From employee scandals to unethical business practices, non-financial factors can severely damage a company’s perceived legitimacy. Indeed, social licence – the collective and ongoing acceptance of an organisation or industry by stakeholders – comes down almost entirely to environmental, social and governance (ESG) considerations. Towards the top of these reputational risk factors is sustainability.
‘Public demand for transparency and environmentally responsible practices is only intensifying’
In today’s globalised, connected world, companies are held to public account more than ever. As such, sustainability is no longer only an ethical issue; it’s now closely tied to legitimacy and trust among stakeholders including local communities, investors and staff. ‘Public demand for transparency and the adoption of socially and environmentally responsible practices by organisations is only intensifying,’ says Rita Fentener van Vlissingen, associate director of impact and ESG relations at KPMG Australia.
Shifting baseline
Globally, mandatory ESG reporting is increasing, creating myriad opportunities for accountancy firms. That these requirements are constantly changing reflects society’s shifting baseline for what is acceptable and what is not – in other words, social licence.
‘You don’t go a day without seeing ESG in the press,’ says Nicola Weir, Deloitte Asia Pacific’s internal climate and sustainability leader and ESG leader in South Korea. ‘That wasn’t the case even two years ago. We’re feeling climate change much more acutely, thanks to social media and more and more people directly experiencing life-changing events like bushfires, flash floods and hurricanes in their day-to-day lives.’
‘There’s increasing pressure on companies to verify the ESG data they’re putting out’
In Singapore, Paia Consulting works with clients across South-East Asia on carbon reporting, strategies and training. Senior Paia consultant Valerie Phua says that mandatory ESG reporting may actually fuel demands of other stakeholders and, in doing so, raise the bar for social licence. ‘With increasing expectations around sustainability, there’s also increasing expectations around whether money is being spent in a meaningful way,’ she points out. ‘Historically, impact assessment has been the domain of the non-profit sector, but we are increasingly seeing it in the corporate sector too.’
ESG reporting drives social licence in other ways, too. While it builds stakeholder confidence, a proliferation of previously undisclosed data can also raise consumer suspicions of greenwashing. ‘There’s lots of justified cynicism towards companies’ sustainability commitments,’ Phua says. ‘For this reason, there’s increasing pressure on companies to verify the ESG data they’re putting out there.’
Here, too, accountancy has an important role in assurance – both mandatory and otherwise. ‘In the context of ESG, needs and expectations have been rapidly evolving,’ says Fentener van Vlissingen. ‘What employees, customers, investors and other stakeholders expect to hear from an organisation’s ESG performance should be front of mind when looking to maintain and strengthen trust.’
Action needed
Deloitte’s 2022 CxO Sustainability Report points to a disconnect between business leaders’ ambition and action in delivering impactful climate strategies. 88% understand that immediate action is needed, but just 19% know what that action should be. Weir has three tips for leaders to impact change and build trust:
Listen ‘For many leaders, profit growth is their main metric for success. Those who can think beyond immediate returns and look at opportunities for sustainable, systemic change across industries are likely to weather the looming headwinds better. Listen to employee activists, customers and investors, and make findings a core part of strategy.’
Educate ‘This should be everyone’s responsibility, not just the CxO. My goal is that all stakeholders should be knowledgeable enough to make sustainable choices naturally – just as when discussing financials.’
Quit greenwashing ‘Once leaders understand that greenwashing isn’t going to cut it any more, we will start to see closure of that action versus ambition gap, and a move towards transparent, science-based goals.’
People power
The pressure on companies to conduct themselves in a way that is environmentally responsible comes from multiple directions. They include the expectations that millennials and Gen Zs in particular have of their employers. According to a 2021 poll by Australian human resources software company Elmo, 71% of Gen Zs and 52% of millennials ‘would not work for a business that did not take action to address climate change’.
With the spending power of Gen Zs and millennials set to increase, businesses must align with their priorities. Weir explains: ‘Estimated Asian consumer spending in 2030 is projected at US$32 trillion, largely driven by millennials and Gen Zs – a group with clear values who expect companies to act as responsible businesses. That consumer choice, even in a lethargic global economy, is likely to swing the pendulum towards sustainable products.’
‘Walking the talk on ESG is critical for us to attract and retain talent’
Leading by example
Employee engagement plays a significant role in building the legitimacy that underpins social licence, and accountancy is no exception. A pillar of Deloitte’s climate strategy is empowerment through initiatives including a recent and inaugural Global Sustainability and Climate Learning Week. The hybrid event included talks by international sustainability teams, a discussion on veganism by filmmaker James Cameron, and Asia Pacific-centred presentations on market strategy for sustainability. ‘It’s a huge investment for us globally,’ says Weir. ‘But to service clients the best we possibly can we will continue to invest in our people. We will upskill them – not just our ESG teams but all of our people – and do this on repeat.’
Internal actions combined with clear communication can similarly help build social licence among employees. In summer 2022, KPMG in Australia entered into a supply agreement to procure renewable energy for all offices in the country. ‘Our existing and potential employees care about sustainability, about knowing that they are working for a responsible, purpose-led organisation. Walking the talk on ESG is critical for us to attract and retain talent,’ says Fentener van Vlissingen.
More information
Find more resources and insights at ACCA’s sustainability hub
