Businesses tendering to the Victorian government are finding that having a convincing social and environmental response can provide a real advantage. With climate change increasingly identified as a financial risk to business it is, however, an area that Victorian businesses can leverage for mutual gain.

This blog explores Victorian, Australian and international developments to highlight the importance of sustainable initiatives that tackle climate change, for businesses offering goods and services to the Victorian government.

Victorian context

The Victorian government recognises that governments and business are key to climate action. Its Social Procurement Framework (SPF) aims to “use the Government's buying power to deliver social, economic and environmental outcomes that benefit the Victorian community, the economy and the environment.” Accounting for up to 10% of the weightings of evaluation criteria (depending on tender value), sustainable practices may make the difference between a winning and losing bid.

3 of the SPF’s 10 objectives relate to sustainability:

Environmentally sustainable outputs

• Project-specific requirements to use sustainable resources and to manage waste and pollution
• Use of recycled content in construction works

Environmentally sustainable business practices

• Adoption of sustainable business practices by suppliers to the Victorian Government

Implementation of the Climate Change Policy Objectives

• Project-specific requirements to minimise greenhouse gas emissions
• Procurement of outputs that are resilient against the impacts of climate change

While Victorian government agencies can choose which of the SPF objectives to prioritise in each tender process, sustainability objectives are frequently chosen. With this in mind, tenderers should be on the front foot and ready to demonstrate convincingly in their tenders how they achieve the listed SPF outcomes. These could include, for example, policies and practices that will achieve the listed SPF outcomes whilst also meeting climate risk reporting obligations.

Australian context

The benefits of developing sustainable policies and practices are not just about having a positive story to tell in tender responses. Australian regulators view climate change as a financial risk. RBA Deputy Governor Guy Debelle recently called for an “orderly transition” to avoid risks posed by climate change to industry, government and communities. The Deputy Governor noted “decisions taken now by businesses and government may have a sizeable influence on that transition path.”

ASIC and APRA regard climate change as a source of major financial risk. In March, an APRA paper found “a majority of regulated entities were taking steps to increase their understanding of [climate change-related financial] risk”, and one-third view climate risks as material. Overall, “a shift from awareness towards action in response to these risks is underway.”

Regulators are pressuring company boards and investors to “ramp up disclosures and take stronger action on long-term risks posed by climate change.” APRA insurance head Geoff Summerhayes described climate change as creating a “whole new paradigm for firms, regulators and the broader community”. ASIC Commissioner John Price notes ASIC encourages boards and directors to go beyond statutory disclosure obligations and provide voluntary disclosures to the market. The regulators called climate change risk “all pervading” and “legally foreseeable”, noting these would “soon be fundamental to every financial decision an APRA-regulated firm makes.”

A March 2019 joint guidance statement by the Australian Accounting Standards Board (AASB) and Auditing & Assurance Standards Board (AuASB) declared that entities preparing financial statements should consider whether investors could reasonably expect that climate-related risks could affect financial statements. Directors, preparers and auditors must consider the materiality of climate-related risks when preparing, approving and auditing financial statements.

Macquarie Bank CEO Mary Reemst also recently observed that regulators, governments and business increasingly consider climate change a financial risk. Climate change is the number one long-term issue that Australian company directors want the federal government to address. Companies and directors may face increasing climate-related liability, with law firm Ashurst noting “companies and their directors must monitor these developments and ensure that their practices meet the increasingly well-understood obligations.”

Groups such as the Australian Sustainable Finance Initiative and the Investor Group on Climate Change aim to promote sustainable investment to mitigate the effects of climate change and support “greater social, environmental and economic outcomes for the country”.

International context

Principle 8 of the United Nations Global Compact provides: “Businesses should undertake initiatives to promote greater environmental responsibility.” Business is responsible for ensuring activities within their operations do not harm the environment. Companies can use assessment or audit tools, management tools, and communication and reporting tools to develop and implement an environmentally responsible business strategy.

The Taskforce on Climate-Related Financial Disclosure (TCFD) develops voluntary climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers and other stakeholders. The ASX Corporate Governance Council encourages entities to consider TCFD’s frameworks.

This month, Canada’s central bank listed climate change as one of six major vulnerabilities facing Canada’s economy, following other central banks like the Bank of England and the European Central Bank.

Where to from here?

Internationally, businesses and civil society are working for a sustainable future. In Australia, businesses face a regulatory environment increasingly defined by climate change. As businesses adjust to this environment by adopting sustainable governance practices, it is strategic for those businesses to familiarise themselves with the sustainable objectives in the Victorian SPF. Likewise, it will be increasingly important for Victorian government agencies to understand the global landscape, including developments in regimes such as climate-related financial risk disclosures, including when they are evaluating responses to social procurement criteria in tenders.

Understanding the SPF objectives is important for government buyers to get the best value for money, and for tenderers to have the best chance of winning.

For suppliers to Victorian government agencies, click here to find out more. 

A participant in the UN Global Compact, CourtHeath seeks to raise awareness about the Sustainable Development Goals and the principles of the Global Compact with business and government organisations in Victoria.

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IMAGE: Used under licence from shutterstock.com

Written by By Cameron Doig, Pauline Bernard and Julia Cornwell-McKean