Prepare for evolving 2025 macro trends

Climate

Claire Smith, an environment and climate change partner at law firm Clayton Utz, says boards need to know what is required across a raft of areas and might need to draw on advisers, including accounting for the reports, legal for greenwashing risks, investor relations and, potentially, a scientific adviser for climate scenario planning.

Many companies are “nibbling around the edges” of sustainability and starting to address scope 1 and scope 2 emissions, but will have to go further and embed sustainability into their wider corporate strategy, according to Smith. “This is an opportunity for directors to look more broadly across all of their sustainability impacts and what they want to do to proactively seek to increase their sustainability objectives across their business model and value chain,” she says.

Only certain large organisations will initially be captured by the new reporting requirement. But because they are required to report scope 3 emissions — those of their customers or suppliers — smaller businesses, or even NFPs that supply them, might also have to provide emissions data.

To assist reporting entities, ASIC has established a dedicated sustainability reporting page (mrca.pub/4iaraQV) to provide information about the new regime and how ASIC will administer it. Reporting entities should refer to this page as an ongoing resource as it will be updated with further information and regulatory guidance.

Culture

ASIC chair Joe Longo noted that large and well-resourced Australian businesses with compliance systems and processes in place had failed to prevent issues with reporting. He put the problem down to culture. “Regulatory compliance was undermined by the culture and ethics of the organisation,” he said at the Australian Compliance Institute annual conference last September.

“They had the appearance of compliance, but it was a hollow, empty kind of compliance. Written policies and procedures provide the framework for compliance. Systems, processes and technology can be used to underpin and support compliance. But compliance in practice requires a culture of integrity, ethics, and trust.”

Such a culture requires asking the right questions. What are our obligations? What are the risks? How can we manage them? What systems and controls should be in place to ensure we meet our obligations? Is what we are doing both legal and ethical?

An organisation’s directors should set the tone and establish and lead a culture of compliance. “This includes monitoring the arrangements the company has in place to ensure compliance with regulatory obligations,” said Longo.

When not taken seriously, compliance can devolve into lip service. “When there’s alignment between what’s preached and what’s practised, it’s much easier to nurture trust by consumers and investors,” said Longo. “Without that trust as a foundation, the tower of business comes toppling down. That’s why, as I’ve said before, a profitable business is — and must be — a compliant one.”

Reputation

Reputation risk management may increase as a priority among boards. Many internal and external factors contribute to a company’s public image in the eyes of stakeholders, according to a recent study by UK-based brand research consultancy Echo Research. Its Reputation Dividend reputation valuation service also assesses how a company manages its people, as well as its financial soundness.

These factors can influence the market value of a company, according to the research, which analyses the reputation and market capitalisations of hundreds of S&P 500 and FTSE 350 companies.The October 2024 report says, “Companies known for reliability, ethical practices, and quality are more likely to secure premium valuations and exhibit resilience in times of crisis. Sound external profiles and robust stakeholder relationships further bolster their standing, leading to more stable stock prices. Conversely, those with tarnished reputations may face decreased investor trust, growing opposition, heightened volatility and lower values.”

While the consultancy’s research primarily spans the UK and US markets, local experts see  Australian relevance. “As boards have part carriage of risk mitigation and management, and by extension reputation protection, they need to exercise their judgement when organisations they govern face reputational crises,” says issues management adviser Robyn Sefiani. “Where warranted, the board may need to be more assertive in its advice and governance requirements if an executive leadership team is reluctant or too slow to respond and take necessary action to address a reputational threat.”

Boards should ensure their executive teams have engaged suitably qualified reputation and communication experts to undertake reputation risk assessments, stakeholder prioritisation for different risk scenarios, and crisis communications and response planning for reputation protection. This should be reviewed annually, at a minimum.

“Part of reputation management is ongoing dialogue with stakeholders, including customers, employees, investors and regulators,” says Sefiani. “This means being responsive and transparent, anticipating stakeholder concerns and actively engaging in reputation-building initiatives.”

She advises boards to look for directors with reputation/crisis management/stakeholder communications skills, who can informedly evaluate the effectiveness of a company’s communications and reputation indicators.

This article first appeared under the headline ‘Early warning system’ in the February 2025 issue of Company Director magazine.