increased awareness of climate change following a number of extreme weather events across the country, with greater understanding around the financial implications. In addition, consumer preferences are changing with a growing focus on social justice forcing corporates to consider all stakeholders, not just shareholders.”

Anita Stanley, 
Senior Research Analyst at Macquarie Capital

Investors are taking note. As well as asking questions about ESG issues at the companies they own – 84 per cent of shareholder-proposed resolutions tabled at the AGMs of Australia’s biggest companies last year were climate change related (see chart) – they are allocating more of their money to asset managers with a sustainable investing strategy.

The sum of assets under management (AuM) in Australian responsible investment funds now stands at close to $A1.2 trillion, representing over a third (37 per cent) of the $A3.2 trillion market total. Though it has not kept pace with total overall growth, the responsible investment market has nearly doubled in size over the past five years.4

Environmental changes close to home have been a recent motivator for this, says Anita Stanley, Senior Research Analyst at Macquarie Capital.

“Strong growth in ESG investing has been driven by increased awareness of climate change following a number of extreme weather events across the country, with greater understanding around the financial implications. In addition, consumer preferences are changing with a growing focus on social justice forcing corporates to consider all stakeholders, not just shareholders.”

And business is responding – especially in the ‘E’ space. Macquarie research also shows an acceleration in the number of corporate commitments made on decarbonisation, with 40 per cent of the ASX100 – the country’s largest 100 listed entities – now having announced their commitment to net zero emissions in the coming decades. This reflects a global trend: a record number of resolutions addressing ESG issues – from climate change to diversity – were passed at the AGMs of the world’s biggest companies last year.5

For many to realise their carbon-neutral ambitions, though, technology will have to advance at a faster pace than it is today. The International Energy Agency expects half of the reductions needed to get to net zero emissions in 2050 will have to come from technologies that are not yet ready for market.6

In recognition of this challenge, governments are stepping up. The US Department of Energy has announced up to $US100 million in funding for clean energy technology research and development projects7, and Australian lawmakers have committed to $A18 billion of investment8 in low emissions technologies over the decade to 2030. Still, co-investment by the private sector will be necessary to meet the decarbonisation commitments many businesses have made.

Human rights, labour standards and supply chains

Just as environmental awareness has come a long way since the 1992 Rio Earth Summit laid the foundation for international agreements on climate change9, so too has that of labour practices in global supply chains.

In 1991, American labour activist Jeffrey Ballinger published a report documenting low wages and poor working conditions in factories used by some of the biggest global sportswear brands. The ensuing scrutiny of international trading practices and further exposés of human rights violations marked a turning point in supply chain transparency.

The pressure led to multinationals publishing details of working conditions in the factories manufacturing their products, and in the two decades since, supply chain transparency and the social conditions it brings to light have grown in importance.

Much of this has been driven by consumer demand for traceability of product ingredients and raw materials, but events such as the COVID-19 pandemic have highlighted ethical concerns with global supply chains and the conditions of the factory workers within them.10 Legislation, too, has started to play a role.

“Policy, regulatory and financing developments have led to a renewed corporate focus on the ‘E’ and ‘S’ of ESG, and on human rights risk management within the ‘S’ itself. Changes in these areas have removed much of the optional component for businesses when it comes to the need for them to understand how they might be adversely impacting on people and the planet.”

Vanessa Zimmerman,
Pillar Two Founder and CEO

According to Vanessa Zimmerman, Founder and CEO of business and human rights advisory firm Pillar Two, and Board Member and Chair for Human Rights at Global Compact Network Australia – the Australian network of the United Nations Global Compact, the world’s largest corporate sustainability initiative – regulation is having an effect.

“Policy, regulatory and financing developments have led to a renewed corporate focus on the ‘E’ and ‘S’ of ESG, and on human rights risk management within the ‘S’ itself. Changes in these areas have removed much of the optional component for businesses when it comes to the need for them to understand how they might be adversely impacting on people and the planet.”

She adds that technology can aid this by playing an oversight role.

“As well as bringing greater clarity to who is buying what from whom and the associated environmental and social – including human rights – risks involved, if applied safely and effectively, it can give workers more of a voice to highlight poor and exploitative practices by suppliers and sub-suppliers.”

A handful of countries have now enshrined in law the need for supply chain transparency.11 Most –including Australia’s Modern Slavery Act – require companies to publish what they are doing to identify and tackle modern slavery within their organisation and its supply chains. However, nearly all stop short of requiring specific action or imposing obligations on businesses, and until legislation becomes prevalent or grows teeth, consumer and investor activism are once again left as the change agents.

One such effort – a collaboration between business, human rights organisations and investors representing $US5.3 trillion in assets – is the Corporate Human Rights Benchmark (CHRB), which seeks to tap into the competitive nature of capitalism and turn it into a powerful driver for change.

The benchmark assesses hundreds of the largest publicly traded global companies operating in five ‘high risk’ sectors – apparel, agricultural, and extractive (oil, gas or minerals), IT manufacturing and automotive – on a set of human rights indicator.12

The aim is to incentivise and acknowledge companies that put human rights at the core of their business, and better equip investors to direct investments towards those performing in line with international human rights standards. In a stark demonstration of the change that has occurred, a top sportswear company received one of the highest scores in last year’s index.

Our own research finds that the largest listed Australian companies with the highest ‘S’ scores generated a cumulative return of 45 per cent since 2011 compared to -32 per cent for those with the lowest.

“At Wesfarmers, we have long recognised that managing our businesses with a focus on environmental and social impacts is directly related to delivering superior total shareholder returns over the long term.

“Understanding how we manage the ways that we impact the environment and communities in which we operate has also become an increased focus amongst our stakeholders.

“They are particularly looking for transparency about climate-related risks and opportunities, and with the effects of a warming planet increasingly being felt around the world, expect us to play our part in the solution and contribute positively to the global goal of net zero carbon emissions by 2050.

“Traceability of raw materials is another area of growing interest to our team members and external stakeholders. We were the first retailers in Australia to publish online the garment factories that our apparel businesses source from, and the information is widely accessed by customers and other stakeholders.

“Working closely with our suppliers and others, we are piloting approaches that use blockchain and other technologies to help establish provenance and give confidence that products are responsibly produced.

“Alongside using GPS systems to track products and ensure they are made in the factories with which we have placed orders, virtual technologies have allowed us to understand and monitor the conditions within the factories we source from despite travel restrictions impacting our ability to do as many in-person audits as usual.

“We can achieve much in the short term, but the majority of the environmental and social opportunities and challenges facing companies today require a long-term focus and commitment.”

Naomi Flutter,
Executive General Manager,
Corporate Affairs, Wesfarmers

Consumer driven but investment led

Evolving consumer expectations will drive further action, aided by the steady rollout of international legislation designed to further the corporate consideration of ‘E’ and ‘S’ issues. Investor-led action will, however, be the strongest single incentive for organisations to change.

And with good reason: Macquarie research has found a consistent relationship between shareholder returns and ESG scores amongst leading Australian companies; those with the highest scores exhibit higher returns and lower volatility.

When the world’s largest asset manager BlackRock last year announced that it would hold corporate directors accountable for making insufficient progress on social and environmental issues, it put companies and boards on notice: they need to expunge their environmental footprint, take social issues seriously and commit to good governance. The (investment) world is watching.

1. Rhys Jenkins, Corporate Codes of Conduct: Self-Regulation in a Global Economy, United Nations Research Institute for Social Development, 2001,
2. Gary Teeple and Stephen McBride, Relations of Global Power: Neoliberal Order and Disorder, University of Toronto Press, 2011,
3. Shane Wright and Mathew Dunckley, 'Stand for something': Big business backed to speak out on issues, The Sydney Morning Herald, 16 September 2019,
4. Responsible Investment Association Australasia (RIAA), Responsible Investment Benchmark Report - 2020 Australia, RIAA, 2020,
5. Attracta Mooney, Investors pile pressure on companies over ESG at annual meetings, The Financial Times, 31 October 2020,
6. Fatih Birol, Executive Director Speech at the Leaders Summit on Climate, International Energy Agency (IEA), 23 April 2021,
7. US Department of Energy (DOE), DOE Announces $100 Million for Transformative Clean Energy Solutions, DOE, 11 February 2021,
8. Minister for Energy and Emissions Reduction, Australia's intervention to the IEA COP26 Net Zero Summit, Australian Department of Industry, 1 April 2021,
9. Peter Jackson, From Stockholm to Kyoto: A Brief History of Climate Change, United Nations (UN) Chronicle,
10. Danielle Kost, COVID-19 Shines New Light on Working Conditions in Supply Chains, Harvard Business School, 23 February 2021,
11. The Institute of Chartered Accountants in England and Wales (ICAEW), Modern slavery, ICAEW,
12. Corporate Human Rights Benchmark Ltd (CHRB), Who we are, CHRB,

*Brian Stauffer, Follow the Thread: The Need for Supply Chain Transparency in the Garment and Footwear Industry, Human Rights Watch, 20 April 2017,