Four ESG considerations exporters need to know
Environmental, social and governance (ESG) practices are gaining momentum globally as more emerging economies, particularly Asia, are raising their investment and consumer expectations.
ESG advisory firm Parvate ESG Managing Director Jim Allenby says ESG is now a priority consideration for exporters, especially for long-term export success.
“In general, our approach to ESG is not just what you have done, it’s setting up what you’re going to do next to show you’re serious about it and actually resourcing for and setting milestones to achieve certain targets,” he says.
One of the most common mistakes businesses make when starting their ESG strategy is taking on too much at once.
“It’s as simple as understanding your current position through understanding the outcome you want to get from doing ESG which is most likely around business performance and improved opportunities and better access to people and markets,” Allenby says.
“Then matching up your current position with the outcomes that are desired to align with an ESG strategy. This all forms a roadmap.”
According to Allenby, the primary ESG considerations to keep in mind when exporting are:
1. Understand expectations of the export jurisdiction
“We have seen recently there are a few barriers to entry to export into a country when you don’t meet the ESG criteria or expectations, so this is the most important aspect of ESG to consider and the first place to start,” he says.
Allenby says this may be easier than it seems as once you understand what the jurisdiction’s requirements are, many businesses that supply to the mining industry or government may be meeting similar standards already.
2. Is net zero important to the jurisdiction? Look into your scope one, two and three emissions
Many markets are looking at climate-related considerations, particularly in the European Union and Allenby says scope one, two and three are becoming increasingly important.
“An analogy I like to use is, suppliers into large companies often don’t fully understand their scope one emissions are the large company’s scope three emissions. So, while an SME may not need to measure their scope three right now, there needs to be some measurement of ESG performance because the end-user business is going to be using that ESG performance for their own reporting,” he says.
While Allenby acknowledges it may be difficult and very costly for SMEs to address their scope one, two and three emissions, he says it is important to start now.
“Forward planning to resource scope two and three emissions reporting is going to have to be part of financial risk and opportunity of a business. SMEs, even just the very small ones, need to be considering how they can resource for tight reporting on scope two and three,” he says.
“There are now many tools and software programs that are getting better which assist with this. And as the technology improves, the cost should also improve for the end user.
“Our clients have seen good progress when we work with them to help tender documents, which actually turns out being a roadmap to increase reporting and increased performance in climate change, emissions and energy efficiency.”
3. Modern slavery and workers’ conditions risks
Knowing the modern slavery risks associated with your product or service may be important to your export jurisdiction. This includes if your own suppliers have high modern slavery risks.
“Understanding modern slavery risks and working conditions can be difficult as there is a certain amount of trust in the policies and local jurisdictions at the time. Photos and videos can help if you don’t have the capability to visit factories or facilities,” he says.
4. Understand the local culture
“It’s very important to know what is accepted locally,” Allenby says, including how to meet and greet people, the use of names, body language, presenting, negotiating and entertaining.
“This aids in developing meaningful business relationships and trust.”
Future of ESG
ESG is still in its infancy and as it matures Allenby believes it will become more defined. He agrees with a comment made by Joe Longo, Australian Securities and Investments Commission (ASIC) Chair, earlier this year that ESG will bring changes similar to the impact of the goods and services tax (GST).
“I think it’s going to be business as usual for four to five years and very well defined,” Allenby says.
“But in the interim, I think it will evolve a bit and it’ll just be an expectation worldwide before we know it. There’s a bit of time-flux in the meantime where industry will have to work hard to understand what’s required for each jurisdiction and for ourselves. I think there is a huge appetite worldwide to get it done as quick as possible.”
Contact Parvate ESG at email@example.com or phone (08) 6391 0115.
CCIWA’s International Trade and Investment Centre (ITIC) helps businesses reduce the time, cost and risk of going global. Contact the team for a free consultation on (08) 9365 7620 or via firstname.lastname@example.org.