Unlocking ESG opportunities

Unlocking ESG opportunities

At an ESG breakfast event, BDO Australia hosted a panel for a topical discussion on ‘Unlocking ESG opportunities’. Moderated by Gabriel Lazar (Senior Consultant, ESG Strategy & Transformation, BDO), they heard from an expert panel made up of Justin Harness (Partner, ESG Strategy & Transformation, BDO), Fiona Narielwalla (Partner, Audit, BDO), and Josh Judge-Talbot (Associate Director, Sustainability Finance, HSBC). Here, BDO share the key themes and takeaways from the event.

As businesses come around to the external pressures to report on and improve their sustainability practices, savvy organisations are also seeing the many benefits of going beyond compliance and integrating sustainability into the foundations of their organisations.

Market drivers for ESG action

Pressure is rising from international and national institutions and regulatory authorities for greater disclosure of environmental, social and governance (ESG) factors. In Australia in particular, mandatory climate reporting is expected to drive organisations of all sizes to communicate both how they are impacted by and the part they play in impacting the climate.

The role of the board is also changing, as they will soon be liable for external ESG statements made by their organisation, therefore becoming more demanding on how ESG considerations are measured and handled. This requires oversight along with an appropriate internal structure to ensure that all sustainability reporting is reflective of the prioritised ESG factors and tracking of progress.

Investors are increasingly incorporating ESG into their active selection criteria. We are seeing a shift in how money flows as ESG considerations, from investors and organisations alike, enable sustainable finance products. ESG assets will hit $50 trillion by 2025, representing more than a third of the projected $140.5 trillion in total global assets under management.

Consumers, too, are changing and evolving their consumption habits and further adapting to reduce their carbon footprint and overall impact on the environment. This has ultimately allowed for a spike in their willingness to pay for sustainable products and is now often considered the new way forward in order to obtain a more sustainable future.

The need to achieve common goals for complex problems, such as climate change, is spurring sustainable innovation. Subsequently, organisations are increasingly introducing new sustainable products and services to the market, creating a competitive advantage for innovative organisations as they widen the scope of their sustainable products.

ESG opportunities – How can you position your organisation to make the most out of ESG?

By placing ESG at the heart of your strategy, you can create organisational value and enable a synergic variety of opportunities to arise. Some of these opportunities include:

  • Access to sustainable finance – The concept of taking ESG considerations into account to enable access to capital. One of the most popular forms links corporate debt (bonds or loans) to achievement of ESG goals. This works to motivate and compensate companies to facilitate the development of ESG outcomes
  • Investors – Large investors are setting increasingly ambitious goals, requiring the redistribution of funds in their portfolios into ESG-related options and providing organisations with an enormous opportunity to align with their criteria to capture this capital
  • Talent and retention – There are a range of employers who are eager to work at organisations with purpose. Therefore, having an ESG focus can help you to attract future-oriented employees, particularly as younger generations have a growing interest in sustainable solutions and social responsibility. Some areas of interest are diversity throughout the workplace, levels of environmental impact, safe working conditions, and ethical operations and supply chains
  • Access to new markets (geography/products) – Some markets require transparent sustainability credentials e.g. European Union (EU) as well as the development of new product lines. In Australia too, we are seeing a number of new products and initiatives which are ESG aligned e.g., green loans / sustainable finance, insurance products, new investment funds and products
  • Innovation and technology – Through investing thoughtfully in ESG-oriented initiatives, product lines and supporting technology, organisations can convert ideas into competitive advantage and increase revenue. Technology and AI will play a greater role in facilitating ESG initiatives including impacting your product strategy, customer interactions and to help monitor, report and disclose on ESG
  • Government assistance – Efforts to go above and beyond the regulator requirements can lead to increased collaboration and opportunities for grants
  • Public relations/market reputation – The above opportunities combined, mixed with publicity from the positive impact of full integration ESG in decision-making, can help to improve the external perception of the organisation. This includes the responsible externalisation of claims to avoid the risk of greenwashing
  • Cost reduction – Ranging from reduced turnover and compliance costs, to reduction in the use of materials and energy. The breadth and depth of the opportunities will vary by industry

ESG ultimately challenges the business world’s paradigm whilst unlocking new opportunities.

Key takeaways

During this event, our panellists shared their knowledge and experience about unlocking ESG opportunities, and how these can benefit companies and society alike.

One of the key topics discussed during the session was the concept of ‘double materiality’. This perspective works to demonstrate how bringing financial materiality and ESG materiality together builds a bridge that plays a crucial role in connecting and immersing these aspects into organisations. Ultimately, double materiality illustrates the impacts organisations have on the broader society and the planet and vice versa. Double materiality is now signed into law through the Corporate Sustainability Reporting Directive (CSRD) in the EU, solidifying this market as being at the forefront of ESG and sustainability. 

Other key takeaways include:

  • ESG is in the global spotlight, which adds to the urgency and importance
  • Truly embedding ESG within organisations requires more than just compliance, it requires transformational shift. It is about change and decentralisation of ownership of ESG initiatives
  • Understand what ESG topics are relevant for you, build the necessary mechanisms to measure, and take action to minimise or improve them
  • Sustainable finance emerges as a powerful tool to achieve ESG objectives and catalyse transformation within our organisations.

Questions to help you get started

Here are some key questions you should ask now to get started.

  • How can you position your organisation to embed ESG throughout your operations?
  • Who will be responsible for moving initiatives forward?
  • How can you go beyond compliance and take advantage of broader ESG opportunities?

BDO’s national sustainability team has expertise and technical capability in ESG strategy and transformation, sustainability reporting, and audit & assurance, enabling them to assist organisations in various aspects of ESG and sustainability. 

This article was written by Justin Harness and Fiona Narielwalla and first appeared on BDO Australia's website on 24 November 2023