Australia spotlight: Why business leaders need to measure ESG impact

Nearly two years of pandemic chaos have given us plenty of time to think about how we live and work. As the world waves goodbye to pandemic restrictions, attention is shifting to action on climate change.

Corporate responsibility is now one of the defining issues of our age. From Business Roundtable redefining the purpose of corporations to benefit all stakeholders, to growing numbers of consumers demanding change, the environmental, social and governance (ESG) efforts of companies now face intense scrutiny.

At a minimum, investors, employees, customers, and partners expect transparency and action. Organizations that respond will reap multiple benefits:

• Improved talent attraction and retention

• Increased shareholder value

• Decreased operating costs

• Higher growth potential

That's before considering increasing regulations. In 2020, 206 new ESG rules were introduced globally. Government and industry bodies alike are creating ambitious targets with new implications for executive teams and boardrooms across Australia.

The call to measure ESG

The clock is ticking on common standards for measuring sustainability. Double materiality rules have gone into effect in Europe, requiring public companies and investors to disclose the risk their operations pose to people and the planet, alongside profitability.

At the same time, the World Economic Forum's International Business Council specified 21 core "stakeholder capitalism" metrics to guide executive teams and boards as they embrace these changes.

ESG disclosure developments like these are quickly reverberating across corporate Australia. Stakeholder pressure for organizations to do what's right and reliably report on progress is impacting every industry.

Challenge and opportunity

When organizations get ESG right, greater transparency builds trust. When you're trusted by regulators, government, and investors, you're more likely to attract capital investment, win business, and grow loyalty, according to McKinsey.

Consumers are five times more likely to trust companies with strong sustainability credentials, Edelman adds. With a skills shortage affecting Australian workplaces, ESG is also a talent attraction imperative. But for many companies, it's hard to keep up.

Refinitiv research shows businesses are establishing environmental policies without delivering on targets, resulting in an "intention gap"-a disconnect between policy and targets.

In a 2020 analysis of ESG initiatives, PwC found 42% of ASX 200 companies' reporting was insufficient to be included in its study. According to the report, the challenge for leaders is clear: ESG reporting has to change-and fast.

Ethical decision-making

Many Australian companies are moving in advance of regulators and government. Brands as varied as Canva, Woolworths, Insurance Australia Group (IAG), and National Australia Bank (NAB) are championing their ESG ambitions as a competitive differentiator.

Australia's Modern Slavery Act of 2015 wasn't a conversation for the C-suite five years ago. Yet today, it's embedded in the governance frameworks of all large Australian corporations. Meanwhile, cross-sectoral forums such as the Climate Leaders Coalition are setting the bar on public decarbonization targets.

Although holistic ESG reporting isn't yet mandatory in Australia, it's best practice on the global stage. As such, it quickly becomes the norm locally. In the meantime, the gap between robust measurement and reporting is widening.

Organizations may already be tracking many metrics-from enhancing diversity and inclusion to reducing carbon emissions and engaging with First Nations communities. Often, however, the data doesn't tell the full story.

Future-ready leaders need better ways to convert big-picture intentions into concrete strategies and processes they can measure against and report on.

Leading from the top

Measurement is made challenging by the very nature of multiple teams reporting on slightly different indicators, with different departments responsible for various parts of the ESG puzzle.

This makes information hard to collect, and even harder to validate and verify. Extracting the right data is time-consuming, largely manual, and often unreliable. The endless tools and products available to help companies manage individual aspects of their ESG programs compounds the issue of fragmented measurement.

Despite a trend toward the appointment of chief sustainability officers, CxOs are ultimately responsible for operational sustainability and governance issues. As a result, CxOs bear the brunt-along with the board of directors-when things go wrong.

As organizations work to strengthen the link between their purpose and sustainability actions amid mounting disclosure requirements, the reporting imperative for the C-suite is set to intensify. Well-defined performance indicators coupled with comparable and reliable information will rapidly become non-negotiable as the essential foundation for taking measurable action.

Gaining visibility to keep up

In this fast-moving environment, organizations that don't have cross-functional visibility are already lagging. An OCEG study found 28% of executives have no confidence their organizations have "mature, well-documented" ESG capabilities.

The good news is best-practice management models are emerging as ESG becomes a mainstream issue and demand for investor-grade reporting grows. Leaders are now turning to enterprise-wide digital platforms to integrate all of their activities.

Implementing a truly unified approach helps make sense of disparate data to enhance transparency. It also keeps everyone on the same page.

ServiceNow® ESG solutions provide enterprises with an operational control tower that uses specialized workflows to connect and consolidate otherwise disconnected metrics.

Harnessing the Now Platform® transforms risk reporting into a smooth-running operational system with a single source of truth. This helps organizations plan, manage, govern, and report on ESG programs and initiatives to drive greater environmental, social, and business impact-and reap the benefits of improved profitability, talent attraction, and shareholder value.

It's time for business to move from manual, ad hoc collection where ESG-related activities are siloed across the enterprise, to integrated, digitally transformed operations where ESG activities are embedded in daily work across the organization.

Find out how ServiceNow ESG solutions can help your organization improve your ESG strategy and realize results.

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