Bain & Co report exposes a lack of enthusiasm in Australia to tap into ESG growth

Australian companies lag their European counterparts when it comes to seeing growth opportunities from meeting sustainability targets.

Australia is transitioning from fossil fuel-generated energy to renewables.

Australian companies lag overseas rivals in recognising that becoming more sustainable can lead to growth rather than just being an acknowledged business risk, according to new research by Bain & Co.

Bain interviewed 20 companies and found that only one third saw “significant value creation opportunities from sustainability” compared with 60 per cent of companies in the Netherlands and 50 per cent of companies in Germany.

“It means we are getting off the starting block slowly,” said Agathe Gross, who co-authored Bain’s Sustainability: From Surviving to Thriving in Australia report being released on Monday.

The companies which did see taking action on sustainability as a positive, were able to find new profit pools, lower costs, and better equity valuations, according to the report.

Bain & Co report co-author Agathe Gross.

The report found that 90 per cent of Australian companies were most focused on the “E” in environmental, social and governance (ESG) issues and the same percentage believed Australia was lagging other developed economies on sustainability. All anticipated sustainability disruption in their industries.

The Australian Government this year committed to emissions reduction targets of 43 per cent below 2005 levels by 2030, and net zero by 2050. This included an 82 per cent renewable energy target.

While it was a step forward from the obfuscatory actions of the previous Coalition government, Ms Gross said the country should commit to a 50 per cent reduction as part of the global goal of trying to cap the rise in temperature to 1.5c above pre-industrial levels.

“The previous government did not give enough confidence,” for companies to commit to greater action plans, Ms Gross said, adding that was why “the appetite to heavily invest is a lot lower”.

Activists have been keen to highlight the likely effects of a warming planet.

The lack of clear policy direction over many years has contributed to the challenges of sustainability driven transformation in Australia, according to Ms Gross, who leads Bain’s sustainability and responsibility practice in Australia.

As a result, “a lot of companies are positioning themselves as fast followers rather than leaders,” she said.

Business leaders highlighted obstacles on their journey to transform, including immature capabilities, organisational inertia, and trade-offs with financial value.

However, Ms Gross said there were positive actions taking place, and the federal Labor government’s stance on sustainability should help the country transition to green.

She pointed to the Sun Cable as an example of a project where Australia was already taking the lead.

Sun Cable is building the Australia-Asia Power Link, which will harness solar power in the Northern Territory and run it through a massive to-be-built undersea cable running from Darwin to Singapore.

When finished the project will be the world’s largest solar energy infrastructure network.

On the negative side, Ms Gross said there needed to be firmer commitments by companies to reduce their emissions.

Australia faces tougher challenges than some developed countries because the economy is so dependent on mining, fossil fuels, and agriculture.

Climate action has become a political battleground in Australia. Picture: AAP

A UN panel report released after the Cop27 climate summit in Egypt highlighted the need for companies to make significant reductions and only use offsets for reductions beyond their pre-agreed figure.

This is at odds with how many Australian companies are committing to net zero pledges by purchasing carbon offsets to reduce their reported emissions.

Ms Gross said progress in this space demands wide collaboration adding that business leaders are seeking an orchestrated response in which government, businesses, and communities must work together.

“Only system-wide partnerships will power the necessary systemic and policy changes,” Ms Gross said.