References to an emerging global corporate abbreviation, ESG — or environmental, social, and governance – are growing among Australian agribusinesses and it could change the way Australians farm.
What does ESG mean?
ESG encases three major areas: environment, covering factors like soil health and emissions; social, covering responsible sourcing and employee engagement; and governance, covering food and work safety.
"ESG is almost like a business disruption," CommBank's national director of agribusiness Carmel Onions said.
"It's a lot of changing expectations for farmers around how they produce, how they sell their product and how they tell their story."
KPMG's leader of corporate ESG strategy Robert Poole described the concept as a set of guidelines governing how businesses look after the environment and their people.
"Ultimately, it's [going to be] a ticket to play," Mr Poole said.
The problem, however, is that ESG guidelines have no national, or global, set of standards and are instead open to interpretation by individual businesses.
With more than 30 different industry ESG models currently in Australia, including frameworks from the beef, dairy, and sheep sectors, Mr Poole said the onus of proving a positive ESG status could still fall to individual farmers.
Know your number
As of December 2022, all New Zealand farmers are required to calculate their greenhouse gas emissions and must have a written plan in place to manage them by December 2024.
"I can't see any future where we won't have a similar kind of 'know your number' strategy in Australia," Mr Poole said.
He predicted this "form of base-level reporting" could be necessary through both government and corporate policy.
"Certainly today the big move is to start to develop the data systems that can measure ESG as effectively as possible," he said.
"We need to build up a data bank to report the whole supply chain."
Will ESG impact commercial markets?
Agricultural market analyst Matt Dalgleish said fulfilling certain ESG criteria could be the difference between entry and exclusion from export markets.
"Those who are involved in ESG might not necessarily be getting a premium," Mr Dalgleish said.
"But if you aren't — as an individual farmer — able to demonstrate particular ESG criteria that satisfy the end client, then you could lose access to a certain market.
"That could then be followed by a price discount [for a product] so, by default, that farmer is getting less."
A specific market that Mr Dalgleish pointed to was that of the European Union, where agricultural policy is considered far "greener" than that of Australia.
"If Australian farmers don't meet the EU's green agenda, then we could see tariffs or barriers to enter into that market," he said.
Ms Onions, however, believed there was more market opportunity in ESG.
"Farmers will have the opportunity to differentiate themselves around their environmental scorecards to supply chains and other stakeholders to secure existing and access new market opportunities," she said.
Too little clarity
For Fiona Conroy, who runs cattle and merino sheep on Victoria's Bellarine Peninsula, the concept of ESG is still too new to fully comprehend.
"We're hearing about it now, but it's like that truck's light in the distance, everyone's talking about it, but people don't quite know what to make of it," Ms Conroy said.
"But we've seen these issues come to the forefront. It's like the conversation around mulesing in sheep — it starts off as a bit of chatter, then it becomes mainstream, then we see the market signals follow.
"At the end of the day, right now we need reliable, credible guidance on it."
