In boardrooms across Australia, three letters have become ubiquitous: ESG. Environmental, Social and Governance factors have evolved from peripheral considerations to central business concerns. But, as Australian businesses grapple with incorporating ESG into their strategies, many are left wondering: What does this actually mean for us?
At its core, ESG provides a framework for assessing how businesses manage environmental impacts, social responsibilities and governance structures. For Australian businesses, this includes a range of matters such as carbon emissions and water usage, First Nations engagement, workplace safety, board diversity and transparent reporting.
The trouble is, most businesses have been engaging with these elements for years — just not under the ESG banner. Workplace safety hasn't suddenly become important because of ESG; it's been embedded in Australian business operations for decades. Similarly, engagement with First Nations peoples isn't new territory for many organisations that have long recognised the importance of reconciliation and Indigenous business partnerships.
What is new, however, is the proliferation of ESG consultancies and software solutions claiming to help businesses "solve" their ESG challenges. A veritable cottage industry has emerged, with consultants offering everything from carbon audits to social impact assessments.
This explosion has been further fuelled by increasing regulatory pressures, particularly around carbon reporting and modern slavery legislation. As Australian businesses scramble to comply with these requirements, consultants position themselves as essential guides through the compliance labyrinth. Software platforms promise to streamline reporting, with dashboards tracking everything from Scope 3 emissions to supply chain risk assessments for modern slavery compliance.
These services can provide genuine value, particularly for organisations with complex operations or international footprints. But they come with a hefty price tag, and the return on investment isn't always clear-cut. Many Australian businesses are discovering they've been sold solutions to problems they don't actually have — or worse, solutions that don't address their actual ESG challenges.
Part of the challenge lies in the absence of a universally accepted ESG standard that adequately addresses the Australian SME context while satisfying international expectations. Often, we are caught between European frameworks that may not reflect our unique environmental and social landscape and increasingly polarised attitudes from other trading partners.
Recognising this challenge, the Australian Small Business and Family Enterprise Ombudsman held a workshop last year, with a series of recommendations around ESG frameworks appropriate for Australian SMEs to be provided to the government of the day. This move was welcomed, especially by SMEs struggling to navigate the ESG maze without the resources of larger corporations. Unfortunately, nothing has materialised.
Before engaging consultants or implementing software solutions, businesses need to have fundamental strategic discussions. This isn't just about ticking compliance boxes; it's about understanding what ESG means specifically for your organisation.
These conversations must start at the board level and cascade through leadership. Too often, ESG initiatives are delegated downward without adequate strategic guidance, resulting in disconnected efforts that fail to deliver meaningful outcomes.
The discussion should centre on material issues — those ESG factors that genuinely impact your business model and stakeholders. For a manufacturer, environmental impacts might be paramount; for a services firm, social factors like diversity and inclusion might take precedence.
Your ESG strategy cannot exist in isolation from your business ecosystem. Understanding where you sit in supply chains is crucial. If you're supplying to organisations with stringent ESG requirements, your approach needs to align with their expectations.
This requires deep engagement with your major customers and suppliers. What matters to them? What reporting do they require? How do they view ESG risk? These conversations often reveal practical considerations that no generic consultant could identify.
While European markets are increasingly demanding robust ESG credentials, the United States presents a more complex picture. Recent political shifts have seen pushback against ESG initiatives in some states, with accusations of "woke capitalism" becoming commonplace.
For Australian businesses with international ambitions, navigating these divergent expectations requires nuance. A one-size-fits-all approach simply won't work when operating across markets with fundamentally different attitudes toward ESG.
By approaching ESG as a strategic business consideration rather than a compliance exercise, Australian businesses can cut through the noise and develop approaches that genuinely enhance their operations, relationships and long-term prospects.
David is Director of Emerging Industries and Innovation at the Australian Industry Group.
He has been part of Australia’s innovation ecosystem for more than 15 years and has worked at the executive level across multiple industries in large and small organisations to facilitate innovative solutions to complex problems.
David has maximised opportunities for Australian industry in $88 billion of major projects, delivered financial assistance of more than $22 million to innovative SMEs and pulled together over 150 commercially astute leading-edge research/industry collaborations that have resulted in novel technology and jobs of the future.
