ESG Performance - Why It's Crucial To Future Success

Jo-Anne Ruhl, vice president and managing director, Workday Australia and New Zealand.

Jo-Anne Ruhl, vice president and managing director, Workday Australia and New Zealand.

The context for an increasing focus on ESG

Concerns worldwide over climate change, political strife, inequality, stressed social cohesion, poor corporate behaviour, and other developments are increasingly being viewed as a threat to current and future generations. Individuals, communities, nations – and businesses – are under increasing pressure to address these concerns before they escalate to damaging effects. In this context, an organisation’s approach to environmental, social, and governance (ESG) programs is increasingly scrutinised by investors, regulators, activists, and other stakeholders, with clear positive outcomes for those deemed to be solid performers and many potential negatives for sub-par efforts.

The maturity and scope of an ESG program reflect the importance to a business including:

• minimising its impact on the environment to help current and future generations address climate change

• the need to address social, political, and workforce trends; and

• the appropriate allocation of responsibilities of roles and individuals within organisations, including directors, management, and shareholders.

It’s now clear that poor ESG performance can be deeply damaging for businesses. PwC's 2021 Global investor survey found that ESG is scrutinised closely by investors when making decisions about their portfolios. Of the 325 global investors, predominantly active asset managers, interviewed, most were committed to ESG goals in their investing and as a priority for portfolio companies. "Nearly 80% said ESG was an important factor in their investment decision-making; almost 70% thought ESG factors should figure into executive compensation targets. About 50% expressed willingness to divest from companies that didn't take sufficient action on ESG issues," the authors said.

ESG a top priority issue

In Australia & New Zealand, businesses sometimes need to address controversial ESG issues. This can include, as listed in PwC’s survey, the transition to renewable energy and the rights and relationships of First Nations peoples to the land; human capital development, ethical supply chain and sourcing and privacy, and data security; and risk mitigation and management, board diversity, executive pay, and business ethics.

These important issues can only be managed appropriately through robust ESG strategies and reporting with accountability at the C-Suite level. The consequences of failing to address ESG adequately can be severe, including customers, partners, and prospective employees opting for businesses with better ESG performance. With top talent becoming increasingly scarce in a booming employment market, the risks around talent attraction and retention are particularly pertinent at present.

Another PwC survey, Beyond compliance: Consumers and employees want business to do more on ESG, undertaken in March and April 2021, revealed that 83% of consumers think companies should be actively shaping ESG best practices, and 86% of employees prefer to support or work for companies that care about the same issues they do. In addition, 76% of consumers told PwC they would discontinue relations with companies that treat employees, communities, and the environment poorly. The survey found that the coronavirus pandemic "shifted consumer behaviour and enlarged the pool of conscientious consumers willing to pay more for healthier, safer, more environmentally, and socially conscious products and brands."

Other penalties may include fines and reputational damage for severe breaches of legislation and regulations designed to protect data and consumer privacy. Some of the world's most prominent businesses and organisations are being forced to pay out hundreds of millions of dollars for infractions, whether caused by poor processes or cybersecurity breaches.

Heightened focus from regulators and increased legal activity adds to the obligation on businesses to comprehensively address ESG concerns. In March this year in the United States, the Securities and Exchange Commission proposed rule changes that would require registered corporations to include some climate-related disclosures in their registration statements and periodic reports, while the European Financial Reporting Advisory Group (EFRAG) is developing European sustainability standards. Locally, the Australian Security and Investments Commission (ASIC) has been keenly scrutinising so-called 'greenwashing' claims involving financial products, while individuals and groups are increasingly undertaking legal action targeting government bodies and Ministers over their climate responsibilities.

A wholehearted commitment to ESG

At Workday Australia & New Zealand, we are wholeheartedly committed to the ESG principles and practices embedded into Workday worldwide and in helping our customers overcome their ESG challenges. Our ESG commitments include working to create opportunities and drive positive change, with initiatives that include providing customers with a carbon-neutral cloud since 2017 and, in 2020, reaching our goal of achieving net-zero carbon emissions.

In addition, internationally and in the local market, we match 100% of the electricity used at our offices and data centres worldwide with clean, renewable sources. Our measures extend beyond the present into the future and, indeed, the past – in 2021, we mitigated our historical emissions to achieve a lifetime net-zero carbon footprint.

We have also committed to ambitious, science-based emissions reductions targets across the entire value chain that are consistent with keeping global warming to 1.5 degrees Celsius. Furthermore, we advocate for policies that aid the transition to a low-carbon economy, an equitable, just transition for workers in carbon-intensive industries, and support the objectives of the Paris Agreement and the United Nations Sustainable Development Goals.

In addition, we are proactively addressing cyber risk within our business – we keep all customer data, applications, and infrastructure safe through rigorous security measures spanning the organisational, architectural, and operational levels. We are helping our customers meet their own ESG obligations through a product portfolio that incorporates belonging and diversity solutions, sustainable sourcing, compliance training, pervasive audit and internal controls features, and planning and analysis of ESG data – and to which we recently added social reporting for ESG and supplier risk and sustainability.

At Workday, we enable our customers, partners, and the wider developer community to deploy and adopt new ESG capabilities. Our open standards and technologies allow them to build extended solutions on the Workday platform, helping to support global customers' ESG initiatives across regions and industries.

ESG is how businesses respond to the most formidable global challenges of our time – and at Workday, we are committed to contributing and supporting our customers in their efforts to provide a safe, sustainable, and just world for those who come after us.