ESG stands for Environmental, Social, and Governance. 

It is a comprehensive approach to evaluating an organisation’s capacity to create and maintain long-term value in a rapidly evolving world, while managing the risks and opportunities arising from these changes. ESG serves as a framework for assessing how a company navigates risks and opportunities presented by shifting market and non-market conditions. A key focus of ESG is risk management, as identifying and mitigating risks across all three dimensions—environmental, social, and governance—is essential for companies committed to ESG principles.

Although ESG metrics are not part of the mandatory financial reporting required by Australian Accounting Standards or International Financial Reporting Standards, more organisations globally are including these disclosures in their annual reports or standalone sustainability reports.

ESG is increasingly important for Australian businesses as global investors demand organisations to outline their ESG strategies to assess long-term sustainability. ESG impacts several key areas that contribute to an organisation’s long-term success, including:

• Corporate reputation: A strong ESG framework can strengthen a company’s licence to operate, making it easier to achieve business objectives and manage crises with key stakeholders.
• Risk reduction: ESG helps identify both immediate and long-term risks, varying by industry and business model, allowing organisations to better manage those risks.
• Opportunity management: As market conditions evolve, ESG can reveal unmet needs for new products, services, and potential strategic partnerships that address ESG challenges.
• Culture and intrinsic value: ESG maturity reflects a company’s dedication to fostering a high-performing, purpose-driven workforce and an inclusive culture, enhancing its overall value.

RSM holds extensive experience across the full spectrum of ESG in various industry sectors. We can bring together a team of in-house expertise in your industry to help you with:

•   ESG Maturity Assessments
•   Development of ESG Strategies and Comprehensive ESG Roadmaps, that breakdown silos and aim to enable a holistic view of ESG
•   Facilitation Material Matters Assessments
•   Facilitations of ESG Risk Assessments including Scenario Testing
•   Establishing ESG Targets and Goals
•  Establishing Processes for Performance Monitoring against ESG Targets and Goals
•   Establishing ESG Governance Frameworks and Structures
•   Preparation of Sustainability Reports and Non-Financial Risk Reporting Disclosures
•   Gap analysis against the Task Force on Climate-Related Financial Disclosures (“TCFD”) Recommendations
•   Development of Net Zero/Carbon Neutral Strategies (including baseline measurement)
•   Sustainability Reporting Assurance
•   Climate Change and Carbon Risk Management
•   Supply Chain and Modern Slavery Assessments
•   Evaluating Partnerships or Investments in line with ESG
•   Verifying the Integrity of Sustainability Schemes and Energy Efficiency Projects
•   Integrating ESG into Shareholder Reporting
•   Gap analysis against the Global Reporting Initiative (GRI) Standards, Sustainability Accounting Standards Board (SASB) Standards, or Carbon Disclosure Project (CDP) Standards.

To speak with an environmental, social and governance consultant, contact your local RSM office today.

Mandatory climate reporting means that the risks and opportunities to companies from climate change and the transition to a net zero economy present must now be quantified in financial reporting – something that has been attempted by only a handful of Australian companies to date.

This obliges organisations to devise and implement new strategies, metrics and integrate an understanding of climate risk into every aspect of business management. Climate can no longer be isolated from other risk management processes; it must be understood, integrated, quantified, managed and communicated accordingly. In addition, this disclosure will need to be assured, with the intention to see the same rigour applied to sustainability reporting as with financial reporting. All organisations will be impacted. As more and more companies are required to report their financial climate risks, this will cascade through the supply chain and across the broader economy. If you’re a smaller company, you might have already noticed this cascade, with key major companies already seeking emissions data from their supply chain or clarity regarding human rights policies.

Climate risk reporting is due to be introduced in Australia on 1 July 2024. So, with less than a year to go, how prepared is corporate Australia to respond to the greatest corporate disclosure challenge of our time? RSM has been familiarised with numerous ESG compliance, frameworks and principles and has reviewed the sustainability reporting practices of over 1500 Australian companies to answer just that question. To date, less than 40% of mandatory reporters have collected and reported their Scope 1 and 2 emissions data, demonstrating a significant gap in where corporate Australia is now, versus where we need to be.
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The phased-in timing of climate reporting in Australia is happening at speed. Over the last 12 months, the
Australian Government Department of the Treasury (Treasury) and the Australian Accounting Standards
Board (AASB) have been consulting on legislation and reporting standards for climate-related financial
disclosures in Australia.

Consultations have indicated there will be a staged approach that will see initial reporting entities in Group 1 report from the
financial year starting 1 July 2024. This cohort comprises those that currently report under Chapter 2M of the Corporations Act
and meet two of the three thresholds of more than 500 employees, consolidated gross assets of $1bn or more, or revenue of
$500m or more. Over the following three years, this will flow down to companies meeting much lower thresholds.

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Climate change poses significant risks in terms of economic stability, liveability and equitable development. However, mitigating and adaptation to climate change also allows for opportunities. Through economic restructuring, a changing legislative and policy environment and the drive of new services and products to meet low-carbon demand, several sectors could see major opportunities coming to the fore. Those wishing to get ahead of the curve are seeing firstmover benefits, and many companies are using this opportunity to diversify into new areas ahead of the market. Once a company has a clearly defined strategy, best practice requires an organisational transition plan that addresses both climate mitigation and adaptation simultaneously. 

A transition plan is an aspect of a company’s overall business strategy that lays out a set of targets and actions supporting its transition toward a low-carbon economy, including actions and commitments such as reducing its GHG emissions.

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ESG factors significantly influence risk across various dimensions. When companies take into account ESG risks such as climate change, resource scarcity, or social controversies, they can more effectively identify and mitigate potential threats to their operations and reputation. Neglecting these ESG concerns can lead to regulatory penalties, legal repercussions, and erosion of brand value. Moreover, investors and stakeholders increasingly factor in ESG performance when making decisions, meaning companies with inadequate ESG records may encounter heightened capital costs or difficulty attracting investment. Essentially, robust ESG practices bolster risk management efforts, diminish vulnerabilities, and position companies to navigate a dynamic and socially responsible business landscape with greater resilience.