Australia's ESG Summit Provides Sustainability Trends & Insights

Over the past few years, ESG (Environmental, Social and Governance) has become a major priority for businesses globally. The systematic shift towards integrating ESG into business practices has proven to enhance profits whilst supporting stakeholder concerns. The ESG Summit NSW brought together sustainability professionals from various industries and organisations to learn and connect on how ESG is integrated into their businesses. The day consisted of multiple interactive panels, roundtables, and networking  

Some key learnings from the day’s sessions were:  

• Creating a collaborative approach when adapting sustainability strategies: Companies are starting to embed their sustainability strategies into their business strategies. This allows to create a stronger ESG foundation and create consistency within the company’s knowledge building. Some companies that have followed this approach have identified that involving people from every level creates a strategy of accountability and let their employees have ownership of their impact. However more stress needs to be put on long-term strategy since many companies are at a responding/reactive stage. 

• Storytelling approach to data: Many companies identified the difficulties in gathering appropriate data for reporting. Panellists stated that trying to understand what it is that companies are trying to solve is a good starting point in establishing what data need to be collected. Data is a form of storytelling and therefore embedding ESG within the organisation helps gather and understand the data easier.  

• Materiality and reporting: Choosing material topics can be challenging. Going back to the company’s values and purpose help identify key issues that will evolve with time. Moreover, experience has shown that prominent issues will arise constantly and will be unavoidable. Understanding changing dynamics, risks and priorities will help identify material topics. With reporting, it is important to choose a framework that resonates best with the nature of the business are their maturity within sustainability. From there, it is important to have a balance between objectives and incentives, especially short-term incentives. This will help evolve the accountability within the business.  

• Using cloud technology to reduce environmental footprint: Leveraging cloud technology to improve processes could help businesses to reduce emissions. With only 7% of Australian businesses completely cloud based, there is tremendous potential for cloud computing to play a more significant role in reducing emissions.  

• An increase in nature-based solutions: With the TNFD set to be launched in September 2023, businesses are expecting more regulatory pressures in having to disclose further regarding their natural capital. Currently only 5% of Fortune500 companies have biodiversity targets and this will increase significantly in the coming years. While companies are preparing for this added regulatory disclosures, some pain points that have been identified within Australia are biodiversity offsets, how to collect data and the difficulties in putting a value on nature.  

Jana Jevcakova, Head of International ESG at Morrow Sodali, hosted a fireside chat with William Baylis, Portfolio Manager at Martin Currie Australia. The theme of this chat was to understand the link between ESG and returns/financial performance.  

The main takeaways from this chat were: 

• While each company inherently has some sort of negative effect towards the environment for being functional, it is important to advisors such as Martine Currie that these companies have a net benefit in the long term. This shows initiative by companies to reduce their footprints.  

• Investing in sustainability strategies have shown to bring in a premium in the long-term. Martin Currie has seen companies bring in positive returns in as short as two and a half years, and this is set to increase significantly in the next five to ten years.  

• It is understandable that companies face difficulties in finding data, especially with Scope 3 emissions. When it comes to instances such as this, it is the qualitative evidence that plays a bigger role in addressing shareholder/investor concerns. Sometimes the information gathered via engagement is more important than the data, since it provides insight on how the company plans to advance in their sustainability strategies.  

• From an investor perspective, engagement is more important than divesting. Having meaningful conversations with companies and having influence in the company’s strategies will bring out change. Using shareholder capital on sustainability strategies is looked upon very favourably. While it is important to put pressure on companies, it is also important to do so within reasonable timelines. 

• In terms of diversity, it is the bare minimum that companies invest in gender diversity. Expanding from this is diversity in thought, in skillset, and in cultural backgrounds.  

• Looking at a number of boards, Martin Currie has identified that there is a lack of diversity in skillset, especially in the digital/IT skillset.  

• Companies must hire a balance of males and females, promote people equally and the boards need to set the example. However, this comes with its own challenges. Research conducted by Morrow Sodali has shown that a majority of board members come from the C-suite, and currently only 11% are female. Therefore, there will be an issue with the pipeline in the future. Companies need to proactively identify ways to unblock that pipeline. 

• Sustainability officers continue to show their value to companies and having direct communications with the board helps push their strategies forward more easily. This is also viewed favourably by investors, especially when the Chairs have the same knowledge as sustainability officers.  

• Investors are pressuring companies to have better ESG strategies without compromising on return and this is a fine line that companies need to balance. Companies will have to work in harmony with the technologies that are available, invest their own capital in those technologies and seeking knowledge from peers.  

• The climate crisis needs to be addressed with respect to the social issues at hand. It is important to transition in a way that does not affect the livelihood of the many people who work in the coal and gas industry.  

Creating and managing ESG strategies come with their own set of challenges. If there is one main insight that could be taken from this event is that there is a power in numbers. Networking and sharing knowledge are key to implementing effecting ESG strategies.