Stockland has used the materiality definition from the Integrated Reporting Framework, which states ‘an integrated report should disclose information about matters that substantively affect the organisation’s ability to create value over the short, medium and long term’.
We identified our FY17 material matters using the following process.
The issues identified through this process and the sustainability content in the Annual Review are reviewed and approved by Stockland’s executive team and the Board.
We combined the outcomes of the following two materiality processes to identify draft material matters:
The resulting list of matters served as a starting point for our integrated reporting materiality workshop.
Evaluate and Prioritise
An integrated reporting materiality workshop was held with members of the leadership team to identify any additional relevant issues, rank issues of greatest significance and prioritise them based on their ability to affect value.
Material matters were mapped in terms of their potential impact on value creation over the short, medium and long term
Alignment and Disclosure
Following the materiality workshop, the final list of material matters was presented to our internal Integrated Reporting Committee.
Once confirmed, the matters were submitted to the Executive Committee and the Board for review.
An alignment check was also performed, with our strategy review process and sustainability materiality outcomes.
Through our materiality research, we have identified emerging societal issues that impact the landscape in which we operate. They represent future risks and opportunities for our business and our stakeholders over the short, medium and long term.
Our material matters also align with the core focus areas of our sustainability strategy. We anticipate that these matters will evolve over time and we will continue to work with relevant stakeholders to shape these issues going forward.
A summary of Stockland’s emerging issues and where further information can be found is provided below.
All of our businesses are impacted by local and global economic conditions. International economic markets remain volatile and the outlook for specific markets in Australia remains uneven. We expect conditions to remain reasonably supportive. Interest rates are anticipated to be reasonably stable and we expect the economy to continue to grow, albeit at below trend levels.
We have capitalised on supportive market conditions throughout the year, while ensuring the decisions we make now will serve our business well through the cycle. We will maintain asset and geographic diversification and will continue to focus on retaining a strong balance sheet with appropriate gearing and diverse funding sources. We will also concentrate on efficiency and cost management and maintaining a prudent approach to provisioning.
Our growth is supported by a strong medium-term organic pipeline. In the longer term, however, the continued growth of our business is dependent on our ability to acquire new land and assets. Strong domestic and offshore investor demand for property assets is expected to continue, supported by relatively high asset yields, the lower the Australian dollar and Australia’s record of economic and political stability.
We will continue to ensure discipline and agility in our investment decision-making so we can take advantage of opportunities that will deliver the appropriate risk-adjusted returns. We will use a rigorous whole-of-business approach informed by detailed research to drive our capital allocation process. Within our existing portfolio we have significant organic development opportunities and a replenished landbank supported by a strong balance sheet to provide funding flexibility.
Other stakeholders’ interests potentially impacted by this issue include returns for investors, our customers’ ability to purchase/lease, and growth in the property sector in general.
To achieve operational excellence we need systems that are cost-effective and agile to support the diversified nature of our business.
We continue to execute our Information Technology strategy with a focus on long-term strategic investment, and the identification and integration of technical enhancements across the business.
We have made significant progress on improving the Group’s systems capabilities, including the commitment to implement SAP and Salesforce as core systems. This project aims to reduce the number of legacy systems we use in our business to simplify and streamline our activities, reduce costs, and take advantage of rapid developments in technology to improve customer outcomes. This investment will also position Stockland’s systems to continually improve in line with improvements to SAP and Salesforce.
In FY17, we successfully implemented Salesforce and SAP SuccessFactors modules. Deployment of further SAP and Salesforce capabilities will continue during next year. We continue to maintain two-way engagement with employees to enable a smooth transition.
Our Residential business is influenced by the dynamics of the Australian housing market. Housing affordability remains of key concern for Australians as the price of housing and rental properties continues to increase. While current regulatory settings are likely to lead to some moderation in growth rates for residential property prices, we continue to expect an elongated cycle for the east coast markets.
In response we consider a suite of measures is required to unlock housing supply and address affordability. These include early planning and delivery of infrastructure and simplified development controls to enable housing diversity. Our affordability initiatives in Queensland, New South Wales and Victoria have given first home buyers priority to purchase land and get a foothold in the market.
We will continue to partner with government and industry to drive solutions and provide a broader mix of value for money housing options including house and land packages, completed housing, medium density and apartments.
We have also assessed the demand from home owners and investors so that our residential communities remain attractive to future buyers. While lending conditions for investors and foreign buyers are tightening, owner occupiers remain our core focus and represent 75% of our net residential sales, with less than 3% of total buyers requiring Foreign Investment Review Board approval.
The safety of our customers and employees is a key priority. Managing their safety and the resilience of the communities in which we operate is becoming increasingly complex. This includes safety and security risks associated with terrorism, cyber threats and extreme weather events.
We continue to build our resilience to these evolving risks; training our employees and increasing their risk awareness, scenario testing, engaging with peers and across industry, and investing in asset upgrades.
We also assess the impact of prices shocks on our business including electricity costs. We have assessed and implemented energy strategies and continue to grow our number of renewable energy installations across the portfolio.
Our focus on developing sustainable communities also assists in increasing the resilience of our assets. As part of our sustainability strategy we are increasing the climate resilience and resource efficiency of our assets to benefit our business, our customers and the broader community.
The retail landscape is constantly evolving. Within the last 10 years the sector has seen a convergence of technical advances, in particular e-commerce, changes in underlying consumer behaviour, and the entry of new, international retailers. These changes have challenged some of our retailers.
We have been proactive and have pre-empted many of the changes. We continue to:
Substantial policy reform presents both opportunities and potential impacts for our business and our customers. Tax and planning reform remain key policy areas where we will continue to engage with industry and government. We will continue to focus our development activity in areas where governments support growth and focus on good practice to remain well positioned in the market.
We acknowledge the possibility of regulatory changes focused on reducing carbon emissions, particularly in the context of Australia’s ratification of the 2015 Paris Agreement to limit global temperature increases to below 2°C. We regularly engage with government and industry stakeholders on mitigating long-term impacts of climate change. We are well placed to accommodate future climate change regulation given our established focus on energy efficiency and renewable energy across our portfolio.
We understand there is currently a lot of focus on the retirement living sector. We take pride in our Retirement Living business, and we are committed to open, transparent and respectful relationships with our residents. We proactively engage with government and industry to continue to raise standards across the whole industry.
Our ability to develop products that meet anticipated future customer and societal demands is crucial to the sustainability of our business, particularly in light of Australia’s changing demographics, including an aging population and more socially conscious millennials.
We are continuing to evolve our market-leading product innovation and deepen our customer insights using our proprietary Liveability Index research, Stockland Exchange (our online research community), Quantium (which provides data-driven customer insights to inform how we view markets and opportunities) and other data sources.
We are fostering a culture of innovation where we remain flexible and identify and take advantage of opportunities to leverage movements in stakeholder preferences. We are enhancing our design excellence, providing greater functionality and value for money.
Importantly, we continue to focus on the creation of sustainable and liveable communities and assets. This includes developing understanding of the longer-term impacts of climate change and incorporating our findings into the design and upgrade of assets.
There are a myriad of challenges and opportunities that arise from digital disruption, including changes to the way we use digital technology. We need to be accessible and responsive and to anticipate future consumer behaviour and potential disruption to our sector.
To remain competitive we must continually assess and leverage digital innovation. This includes facilitating a connected and agile workforce, more efficient business and supply chain processes, and digital lead nurturing and customer-centric innovation.
We will continue to identify and integrate technical enhancements across the business, including enhancing online residential and retirement living engagement opportunities. We will also continue to support our retail centres as thriving town centres by delivering quality services and retail and community spaces that are e-enabled.
Our long-term growth is dependent on our ability to access suitable capital at the appropriate time and cost, even as capital markets fluctuate in response to domestic and global economic shifts. Variable economic activity and changing capitalisation rates may impact the valuation of our assets.
Over the past decade we have maintained a strong balance sheet at appropriate levels of gearing, enabling us to continue to sustainably fund growth in the business. In the short term we have also been able to refinance borrowings and maintain diverse funding sources.
So that we are able to continue to access sufficient capital to fund growth, we will continue with our prudent capital management policies.
Our well-defined capital management approach enables us to invest, allocate and raise capital across various funding types and geographies at different points in the cycle.
Physical and organisational boundaries are becoming increasingly blurred as new technology enables greater workplace flexibility, including when and where employees work, and encourages creative and adaptive teamwork. This year we successfully deployed Office365, Salesforce and SAP SuccessFactors to improve collaboration and flexible working.
We will continue to encourage flexible work practices supported by our new collaboration platforms and train our senior leaders to be more agile and resilient through programs such as our Stockland Leadership Experience.
Community expectations on the social and behavioural operations of a “good corporate” are changing. Corporates are increasingly expected to work in partnership with the community and government on societal issues. We are well placed to meet these expectations and have a strong reputation for sustainability leadership and community development.