ESG reporting, why is it important for companies?

ServicesSustainabilityESG learning centre

Environmental, Social, Governance - ESG

ESG is a performance framework that organises sustainability topics along three categories: Environmental, Social, Governance. Learn more about sustainability and the benefits of ESG due diligence.

What is ESG?

ESG stands for Environmental, Social and Governance. It is a framework used to organise sustainability topics. Across three pillars, ESG covers a large number of topics as depicted in the below figure. Sustainability issues must be embedded in core business strategy. The topic is broad and will impact on all aspects of business in the coming years, from business model and supply chain to meeting legal obligations, controlling costs and attracting and retaining, clients, staff and capital.

What is ESG infographic

What is CSR?

Social Business Environment pie chart

Corporate Social Responsibility (CSR) refers to business practices that aim to improve social welfare through integrating social and environmental considerations. CSR became popular in the 2000s but lost a bit of momentum, with sustainability now taking centre stage. While the two concepts are close, CSR is more akin to a self-regulation and emphasises accountability, ethics and good citizenship.

What is the GRI?

Global Reporting Initiative (GRI) is an international organizations founded in 1997 that developed a set of reporting standards to help companies disclose their impacts on the economy, environment and people. GRI standards include:

  • Universal standards that are applicable all organisations
  • Sector standards that organisations apply considering the industries they are operating in (e.g. Oil and gas sector)
  • Topic standards that organisations apply if the specific topic is material to them (e.g., Biodiversity).

What is an ESG due diligence?

When acquiring or selling a business, a due diligence is generally conducted to identify main risk areas (e.g. finance, tax, legal) related to the transaction and how this may affect the valuation of the business. Beyond these traditional analyses, there is a growing interest to consider the possible negative consequences that can come from corporate activities or lack thereof in the areas of environment, social, and governance (ESG).

Generally, the scope of the ESG due diligence is determined through the identification of the most relevant risks in the following areas:

  • Environmental: GHG emissions, water and energy consumption, waste, pollution, etc.
  • Social: Health and safety, human capital, well-being, relations with internal stakeholders, etc.
  • Governance: Value chain, ethics, transparency, relationship management, etc.

These ESG risks may have significant impact on the value of a business and may even prevent the transaction from occurring. For a vendor, it is important to identify these risks early on to develop ad hoc mitigation actions and maximise corporate value.

ESG due diligence - example of questions infographic

FAQs:

1. How do CSR and ESG differ? 

CSR has a more ethical approach to company’s responsibilities, going beyond just the business and extend to society. As part of their CSR responsibilities, companies are looking for developing long-term relationships with communities.

ESG is a performance framework that relies on voluntary or mandatory reporting standards. Investors use the non-financial information provided to make investment decisions or engage with the company to make progress on specific area of concerns such as the absence a decarbonisation plan.

2. Why is sustainability important for businesses?

  1. Meet regulatory requirements: Many jurisdictions including Australia have introduced mandatory regulations on climate reporting, equal salary, modern slavery, environmental and biodiversity protection…
  2. Attract investors: Investors are increasingly scrutinizing the sustainability performance of companies to reduce their risk exposure.
  3. Meet customers’ expectations: Individuals are looking for sustainability products that align with their values. Large corporations have often set sustainability goals are expect their suppliers to align with their goals (e.g., reducing carbon emissions).
  4. Attracting talents: Individuals are looking for value aligned employers and expect their employers to have sustainability commitments and take concrete actions.

3. What are the benefits in becoming sustainable?

For companies, the potential benefits in becoming more sustainable include:

- Better risks identification and mitigation (e.g., climate resilience actions)

- Identification of opportunities for cost reduction (e.g., energy efficiency measures)

- Stronger relationships with shareholders/stakeholders

- Increased profitability in the long term

- Enhanced reputation

- Last, this is good for the planet and people

4. What are the SDGs?

The UN crafted 17 sustainability-related goals that set a global benchmark for sustainability policies. The SDGs call for a global effort, both in developing and developed countries, to tackle important goad such as ending poverty, improving gender equality, developing sustainable cities, addressing climate change. Many companies in Australia have used the SDGs to report their sustainability actions.

How Forvis Mazars can help:

  • Sustainability assessment (ESG health check)
  • Developing ESG & sustainability strategy and due diligence
  • Corporate governance services 
  • Human rights strategy
  • Supply chain CSR diagnosis and sustainable purchasing strategy
  • Develop policies and procedures to reduce gender pay gap
  • Educate and develop policies on diversity and inclusion

Discover more

ESG reporting Australia

Mandatory climate reporting has been introduced in Australia. To meet AASB S2 requirements, learn about the Australian sustainability reporting standards and the climate related financial disclosures regulation.

Read more
Girl walking through plants

ESG learning centre

This section covers the basics of sustainability. For instance, what is ESG, how climate change affects businesses, what is carbon accounting, how AASB S2 differs from IFRS S2, what are climate scenarios?

Read more

Our experts

Contact us

Australia wide
Meet our local team
Discover our offices
Or use our contact form