Shifting winds on ESG?

A recent AICD webinar explored factors shaping a reckoning with environmental, social, and governance (ESG) priorities in the United States, and the potential flow on for Australian boards.

A United States pushback on ESG initiatives, a growing trend in recent years, has intensified with the change of presidency. On his first day in office, President Trump rolled back executive orders from the previous administration, targeting areas such as decarbonisation and diversity, equity, and inclusion (DEI).

Leading up to the inauguration, companies like Meta, Amazon, McDonald’s, Walmart, and Ford dismantled their DEI initiatives, retreating from programs once considered business imperatives.

There has also been high-profile corporate withdrawals from the voluntary UN-convened Net Zero Banking Alliance (NZBA), and the Net Zero Asset Managers (NZAM) initiative has been suspended.

Against this backdrop, a recent AICD webinar examined sustainability and ESG trends for 2025, raising important questions about the scope and impact of these shifts for Australia.

Expect a ‘realignment and recalibration’

“Stepping back from ESG, we’re seeing multilateralism under strain more broadly,” said Dan Wilcock from the UN Global Compact Network Australia, who took part in the one-hour director webinar held on 16 January.

“International frameworks are struggling to deliver results across various areas, including sustainability. The UNFCCC and Paris Agreement follow-up negotiations have been slow, and the plastics treaty is struggling to get off the ground.”

He noted that with multilateralism facing challenges, the emphasis is shifting to national and subnational governments to lead policy development and drive change.

“But at the national level, more than half of the world’s citizens had elections for their political leadership last year. Among the Five Eyes countries – Australia, New Zealand, the UK, US, and Canada – we’re looking at potentially five changes of government within 18 months,” Wilcock said. “With changes of government, we typically see big announcements and shifts in policy.

Navigate change by understanding stakeholder perspectives

Panellists suggested that while ESG and the net-zero transition are likely to remain enduring priorities for Australian organisations aiming to build sustainable value, directors should closely monitor shifts in stakeholder sentiment as diversity and climate priorities face renewed scrutiny.

“From a director’s point of view, looking at it through a risk lens is absolutely the right thing to do,” said Jane McKellar FAICD, an experienced non-executive director in both public and private companies in Australia and the United States.

“Some areas in society are getting caught up in the dog whistle of ESG terminology, but when you frame it around specific business risks and opportunities, it takes away a lot of the emotive language,” she said.

McKellar also emphasised the importance of a stakeholder-centric approach: “Actively engage your stakeholders, listen to them, understand their concerns and expectations, and shape your sustainability strategies around that. This approach ensures alignment with both the business strategy and stakeholder objectives.”

Varied sentiment, within and between markets

In the United States, DEI has become a polarising issue, with companies scaling back hiring and training initiatives due to heightened legal and political risks.

While the debate has been less intense in Australia, in 2024, a Rio Tinto cultural survey of over 11,600 employees revealed resistance to diversity programs aimed at promoting women, with concerns raised by male and female staff.

The ASX Corporate Governance Council’s draft Corporate Governance Principles and Recommendations, which acknowledge broader aspects of diversity, are currently under deliberation.

“We are beginning to see some companies take note of those discussions about DEI goals, and there are varying perspectives emerging. The question is whether there will be some realignment in the current positioning here,” said Christie Rourke, AICD senior policy adviser and webinar host.

Subtle shifts, rather than rollbacks?

Tim Stutt, partner at Herbert Smith Freehills and a panellist for the webinar, suggested that significant shifts like those in the US are less likely in Australia.

“The reality is that companies are valuing diversity – seeing it as an issue of good people management – but also, at a board level, it’s about having access to a broad range of viewpoints that reflect the stakeholder groups relevant to their business,” said Stutt.

“I don’t see a giant rollback in terms of that. What we might see is a rollback in terms of public positioning – things like rankings and awards becoming less of a priority.”

He added: “There will be much more focus on getting good viewpoints around the board table. Board skills matrices and performance evaluations, having regard to diverse viewpoints, will be key.”

Policy implications in an election year

Australia’s mandatory climate reporting regime began on 1 January 2025, with broad stakeholder support. The Coalition has signalled that, if elected, it will look to wind back mandatory climate reporting laws, having previously highlighted concerns regarding small and medium enterprises and scope 3 reporting. However, the Coalition has reiterated its commitment to achieving net zero by 2050.

The Coalition leader has also expressed opposition to ‘de-banking’ – a term associated with broader financial exclusion practices – when it involves restricting lending to industries such as fossil fuels and forestry based on corporate policies.

Acknowledging the potential for policy uncertainty, Rourke said ESG issues were expected to remain on boardroom agendas.

“Sustainability is not just a trend; it is now established enough to be seen as an enduring priority that contributes to building long-term value. The focus should always be on building sustainable value.”

McKellar underscored the financial and societal merits of ESG: “The NRMA, which is a 3.3-million-member organisation covering all walks of life, strongly believes that the whole workforce should mirror the diversity of our member base.”

This perspective aligns with findings from a recent AFR Freshwater poll on community attitudes towards business, which revealed support for Australian businesses addressing environmental impact and diversity, contrasted with limited enthusiasm for advocacy on social issues:

• 77 per cent believe businesses have a role in reducing environmental impact and promoting sustainability.
• 59 per cent agree businesses should address societal diversity, equity, and inclusion (DEI) challenges.
• 36 per cent think businesses should advocate for a position on contemporary social issues, while 37 per cent oppose such advocacy.

“For businesses, navigating change and uncertainty is critical. Public and investor relations teams, as well as government relations teams, must stay attuned to these shifts, remaining agile and responsive,” Wilcock said.  

“But, as Tim and Jane have emphasised, at the end of the day, it all comes down to risk. Managing risks and responsibilities doesn’t disappear with shifting political sands.”

Panellist insights

In closing, the panellists offered advice for directors:

• Dan Wilcock: “Even with political shifts, physical, financial, and legal risks are not going away. Your fiduciary duties to manage those risks should remain your north star.”
• Jane McKellar: “Embrace change and remain current. Continuously fine-tune your director skills on critical emerging issues like sustainability and AI.”
• Timothy Stutt: “All things are possible through good disclosure. Be frank about your progress and start the review process early.”