Overview
A confluence of factors is accelerating the importance of ESG and each of these has material impacts for organisations operating in Australia. The gradual introduction of new laws and standards is creating a strong impetus for organisations to start changing their behaviour now: changes in the EU for example are likely to shift the focus on ESG regulation globally and this is amplifying commercial pressures, while in Australia standards around disclosure issues are expected to become law, such as the climate vulnerability assessment being rolled out by APRA. The issue of generational equity is coming to the fore and being picked up by courts more often. For all of these reasons, it is essential to prioritise ESG.
Key themes
Spotlight on ESG
It is often unclear what an organisation 'should' do to meet, or ideally exceed, its stakeholders expectations. As a consequence, organisations are increasingly looking to international frameworks to guide them. What must a corporation do to meet stakeholder expectations and to empower its people to act with integrity and ask not 'can we?' but ‘should we?’ before making decisions? How can organisations embed a best practice risk and compliance framework that is flexible enough to evolve in line with shifting ESG standards and stakeholder expectations globally?
What's driving the change?
Three things: risk mitigation (including against third party litigation); investor activism; and legal or regulatory duty, with the last in particular being accelerated by recent EU regulatory changes. More than ever before corporations need social legitimacy to operate – managing ESG risk well mean gaining the social legitimacy to capitalise on opportunities in the future. Increasingly, reputational benefits and real or potential profits are also becoming powerful motivating factors driving ESG investment.
Implications from the Board down and across all sectors
ESG has implications from the board down and across all sectors of the economy. How ESG impacts your company and the amount of capital expenditure required to achieve best practice will differ depending on a wide range of factors, including your specific industry, legacy issues, stakeholder interfaces and where on your ESG journey your organisation currently sits. At a minimum, these issues should be front of mind for your organisation's board, C-Suite, legal counsel and risk and compliance teams – all of whom should be working closely with your organisation's sustainability group.
What actions can you take now
Once ESG policy positions are established, the next step – and perhaps the more challenging one – is ensuring that the organisation then lives and breathes by these policy commitments to the full extent possible. You may want to consider regularly updating your Board and ExCo on the risks and opportunities; developing your own company's position on key ESG issues; and preparing an ESG action plan