Aligning sustainability, people and boards for success

Strategic alignment on ESG: Aligning sustainability, people and boards for organisational success

The term ‘ESG (Environmental, Social and Governance) first appeared in the report “Who Cares Wins’ under the guidance of the UN Global Compact in 2004. This report outlined the integration of ESG factors into corporate operations and introduced the mainstream adoption of the term ESG.

The release of this report marked a shift from a niche concept to a standard used by organisations and investors to evaluate organisational performance. In 2015, we saw the United Nations Sustainable Development Goals establish 169 targets and indicators for a sustainable future by 2030, further solidifying ESG as a crucial and measurable benchmark.

In 2024 sustainability has emerged as a key strategic driver for organisations seeking long-term success. From enhancing brand reputation to attracting and retaining talent, developing sustainability strategies and programs that align with an organisation’s purpose and values can have far-reaching impacts across a business.

Regulatory and reporting developments

New reporting requirements have emerged in response to investor demand for climate-related disclosures. The Taskforce on Climate-related Financial Disclosures (TCFD), established in 2015, introduced standardised guidelines that impact financial institutions and organisations. The TCFD recommendations were a crucial stepping stone to the development of IFRS® Sustainability Disclosure Standards, IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information, and IFRS S2 Climate-related Disclosures, issued in June 2023 by the International Sustainability Standards Board (ISSB) which have heightened the need for rigorous ESG reporting globally and in Australia.

Challenges and opportunities in ESG

With growing regulatory pressure and investor expectations, organisations can face challenges in achieving strategic alignment across their ESG functions. We explore the integration of sustainability into corporate strategies and the role of board members in leading ESG efforts for their organisation for long-term success.

Strategic alignment and talent attraction

Strategic alignment on ESG matters is crucial for organisations, not just due to regulatory pressures but also because of the new generations of talent we are seeing entering the workplace who seek to work for organisations that align with their personal values and sustainable principles.

Some companies can face significant challenges due to the broader perception of their industry. For example, the mining industry can face significant challenges in attracting talent due to perceptions of environmental harm. A report from 2023 (2023 Mining Industry Survey – Trends Shaping the Future of Mining) found that 73 per cent of respondents (of those that work in the mining sector) believe that society views the mining industry negatively due to a broad range of impacts.

Source: 2023 Mining Industry Survey – Trends Shaping the Future of Mining

By focusing on ESG practices as part of their broader corporate strategy, Boards can support their organisation in gaining a competitive advantage when it comes to recruitment as these practices can allow them to attract a workforce that values sustainability and wants to contribute to both positive environmental and social outcomes.

Some of the areas that organisations can focus on for noticeable impact as part of these strategies include; diversity throughout the workplace, levels of their environmental impact, safe working conditions, and ethical operations and supply chains.

Navigating complex regulatory landscapes

The current regulatory environment is complex, with an increasing number of requirements and rigorous monitoring. Organisations are needing to navigate this complex landscape, however at the same time are also being challenged by a shortage of skilled sustainability professionals in the industry.

Demands for transparency on sustainability and climate-related risks and opportunities have been increasing worldwide, and the move to mandate climate reporting in Australia is gathering pace. These changes to sustainability reporting will require organisations to deliver information that is accessible, informative, comparable and, most importantly, not misleading to their stakeholders, both internal and external to the organisation.

Some firms may struggle to allocate adequate resources for comprehensive reporting and may find it challenging to meet and integrate these requirements into their business processes if they lack the skills or resources.

When navigating complex and challenging landscapes, effective scenario analysis can aid boards and other decision-makers in an organisation in making informed decisions on activities and initiatives to prioritise and focus on. Boards should look to incorporate their sustainability strategies into these scenario plans to ensure they are considering their ESG investment decisions from all angles.

Strategic alignment and talent attraction

The mining industry in Australia contributes to over ten per cent of Australia’s GDP, just over six per cent of the nation’s energy demand and nine per cent of its greenhouse gas emissions. To help achieve net zero by 2050, the mining industry must address its emissions intensity. As a leading producer of key minerals crucial for a low-emissions economy, Australia stands to gain from global decarbonisation, which increases demand for these minerals.

Mining companies face the challenge of balancing societal roles with environmental and social impacts, reconciling long-term sustainability investments with immediate financial needs. Investing in sustainable practices, even during economic downturns, is crucial. By integrating capital investment and cost management with sustainability goals, an organisation can achieve operational efficiencies and long-term cost savings through technologies like renewable energy and efficient resource management.

Despite challenges such as financial constraints and operational complexity, there is growing momentum and strong commercial incentives. Immediate solutions are available to help mining sites reduce emissions and align financial and sustainability goals.

The 2023 Mining Industry Survey—Trends Shaping the Future of Mining reported that 69 per cent of global employees want companies to invest in sustainability, with younger generations showing even stronger support. The mining industry is struggling with a significant skills shortage, exacerbated by the energy transition, and faces challenges in attracting talent, with 31 per cent of industry professionals highlighting this as a key concern for the next 15 years.

While miners are adding more ESG metrics to their sustainability reports, these documents are better for auditing than general promotion. This highlights an opportunity for the industry to create a unified promotional strategy, supported by transparent and open communication, to convey its value better.

Source: 2023 Mining Industry Survey – Trends Shaping the Future of Mining

Focus areas for organisational success

Strategic risk and scenario thinking: Boards should look to develop and use scenario planning to prepare for potential challenges and/or outcomes for their organisation. By including and considering ESG risks in these plans it can help Boards guide overall prioritisation for the organisation.
Beyond a compliance requirement: Sustainability efforts offer a chance to create value across multiple facets of the business. For strategies and initiatives to be a success they need to be considered an integral part of the strategy and not just a compliance requirement or something to tick off the ‘to-do’ list.
Combining sustainability with organisational culture: Embedding an organisations sustainability strategy into the broader culture of the business can foster a shared vision among stakeholders. This approach can enhance both the reputation and trust of the business both internally and externally.

Integrate sustainability metrics into management KPIs: Strategic organisations should aim to align their ESG efforts with the broader vision, mission, and strategic objectives of the company. This allows for transparent report, effective monitoring, and complete evaluation of ESG initiatives.
Tailoring communications: It is important to adapt an organisation’s ESG communications to reflect market trends and stakeholder interests. By doing this an organisation can ensure that its sustainability strategy and progress are effectively conveyed its internal and external audiences.
Sustain supply chain competitiveness: ESG credentials are also crucial for meeting customer demands and staying ahead of one’s competitors. Compliance with new ESG standards, along with an organisation’s assessment against its competitors, plays a pivotal role in the bid and procurement process of tier-one customers.

How BDO can help

As global climate and social challenges intensify, ESG considerations will continue to shape corporate operations and investment strategies. Organisations must focus on strategic alignment, genuine commitment, and proactive investment to meet these evolving demands.

No matter where your organisation is starting on its sustainability journey, our national sustainability team can support your organisation with:

Assessing your current state
Developing and executing a materiality assessment
Identifying and assessing your ESG risks and opportunities
Developing an aligned sustainability strategy, generating value for your stakeholders
Creating a 'plan on a page' outlining key ESG priorities
Developing a sustainability roadmap bringing your strategy together with organisational transformation.