The Scope of ESG

Most of us appreciate that ESG (Environmental Social Governance) covers a wide range of issues, but we’d be hard-pressed to provide details of how it all comes together, particularly in the context of formal government policy and regulatory interventions. Whilst Australia doesn’t have an agreed ESG framework there are many legislative and policy instruments which address specific ESG issues.

Under Environment Australian governments (states, territories, and federal) have made net zero emission by 2050 commitments. The federal government has the Climate Change (Consequential Amendments) Bill 2022 to legislate a reduction of at least 43% by 2030, as well as the net zero reduction target. These commitments are complemented by the National Greenhouse and Energy Reporting Act 2007 which establishes an emissions reporting framework and imposes mandatory emissions reporting on some (based on volume of emissions) entities. In addition, the Emissions Reduction Fund provides incentives for companies to take up carbon abatement technologies in exchange for carbon credits which can be retired or traded. There is also a safeguards mechanism that allows companies to buy carbon credits if their emissions exceed a baseline established by the Clean Energy Regulator.

Further environmental protection is provided by a raft of federal, state, and territory laws targeting biodiversity protection, water management, pollution, contamination, and waste through approval, licensing, and remediation schemes.  For example, the Environment Protection Act 2017 (Vic) requires the Victorian government, businesses, and individuals to minimise risks of harm to human health and the environment and to seek permission for some activities. The act also imposes penalties (financial and criminal) for non-compliance.

Regarding the social elements of ESG, worker’s rights are prominent in federal and state and territory legislation. The Fair Work Act 2009 (Cth) describes industry-based awards (remuneration and conditions) setting minimum standards of employment and a system for union representation and collective bargaining. Legislation exists covering work, health and safety, discrimination and equal opportunity laws, native title claims, cultural heritage laws and modern slavery reporting.

Issues around Governance have, of course, also attracted the attention of governments. Corporate reporting, with some exceptions, are not expressly required by law. However, some companies under the Corporations Act 2001 (Cth) may be required to report on ESG issues if there is a real possibility that environmental or social risks could materially impact the ability to create or preserve value for shareholders over the short, medium, or longer term. There are, of course, also anti-bribery laws and whistleblowing laws which company directors and managers should keep front-of-mind in their ongoing assessments of potential risks to their business as ultimately, they will be held responsible for non-compliance.

Prepared by Dr Geoffrey Annison
ESG Consultant, National Retail Association

The National Retail Association continues to upweigh its activities in the ESG to assist members in understanding and navigating the ESG landscape. For more information, please contact Dr Geoffrey Annison.