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What is ESG and what does it mean?

What is ESG and what does it mean?

, by Admin Account, 5 min reading time

ESG is a concept that covers three areas - environmental, social and governance (ESG).

Environmental

This part of ESG looks at the impact of business on the environment and seeks to minimise damage and waste of:

Social

The social aspect of ESG is all about people, centering the rights, wellbeing and interests of people and communities, including:

  • Human rights
  • Diversity
  • Health and safety
  • Labor management
  • Employee wellbeing
  • Supplier relationships
  • Product safety.

Governance

This last area focuses on the management and oversight of companies to ensure integrity and accountability by governing:

  • Board
  • Ownership
  • Remuneration
  • Pay
  • Accounting
  • Shareholders rights
  • Internal controls
  • Reporting.

A growing push from consumers, investors and governments means that every business needs to demonstrate a clear commitment to ESG. If you can’t prove your ESG credentials, you risk losing customers, hemorrhaging investors and coming under fire from regulators.


Why is ESG important for your business?

ESG - environmental, social and governance - is everywhere you look these days. 

If you’re a consumer, you are more likely to buy from businesses that demonstrate ethical ESG practices, such as sustainable sourcing of materials. 

If you’re an investor, you are looking for opportunities to invest with responsible companies that value transparency, sustainability and integrity.

And, if you’re a company, you are well aware of increased government reporting requirements, on top of the push to meet the demands of consumers and investors.

There’s no escaping the truth that ESG is now vital to businesses of all sizes.

  

ESG vs Sustainability

You might be wondering where ESG fits with sustainability. There are clear parallels between the two. With a focus on environmental responsibility, sustainable practices are key to a successful ESG response. However, this is only one part of the ESG equation. 

While sustainability is often confined to environmental concerns, ESG takes a broader approach, tackling the social issues of modern slavery as well as enforcing governance through regulatory reporting mechanisms. 

ESG and sustainability are clearly linked - but ESG goes much further.


ESG reporting in Australia

For now, broad-based ESG reporting is not mandatory in Australia, although large and multinational companies do need to meet certain reporting obligations. 

Enterprise and large business entities are required to report their progress to regulators, including the Australian Securities and Investment Commission (ASIC), the Australian Prudential Regulation Authority (APRA), and the Australian Securities Exchange (ASX).  

While smaller organisations don’t need to submit to ESG reporting, more and more companies are electing to publish data to prove their ESG credentials to the market. This helps them get on the front foot when it comes to ESG but also prepares them for future changes. 

A recent report issued by law firm Corrs Chambers Westgarth said it expected that mandatory ESG reporting requirements would “soon be a reality for Australian companies.”

“Companies who do not rise to meet demands for ESG accountability and transparency with adequate reporting face a risk of shareholder and employee activism, investor divestment and future regulatory action”.

If you think your business can avoid tackling ESG, you are wrong.


How adopting an ESG framework will benefit your business

Getting on the front foot and adopting an ESG framework not only gets you in pole position for the future. It also delivers multiple benefits for your business (whatever your industry or size).

Competitive advantage - if your market is slow to adopt ESG policies, you could gain a real advantage over the competition by setting yourself apart as a business that cares.

More investment - companies that prioritise ESG will appeal to investors who want to make an impact and practice corporate social responsibility, attracting more investment.

Better performance - by taking the time to create more visibility in your business, you have the chance to improve practices and deliver better financial performance.

Asset optimisation - taking action now will allow you to optimise your assets and holdings so you can take full advantage of the technological advancements to come.

Increased loyalty - in an age where your reputation is everything, prioritising ESG helps you connect with your audience and demonstrate your shared values, developing more loyalty.

Enhance reputation - not only will you increase loyalty with existing customers, you’ll also develop a reputation as a forward-thinking organisation with a wider audience.

Cost savings - adopting more sustainable practices will help your organisation cut costs over the long term, saving money on activities such as office fitouts and general procurement.

Regulatory compliance - when (not if!) ESG reporting requirements change, you won’t have to scramble to get ready as you’ll have the infrastructure already in place to ensure compliance. 


Your partner in ESG compliance

Not sure where to start on your ESG journey? Circonomy has your back.

Bringing together retailers, designers, craftspeople and resource recovery organisations, Circonomy gives new life to still-useful things. We empower individuals and businesses to reduce, reuse, recycle and repurpose, helping people see the value, potential and beauty in second-life goods. 

Talk to Circonomy about our ESG-focused services. We’re ready to help your business embrace ESG and reap the benefits of taking action NOW.


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