How new ESG reporting requirements impact Australian and New Zealand companies

Why ESG reporting standards are more important now than ever 

Understanding how to develop transparent, quality environmental, social and governance (ESG) reporting is a topic front and centre of boardroom tables across Australia and New Zealand right now.

With the international Task Force on Climate-Related Financial Disclosures (TCFD) pushing organisations to make ESG reporting mandatory by 2030, there is a competitive advantage in meeting sustainability reporting obligations.

Given that one of the essential functions of financial markets is to price risk to support informed, efficient decisions on allocating capital, financial markets need accurate and timely disclosure from companies.

That’s why the Financial Stability Board (FSB) created the TCFD in 2017. The FSB is an international body that monitors and makes recommendations about the global financial system. TCFD regulations are a common global framework to help businesses report on how climate change will impact their operations.

This type of transparency reporting not only helps with stakeholder engagement, but also gives organisations (and shareholders) real insights into how they are tangibly delivering sustainability and what opportunities they can capitalise on.

What is ESG reporting?

ESG reporting is the data that discloses how a company is operating environmentally, socially and at a governance level. Reporting not only shows how genuine ESG investing is for that company but can also help make it more attractive to investors.

Typically, the metrics shown in an ESG report break down qualitative and quantitative data into the three areas of environment, social and governance. It shows what targets the organisation is setting and what initiatives are being carried out to meet those targets.

The environmental data will cover benchmarks such as what the company is doing to combat climate change, how many carbon emissions it creates and how it is responsibly using resources in its supply chain. Social data looks at everything from data protection and privacy to how diversity is being fostered in the workplace. Meanwhile, the governance data is about the company’s internal controls and policies and procedures covering leadership, board composition and much more.

The history behind sustainability reporting

Yet until recently, the idea that companies would have to disclose their risks around climate change was considered fringe. Historically, financial disclosure was based solely on criteria for financial return. People, culture and the environment were never considered. Until 2004.

At the invitation of the UN, a group of 20 financial institutions from nine countries, representing US$6 trillion in assets, came together to develop a report called Who Cares Wins.

For the first time, ESG reporting was identified for its importance in creating stronger and more resilient future investment markets, as well as contributing to the sustainable development of societies.

From that moment, ESG reporting began to surface as something companies should use to futureproof themselves and create long-term, lasting value.

Mandatory ESG requirements for businesses in New Zealand and Australia

Yet it is only recently that ESG compliance has changed. And in the near future, it will become compulsory. Globally, those companies driving to achieve TCFD’s global framework have led the charge with mandatory ESG reporting to be enacted by 2030. TCFD’s supporters now come from 99 countries, include over 1,500 financial institutions and nearly all sectors of the economy, with a combined market capitalisation of $26 trillion.

In less than 20 years, most of the world’s large, publicly traded companies and financial institutions are choosing to disclose their impact on people and nature.

Yet until recently, governments had steered clear of legislating for climate change reporting. Now both the UK and New Zealand have taken bold, world-leading steps with legislation. New Zealand has passed a new law that requires around 200 large financial institutions covered by the Financial Markets Conduct (FMC) Act to publish climate-related disclosures from financial years commencing on or after 1 January 2023. Meanwhile, the United States of America (US), Switzerland and Singapore are also developing mandatory climate disclosure requirements.

While Australia is lagging behind, the Government’s Treasury department is currently seeking consultation on proposed changes to financial markets legislation and may require mandatory reporting as early as 2024.

Initially, the focus for ESG reporting was mainly on environmental issues including GHG emissions, air quality, water and wastewater management and ecological risks. That has now grown to include waste & hazardous materials management.

Today, social capital sustainability metrics include understanding human rights, such as customer privacy, customer welfare and product quality and safety. From a leadership and governance perspective, companies are reporting on everything from business ethics to critical incident risk management.

To effectively deliver comprehensive ESG reporting, companies must be able to measure and track everything from how much waste they consume and what they do with that waste to how customer privacy is being protected.

That’s why Method InSight was developed – it’s a tool to help organisations access the bin-by-bin data they need to cut waste.

Why voluntary disclosures are becoming a key differentiator

Australian and New Zealand companies looking to take their ESG performance to the next level are now considering the importance of voluntary disclosures of non-financial related activity.

That means tracking, measuring and collecting data in the business for anything that may impact people, planet and culture, regardless of whether it is required by law or not.

While there is an additional cost in collecting data and reporting on it in a voluntary disclosure framework, research shows it can improve how sustainable a company is perceived to be.

This helps organisations to reduce their litigation risks, develop a strong sustainable image and improve their access to capital. It is proven that enacting genuine and authentic Corporate Social Responsibility (CSR) initiatives and undergoing voluntary CSR reporting can help strengthen an organisation’s relationship with consumers and the public.