Capitalising on the Rise of Environmental, Sustainability and Governance (ESG); Looking to the Future.

In times of economic crises, organisations historically concentrate on their core operations to ensure their survival. This time around, the unusual nature of the pandemic has brought traditional corporate purpose and ESG principles even closer together. Despite facing a recession, many Australian companies are embracing environmental, social and governance issues, according to a Governance Institute of Australia roundtable.

It has become an essential element in business and investment circles, setting a new standard in measuring the sustainability and ethical impact that a company makes.
Figures released according to the report “Global Sustainable Investment Review 2018”,
show global sustainable investment now tops $30 trillion, up 68 per cent since 2014.
The dramatic increase has been largely driven by intensifying social, governmental and consumer attention on the broader impact of business.

Investors and executives are also realising that a strong ESG proposition contributes to the safeguarding of a company's long-term success. To that end, ESG reporting offers a way for customers, investors, and society to hold companies accountable. Making sure the issues people care about are adequately tackled by the companies we choose to do business with and invest in is paramount.

Why ESG Companies Will Win in 2021 and Beyond.

Businesses that can demonstrate real ESG commitments, progress and credentials can gain from significant benefits including:

 - Access to ESG funds; there are more ESG funds available than there are ESG investment-ready opportunities.

- Secure top tier customers; top companies are conscious of ESG in their supply chain and want to buy from best-in-class suppliers.

- Attract the most talented teams; intelligent and ESG-conscious people no longer want to work for non-ESG companies.

- Shareholder returns with a positive impact; be capable of creating positive change in the world, while providing immense returns to shareholders.

- Mitigate against ESG risks; prevent director liability over non-disclosure of climate change risks, avoid public ‘ESG voting’, and divert ‘greenwashing’ claims with genuine ESG progress.

Six ASX listed companies are currently leading the way, and are among the first to start reporting using a global standard ESG framework.

  • Vulcan Energy
  • Euro Manganese
  • Elixir Energy
  • Minbos Resources
  • Myfiziq
  • Whitehawk

Playing the Long Game; Consistency in Reporting.

Companies that align their goals to societal goals are most likely to create long‑term sustainable value. The alignment will drive positive outcomes for the business, the economy, society and the environment. From an investor standpoint, ESG companies will deliver better returns as they attract more customers, more investors and greater talent.

Before choosing an investment or purchase, all stakeholders want to be assured businesses are authentically advocating ESG in decision-making. To date, there has been no universal and consistent framework to measure and report the shared and sustainable value they create.

To address this, the World Economic Forum (WEF) sought the support of the Big Four accounting firms (Deloitte, EY, KPMG and PwC), to create a common ESG framework. The framework now consists of 21 core, and 34 expanded metrics and disclosures around corporate performance on environmental, social and governance matters. Since this push, there is now a pathway to mainstream reporting and progression toward a generally accepted international standard for ESG.

Change for the Better; Rewarding Behaviour.

With Australian Boards and mining companies increasingly linking executive remuneration to ESG factors, some organisations are now including diversity measures as part of ESG-related compensations. Many have already embraced measures deemed by KPMG’s Mining Risk Forecast report to be essential to the future of mining. Of the executives surveyed for the report, there is widespread consensus for clear, measurable ESG strategies. An overwhelming 83% of those surveyed stated that success must be measured against the results of a company’s ESG strategy.

This year has been a major test of organisations’ resilience. Their ESG frameworks will directly affect how they fare as they emerge from the economic and health crises. Those who actively consider and address contributions to positive stakeholder results will produce long-term value for investors and better, more rewarding outcomes for future generations.

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