Use environmental, social and governance (ESG) practices in your business

ESG is a formal approach to measuring and reporting how your business impacts society and the environment.

ESG means more than just being sustainable. Both focus on making positive changes to the people and planet, but ESG also focuses on governance – how a business manages itself.

ESG practices are becoming more important to businesses, including smaller ones. Consumers and other stakeholders want businesses to make sustainable improvements to the environment and society.

Many businesses already do sustainability planning. ESG is an extra tool you can use to measure and promote the sustainable actions your business is taking.

You can use an ESG framework to:

• measure your business’s impact beyond financial performance
• plan and measure how your business manages risks and opportunities linked to ESG factors
• report your progress to consumers and other stakeholders
• follow regulations (where needed).

Businesses that adopt ESG practices can:

• increase customer loyalty
• attract employees who share its values
• gain a competitive edge over other businesses
• attract investors
• improve financial performance.

This refers to the environmental, social or governance issues you consider in your ESG strategy and report. You can choose to focus on one or all of these. However, you should consider addressing factors that:

• are important to your industry. For example, a cafe might focus on food waste (environmental) and fair wages (social)
• your customers, employees, investors or suppliers want you to act on
• you need to address because of regulations
• have interconnected risks. For example, not focusing on governance factors could lead to poor outcomes for the environmental or social factors you’re working on.

Environmental factors

Environmental factors mean your business’s impact on the environment, such as your practices for:

• waste management
• carbon emissions
• water and energy use
• single-use materials
• biodiversity impact.

Social factors

Social factors mean how your business addresses social issues that impact customers, employees, suppliers and communities, such as:

• human rights
• diversity and inclusion
• slavery
• mental health and wellness
• employee rights and fair pay
• ethical sourcing and supply chains.

Governance factors

Governance factors are your business’s policies and processes. These can impact the success of your environmental and social actions, your brand and your bottom line.

Good governance has ethical, transparent and robust practices for management, decision-making, and oversight, including in:

• accounting transparency
• audit and risk management
• anti-competitive practices
• conflict of interest disclosures
• corporate governance structure
• executive compensation.

An ESG strategy helps you define your business’s ESG values and goals. It outlines what your business wants to achieve and how you’ll do your ESG activities.

You’ll need to show how your business operates and the actions you’ll take to reduce issues linked to each ESG factor.

Your ESG strategy needs to:

• have clear goals
• include specific actions on how you’ll achieve your goals
• set targets you can measure
• show how you’ll measure your targets.

Remember to review your strategy every year or as you reach goals.

Use yearly ESG reports to update your employees, investors and regulatory bodies on your ESG goals, actions and progress.

Things to consider for an effective ESG report:

• use an existing reporting framework to help you structure your report
• refer to your ESG strategy goals to give readers context about what you’re reporting on
• use accurate and verifiable data
• make sure your claims are truthful. The Australian Competition and Consumer Commission (ACCC) has information on greenwashing.

Reporting frameworks

An ESG reporting framework offers a consistent approach to measuring and reporting your ESG efforts. It can also inform your ESG strategy.

 Using a framework helps you define:

• which factors to track
• how to assess each factor
• what topics to include in your ESG report.

There are different ESG frameworks you can use. Look for one that suits your business type or industry.

Here are some of the frameworks used in Australia:

• Global Reporting Initiative (GRI) Standards
• Sustainability Accounting Standards Board (SASB)
• United Nations Sustainable Development Goals (UN SDG).