A new report from the KPMG Australia predicts that environmental, social, and governance (ESG) considerations will reshape corporate Australia by 2030.
Due to increasing regulatory pressures and stakeholder demands, organisations will need to transform their business models.
The C-suite will expand to include new ESG-centric leadership teams which will adapt and change rapidly over the coming years, as organisational mindsets shift to embedding an ESG culture.
According to the report, developed by the KPMG Futures team, ESG mandates for transparency will propel the need for radical digital transformation.
Emerging technologies will play an important role with ESG, with digital twin technology enabling organisations to monitor and adjust their business activities in real-time.
Social issues and equality will continue to be high on the agenda.
Organisations will need to lead the charge on the pay gap agenda, with legislation eventually enacted around maximum permissible pay gaps across all employee groups.
Greater cultural awareness will also drive organisations to learn from, support and amplify Indigenous voices to address issues facing Indigenous peoples, resulting in support for a First Nations voice to parliament and constitutional recognition.
KPMG Futures partner-in-charge James Mabbott said: “Although the investment costs of transitioning to an ESG focus may deter some, ultimately the cost of complacency will be far greater.
“Drivers from change are coming from both the outside of organisations, in the form of consumer demands and increasing regulatory pressures, and from within.
“Top talent, especially in emerging generations, are increasingly aligning their personal expectations with potential employer’s purpose and ESG performance.”
The report points out that ESG doesn’t grow on trees and won’t come for free – products, services, and company valuations will reflect the cost of doing ‘ESG business’, which will either be absorbed by the business or passed onto the consumer.
There will be a market for high ESG-rated products which despite being more costly have the ‘ESG edge’.
Biodiversity will be seen as a new asset class: 50 per cent of GDP (US$41 trillion) depends on high-functioning ecosystems, with one in five countries at risk of their ecosystems collapsing.
The key metric for this asset class will be ‘environmental profit’, the measurable benefit of a decision on the natural world, becoming a component of return on investment (ROI).
The emergence of ESG-ruptcy will result in blacklisting and personal liability – demand for ESG practices will lead to the introduction of ESG rating and certifications and non-compliance will be met with severe consequences.
An ESG data boom will lead to new ESG-data based business models and start-ups, fuelled by venture capital funding, while there will be an exponential increase in the amount of EDG data to manage and analyse globally, coming from multiple sources and in some cases, real-time.
Additionally, we may see the rise of ESG ‘cowboys’, bad actors who attempt to exploit the ‘wild ESG west’ as the lucrative nature of successful sustainable business models become apparent.
Mabbott added: “Organisations will need to demonstrate their commitment to key social issues – sitting on the fence will no longer be an option.
“The consequences of poor ESG performance will be severe – from heavy regulatory penalties to brand damage, the cost will be extremely high.
“But organisations that transform their business models over the next decade, putting ESG front and centre of their operations and culture, will reap the rewards.”