Improving the visibility of soil health in corporate reporting

Soil health significantly influences agricultural production, drought resilience and the delivery of other essential ecosystem services including climate regulation. Compared to other natural resources, however, soil has been largely overlooked from a sustainability reporting perspective. The invisibility of soil in financial reporting has contributed to the broader lack of financial incentives for agribusinesses to implement soil stewardship strategies. At present, the ISSB and other sustainability reporting bodies including the TCFD, GRI, IIRC, SASB and CDSB have offered only limited coverage on soil-related matters.

Our study aimed to contribute to the development of ED/2022/S1 and advance soil-related reporting by engaging ASX-listed agribusiness financial statement preparers and investors to understand their perspectives on the relevance of soil-related risks and opportunities to investment decisions and their general soil reporting preferences. A mixed-method approached was adopted across two research phases: 1. archival analysis of current soil disclosure practices based on a review of the 2019-21 annual reports, corporate governance statements and CSR-reports of the 25 largest ASX-listed agribusinesses; and 2. in-depth, semi-structured interviews (n = 14) with stakeholders from a broad range of Australian agribusiness financial statement preparers and users. These interviewees included senior representatives from large corporate agribusinesses, investment entities and corporate advisors.

Our archival review found that while reporting on sustainability-related matters is increasing around factors such as greenhouse gas emissions, water management, and climate change more generally, there is minimal discussion around the management of soil, soil health and soil-related risks. Interviewees confirmed the significance of soil health in sustaining agricultural productivity. Whilst many investors still lack a detailed appreciation of the nature and ramifications of soil health, the recognition of the importance of soil is clearly growing. In this regard, many respondents anticipated that soil will be the focus of increased agribusiness investment and lending decisions. There was strong support for enhanced soil reporting by agribusiness and it was felt that the ED/2022/S1 framing of disclosures (i.e. governance; strategy; risk management; and metrics and targets) would provide a good foundation for this. This being said, given the diverse and complex nature of soils, respondents acknowledged the difficulty associated with reaching consensus on the definition of soil health and universal soil health metrics and targets. Should soil reporting be enhanced, there was a preference for soil-related information which is simple, concise and communicated in terms which are familiar to investors. Furthermore, any information communicated to investors should not be above and beyond the kinds of information which is already used by agribusinesses for their own management purposes.

These results will help to identify the most appropriate approaches to enhance corporate soil reporting and priority areas for regulatory attention. Doing so will help determine the decision needs of investors and creditors in the listed agribusiness sector. This will facilitate the process of overcoming information asymmetries between corporate farmers and their investors and creditors, which currently act as a barrier to increased investment in soil stewardship. The project’s focus on soil reporting practices will directly contribute to the AASB’s focus on new areas of financial reporting, the international advancement of ISSB’s sustainability reporting agenda and other related international developments focused on climate-change and nature-related risk reporting.