In our previous article What is Environmental, Social and Governance (ESG)? we explained the purpose, benefits and disclosures of ESG.

In this post, we delve deeper to break down the three pillars of ESG and their underlying factors.

While the issues under each pillar can vary, we’ve outlined some common factors below.

• Environmental
• Social
• Governance

E – Environmental factors

Managing carbon and climate change	In order to manage their carbon footprint, organisations must measure their carbon emissions and identify operational improvements and carbon reduction opportunities. Does your organisation have a commitment in line with the 2015 Paris Agreement of achieving net zero by 2050 and reducing emissions by at least by 45% by 2030 from 2010 levels?
Energy consumption and efficiency	Energy consumption is simply the amount of energy or power that is used by an organisation. Energy efficiency is the use of less energy to perform the same task or produce the same result, therefore eliminating energy waste.
Emissions reduction	Emission reductions are measureable reduction of release of greenhouse gasses into the atmosphere from a specified activity, or over a specified area and a specified period of time. Measured in a standard unit of metric ton carbon dioxide equivalent. Emissions are substances (gases and particles) that are emitted.
Water management and recycling	Water management is the control and movement of water resources to minimise damage to our world and to maximise efficient beneficial use.
Waste and pollution management and recycling	The ideal way to handle waste and pollution management is to reduce the source, recycle, combust for energy recovery, treatment and then as a last resort, dispose of. Waste management is generally monitored by weight of waste generated and weight of waste diverted from disposal. Measurements can be further broken down to totals per type of the waste, such as plastics, food waste, and e-waste.
Transition to a circular economy	A circular economy is a systematic approach to economic development which is designed to benefit business, society and environment. The aim of transitioning to reuse, repair, refurbish and recycle the products and materials that already exist for as long as possible.
Renewable energy and clean technology	Renewable energy is energy which comes from a source that is not depleted when used, so is therefore naturally replenishing (for example, wind or solar). Clean technology is that which reduces or optimises the use of natural resources, whilst at the same time reducing the negative impacts that technology can have on our planet.
Protection of Indigenous land	Indigenous people have a spiritual, physical, social and cultural connection to land. Protecting Indigenous land provides security for historically exploited groups and help fight the global fights against climate change and biodiversity loss.
Biodiversity	Biodiversity can be described as the biological variety and variability of animal and plant like in the world or in a particular habitat. Biodiversity will increase species, which in turn safeguard natural sustainability for all.

S – Social factors

Diversity, equality & inclusion	Including gender pay equality, wage levels and percentage of employees per employee category, by age group, gender, ethnicity and other indicators of diversity.
Human capital engagement	Ensuring talent development, strategy and acquisition is well developed and aligning to organisation values.
Employee engagement	Represents the employee’s connection, emotional commitment and enthusiasm towards the organisation they work for.
Human rights	Human Rights aim to secure dignity and equality for all. This may include a person’s right to life, health and freedom of movement and labour standards.
Customer experience	Measuring customers’ expectations and overall satisfaction with the products, services and capabilities of the organisation.
Privacy and data security	Data privacy refers to the rights of individuals with respect to their personal information. Data security is focused on protecting personal data from any unauthorized third-party access.
Employee safety and wellbeing	Supporting employees to create resilient workforces through addressing critical issues that affect their safety, health, economic stability, education or social identity.
Community engagement	An organisations commitment to engaging and investing within their local communities, to ensure growth and benefits of their activities stay local. This could include sponsorships, grant programs and pro bono activities.
Ethical supply chain and sourcing & sustainable supply chain	Ensuring there is knowledge over supply chains and whom the organisation engages with in regards to their labour and working conditions, occupational and community health and safety, biodiversity and pollution prevention.
Indigenous rights	Committing to education and understanding with Indigenous groups and certified reporting, e.g. Reconciliation Action Plan.

G – Governance factors

ESG reporting	Disclosure of environmental, social and corporate governance data to be available to stakeholders.
Risk-mitigation and management	Integrating risk and opportunity into business processes by clearly identifying the principal risks facing the organisation specifically, the governing body’s appetite in respect of these risks, how these risks have moved over time and the response to those changes.
Board diversity and independence	Different races and genders are represented on the board which includes members who are unaffiliated with the company itself.
Legal and regulatory compliance	Complying with all relevant commonwealth and state acts and regulations.
Executive pay	Incentives to senior executives to enhance company performance relative to prior years and relative to its competitors for the benefit of all shareholders. Linking executive pay to ESG goals.
Tax transparency	Providing information about approach to the management of tax and its outcomes.
Business ethics	Internal and external mechanisms for seeking advice about ethical and lawful behaviour, and organisational integrity or reporting concerns about unethical or unlawful behaviour, and organisational integrity.
Governance and accountability	The system in which the company operates and is controlled, and responsibility for the company’s actions and conduct.
Stakeholder engagement	Engaging with a wide variety of stakeholders on a regular basis to help to guide your sustainability, relevance and value as an organisation.
Policies that enhance corporate behaviour	Policies and procedures that include legal rules, ethical codes of conduct and social responsibility behaviour.

Whilst ESG sustainability is in its infancy, now is the perfect time to incorporate ESG into your risk management processes. Include ESG on your organisations risk register and begin planning how it might fit into your long-term strategic plan. With rapidly increasing focus on climate change and ESG from all stakeholders, there could be opportunities missed if no action is taken quickly.

If you would like guidance on how ESG fits into your organisation, please call us on 03 5443 0344 or email afs@afsbendigo.com.au.