Around the globe, Environmental, Social and Governance (ESG) issues continue to make headlines as the public becomes more and more interested in these matters.
As public bodies, local councils are often at the forefront of ESG initiatives. In this article we look at how organisations in the private sector are responding to ESG issues and what this could provide to local councils in developing and implementing their own policies.
What is ESG?
ESG is a framework that forms part of an organisation's overall strategy. It helps them ensure they are generating real value, not just monetary value, for stakeholders.
While ESG and sustainability are often used interchangeably, they are not the same thing. Sustainability is an internal framework that guides an organisation's projects and investments. Said another way, sustainability is the motivation, ESG is the reported outcome.
How have organisations responded to ESG issues within the private sector?
Many ESG issues in the private sector also affect the public sector. The following table provides examples of such issues as well as common responses to them.
What does this mean for local councils?
How the public responds to private sector initiatives can provide a good guide for local councils. Here are some recent ESG practices and trends in the private sector:
1. Adopting an ESG statement
More and more businesses are developing an ESG strategy and commitments through an ESG statement. An ESG statement is typically shared with an organisation's stakeholders and the community.
Under the Local Government Act 1993 (NSW), local councils are required to consider social justice principles and principles of ecologically sustainable development as part of any decision-making process.
Given that, a local council may wish to take a prospective supplier's ESG statement into consideration as part of a procurement process.
Local councils may also wish to create their own ESG statement. This could help clarify and communicate council's values to its community and may guide those who are part of the council's operations.
2. Updating strategy and policy documents
We have seen many private organisations update their internal policies and strategy documents to align with their position on ESG.
Such policies include modern slavery, whistle blowing, flexible work, gender equality and anti-bribery and corruption, to name a few.
Local councils should consider whether their own internal and external policies reflect their stance on ESG issues and if necessary, update them accordingly.
3. Adopting mechanisms to assess ESG-related claims
Whilst ESG propositions can be good selling points for business, they need to be justified. One thing we have noticed is the clamp down by ASIC and the ACCC on greenwashing, or misrepresenting the extent to which a product or service is environmentally friendly.
Local councils need to be wary of potential greenwashing claims and the ramifications on their own position should a claim prove to be false or exaggerated.
To manage this, councils should request trustworthy supporting documentation such as scientific reports, supply chain information, or third-party certification.
Incorporating a checklist in an RFQ or similar document requires the tenderer to provide evidence to support any sustainability claims. Failure to provide that evidence should be treated with caution and questioned.
4. Updating ESG reporting frameworks
An increasing number of larger organisations are adopting ESG reporting to show they are meeting ESG targets and that their ESG initiatives are genuine.
ESG reports summarise the qualitative and quantitative benefits of a company's ESG activities, thus allowing investors to align investments to their personal values. Many organisations incorporate ESG reporting into their annual reports.
While a universal set of ESG reporting standards does not yet exist, a variety of good reporting frameworks and voluntary standards are used within the private sector.
Given local councils are required to address social, environmental, economic and civic leadership issues within the Integrated Planning and Reporting Framework, a recognised ESG reporting framework could be a good platform to demonstrate results objectively and transparently.
5. Appoint an ESG officer
It is becoming common for organisations in the private sector to create ESG-specific roles such as ESG officer or sustainability officer.
The role of an ESG officer is to monitor and evaluate the organisation's ESG goals. They also help develop policies and implement strategies that promote sustainability.
A common challenge for local councils is how to manage the significant compliance and reporting burden involving ESG issues with limited resources. An ESG officer can help relieve that burden and promote their local council's ESG commitments and initiatives.
Bartier Perry advises on a range of ESG-related matters including modern slavery, employment relations and governance and policy documents.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
