Parliamentary Committees

Natural Resources Committee: Inquiry into Environmental, Social and Governance (ESG) in Primary Production

The Hon. R.P. WORTLEY (16:00): I move:

That the report of the committee be noted.

The role of the Natural Resources Committee is to investigate and report on the protection, improvement and enhancement of the state's natural resources, and the extent to which an integrated approach to the use and management of natural resources, based on the principles of ecologically sustainable use, development and protection is possible.

The committee also inquired about the degree to which the objectives for the rehabilitation of the River Murray are being achieved pursuant to the River Murray Act 2003. On 16 November 2023, pursuant to section 15L of the Parliamentary Committees Act 1991, the Natural Resources Committee resolved to commence an inquiry into environmental, social and governance (ESG) with particular reference to:

what is environmental, social and governance;

what is the process employed or undergone by entities to craft ESG frameworks;

what is the current status of ESG initiatives in South Australia, interstate and internationally relative to entities using the framework, reporting standards and measuring impacts;

what are the pressures and opportunities for primary producers in South Australia regarding ESG;

what does an ESG leader in primary production in SA look like;

what are the pathways to get it there?; and

any other relevant matters.

The committee received six submissions and held 10 hearings from 22 February to 27 June 2024. It obtained evidence from representatives of South Australia's peak industry bodies, a state government department, experts from academia, and research and policy institutions. Environmental, social and governance is a holistic approach to sustainability. In a primary production context, it considers primary producers' performance as stewards of nature, relations with employees, customers, communities, and other actors in the supply chain, and the practices and processes in the leadership structures.

The process of transitioning to ESG principles necessitates the following actions:

(a) primary producers and relevant stakeholders working together;

(b) having a standardised set of measures;

(c) improving primary producers' ability to fulfill ESG requirements; and

(d) balancing environmental stewardship with profit maximisation.

The current level of ESG compliance in the international, Australian and South Australian arenas suggest that ESG is more than just a buzzword in the sustainability landscape. Frameworks, standards and regulations that assess businesses, including primary producers, ESG performances, demonstrate this. While South Australia's primary producers' recognition and adoption of ESG principles are at differing levels of development, primary production industries in South Australia are undoubtedly committed to sustainability as demonstrated by the extensive commodity specific blueprints or action plans that guide their practices and performances.

South Australian primary producers are currently confronted with increasing demands from international, interstate and state entities to present ESG credentials despite the need for standardised ESG metrics and reporting schemes. Consequently, farmers find themselves overloaded and uncertain about the requirements and delay or resist their transition to ESG. The current scenario also opens ESG measures and reporting to manipulation by entities themselves and performance auditors. The dissimilarity in primary producers' capacity and maturity in ESG compliance adds to the pressure on primary producers.

The evidence received by the committee, however, noted opportunities amid these challenges. One of these opportunities is South Australian farmers' extensive and longstanding stewardship of the environment, making them well-equipped already to demonstrate sustainability practices. This places farmers in an advantageous position relative to ESG compliance and reporting.

Other favourable circumstances for South Australian primary producers regarding ESG are current initiatives at the federal and state levels. One is the Australian Agricultural Sustainability Framework. It is an outcome-based rather than a practice-based approach to ESG-aligned sustainability reporting. The AASF is a shared-values approach towards sustainability that uses an ESG lens; however, it is not an ESG reporting system.

Another opportunity for primary producers is the Australian sustainable finance taxonomy currently being developed. The agricultural sector is one of the priority areas for this taxonomy and it is hoped to guide many primary producers reporting on sustainability, including ESG, to financial institutions. Furthermore, tools to account for or assess natural capital and product traceability innovations capitalise on farmers' providence and are opportunities for South Australian farmers.

South Australia's dairy, grain and wine industries are advancing towards ESG. This movement is exemplified in these industries' state action plans and initiatives. Enabling factors toward South Australian primary producers' trajectory towards ESG are (a) standardised ESG metrics, (b) data digitisation, (c) information and experience-sharing platforms, (d) federal and state level policies that promote and support the primary production sector's sustainability credentials and performance, and (e) conveying the sustainability narratives of these industries.

Overall, ESG as a sustainability approach goes beyond the expectation that South Australia's primary producers be sustainable in their practices towards the environment. ESG demands that primary producers also be accountable to animals, people, consumers and communities, and that this be embedded in their governance structures. However, the increasing demand to show ESG credentials to relevant global, interstate and state markets, despite the lack of standardised ESG measures and reporting systems, puts pressure on South Australian farmers' transition to ESG. It overwhelms farmers because compliance involves cost and necessitates capacity building.

There are, however, favourable conditions for South Australian primary producers that could ease the transition. The most important of these opportunities that ongoing ESG-related initiatives and innovations are predicated on is primary producers' well-established providence of the environment. Lastly, ESG leadership within primary production requires action towards standardising ESG measurements and reporting systems, learning and sharing ESG experiences across the sector, legislative levers and communicating ESG narratives at international, interstate and state levels.

I wish to thank all those who gave their time to assist the committee with this inquiry. I commend the committee members—Sarah Andrews MP, Mr David Basham MP, the Hon. Tammy Franks MLC, the Hon. Ben Hood MLC and Ms Catherine Hutchesson MP—for their contribution to the report. All members worked cooperatively on the report. I would also like to thank the previous committee Presiding Member, the Hon. Leon Bignell MP, and also the current Presiding Member, Ms Dana Wortley MP, member for Torrens.

I would also like to thank our staff: Mr Patrick Dupont, parliamentary officer until 21 January 2024, and Mr Shane Hilton, parliamentary officer from 22 January 2024. I would like to pay particular acknowledgement to Dr Jennefer Bagaporo, our research officer, who put all the very complex information into a report that, hopefully, some can actually understand. There were also seven recommendations which will, naturally, go to the minister, who will respond in due course.

Debate adjourned on motion of Hon. L.A. Henderson.