Assisting Business to Identify Environmental, Social, and Governance (ESG) Issues

The expectations and scrutiny placed on organisations over Environmental, Social, and Governance (ESG) issues continues to mount. Pressure from investors, customers, employees, and other stakeholders is driving businesses across all industries to reassess the way they operate and communicate.

Developing strong ESG reporting poses multiple benefits, including increased engagement with customers and employees, attraction and retention of talent, improved social licence to operate, reduced operational risk, and stronger return on investment.

Cress can assist your organisation in identifying ESG issues to build a robust reporting framework. This framework can be used to articulate vision, values, priorities, and ongoing initiatives to offer stakeholders concise and transparent information.

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What is Environmental, Social, and Governance

Environmental, Social, and Governance is a broad term encompassing a range of factors related to non-financial disclosure. It plays a crucial role in assessing a company’s overall performance and contribution to society.

The environmental aspect focuses on an organisation’s impact on the natural world, including its efforts to reduce carbon emissions, conserve natural resources, and promote sustainable practices.

The social component examines a company’s relationships with its employees, customers, communities, and other stakeholders, assessing factors such as labour practices, diversity and inclusion, and community involvement.

The governance aspect looks at the internal structure and management practices of a company, including board composition, executive compensation, and transparency.

Embedding ESG into all core areas of your business

Disclosing both risks and opportunities is crucial for showing how non-financial information shapes business strategy. In fact, Increased non-financial disclosure is now an industry standard. Companies see value in presenting their strategies and proposals alongside financial data. However, while there is no globally established uniform strategy for ESG reporting, it is widely recognized that good ESG reporting is complementary to financial corporate strategy reporting.

In 2021, 80% of the ASX 200 companies reported ESG to stakeholders, with many reporting on both risks and opportunities. The key inclusions in ESG reporting are strategy, risks and opportunities, materiality, stakeholder engagement, diversity inclusion, and climate change. By addressing these key areas, companies can offer a clearer picture of their performance and sustainability. This approach enhances stakeholder trust and drives long-term success, ultimately leading to stronger business outcomes.

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What is ESG Reporting?

Reporting on ESG is vital to an organisation’s capacity to transparently communicate their sustainability efforts and ethical practices to stakeholders. It enables investors to make informed decisions, encourages responsible investing, and helps attract capital from socially conscious investors. ESG reporting also enhances accountability, fosters trust with customers and employees, and supports the overall sustainability agenda by driving positive change and encouraging continuous improvement in corporate practices.

What regulations are relevant to ESG corporate reporting?

ESG reporting is quickly becoming an industry standard due to increasing social and investor pressure, with some elements such as climate-related financial disclosure and modern slavery already mandatory for some organisations in Australia. The International Sustainability Standards Board’s (ISSB) IFRS S1 and S2 ushered a new era of sustainability-related disclosures in the capital market worldwide to help inform investment decisions. The standards provide a common language for disclosing the effect of sustainability-related risks and opportunities on a company’s prospects. Both standards fully incorporate the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

The Australian Accounting Standards Board (AASB) has adopted IFRS for the Australian jurisdiction. AASB released the mandate to report climate-related financial disclosures under the Australian Sustainability Reporting Standards’ (ASRS) S2 and voluntary reporting sustainability risks and opportunities under ASRS S1.

Some examples of other regulations include Workplace Gender Equality Amendment 2024, Modern Slavery Act 2018, Fair Work Act 2009, National Greenhouse and Energy Reporting (NGER) Scheme 2007, Environment Protection and Biodiversity Conservation Act 1999, and Workplace Gender Equality Act 2012, all of which aim to promote climate action, corporate governance, workers’ rights, gender equity, and environmental compliance.

Why Should You Cover ESG in your Reporting?

ESG reporting demonstrates a company’s commitment to sustainability, responsible business practices, and societal impact, which can enhance its reputation and brand value. It provides transparency to stakeholders, including investors, customers, employees, and regulators, allowing them to evaluate the organisation’s performance holistically. ESG reporting meets the growing demand from stakeholders who prioritise environmental and social impact, attracting responsible capital and ensuring long-term financial stability.

Why is ESG Important to your Investors?

Investors recognise the value of sustainable and responsible investing. ESG considerations provide insights into a company’s long-term viability, risk management practices, and societal impact. By incorporating ESG criteria, investors can assess the environmental and social risks associated with an investment, identify companies that prioritise ethical practices, and align their portfolios with their values. ESG performance has been shown to correlate with financial performance, making it an essential element in evaluating investment opportunities and ensuring long-term returns. Investors increasingly understand that considering ESG topics is not just a matter of ethical responsibility but also a strategy for regulatory compliance, managing risk, enhancing resilience, and capturing opportunities in a changing business landscape.

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The Cress Approach

To develop an effective ESG strategy, Cress undertakes an ESG factor and materiality assessment to identify the ESG topics that are most likely to impact the business. This assessment will help your company focus on the areas of ESG reporting that are most material to its operations. Cress also assesses issues important to stakeholders, as well as analysis of the ESG performance of industry competitors to benchmark expectations. Cress also analyses the regulatory footprint, considering its activities and operational exposures around the world, including in the supply chain. This ensures our clients are aware of and comply with all relevant regulations and standards applicable to their operations. Additionally, the company should develop a dedicated ESG model to govern matters such as strategy, governance, and risk management.