Driving Sustainability: A New Frontier for Australian Organisations
Australia is gearing up for a significant shift in sustainability reporting with the introduction of two new international reporting standards, IFRS S1 and IFRS S2, effective from 1 January 2025. This change is not merely about adding more details to financial disclosures; it's about fundamentally altering how organisations integrate sustainability into their strategy. These standards signal a deeper commitment to sustainability, requiring businesses to disclose their climate and sustainability risks and demonstrate how they're addressing these risks.
What is changing
New mandatory reporting standards: The Australian Accounting Standards Board (AASB) will implement two international reporting standards, IFRS S1 and IFRS S2, effective 1 January 2025. This is not just an accounting disclosure change; it will require organisations to make significant shifts in how they incorporate sustainability as part of their strategy.
Why this is important
These new standards are more than just additional financial disclosures. This move signals a fundamental shift in the sustainability landscape for organisations across Australia. Meeting these new standards requires a mindset shift to integrate sustainability deeply into strategies and reporting mechanisms. For example, businesses must now disclose their climate and sustainability risks to investors and demonstrate how risks are actively addressed.
Applicable to all public and private companies, organisations must adopt a meaningful sustainability lens across their business. Traditional head-office-based sustainability teams have typically been reporting-focused. They may not be geared to driving outcomes across the organisation. For example, the nuance between procurement and supply chain teams to investigate a supplier over a local labour breach, that each work site meets energy usage standards and that finance is aligned with the local facilities contractor. This alignment ultimately ensures board and stakeholder disclosures are accurate, meaningful and timely.
To get going, there are two things to get right:
1. Set up your teams up for success to execute against the strategy
Businesses need to show progress against their sustainability strategy, shifting away from siloed sustainability teams to form cross-functional teams that continually deliver strong outcomes. Cross-functional teams bring together professionals from across the organisation with diverse skills and approaches, such as environmental health and safety, finance, supply chain and operations. This diversity ensures all aspects of sustainability disclosures, including regulatory compliance and ESG impact assessment, are adequately addressed.
A change like this is not easy. These new cross-functional teams need a common way of working so there is clear and effective communication across the teams. Differences in terminology, work processes, and departmental cultures can lead to miscommunications within the team and slow the delivery of the sustainability initiatives.
Cross-functional teams also need the capacity to deliver sustainability initiatives balanced against their different, and sometimes competing, business-as-usual priorities and objectives.
Finally, your new cross-functional teams need a roadmap with measurable milestones to provide a clear path forward, ensuring all team members are aligned towards common sustainability objectives. A roadmap outlines the vision, goals, and key deliverables, ensuring all team members understand the direction in which they are heading. This alignment is crucial for a cross-functional team, where members come from different departments with varying priorities and perspectives. A shared roadmap helps align these diverse viewpoints towards a common goal, fostering a sense of purpose and unity.
2. Establish robust governance that is fit for purpose
Robust governance systems ensure accountability, compliance, and alignment with your sustainability goals. Creating that alignment is necessary to identify WHAT we want the team to deliver and ensure teams are moving together towards shared outcomes.
We have seen two methods that drastically increase effective governance and alignment within organisations: OKRs and quarterly planning cycles. OKRs (Objectives and Key Results) are a proven goal-setting approach that demonstrates progress and gets feedback regularly. This approach has worked at many of the world’s most well-known organisations because it helps articulate what matters most (Objectives), with clear measures of success (Key Results).
Objective and Key Results (OKRs) are a proven framework for enhancing governance within organisations, particularly through clarifying strategic approaches, focusing efforts, creating transparency, and measuring impact:
1. Clarification and strategic focus: OKRs provide a clear approach for setting and communicating what you want to achieve across your business units (BUs). This process means every individual not only considers their BU objectives but identifies and commits to specific actions that will drive their sustainability outcomes. Such clarity and commitment ensure efforts are aligned and directly contribute to what is important. This alignment is crucial for governance as it ensures efforts are not dispersed or misaligned with the strategic direction – meaning your cross-functional teams are more efficient and effective.
2. Transparency and collaboration: OKRs promote transparency - by making OKRs visible to everyone, this ensures all teams are aware of priorities across different levels and units. This awareness fosters a culture of collaboration, as individuals understand not just their own objectives but also how they can contribute to others' goals. Such an environment is beneficial for governance as it encourages a more cohesive and unified approach to achieving organisational objectives, mitigating silos and promoting cross-functional cooperation.
3. Impact measurement and accountability: A key governance benefit of OKRs is the ability to measure impact through data driven grading. This allows for the transparent assessment of progress towards achieving key results, enabling honest and impartial grading of progress – typically a score of between 0.0 to 1.0. Such measurement not only facilitates accountability but also enables informed decision-making regarding resource allocation and strategic adjustments. The focus on data-driven outcomes ensures your governance structures can more effectively monitor, evaluate, and steer sustainability efforts towards aligned goals, enhancing overall performance outcomes.
A Quarterly Delivery Cycle (QDC) is another governance method that has proven effective in ensuring sustainability efforts remain on track. Working hand in glove with your OKRs, QDC, a 90-day iterative cycle, is a proven framework to articulate:
- WHAT you want to achieve – through ambitious OKRs, and
- HOW you’re going to achieve your OKRs by asking the teams doing the work.
All while ensuring that capacity (e.g. funding, resources, time) is aligned with ambitions for the quarter. QDC provides clarity, visibility and flexibility:
1. Clarity on what is important: The implementation of Quarterly Delivery Cycles (QDC) significantly enhances governance by establishing a transparent framework for prioritisation. This framework not only aids in aligning the workload of teams towards the most critical initiatives but also increases transparency regarding the ownership of delivering outcomes. Such clarity is vital for governance as it ensures that all organisational efforts are strategically aligned, contributing effectively to the long-term sustainability vision. The process of regular alignment with strategic goals, facilitated by QDC, ensures that governance efforts remain focused and directed towards achieving key organisational objectives.
2. Visibility into the execution of strategy: This visibility is achieved through faster and more frequent check-ins, which allow for the monitoring of progress towards OKRs, offering greater visibility into both knowns and unknowns. This disciplined measurable approach to accountability and visibility, linked to value creation, ensures governance structures can effectively oversee and direct efforts towards what is important. The process of adjusting OKRs based on real-time performance further reinforces accountability, acknowledging achievements, and addressing areas of improvement, thereby maintaining a clear line of sight from strategic planning to execution.
3. Flexibility in planning and execution: This iterative planning and responsive execution ensure adaptable governance structures, enabling you to remain agile and responsive to both opportunities and challenges. By enabling strong annual planning with the flexibility for quarterly realignments, QDC supports governance by ensuring organisation can quickly adapt to new information, changes in the market, or unforeseen challenges. This approach brings the right people to the right work at the right time, further enhancing the organisation's ability to meet its OKRs efficiently and effectively.
How ADAPTOVATE has helped others
With deep experience helping organisations and teams embed and enact their sustainability strategies, ADAPTOVATE can help you establish cross-functional teams with new ways of working and develop a fit-for-purpose governance framework.
Change like this requires an open mindset, from “that’s just reporting” to “I have a meaningful role in achieving our sustainability targets.” Our approach ensures alignment, transparency, and accountability, enabling organisations to achieve their sustainability objectives efficiently.
For example, a global leader in oil and gas was looking to deliver solutions to their aspirational environmental sustainability goals for water use in their exploration and production operations. We helped our client realise a 50% increase in the use of recycled water and save 1.9 million barrels of water a day by:
- Developing a North Star vision with business unit leaders and aligning that leadership vision with the delivery team’s priorities through coordinated objectives & key results (OKRs)
- Launched 8 x cross-functional delivery teams in new ways of working
- Focused the organisation on accomplishing their shared goals through tailored implementation of 90-day delivery cycles
In another example, we assisted an Australian listed company of 200,000 employees embed sustainability as a priority agenda from strategy to execution across its entire organisation. We helped them deliver over A$500M net benefit to society in 2023 through their sustainability initiatives. Together we did this by:
- Co-designing a new operating model to progress its sustainability goals. In their new model, their Group Sustainability function orchestrates the work, together with cross-functional teams who deliver end-to-end outcomes across the business
- As part of the co-design of the new sustainability operating model, a set of principles was developed to define a new operating model with regular forums so that strategy, governance, and delivery were synchronised
The journey towards sustainability is complex and challenging, but with the right partners, organisations can turn challenges into opportunities for growth, innovation, and leadership in sustainability. ADAPTOVATE is committed to supporting businesses every step of the way, ensuring they meet the new standards and contribute positively to the new frontier for Australian organisations.
Reach out to us if you'd like further information on the sustainability reporting requirements.
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