Why 2023 is the year ESG grows up

Over the last year, there were many important developments in environmental, social and governance (ESG), and the impact of these will only continue to influence global trends.

What are the most important developments for ESG, and how will these progress? Here I will take a deeper look at five major sustainability developments to keep an eye on this year and how these can be communicated to stakeholders.

First, emerging sustainability themes centre on the ‘think local, act global’ mentality.

This ‘theme’ is pushing Australian businesses to rethink the impact of their operations, especially when compared to competitors globally.

1.  Sustainability reporting is more than a “nice to have”

Increased organisational focus on sustainability initiatives results in the progressive reporting, measurement and monitoring of developments over periods. We know first-hand that 2022 was a significant year for sustainability reporting, with broadening transparency, support and commitments from many organisations.

Clients who do this proactively are winning.

Almost 70% of medium-to-large Australian organisations claim to have publicly disclosed their approach to ‘measuring and managing climate risks’, with 90% of those aligned to the Taskforce for Climate-related Financial Disclosures, according to an Australian Prudential Regulation Authority (APRA) survey.

It is important to note that future-state reporting requirements may be placed on organisations, especially ASX-listed companies, to demonstrate their ESG credentials.

We expect this trend to continue in 2023 as more organisations look to protect or improve access to people, markets and capital through transparency and reporting.

2.  Decarbonisation narratives will matter

Fast forward, and 2050 will be an important year. Consistent with science-based targets aimed at limiting global temperature increases to 1.5 degrees or less, the focus for governments, businesses and communities is to reach net zero greenhouse gas emissions by 2050. It was in September 2022 that the Australian Government put figurative pen to paper, passing its landmark Climate Change Bill 2022. Australia’s emissions reduction target of 43 percent by 2030 and net zero emissions by 2050 are now set in law.

Local and globally, urgent action needs to be undertaken now and in the coming decades. Direct and indirect ESG initiatives are essential in achieving a target of net zero by 2050 and include:

• Reducing carbon emissions
• Improved water and waste management
• Increasing energy efficiency and rationalising consumption
• Investment decisions and financial instruments
• Technological development and innovation, and
• Resource and energy security.

COP27 demonstrated the continued commitment from world leaders to decarbonise the global economy, with a particular emphasis on the impacts of climate change. The introduction of the Climate Change Bill 2022 in Australia now requires the incumbent Minister to prepare an annual climate change statement, stating the progress on Australia’s emissions reduction target and other local and international updates.

It is time for businesses to step up too.

Initiatives focused on decarbonisation are important to address the causes and effects of global warming, especially considering the impacts on both people and the planet.

3.  Supply chains will be the success stories we tell  

Operations are essential for any business, and ESG has become increasingly important in managing supply chains. Production and distribution cycles must reflect the realities of exceptional human rights, fair labour practices, anti-corruption and modern slavery implications for supply chains.

The integrity and transparency of supply chains have demonstrably contributed to the ability of organisations to maintain operations throughout periods of volatility, material shortages and disruptions.

The causes of these challenges include the pandemic, political instability and inflationary pressures, to name a few of the significant ones. Capital and investment decisions also contribute to how supply chains develop and adapt to market conditions. Supply chains of the future will likely be more sustainable and resilient to global challenges.

Those who can be transparent and show good faith even in tough times will become PR success stories.

4.  Business ethics will be communication gold

Throughout 2022, we’ve seen the continued importance of articulating business ethics (established values, principles, standards and behavioural norms) and determining how integrity and transparency can be demonstrated within the organisation.

Cultural practices will continue to be an essential, preventative mechanism against unlawful and unethical behaviour such as bribery and corruption, money laundering, misconduct and other matters – such as greenwashing — the term is used to refer to companies that have in some way misrepresented their ESG credentials without the appropriate sustainability commitments.

The clampdown that occurred throughout 2022 demonstrated that when company disclosure is misleading, it may be subject to scrutiny.

Responsible governance mechanisms that reinforce good cultural practices within organisations include:

• Diversity, equality and inclusion initiatives
• Fraud and risk management
• Privacy protections and procedures
• Responsible tax strategies and transparency
• Hiring, recruitment and staff retention policies, and
• Standards and quality assurance practices.

Throughout 2022, ESG commitments have focused on the causal impact these principles have on an organisation’s operations. For example, employee engagement, particularly post-COVID-19, increasingly highlights the importance of flexibility, working conditions and an organisation’s values. While the nuances of cultural practices will undoubtedly continue to evolve as we move into 2023, metrics and monitoring can help organisations remain in step with their stakeholders and employees.

5.  Regulators are watching

Legislatures and regulators are constantly monitoring developments within their jurisdictions. Developing trends include cryptocurrencies, driverless cars and the ever-changing ‘shared economy’. Throughout the year, statements from the Australian Securities & Investments Commission (ASIC), the Australian Competition & Consumer Commission (ACCC), the Australian Prudential Regulation Authority (APRA), and the Australian Securities Exchange Limited (ASX) alike have highlighted the undesirable practice of ‘greenwashing’.

Organisations can use ESG to provide investors and the community insight by disclosing their sustainability commitments appropriately. By focusing on environmental, social and governance matters, organisations can use this framework to create trackable metrics for their progress toward ESG targets.

Businesses will need to up their ante on sustainability disclosure, with more and more companies choosing to demonstrate their ESG credentials and therefore creating more room for success.

What’s next for ESG Comms?

We know ESG will become increasingly important within the global economy, not only for providing insight into the commitments and resilience of organisations, but also for the ability to contribute purposefully and achieve greater economic access.

Pursuing an ESG communications plan while harnessing goals of economic success, diversity and inclusion and making a real difference in the world is how the most positive communications campaigns will be achieved.

Contact me about how the right ESG communications tools can improve your stakeholder engagement via amber@amberdaines.com.