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Looking at the next 12 months - ESG reporting & governance
Trust - never has it been more valuable or fragile for organisations to build and retain. Effective sustainability reporting and governance provides leaders the opportunity to build and secure trust across broad groups of stakeholders. To keep pace with the changing reporting and governance landscape, companies need to be alert to the following developments in 2023:
Dust settling on standardised reporting
The appetite for a global set of standards for sustainability and climate reporting has grown among investors, government, businesses, and other stakeholders. This year, the newly formed International Sustainability Standards Board (ISSB) is forging ahead with finalising international standards for sustainability and climate reporting (effective from 1 January 2024), while the Australian Accounting Standards Board consults on how this will be applied locally.
Some companies may choose to adopt the proposals voluntarily before they’re finalised, for instance those responding to investor or societal pressure. Australian businesses that are part of a multinational network, or have a footprint in other territories such as the European Union may have an added incentive to establish robust ESG reporting regimes. Their organisations could be required to disclose information consistent with the reporting requirements of various jurisdictions (such as the European Sustainability Reporting Standards).
While we’ve seen a positive change in ESG reporting in Australia, just a third of the ASX200 have their sustainability report externally assured. Our analysis of current reporting across this group, found many companies would require significant enhancements to meet the ISSB’s draft standards.
While the future of ESG reporting and assurance expectations are still to be finalised for Australia, our experience working with market-leading first movers is that there are several steps organisations can take now to get ready for the mandatory regime:
Scope 3 emissions and reporting on the radar
As Australia’s energy transition gradually gains momentum, companies are becoming more sophisticated about measuring their scope 1 and scope 2 emissions. While scope 3 emissions remain a vexed issue, reporting standards will make this an imperative for many companies (albeit with some relief provisions).
Scope 3 emissions emanate from the activities in a company’s value chain; capturing emissions not controlled by the company but caused by their activities. To measure (and, indeed, to report) scope 3 emissions, companies need to work with customers and suppliers to collect accurate data. If any organisations in the value chain struggle to provide such data, companies could support them by providing education, advice, and resources. (At PwC Australia, we recently worked alongside CEOs from the Australian Climate Leaders Coalition to develop a scope 3 roadmap to support getting started on addressing scope 3 emissions).
Heightened scrutiny over greenwashing - accurate reporting not negotiable
In their eagerness to cast themselves in a positive light, several organisations have been selective with the truth about their performance in areas of ESG. Celebrating good news while burying the bad – otherwise known as ‘greenwashing’ – is not only disingenuous but also fraught with risk.
Both the Australian Securities and Investments Commission (ASIC) and the Australian Competition & Consumer Commission (ACCC) are cracking down on greenwashing. Indeed, ASIC has already issued enforcement notices about misleading and deceptive disclosures, while the ACCC is targeting false environmental claims by companies. So for boards, executives and leaders, it’s more important than ever to ensure their organisations’ claims and reporting about ESG can be substantiated and, importantly, stand up to scrutiny from well-informed stakeholders.
Disclosing targets, then being consistently transparent about your progress, can actually build a company’s credibility in the marketplace. Long-term targets (e.g. net zero by 2050) need to be backed by clear milestones and methods, with explanations of any built-in assumptions. And to keep ESG strategies on track, a governance structure is required that gives boards and executives not only oversight, but also accountability. Given the changing regulatory landscape, it’s increasingly common to see audit committees, risk committees and finance committees actively involved.
To watch our recent ESG Trends 2023 webcast, please use this link.