4 practical steps to help you navigate the ESG governance maze

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By Laura Reed, Principal Governance & Transparency, Edge Impact

Edge Impact’s Principal, Governance and Transparency, Laura Reed, shares insights from working with clients on ESG governance.

Over the past decade, and especially since the change of government in 2022, Australian companies have faced mounting environmental, social and governance (ESG) compliance requirements. These span diverse areas including climate action, cybersecurity and data privacy, gender equality and pay equity, and modern slavery prevention. In parallel, stakeholders have dramatically elevated their expectations around corporate ESG performance and transparency. The recent introduction of mandatory climate reporting has prompted many organizations to reassess how they handle ESG issues altogether – bringing renewed focus to what we call “ESG governance.” While the term may sound bureaucratic, ESG governance simply refers to how an organization identifies, prioritizes and manages its environmental, social and governance risks and opportunities. This structured approach, though somewhat awkwardly named, represents a crucial evolution in corporate responsibility, moving ESG from a peripheral concern to a core element of business strategy and oversight.

ESG compliance uptick In 2018, the Modern Slavery Act was established which requires companies based in or operating in Australia which have an annual consolidated revenue of more than $100 million to report annually on the risks of modern slavery in their operations and supply chains, and actions to address those risks. The revenue threshold is expected to drop down to $50 million in the coming years.

In 2022, Respect at Work reforms introduced a new positive duty on employers to expressly prohibit hostile workspace environments.

After a series of high-profile cybersecurity breaches, increased penalties have been introduced for breaches of the Privacy Act.

In 2023, the Workplace Gender Equality Amendment Bill saw increased reporting requirements on gender equality and mandated pay equity reporting. ASIC and the ACCC have taken an interest in greenwashing and started levelling fines against companies considered in breach.

And most recently, mandatory climate-related financial disclosures are being introduced from 1 January 2025.

Nature and biodiversity standards are slated to follow climate, with early adopters leveraging the Task Force on Nature-related Financial Disclosures.

While this spread of compliance and changing stakeholder expectations can seem overwhelming, there are a few simple steps companies can take to more effectively manage and drive value from their ESG governance.

1. Start with a helicopter view

First, we recommend the development of an ESG governance map.

This map is designed to bring together all the key internal and external standards, regulations, strategies and policies across your organisation that guide ESG approach, support management of ESG risks and drive ESG performance – all on one page.

It is intended as a tool to support ESG governance structure development and to consider where your company may have policy coverage gaps – it can also help to:

• Demonstrate the breadth, depth and intersection of ESG initiatives – boards and executive teams respond well to a helicopter view
• Spot opportunities for efficient management of ESG initiatives – looking at things together, rather than as separate streams, can yield efficiencies – a good example is if you’re going to engage suppliers on modern slavery, then you can also engage them on Scope 3 emissions at the same time
• Enable resourcing conversations – being able to show your ESG initiatives in aggregate, and where new requirements are emerging, is often a great conversation starter for where more resourcing may be required.

Many of our clients use a governance map as part of their annual and sustainability reporting and as a navigation page on their intranet and website, often adding hyperlinks to key policy documents. It can also be a useful addition to board briefing packs ahead of AGMs.

Example ESG governance map

2. Review governance structure, forums and policies

Development of an ESG map then enables a closer look at your existing approach.

Key questions to consider:

• Are there clear layers of accountability, embedding and implementation?
• Is the delegation and information flow between these layers working?
• What existing forums can sustainability be considered within or are new forums needed?
• Are we clear on our material sustainability focus areas?
• Do we have reflection points built in, for example an annual materiality assessment process, to ensure that we’re still focused on the right things?
• What tools, for example data and project management software, might teams need to enable implementation?

Often this process leads our clients to streamline their ESG governance structure, for example implementing a cross-functional working group at the Embedding level or consolidating several working groups they have in place in the Implementation layer.

You can then go down another level and review your suite of ESG-related policies. For most mid-size to large organisations there are now a standard set of ESG policies that are expected to be in place – some mandatory, some voluntary.

It is relatively straight forward to benchmark these policies, both in terms of good policy practice, e.g. board endorsement, clear scope, review cycle, and in terms of materiality coverage, i.e. have you clearly explained why the ESG areas covered in your policy suite are material to your business and how you’re managing these areas. Insights from this benchmarking process can inform a policy uplift plan.

And, as we move toward a world of integrated strategy and reporting, we’re seeing its increasingly important for interconnections between material ESG areas, and associated policies, to be made clear. For example, many companies are now choosing to combine climate and nature positions together.

Example ESG policy review

3. Consider focus, budgets and resourcing together

Once you have your ESG and sustainability governance foundations in place, there’s then an opportunity to consider strategic focus, budget and resourcing in a consolidated fashion. A cross-functional working group, or at least a coordinating resource, can help to bring everyone together.

Focus: A double materiality assessment that considers both ‘inside out’ and ‘outside in’ ESG risks and opportunities for a company can help to prioritise focus areas.

Budgets: Very often we hear clients telling us that they are scrapping for budget between departments – they need funding for climate and that’s pulling resources from diversity and inclusion. We see that combining funding requests together, linked to a prioritised materiality assessment, can result in a better outcome for all departments. Boards and management teams that can see the whole picture, including interconnections between material areas, are more likely to lean into substantial funding.

Resourcing: The introduction of mandatory climate reporting is seeing companies recalibrate their ESG resourcing. It is increasingly clear that this work is a team sport and can’t be owned by any one individual or department. Building capability in the face of new requirements is a core focus for many of our clients, and companies that are moving quickly are already seeing reduced compliance costs. And, again, we’re seeing that departments that band together to request resourcing are more likely to be successful.

Example resourcing map

4. Build governance muscle

Finally, ESG governance can be challenging – it asks companies to look at issues with a different lens, not just risk to the business, but also risk to people and the environment, as well as with as an opportunities lens.

To help you build capability around ESG governance, it’s important to put solid governance foundations in place – have clear leadership accountability, an approach to embedding and support for implementation – and then continue to build from there.

Next steps can include:

• Establishing a cross-functional ESG working group at either or both the leadership (embedding) and team (implementation) levels
• Developing ESG training plans for board, executives and employees
• Building an ESG stakeholder approach, ensuring communication and engagement with material stakeholders like investors, customers and suppliers has been considered
• Setting sustainability-linked KPIs for executives and management
• Undertaking a double materiality assessment to consider the most important environmental, social and governance priorities for your company
• Investing in software or other digital tools to enable tracking of ESG data and strategic progress.

Ultimately, we recommend that clients don’t let perfect be the enemy of good, that they keep learning and revisiting their ESG materiality, refocusing and resetting as needed to drive performance.

As the regulatory landscape and stakeholder expectations continue to evolve, there is an opportunity to take the time to set up your sustainability governance well to build capability faster and offset future compliance costs.

Further information

For more information on how Edge Impact can support your organisation with sustainability governance and disclosure, please contact Laura Reed, our Principal, Governance and Transparency, or get in touch here.

Laura Reed
Principal, Governance & Transparency
Edge Impact
laura.reed@edgeimpact.global
0415 933 438