From net zero to AI: The new agenda for ASX chairs

Sustainability, the net zero transition and mandatory climate reporting are placing new demands on company directors, but the answers often come back to the traditional board role of making the right calls on capital allocation, a group of prominent ASX chairs told the CommBank Momentum conference in Sydney. 

“Capital allocation is the core of what we do,” CBA Chair Paul O’Malley told the event. 

He said that boards must weigh short-term pressures against long-term resilience. Directors have to make sure their businesses look after customers in the short term but keep an eye on broader national economic considerations over the long term. 

Keeping these priorities in balance often means encouraging business leaders to allocate capital to sustainability instead of just maintaining the status quo, he said. 

Getting back to basics and examining your purpose as a business was also key, O’Malley said. 

“If Australia does well, CBA does well,” he said.

“A good business model has to be very engaged with the customers and communities in which we operate.”

Practical decisions

Mirvac and Orora chair Rob Sindel said there were "very practical decisions that need to be made between customers, shareholders and our employees. 

“Keeping the balance right in that triangle is the most important thing,” he said, adding that decisions couldn’t be made without a good understanding of community expectations and regulatory clarity.

Sindel shared the example of a decision Orora needed to make around replacing an old glassmaking furnace. A like-for-like replacement would have cost $90 million, but a more contemporary facility, which cut energy consumption and reduced emissions by 30 per cent, was quoted at double the cost, he said. 

Orora took the decision to invest in the cleaner, more expensive furnace, but only after its Board and Management team had deeply considered the implications for key stakeholders, including whether customers would be willing to pay extra for the glass bottles and if shareholders would be happy with the additional capital allocation. 

Changing demands and new challenges

GPT Group Chair Vickki McFadden said many directors across Australian businesses were currently being brought up to speed on new responsibilities around mandatory climate reporting. Most companies had Scope 1 and 2 emissions reporting, which covers businesses’ own emissions from operations and energy use, in hand she said.

But the coming requirement for Scope 3 reporting, which covers emissions across the supply chain, “is going to be very challenging for companies”, she said.

“There's a very interesting conflict between being open and transparent and putting forward a target, particularly when you don't know the exact pathway to achieving that. Nobody has an exact pathway to net zero by 2050.” 

McFadden also noted that while environmental concerns are very much on board agendas, they’re not the only social responsibility issue they’re dealing with. The social impact of AI in particular warranted significant discussion and consideration by boards, she said. 

“What is front of mind though for boards in particular is the social impact and the implications for the workforce, for the training of future employees where AI is used to replace more repetitive or process driven jobs within an organisation.

“This is at the forefront of boards' consideration of the use of AI. It also has a broader ecosystem and social welfare commitment for young people as they're coming through. What will be job opportunities. What will that look like and how will they be skilled in order to them?”