ESG updates - perfection not expected, but continuous improvement is
The Environmental, Social and Governance (ESG) space has seen several significant developments over the past year. NSW has seen guidance on modern slavery reporting further refined, signalling the importance of this issue, especially for government agencies. We’ve also seen huge strides towards developing a universally recognised and consistent international framework on ESG reporting. Within Australia, the focus on greenwashing (particularly in financial products) has never been more front of mind for regulators.
This article summarises key ESG updates impacting government agencies.
A quick refresher - ESG from a government lens
ESG factors play a crucial role in evaluating sustainability efforts. When applied to government agencies, ESG encompasses:
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Social factors - How a government body engages with its employees and communities. Key aspects include employee rights, work health and safety measures, diversity initiatives, education, human rights and supply chain standards and resilience.
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Environmental factors - A government body’s environmental impact, including 8 contributions to climate change through greenhouse gas emissions, waste management practices, energy efficiency, biodiversity preservation and the management of natural capital.
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Governance factors - The stability and effectiveness of a government body’s internal system. It encompasses institutional strength, transparency and accountability within the public service.
Social factors - new guidance on modern slavery reporting
Recent years have seen notable developments in the social category, with the introduction of modern slavery laws at the federal and state levels.
Under section 178 of the Public Works and Procurement Act 1912 (NSW), NSW Government agencies have been required to:
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take reasonable steps to ensure that goods and services they procure are not the product of modern slavery within the meaning of the Modern Slavery Act 2018 (NSW) defined in section 5; and
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report on those steps.
More than 400 NSW Government agencies, state owned corporations and other government bodies are impacted by these requirements. To help them meet their obligations, in late 2023 the NSW Anti-Slavery Commissioner published the Guidance on Reasonable Steps to Manage Modern Slavery Risk in Operations and Supply-Chains (Guidance). The Guidance is the centrepiece of the Anti-Slavery Commissioner’s Shared Implementation Framework. Public entities are expected to align their procurement policy framework to reflect the Guidance and to consider the Guidance and the broader Shared Implementation Framework when exercising their functions.
How does the Guidance assist government agencies in undertaking modern slavery reporting?
The Guidance explains how to prevent, identify, mitigate, address and remediate modern slavery risks. It also outlines the fundamental principles that government agencies must grasp in order to fulfil their reporting and due diligence obligations under NSW law.
The Guidance is intended to be used in conjunction with the other resources available under the Shared Implementation Framework, as illustrated below:
The Anti-Slavery Commissioner has acknowledged it will take time for entities to fully conform with the Guidance. Nevertheless, public entities are expected to show continuous improvement in their modern slavery reporting efforts.
Environmental factors - international developments in ESG reporting catching attention in Australia
Government agencies face mounting pressure to enhance transparency, including in respect of their sustainability efforts. Financial reporting standards are evolving to mandate disclosure of climate and other sustainability risks, along with evidence of actionable steps to meet goals. Investors and the community increasingly seek a unified whole-of-government approach to ESG matters.
Challenges faced by government in sustainability reporting
Government agencies and the public sector lack comprehensive and consistent guidance on sustainability reporting. The reporting process is frequently labour intensive and expensive. Although several reporting frameworks exist for the private sector, they do not address the intricacies unique to the public sector. Moreover, the multitude of frameworks can create uncertainty for government agencies and their stakeholders.
Amid growing concerns about greenwashing, the government’s role has come under question: should it simply oversee and establish legal requirements for uniform reporting standards within the private sector, or should it also transparently disclose its own sustainability impacts?
Looking internationally – the ISSB sustainability standards
Last year saw significant advances in sustainability reporting and disclosure practices. In particular, the International Sustainability Standards Board (ISSB) developed these comprehensive sustainability disclosure standards:
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IFRS S1 – General Requirements for Disclosure of Sustainabilityrelated Financial Information
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IFRS S2 – Climate-related Disclosures
There is a global push for all jurisdictions, including Australia, to adopt a version of the ISSB standards. Draft legislation issued by Commonwealth Treasury provides the mechanics for the implementation of a version of the ISSB standards into the Australian regime.
Looking to the future
As governments strive to create sustainable and inclusive communities, the demand for more reliable sustainability data will keep growing.
It has been argued that governments should produce comprehensive whole-ofgovernment sustainability reports, accompanied by transparent sustainability disclosures at the whole-of-government level.
While the focus of the draft legislation introduced by Commonwealth Treasury is on corporate entities, it could provide a useful reference point for government in developing its own framework for a comprehensive whole-of-government sustainability report.
Greenwashing at a glance
Greenwashing occurs when an organisation misrepresents its sustainability-related risks, business credentials, strategies or products or services.
Greenwashing has remained high on the ACCC and ASIC’s enforcement priorities over the past few years. This is demonstrated by the ACCC’s release of its Guidance for Business of Environmental and Sustainability Claims and ASIC’s increased enforcement activities, including issuing of penalties and proceedings against organisations adopting alleged greenwashing practices.
Greenwashing claims can undermine public trust. While it is important that government shows leadership in stamping out greenwashing, it is just as important that sustainability reporting by government is approached with the same care and transparency.
Authors: Samantha Pacchiarotta, Eric Kwan & Rebecca Hegarty