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ESG Australia: Meaning and Importance



ESG: a buzzword you may have heard in the news or even among your friends, but what does it mean? ESG stands for Environmental, Social and Governance. This set of standards refers to how an organisation manages its impact on our planet as well as on its employees. This includes everything from energy consumption to waste management, employee health and wellness initiatives, diversity and inclusion policies and more.

ESG has been gaining traction over time as consumers are becoming more conscious of their purchases and brands are beginning to understand their role in the world today.

ESG Defined
What is ESG? ESG is an acronym for Environmental, Social and Governance. It’s a relatively new concept that has grown in popularity over the past few years, especially as investors consider the importance of corporate responsibility in their investment decisions.

ESG refers to how a company operates on an environmental and social level, as well as taking into account its governance structure (i.e., how it makes decisions). This is important because a company’s social and environmental impact can affect its performance, whilst poor governance can result in corruption within a business or organisation.

Investors may use ESG criteria when choosing which stocks to invest in by looking at these three areas:

● Environmental criteria—Companies who are more environmentally conscious tend to be more profitable than those who aren't; this includes sustainable manufacturing practices and reducing carbon emissions through renewable energy sources.

● Social criteria—A business' reputation can often make or break it; for example, if customers believe that a company doesn't treat its employees fairly or appropriately handles its waste disposal issues then they won't buy from them again! The same goes with suppliers too. If suppliers don't feel valued then they're unlikely to keep working with such companies either.

● Governance criteria—Good governance structures ensure transparency within organisations so everyone knows what's going on without having any surprises later on down the road.

Why ESG matters
Why is ESG important? ESG funds take into account how companies treat their people, the environment and governments when they make investment decisions.

The federal minister said Australia is about 5 to 10 years behind the rest of the world regarding ESG regulation but will hopefully catch up as investigations have been set ‘in the new year’ for potential legislation.

ESG looks at how a company treats its people and the environment whilst staying in line with government regulations such as environmental impact assessments or worker safety laws. It also takes into account long-term planning for things like climate change or natural disasters by asking questions like: “How well would this company do if there were another recession?” As such, investors tend to turn towards companies and organisations that have developed a solid ESG framework.

Understanding Australia’s Economy
The Australian economy is one of the largest in the world, with a nominal GDP of $1.6 trillion as of January 2019. Whilst Australia's economy is quite significant for its size and population, it still only makes up about 1% of the world's total economic output.
Australia has experienced rapid economic growth over recent decades, but it also suffers from relatively high inflation rates compared to other developed nations. A major contributor to this is Australia’s reliance on natural resources like coal and iron ore extraction (which account for 20% of our exports). Except for these industries, most manufacturing jobs have been outsourced abroad due to cheap labour costs at those locations; however, many Aussie companies are now starting to move their operations closer again because they realise that shipping goods overseas still isn’t as cheap as making them locally (and it will never be).

Adopting a New Framework
ESG is being incorporated into the Australian economy in several ways. For example, ESG considerations are taken into account when investing in companies. This means that investors must do their due diligence on every investment made rather than just focusing on financials alone. It also means that companies with poor ESG scores may not be able to attract funding from this source.

ESG Australia also has implications for anyone involved in business operations such as investors and managers, suppliers and customers and governments who provide legislative frameworks for industry practices such as reporting requirements and taxation rates.

How Does This Affect Stakeholders?
ESG is a way to measure the impact of business decisions on society and the environment. We discussed that the term ESG refers to how companies manage their impacts on society and their communities around the world.

ESG is also a way for investors to consider how external factors may affect their investments in companies.

ESG helps companies understand what matters most to stakeholders such as investors, employees, customers, communities and governments. It involves integrating sustainability into decision-making processes across all areas of operations including:

● Product design and development
● Supply chain management
● Marketing communications
● Human resources
● Financial management systems
● Risk management processes
● Tax reporting obligations
● Investor relations activities, etc.

The Rising Importance of ESG
ESG has become a mainstream investment strategy and is surely not a fad but an established and growing part of the landscape that will continue to evolve. This is good for the economy and society as it provides investors with more choices and a better alignment with their values.

This is also good for the environment as corporations will be forced to reduce their carbon footprint and other harmful impacts on the planet.

We can expect this trend to continue given that many of the largest pension funds are now using ESG in their investment decisions. After all, what good will money do if there’s no Earth to live in right?

Summing Up
As we've seen, ESG is a global phenomenon that is becoming increasingly important. It's not just about social and environmental factors but also about how companies contribute to the economy. This means that ESG has implications for all stakeholders in any given situation: investors, employees, consumers and others who are affected by corporate decisions. At the same time, companies must think carefully about how they approach ESG issues before making important decisions such as acquisitions or divestitures. Otherwise, they risk losing these stakeholders' trust!

Sources:

https://probonoaustralia.com.au/news/2022/08/government-to-drill-down-on-possible-esg-legislation-in-early-2023/

https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=AU

https://www.holdingredlich.com/driving-esg-the-australian-perspective

https://www.governanceinstitute.com.au/resources/governance-directions/volume-72-number-10/walking-the-talk-australian-insights-on-esg/

https://www.investopedia.com/terms/e/environmental-social-and-governance-esg-criteria.asp

https://corporatefinanceinstitute.com/resources/knowledge/other/esg-environmental-social-governance/










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