What is ESG and its relevance to government?
ESG (Environmental, Social, and Governance) is a portmanteau term generally construed to import a variety of social and ethical considerations into the operations of corporates (whose profit priority has largely been unquestioned). While ESG matters to private companies, its relevance to governments and their agencies cannot be ignored.
Unlike the private sector, governments and their administrations are influenced by public policy considerations informed by ESG. This article examines the intersection of ESG and government, and considers how ESG policies will affect agencies in the future.
What is ESG?
As mentioned above, ESG embraces a broad set of regulatory, legal and ethical issues. However, there is much scope for debate about what is, and isn't, ESG.
A paradigm for ESG can be found in the United Nations (UN) Sustainable Development Goals (SDG) - "a globally accepted framework for sustainable development that recognise the co-dependence of society, the economy and the environment." Established in 2015, the SDG's initial horizon is 2030.
There are 17 discreet SDGs which include "no poverty", "good health and well-being", ''quality education", and "affordable and clean energy". While SDGs are framed in terms of policy, they are equally applicable to both government and private sector organisations.
The paradox and challenge presented by ESG for non-government corporates include:
- corporations must comply with laws
- compliance may be open to interpretation
- the extent to which corporations are required to conduct their operations 'ethically' (in the absence of a strict legal obligation to do so) is a matter for considerable debate
- customers increasingly seem to expect their corporate suppliers to behave 'sustainably' and 'ethically'
- how do corporates balance the reputational/ethical needs of their customers/stakeholders, with their obligations to shareholders?
The intersection of this paradox has come to be known as ' greenwashing', where claims to sustainability are (at worst) fabricated, or (at best) exaggerated.
Government and ESG
ESG will impact agencies both expressly (through rolling out government programs) and implicitly. As governments are increasingly held to high ethical standards (as the work of ICAC reminds us), ESG considerations will undoubtedly have a growing impact on their operations.
As observed above, elements of ESG are currently the subject of legislation and, given current domestic and international trends, it is likely that ESG legislation will only increase over time.
So how can agencies inform themselves and their operations (for example, when setting priorities) with regard to extant (if evolving) social mores? Should generalised notions of equity, diversity, or care for the environment (for example) factor into decision-making? Can they be excluded? We highlight some situations below where ESG considerations may come into play.
Potential private and public sector employees are increasingly interested in an employer's stance on ESG. Agencies, like any other employer, must recognise that their approach to such issues will impact their ability to attract and retain talent.
While the reference above to greenwashing was specifically related to the private sector, there is no doubt governments and their agencies may fall prey to that temptation as well.
Officious NGOs have already taken legal action against government agencies to attempt to compel action, or better action, on ESG policy platforms.
While anticipating the pace of ESG may be challenging (as it is still subject to politics), the momentum is clear. In addition to the government's role as an ethical legislator and regulator, governments and, specifically, agencies have a leadership role to play in ESG. A current example is the Sustainability Advantage initiative of the Department of Planning and Environment.
According to its website, the initiative "champions the role business can play in achieving [the SDG] by 2030." Members include NSW Ports and Port of Newcastle, Tamworth and Northern Beaches councils. These goals are clearly articulated, if ambitious. Whether 2030 continues to be a realistic timeline remains to be seen.
Conclusion
ESG policy settings (such as the SDGs) will affect government agencies through policy and priorities. Clarity and transparency will be the best way to ensure this is meaningful and to avoid allegations of greenwashing.
See here for more information on ESG. If you have any questions, please get in touch with any member of our team below.
This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.
