ESG reporting – what is it, and what do I need to do?
The scope of good governance is continually evolving, driven by changes and developments in legislation, social norms, the domestic and international economies and more.
Several years ago, following the Royal Commission into the banking and finance sector, it became apparent that boards across Australia needed to be including a focus on organisational culture on their agenda. Now, a handful of years later, many directors would tell you that the idea of not thinking strategically about culture is completely ridiculous!
More recently, ESG is becoming a major focus for many large organisations internationally and nationally and making an impact from a governance perspective as well as operationally.
What is ESG?
Environmental. Social. Governance.
The concept of ESG is gaining momentum as it is about ensuring businesses and organisations look at more than their profit. It requires them to also look at, and where relevant to report on, the impact that they have on the world and society as a whole.
Is ESG a new idea?
Many organisations have been conscious of minimizing their impact on the environment for years. Examples of this include reducing paper usage and moving to digital files, opting for certified environmentally friendly printing practices, car-pooling for intrastate trips and generally reducing their environmental footprint. From our perspective at WLF, over the past five to ten years we have taken steps to reduce our environmental impact through moving to digital files where possible, providing a secure digital client portal for uploading information, recycling and using eco-friendly materials where possible.
Similarly many organisations, whether private, public or not-for-profit sector, have a commitment to social impact/society as a core value. The resulting actions may be through providing support to local charities and not-for-profit services; ensuring there is diversity of employees; a commitment to pay equality; or a procurement policy to support local businesses.
From a governance point of view, organisations who act transparently, avoid hidden conflicts of interest or unethical decision-making practices, and provide strong and fair leadership to their staff, customers, stakeholders and the community have also been recognised as a model of good corporate behaviour.
So why are we hearing about ESG now?
There is a move internationally to hold companies more accountable for the way they conduct their business and generate profit. This isn’t a new trend, but it has been increasing and evolving since the ‘Greed is Good’ mantra that was prevalent in many Western business cultures of the 1980s.
Additionally, there is evidence to suggest that companies who pay attention to ESG can perform better than those who do not.
And perhaps most importantly, we are hearing about ESG more and more as governments. businesses and individuals around the world deal with an increase in natural disasters, and have a growing awareness of how their actions effect people and communities around them.
What is Carbon Accounting, and how is it linked to ESG?
The focus on ESG and the need for organisations to demonstrate their commitment to decarbonisation has seen many organisations looking at carbon accounting. Carbon accounting – which is also referred to as greenhouse gas accounting – is a way to quantify the amount of greenhouse gasses directly and indirectly produced from an organisations business or business activities.
Carbon accounting software packages provide this data, which allows the organisation to identify key target emission areas and gain an understanding of their climate impact. As a result, organisations can then set goals and implement appropriate strategies to reduce emissions.
A global push for mandatory reporting
Currently there is no mandatory reporting requirement for ESG under Australian or International Accounting Standards.
However, there is a strong global push through groups such as the Taskforce on Climate-Related Financial Disclosures (TCFD) and the Sustainable Accounting Standards Board (SASB) to create consistent reporting frameworks for organisations to disclose climate related risks and financial impacts.
Should these frameworks become a requirement, they will likely be comparable on a global basis, evidence based and industry specific. Such a framework may alter the risk profile of a business.
What do organisations need to do?
For the vast majority of organisations there isn’t any critical need to do things differently from the perspective of compliance, regulation or reporting, at least in the immediate future..
However, it is likely that the expectation for a commitment to ESG will continue to grow even without an enforced regulation change. We can’t predict exactly what this will look like, but we may see ESG become a requirement in tendering processes; a preference that influences purchasing decision; a driver in career decisions for individuals; and more.
How your organisation approaches ESG has the potential to:
- Influence brand, reputation and customers
- Impact on the triple bottom line if/when new regulations come into place
- make a big difference to whether you are seen as an employer of choice
- inspire and drive innovation.
Where does WLF fit with ESG?
Earlier this year we started to see a slow but steady growing focus on ESG in the Tasmanian business and organisation landscape.
WLF Partner Alicia Leis, and Audit Consultant Alison Merridew have since worked with a number of organisations who are including ESG as an internal measurement tool, and also looking at how it can be built into their external communications such as tender proposals and reports.
Our work in risk management, governance and strategy now includes ESG as a matter for consideration, and we are seeing a recognition that addressing ESG now is likely to greatly assist organisations into the future as the importance of this measurement increases.
If you would like to look at what your organisation can do now to consider ESG, please get in touch with us to talk about how we can assist.