ESG

Incorporating the Environmental, Social and Governance (ESG) aspects of conducting business into corporate reporting cycles is becoming an essential accompaniment to financial and organisational performance measures. Attention, and pressure from investors, customers, employees and interested stakeholders on ESG issues continues to rise as organisations reassess the way they operate and communicate.

The benefits of developing a strong basis for ESG reporting include boosted customer and employee engagement, attraction and retention of talent, improved social licence, reduced operational risk and, increasingly, enhanced investment return.

ESG reporting frameworks provide structure and a consistent way of challenging organisational initiatives and priorities. It is important to identify the ESG issues material to your organization and the issues key stakeholders view as important. 

What is ESG?
  • Broad term capturing a range of factors across non-financial disclosure
  • Standards for a company’s operations that socially conscious investors use to screen potential investments
  • Environmental, Social Governance – two of the main pillars of sustainability
  • ESG includes social issues like labour practices, governance matters like diversity and inclusion, and environmental considerations like greenhouse gas emissions.
What is ESG reporting?
  • Disclosing risks and opportunities to show how they inform business strategy
  • The increased disclosure of non-financial information is becoming an industry standard
  • Strategy information and proposals of intent
  • There is no globally established uniform strategy to ESG reporting
  • Good ESG reporting is complementary to financial corporate strategy reporting
  • 80% of the ASX 200 companies reported ESG to stakeholders in 2019
  • Most reported risks, some reported opportunities. Key inclusions in ESG reporting are:
    • Strategy
    • Risks and opportunities
    • Materiality
    • Stakeholder engagement
    • Diversity inclusion
    • Climate change
What are the ESG requirements around ESG corporate reporting?
  • ASX Corporate Governance Principles and Recommendations 2019
    • Recommendation 7.4 – “A listed entity should disclose whether it has any material exposure to environmental or social risks and, if it does, how it manages or intends to manage those risks.
  • ASIC has called for the guidelines described by the Task Force on Climate-related Financial Disclosures (TCFDs) to be adopted
  • The ASX: “encourage entities to consider whether they have a material exposure to climate change risk by reference to the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures
  • The general trend is that sustainability reporting to some extent is likely to become mandatory in the near future. In the absence of rigid requirements, it is still becoming industry standard to report on ESG due social and investor pressure.
  • There are various ESG related regulations in Australia, but no ESG/sustainability reporting framework is currently legally required, with the justification being: “mandatory reporting would impose additional costs on business, and it would lead to a compliance mentality.” (Parliament of Australia). Examples:
    • Corporations Act 2001 – regulations around corporate governance
    • Modern Slavery Act 2018 – firms with >$100m revenue prepare annual risk statement
    • Fair Work Act 2009 – regulations around workers’ rights
    • Environment Protection and Biodiversity Conservation Act 1999 – environmental legislation and compliance regime
    • Workplace Gender Equality Act 2012
Why is it important for clients to consider including ESG in their reporting?
  • Market expects it
  • Others in the sector are already starting to prepare ESG reports
  • Adds to the company and brand story
  • Provides investors and other stakeholders with useful and pertinent information
  • Provides an understanding of the key ESG issues within a certain business
  • Allows a company to explain its position on sustainability and demonstrate action and performance
Why is it important to their investors?
  • There is a clear link between reporting and the way a company is viewed by society
  • Global Reporting Initiative (GRI)
  • Understanding that the notions of “optional transparency” and empty commitments are no longer sufficient
  • The movement away from CSR towards the creation of shared value between businesses and the community
  • nonfinancial performance in certain ESG areas had a statistically significant positive effect on valuations and margins.
  • Failure to properly manage ESG risks can lead to reputational damage, regulatory scrutiny, civil and criminal litigation, profit downgrades, and ultimately poor investment results.
Who is producing some of the best ESG reports and what are they reporting on?
  • Large corporates such as Woolworths, Super Retail Group and others
  • Greenhouse gas emissions and climate change threats are the most common
What is the Cress Consulting process on ESG reporting?
  • Undertake an ESG factor and materiality assessment, through which the company can pinpoint the ESG topics most likely to have an impact on the business.
  • Establish a regulatory footprint, based on activities and operational exposures around the world, including in the supply chain.
  • A dedicated ESG & climate compliance target operating model, which will govern matters including strategy, governance, and risk management

Please get in touch or request a call with one of our team
to learn more.