Navigating ESG Risks in Local Government

In Australia, the evolving ESG landscape presents both challenges and opportunities for local councils as they strive to balance financial sustainability with environmental and social responsibilities.

During ASIC Chair, Joe Longo’s speech at the Committee for Economic Development of Australia (CEDA) State of the Nation conference, he highlighted key megatrends from the CSIRO’s Our Future World report that are shaping ESG priorities:

• Climate change adaptation: Protecting livelihoods, infrastructure and people’s quality of life as the climate changes.
• The net-zero transition: Protecting biodiversity, using resources efficiently and striving for zero carbon emissions.
• Human dimension in ESG: Elevating diversity, equity and transparency in business, policy and community decision making*

These megatrends underscore the challenges local governments must navigate in their ESG journey.

Furthermore on 22 August 2024, the mandatory climate reporting bill was passed by the Senate, with the Bill expected to be passed in the government – controlled House of Representatives in the September sitting period.

This legislation will require the annual disclosure of climate-related financial risks, opportunities, plans, and strategies starting with the largest emitters and corporations from 1st Jan 2025.

Whilst not all organisations are required to comply with these future requirements, there is an increased demand from government, investors, the community and consumers, seeking more transparency around organisations operations and governance, on climate, sustainability and other ESG criteria.

Why is ESG important for Local Government

• Integration into Local Priorities: ESG elements are already engrained in the priorities and services of local governments. This means that councils are not starting from scratch; they are building on existing frameworks that emphasise sustainability, community welfare, and ethical governance.

• Alignment with Government Directives: Federal and State government policy directives, such as the push for net-zero emissions and sustainable procurement practices, require local governments to align their operations with broader environmental and social goals. This alignment is essential for meeting national and international commitments to sustainability.

• Community Expectations: There is a growing awareness and expectation among communities regarding climate change and sustainability issues. Local governments are under pressure to respond to these expectations by implementing ESG practices that promote transparency and accountability in their operations.

• Climate Change Impact: Climate change is resulting in disasters that directly affect local government services and their communities. By addressing ESG risks, local councils can better prepare for and respond to these challenges, ensuring that they can continue to provide essential services to their constituents.

What are the key ESG risks for Local Governments?

1. Environmental Risks

1. Climate Change and Resilience: Local governments must grapple with the impacts of climate change on infrastructure, services, and community well-being. As extreme weather events become more frequent, councils must prioritise resilience strategies to protect livelihoods and maintain service delivery.
2. Resource Management: Effective resource management is crucial for sustainability. Local councils should focus on sustainable water and energy usage, waste management, and biodiversity conservation. By implementing efficient transportation systems and promoting conservation efforts, local governments can mitigate their environmental impact and enhance community resilience.
3. Regulatory Compliance: Compliance with environmental regulations is a fundamental responsibility for local governments. As ESG reporting requirements in Australia evolve, councils must stay informed about policy drivers from both Commonwealth and State levels to ensure they meet ESG compliance standards. This includes preparing for the upcoming mandatory climate reporting, which will require detailed disclosures on climate-related risks and strategies.

2. Social Risks

1. Community Engagement and Equity: Local governments play a vital role in ensuring diverse and inclusive community involvement in decision-making processes. By fostering community engagement, councils can enhance transparency and build trust among residents, addressing social equity concerns effectively.
2. Health and Safety: Public health initiatives and emergency preparedness are essential for local governments. Councils must implement robust health and safety regulations to protect residents and ensure that emergency response plans are in place.
3. Social Impact of Council Decisions: Assessing the social implications of projects and policies such as developments, transport and public services is crucial for local governments. Councils should conduct thorough social impact assessments to understand how their decisions affect local communities.

3. Governance Risks

1. Transparency and Accountability: Good governance practices are essential for maintaining public trust. Local governments must uphold ethical standards and implement anti-corruption measures to ensure transparency and accountability in their operations.
2. Risk Management Frameworks: Local councils should develop comprehensive risk management frameworks that include regular risk assessments and clear reporting mechanisms. This proactive approach enables councils to identify potential risks early and take appropriate actions to mitigate them.
3. Stakeholder Engagement: Managing relationships with residents, businesses, and government agencies is essential to ensuring decisions reflect community needs and regulatory compliance.

Conclusion

As communities demand greater accountability, local governments are facing mounting pressure to demonstrate leadership on ESG issues. Stay ahead of the curve by partnering with our ESG specialists. We’ll guide you through implementing robust policies and reporting frameworks to ensure sustainable, ethical governance that protects your community. Contact our experts today to start your ESG journey.

Watch our webinar with Pulse software

Vincents and Pulse Software have partnered to bring a three part webinar series that addresses the key requirements of the framework to ensure you are prepared for the changes. You can watch our final webinar in the series, ‘Navigating ESG in Local Government’ below:

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.