Regulatory “upheaval” sees ESG policies on hold, | Australian Markets

Investors are actively monitoring firms and their environmental, social and governance (ESG) policies, as a number of “global giants” have both paused or withdrawn their sustainability commitments amid ongoing regulatory uncertainty.

According to Zenith Investment Partners’ Head of Responsible Investment & Real Assets, Dugald Higgins, this “retreat” might affect company reputations and financial risk management within the long-term, as world buyers nonetheless consider ESG components to be vital to their investment decision-making.

Higgins mentioned Microsoft, Unilever, BP and Walmart are just some of the businesses to have lately retracted their ESG policies in addition to their involvement in voluntary climate initiatives, such because the Net Zero Asset Managers initiative (now presently suspended) and the Net Zero Banking Alliance.

“This trend is occurring against a backdrop of regulatory upheaval, as companies are caught in a volatile ESG policy landscape with shifting mandates across key global markets,” he mentioned.

“In the United States, the Securities and Exchange Commission (SEC) recently dropped its defence of mandatory climate disclosure rules, following an initial push to remove them under the Trump administration. Meanwhile, in the European Union, the newly released Omnibus package has significantly reduced the scope of ESG reporting requirements.”

Australia is experiencing related situations with the upcoming election and as a number of firms have suffered the repercussions of ‘greenwashing’ scandals with buyers.

“In Australia, climate reporting has taken a step ahead with the Australian Securities and Investments Commission (ASIC) launching new regulatory steerage on sustainability disclosures. However, political uncertainty looms because the Coalition have indicated that, if elected, it might search to abolish these measures.

“Businesses are going through a regulatory rollercoaster. This inconsistency is making firms cautious of overcommitting to sustainability targets that could be troublesome to take care of underneath altering political and financial situations.

“Ultimately, buyers need info, and we’ve seen this play out in Australia up to now, with ESG associated scandals at AMP, Crown, and Rio Tinto, and more lately with Wisetech and Mineral Resources.

“While some firms are withdrawing from high-profile ESG initiatives, investor demand for ESG & sustainability data continues to grow. Businesses that fail to disclose material ESG risks could find themselves at a disadvantage in the long run.”

Higgins mentioned whereas this “greenhushing” development received’t spell the tip of ESG reporting, it can seemingly information firms to focus on implementing a more “strategic and selective” method fairly than making broad commitments.

“The reality is that ESG considerations are now deeply embedded in the investment process,” he mentioned. 

“Ignoring these components doesn’t make them go away. Whether or not the data is there doesn’t take away the dangers.

“While regulatory uncertainty may slow ESG progress, companies that integrate decision making around ESG and sustainability into their core strategy, rather than treat it as a PR exercise, will future proof their business and investor appeal.”