What is ESG?

ESG stands for Environmental, Social and Governance. It is a framework used to evaluate a company’s sustainability and ethical impact. The three pillars of ESG are broken down below:

Environmental (E):

This refers to how a company manages its impact on the environment. It includes factors like carbon emissions, energy efficiency, waste management, pollution control, and conservation efforts. 

Social (S):

This aspect focuses on how a company interacts with people, both internally (employees) and externally (communities, customers). Social factors can include labour practices, employee relations, diversity and inclusion, human rights, community engagement, and product safety.

Governance (G):

Governance refers to the systems and structures in place to oversee a company’s operations and ensure accountability, transparency, and fairness. This can include things like board composition, executive compensation, shareholder rights, anti-corruption policies, and adherence to laws and regulations.

The ESG landscape

In Australia and globally, the focus of ESG is:

• Climate change adaptation and protection of livelihoods, infrastructure and people’s quality of life as the climate changes
• The global push to reach net zero, protect biodiversity and use resources more efficiently.
• Unlocking the human dimension and elevating diversity, equity and transparency in business, policy and community decision making¹

Globally there has been no universally adopted framework to govern or report on climate and sustainability practices of companies. The Australian government is on the brink of introducing mandatory climate-related disclosure laws targeted at large businesses and financial institutions. These regulations mandate the annual disclosure of climate-related financial risks, opportunities, plans, and strategies. And whilst the majority of small and medium-sized businesses might not meet these thresholds, they often form part of larger businesses’ supply chains, necessitating eventual engagement with climate reporting considerations.

As the impending compliance regulations loom, organisations must widen their perspective beyond mere adherence. There’s a growing pressure from investors, communities, and consumers for greater transparency regarding operational practices and governance, particularly concerning climate, sustainability, and ESG criteria. Taking proactive steps to develop an ESG strategy and framework, not only adds value to climate and sustainability efforts but also enhances competitiveness in the market and preserves the reputation and growth potential of the organisation.

If you would like to learn more about how to start your ESG journey or prepare for these upcoming changes, get in touch with our ESG expert, Ann-Marie Ingeri.

1. Source: Speech by ASIC Chair Joe Longo ‘ESG: Major change is underway, and we need to be ready’ at the Committee for Economic Development of Australia (CEDA) State of the Nation conference, 13 June 2023.

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