How HR can prepare for Australian Sustainability Standards
Whether your organisation is at the beginning of its Environment, Social and Governance (ESG) journey or advanced in its practices, mandatory ESG reporting on Sustainability Standards is within sight, and this has implications for the whole of business in terms of governance, systems, processes and people.
In your capacity as Human Resources manager, you have an important role to play in both helping transition your organisation to sustainable business practices, and readying it to meet the Sustainability Standards mandatory reporting requirements.
Sustainability Standards and mandatory reporting is due to be incorporated into corporate law in Australia by 2024.
In preparation, you need to understand:
What the Sustainability Standards are
What ESG reporting currently looks like
What role HR can play in the sustainability transition
What you can do now to help yourself, your business and your people
Summary advice:
To help your business both transition to sustainable business practices and prepare for the coming reporting requirements, we recommend you take the following actions:
Build your knowledge now around ESG and sustainability in context of the issues which are of material importance to your organisation.
Lean into the ESG conversation with your stakeholders to uncover risks and opportunities within your remit.
Identify third party experts who can guide you on ESG matters including governance, processes and systems (technology and human).
Train your organisation on ESG to help reduce change resistance and build capability across business units.
Read on for further information on the Standards, Reporting, the role of HR and Training guidance.
What are Sustainability Standards?
The Sustainability Standards are a “comprehensive global baseline of sustainability disclosures focused on the needs of investors and the financial markets”. (IFRS)
In other words, the Standards relate to information on sustainability that can be easily compared so as to show the risks or opportunities of any given business. This is aimed at helping stakeholders, like investors, determine the short, medium and long term value of a business.
Large Australian business entities can expect mandatory climate-related reporting requirements as early as 2024 as the Australian government works to determine how to integrate with the International Sustainability Standards Board (ISSB) draft Sustainability Standards.
The ISSB plans on finalising its draft Sustainability Standards in 2023. The two Standards we expect to see finalised include:
IFRS S1 – General Requirements for Disclosure of Sustainability-related Financial Information; and
IFRS S2 – Climate-related Disclosures.
As the ISSB Standards emerge Australia will determine how it adopts & integrates the Standards into corporate law.
It is expected that reporting requirements will be phased in for large Australian business entities first.
What sort of information will organisations have to report on?
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The proposed Standard would potentially require an entity to disclose material information about all of the significant sustainability-related risks and opportunities to which it is exposed.
For example, if you use a natural resource, such as water, in your business model, under the standards you may have to disclose any risks or opportunities relating to that use in your financial information. If the ongoing availability of clean water is at risk, the value of your entity may be impacted.
The information requirements of the Standards are designed to enable primary users to assess short, medium and long-term enterprise value.
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In Australia, ASIC already encourages listed companies to use the Task Force on Climate-related Financial Disclosures (TCFD) recommendations as the primary framework for voluntary climate-related disclosures.
The Standard, IFRS S2 – Climate-related Disclosures, once formalised, will likely be representative of the existing TCFD recommended disclosures framework which recommends reporting on such items as:
ESG and climate-specific functions of the entity, including management’s scope of concern.
Internal processes used to review climate-related issues and how these are translated into strategic decisions.
Methodologies incentives to promote management of climate-related risks by management.
Climate-related risks, opportunities and time horizons.
Scenario analyses to improve strategic resilience.
Data from diverse sources to reduce risk.
Risk management frameworks/ratings.
Metrics and data.
2. What does ESG reporting currently look like?
Rather than wait for the regulation to formalise, forward thinking companies are developing a regime of voluntary disclosures. This helps reduce risk and primes companies to be better placed for when reporting requirements do come into place in Australia.
Data used for voluntary financial disclosures can be gathered by the finance team who have systems in place for collecting and interpreting financial information. However, for voluntary ESG reporting, data will need to be gathered from across the business including HR, Procurement and Operations. These teams will need the requisite training, systems, processes to successfully gather and report the relevant data.
What risks can voluntary reporting address?
While we see how the ISSB Sustainability Standards are finalised and then embraced by Australian legislation, we’re in a period of risk, including:
1: Physical risk, caused by extreme weather changes
Physical risks brought on by climate change are now a permanent consideration in business operations. Risks might include damage caused by climate events or reduced access to locations, services and utilities for groups of people, for example.
2: Transitional risk, such as legislative change
Transitional risk such as legislative change refers to the need for businesses to embrace, and keep pace with, the changing requirements and obligations which they may be required to meet under new legislation. As legislative frameworks emerge, and corporate reporting requirements change, businesses which fail to meet new requirements may find themselves open to fines or penalties.
3: Social risk, such as changing stakeholder expectations
Reputation is everything and brands are under scrutiny from customers, investors, the public, employees and suppliers. There is a new emphasis on the need for businesses to take concrete action on ESG matters.
83% of consumers think companies should be actively shaping ESG best practices.
86% of employees prefer to support or work for companies that care about the same issues they do.
91% of business leaders believe their company has a responsibility to act on ESG issues.
4: Liability risk, including litigation
Australian corporate watchdog, ASIC, brought charges (February 2023) against a corporate organisation for alleged greenwashing - a move which immediately increases the liability risk profile of ESG-related matters for all businesses. The regulator has been warning organisations to be careful and transparent about ESG-related claims and it seems that they are now taking serious action.
3. What role can HR play in the sustainability transition?
The transition to sustainable business practices will impact every aspect of business conduct from strategy and board, right through to operations, finance, reporting, product development, marketing and supply chain. ESG and sustainability doesn’t just impact an organisation’s ability to access finance but impacts licence to operate.
Businesses will feel the change from the top down, across governance, processes, systems and most of all, people.
As the original change leaders, HR is more important than ever. You will be relied upon to:
Facilitate conversations between employees and the board on ESG goals, targets and initiatives
Fulfil governance obligations through policies, training and systems
Procure technology and collects data for reporting ESG-related metrics
Lead, shape and unblock cultural growth
Develop competencies across groups to facilitate new business practices
If you’re just starting out on your ESG journey, invest in building your own understanding of ESG-related risks and opportunities, including issues of materiality to your organisation. This can be achieved through ESG training.
Engage with your senior stakeholders to determine how you can contribute to your organisation’s goals and any voluntary reporting regime that might be in place. Identify third party experts who can reliably guide you on ESG matters.
4. What can you do now to help yourself, your business and your people?
Train your business on ESG and sustainability.
A company’s ability to integrate ESG and sustainable business practices into its operations will vary depending on a number of factors including business priorities, capacity for change and skillset, just to name a few.
Innovative organisations are training their leaders now in ESG matters. ESG training introductory topics typically include:
Governance and reporting
ESG-related risks and opportunities
Issues of materiality
Climate risks and Scope 1,2,3 emissions
Biodiversity and its impact on business
Social factors of ESG
Building an ESG business case
Knowledge, in context of change, can help remove barriers to new business practices and usher in model behaviours. As change leaders within your organisation you should be now thinking about how you can best prepare your organisation for the mandatory sustainability standards reporting requirements that are almost upon us.
Reduce risk & transition to a more profitable and sustainable future.
If you’re ready to transition to corporate sustainability, our elearning program, ESG Fundamentals, closes the gap between strategy and policy/operations. Decrease business risk and take a demonstrable step towards reaching your sustainability goals.
Be market leaders in the sustainability transition. Request a free demonstration today or get in touch via 1300 086 692.
