What is ESG Reporting and how does it relate to your business?

Whilst Environment, Social and Governance (ESG) reporting is not mandatory in Australia, in December 2022, the Australian Government has called for comments on its proposal for an amendment to the ASIC Act to grant the Australian Accounting Standards Board (AASB) the ability to develop and formulate the sustainability disclosure standards necessary to support the Government’s climate-related commitments.

Already we are starting to see mandatory reporting in the UK, EU and the US.   So, the advice is – whilst it is not here yet – it isn’t far away and as a Business – are you Ready??

A number of Australian companies are voluntarily disclosing their ESG commitments and measurements which is a positive trend but there is a fine line between reporting accurately and what is known as greenwashing which is how companies state that they are essentially ‘Greener than they are” – e.g. Making false claims that they cannot verify.

The Australian Competition & Consumer Commission has put all companies operating in Australia on notice and businesses need to be prepared to back up sustainability claims.  Whilst there have been a number of investigations regarding “Greenwashing” overseas,  we are now seeing these investigations close to home with a recent allegation against gas giant Santos for misleading and deceptive conduct in relation to its clean energy claims, and the formal “greenwashing” complaint made against coal miner Glencore for claims around cutting carbon emissions.

However, until there is a consistent framework which we would hope that the AASB would provide, all Businesses are faced with the challenge of trying to do the right thing.  The ESG roadmap is also confusing as globally, there are more than 500 different sustainability frameworks companies can use for reporting.

Some examples include the Task Force on Climate-Related Financial Disclosures (TCFD), Carbon Disclosures Standards Board (CDSB) and the Global Reporting Initiative (GRI).

So where do we start in planning an ESG Strategy?

Strategic planning completed in a timely manner is a critical aspect for any Business that wishes to stay ahead of the competition, especially due to growing pressure from investors who are utilizing ESG metrics for gauging corporate performance.

ESG is now essential in every corporate strategy from a risk mitigation and opportunity optimization perspective.

Environmental considerations - Environmental factors refer to an organization’s environmental impact(s) and risk management practices. These include direct and indirect greenhouse gas emissions, management’s stewardship over natural resources, and the firm’s overall resiliency against physical climate risks (like climate change, flooding, and fires).

• Social considerations - The social pillar refers to an organization’s relationships with stakeholders. How it deals with its customers, employees, business partners with an expectation that social impact will extend outside the walls of the company and to supply chain partners, particularly those in developing economies where environmental and labor standards may be less robust.

• Governance considerations - refers to how an organization is led and managed. ESG analysts will seek to understand better how leadership’s incentives are aligned with stakeholder expectations, how shareholder rights are viewed and honored, and what types of internal controls exist to promote transparency and accountability on the part of leadership.

How Prepared is your business?

Long-term success of your business will depend on getting ESG right - making it worth investing resources into ensuring that a business's ESG strategies are robustly implemented and maintained going forward.

Though many large businesses have taken great strides towards integrating ESG into their business framework, some still need to commit fully or even partially adjust their strategic plans accordingly.

With ESG metrics increasingly prioritised by institutional investors, companies that fail to take ESG seriously could find themselves at a significant disadvantage compared with other Businesses that adhere closely.

However, effectively implementing and complying with ESG laws and commitments can be challenging given the many legal requirements and shifting public sentiment. Additionally, measuring environmental and social performance requires accurate data, which can be difficult to source given the varying standards across different countries and industries.

How Do you plan your ESG Strategy?

To assess an organisation's corporate strategy to be ESG-compliant and capital-access-ready, companies must first identify their ESG goals and objectives.

These goals should be based on their ESG risks, opportunities, market trends and the ESG metrics used in their industry.

Companies should assess their performance against these ESG metrics and create an ESG strategy to determine how they can improve over time. Once a company has established its ESG goals, it needs to be integrated into business operations and financial planning processes. Dual integration ensures that ESG considerations are included in every decision-making process relating to new investments, mergers & acquisitions, or other capital-related initiatives. Companies must also review their existing policies and procedures, such as employee training or data management systems, to ensure they meet their ESG targets.

Businesses should also consider ways to engage with stakeholders such as investors and partners interested in the company's ESG performance.

Engaging with these stakeholders will help identify potential conflicts between ESG objectives and other stakeholders' interests and develop mutually beneficial strategies for meeting ESG targets.

Finally, a comprehensive ESG program requires regular reporting on progress towards ESG targets and benchmarking against peers within the same industry.  These benchmarks will allow the results to be compared to competitors and understand what areas need further improvement to close any gaps towards capital access requirements.

By integrating ESG considerations into all aspects of a Business’s strategy, including operations, financial planning and stakeholder engagement, and regular reporting on progress towards these objectives, companies can ensure that they are prepared for the future.

Why Time is of the Essence with Strategic Planning

The move towards ESG is both an opportunity and challenge for your business as now is the time to:

1.     Review existing policies and procedures;

2.     Undertake comprehensive research into ESG-related risks, opportunities, and trends to identify potential areas for improvement and develop robust strategies to ensure long-term success; and

3.     Establish accurate data collection methods and ways of benchmarking against competitors to measure progress towards ESG goals effectively.

At Business Activators, we understand the importance of ESG considerations, and provide a comprehensive process to help you incorporate it in all aspects of your business strategy - from financial planning, and operations to stakeholder engagement. Let us step you through and get started with your ESG reporting today.