Leveraging sustainability in your corporate strategy: A guide for boards and leaders

This article was originally published by the Australian Institute of Company Directors.

Is your organisation ready to embrace the future of sustainability? With the Australian Securities and Investments Commission (ASIC) urging immediate action, now is the time to integrate Environmental, Social, and Governance (ESG) principles into your corporate strategy.

Large companies and financial institutions (Group 1 entities) must comply with new climate reporting requirements from 1 January 2025, preparing for their first mandatory sustainability reports for the year ending 31 December 2025 or 30 June 2026, with Group 2 and 3 entities reporting in subsequent years.

Preparing now will equip your organisation to meet these challenges head-on. 

Why is sustainability important now?

For many organisations, adopting a sustainable framework has been a voluntary business consideration—viewed as a ‘nice to have’ or a response to stakeholder and value chain demands. However, this landscape is rapidly changing with the introduction of mandatory climate reporting.

This new mandate bridges the gap between voluntary and compulsory practices, highlighting the critical importance of sustainability. If you have customers, you can’t ignore sustainability. 

Strategic (voluntary) imperative

Organisations that have already embraced sustainable initiatives often do so for two primary reasons: 

1. Access to capital: Companies with strong sustainability credentials are more likely to attract investment and better financing terms, as they are perceived to be lower risk and more sustainable in the long term. Banks and financial institutions are increasingly incorporating these factors into their lending decisions.
2. Access to markets: Sustainability is important for customer and market access, and many companies prioritise these criteria in their supplier selection processes. For example, a major customer might require its suppliers to meet specific standards, with sustainability accounting for up to 20 per cent of the selection criteria. Failure to comply with these requirements can result in losing key customers and market opportunities. 

Compliance (mandatory) imperative

The sustainability reporting landscape is rapidly evolving, driven by swift changes in legislation, reporting and assurance standards.

1. Legislative requirements: Starting 1 January 2025, entities submitting financial reports to ASIC under Chapter 2M of the Corporations Act 2001 must make mandatory climate disclosures. This includes adherence to standards such as AASB S2 for mandatory climate-related disclosures and AASB S1, which encourages voluntary comprehensive sustainability reporting. While Europe already has multiple standards in place, Australia is expected to adopt similar stringent measures quickly. 
2. Assurance standards: Assurance requirements will be phased in over time from 1 January 2025. Alongside these legislative changes, there is a growing emphasis on the assurance of sustainability reports, with new compliance measures requiring the same auditing firm to ensure both financial and sustainability reports. This dual responsibility highlights the importance of accurate data and robust governance practices and ensures that the sustainability information disclosed is reliable and credible, which is essential for maintaining stakeholder trust. This integration of financial and sustainability auditing reinforces the need for meticulous data management and signifies a shift towards more holistic corporate reporting practices.

Embed sustainability into your strategy: Assess your ecosystem and measure your carbon footprint

Understanding your position within the ecosystem and accurately measuring your carbon footprint hinges on the effective use of data and metrics. However, before diving into data collection, it’s crucial to prioritise integrating data and technology and set organisational and operational boundaries. This foundational work ensures you are well-prepared to monitor your initiatives regularly and track progress effectively. 

Equally important is engagement with your stakeholders. Identifying who they are and understanding their information needs (such as data to measure your carbon footprint, net-zero targets and progress against targets) is key and involves discussing the impact of the value chain on your sustainability efforts. Achieving your strategic goals is possible only with efficient and effective stakeholder and value chain engagement. It requires you to look both inward to ensure your value chain is ready to provide the data you require and outward to ensure you’re ready to provide them with the data they need. 

Practical steps for boards and leaders

New legislative requirements emphasise the urgency of integrating sustainability into corporate strategies. Boards and leaders must prioritise good governance and accurate data collection to effectively meet assurance standards and navigate the evolving regulatory environment. 

1. Create a sustainability roadmap: Define SMART metrics for your sustainable initiatives that align with business objectives and stakeholder expectations. Ensure core business focus areas and value drivers drive your decision-making framework.
2. Measure progress: Implement robust systems for tracking and reporting progress. Utilise technology for accurate carbon accounting and data management. Regularly review and adjust strategies based on performance metrics and future opportunities.
3. Engage stakeholders: Identify and engage with key stakeholders, including employees, customers, investors, and suppliers. Incorporate their feedback into your sustainability strategy to ensure alignment and support. Foster collaboration between finance and sustainability teams to embed these considerations into financial planning and decision-making processes.

Take action

The time to act is now, ensuring your organisation is prepared to meet new legislative requirements and leverage sustainability as a strategic advantage. 

Reflect on what your organisation cares about and the impact it wants to have beyond profit goals. This clarity of purpose will guide your sustainability strategy and initiatives. Start small and iterate. It’s more important to begin your journey and make continuous improvements than to wait for a perfect plan. 

Visit our website to learn more about BDO’s Sustainability Services  and how we can support your organisation’s success. You can also access a number of practical and relevant resources and tools, developed by AICD, such as the Directors Guide on mandatory climate reporting.