Julia Hoy  

Not everything is what it seems  

Stakeholders are increasingly aware of how easy it has been to overstate ESG claims or mislead. There is no longer room for complacency, companies that are dishonest or inflating their claims will be exposed and suffer reputational damage. 

The quick flow of capital that came to ESG-themed assets lured many companies into inflating their claims. According to Trillium’s Matt Patsky, “Everybody ran to try to come up with a solution,” (to meet investor demand). “Some are much more robust than others. And in some cases, it really is more marketing than anything else.” 

When talking about ESG-linked remuneration, Michael Robinson, Director, Guerdon Associates was quick to say that Australia leads the world in linking executive remuneration to environmental, social, and governance goals. Michael’s claim was countered by Vas Kolesnikoff, Executive Director, Institutional Shareholder Services who explained that many of the metrics for ESG-linked bonuses that he was seeing regularly were unclear or completely irrelevant.  

Greenwashers beware  

Now more than ever, companies need to be ready to have open and honest conversations about ESG with their stakeholders. 

For companies that do overstate claims, regulators are on the lookout. Delia Rickard of the ACCC said they won’t be waiting for complaints to act, the watchdog will proactively target companies that greenwash given the potential for it to distort competition and mislead consumers.  

The ACCC is not alone, the Australian Prudential Regulatory Authority is also focused on stamping out greenwashing and the Australian Securities and Investments Commission (ASIC), released a greenwashing framework on Tuesday for managed funds and superannuation funds, to help educate the market.  

We all need to build on our understanding of ESG  

Investors, executives, and boards have a steep learning curve ahead. Daniela Jaramillo, Director, Sustainable Investing, Fidelity International likened ESG to the IT sector where people constantly need to upskill to keep pace with the evolving landscape.  

The ESG agenda continues to accelerate at pace. If ESG is everyone’s business, those in decision-making roles need to continue to upskill to ensure they are using their power to make more informed decisions.   

Business needs to strengthen the measurement of the ‘S’  

The environment dominates the conversation around ESG, but the S and G are equally important and interlinked. One of the challenges that persist around the ‘S’ is measuring social risk and opportunity. The challenges stem from many factors including the lack of standardisation and the fact that some companies are not putting the same value on social metrics.  

With the extraordinary pace of change we are seeing in ESG, it is not always going to be smooth sailing for every organisation. That is not an excuse to linger. Companies that act now to set themselves up for success in the new economy by prioritising decarbonisation, ethics and equity – and are therefore able to communicate with authenticity to their stakeholders – will be the leaders of tomorrow.  

Have a look at the AFR’s coverage of the Summit for more information, trends and insights.