ESG for ASX-listed corporates in 2026 is shifting from headline ambition to execution risk. Mandatory climate reporting will drive transition and physical risk into financial statements, while a rapidly evolving industrial relations and psychosocial safety landscape raises labour-cost and litigation risk. AI adoption is moving from pilots to governed scale, forcing boards to confront model risk and workforce displacement.
Climate and Decarbonisation: Mandatory Reporting Becomes a Valuation Driver
Australia's climate-related financial disclosure regime (CRFD) is now live for large companies with financial years beginning on or after 1 January 2025. Early 2026 will see the first wave of full climate reports integrating transition and physical risk directly into financial statements.
The focus now shifts from whether to report, to how credibly companies:
- Link climate scenarios to asset lives, impairments and capex pathways
- Disclose consistent financed/Scope 3 emissions assumptions
- Reconcile climate targets with dividend and M&A policies
However, slower-than-expected grid decarbonisation, power price volatility and surging data-centre demand are testing 2030 pathways. Some companies, especially in heavy industry, may re-sequence or rescope 2030 goals while maintaining net zero commitments. The market will differentiate between evidence-based recalibration and opportunistic back-sliding.
Water: An Emerging Operational Constraint
Water security is becoming a central risk in sectors including mining, metals processing, agriculture, food manufacturing and data centres. In water-stressed regions like the Pilbara, water has shifted from a peripheral concern to a critical operational constraint, with Traditional Owners reporting drying waterholes and challenging the legacy notion of "aquanullius".
Companies without robust water strategies and strong community relationships risk both regulatory tightening and social licence challenges, particularly as the 2026 Murray-Darling Basin Plan Review sharpens focus on climate impacts and First Nations interests.
Workforce: Broadening from Physical to Psychosocial Safety
Psychosocial risk is rapidly shifting from an HR topic to a board-level governance and liability issue. Safe Work Australia's Model Code of Practice now requires employers to identify and control psychosocial risks (workload, bullying, remote work pressures) as rigorously as physical hazards.
High-profile class actions against BHP and Rio Tinto over alleged systemic sexual harassment and discrimination highlight the convergence of workplace health and safety, human rights and culture risk. Australia's recent workplace law reforms have created a dense compliance environment where psychosocial safety and culture can no longer be treated as separate from legal and financial risk.
High-risk sectors including mining, construction, healthcare, retail and logistics need to demonstrate robust controls over:
- FIFO/shift impact
- Harassment risk
- Staffing levels and fatigue
Where class action and regulatory exposure crystallises, investors may apply a persistent governance/social risk discount.
Artificial Intelligence: From Pilot Projects to Governed Scale
The Australian Government's National AI Plan, released in December 2025, commits to an AI-enabled economy using a relatively "light touch" regulatory approach.
Investor expectations are crystallising around four areas:
- Clear board-level oversight of AI
- Model risk and data ethics including bias testing and explainability
- Workforce implications with re-skilling strategies
- Quantification of benefits with credible numbers on AI-related savings or productivity gains
For financials, telco, healthcare and services sectors, poor AI governance could lead to enforcement actions or reputational damage. Data centre operators and utilities must demonstrate how AI-driven demand growth is managed within decarbonisation pathways.
Governance and Remuneration: Post-2025 AGM Reset
The 2025 AGM season saw elevated remuneration report "strikes" and strong protest votes on director elections. Boards are expected to demonstrate active downward discretion where financial or ESG outcomes warrant it, including safety failures, conduct events or poor performance.
Climate and culture metrics in pay structures remain patchy and often qualitative, with investors looking for clearer, weighted KPIs with baselines, targets and transparent outcomes. Persistent under-performance or repeated strikes will intensify pressure for board renewal, particularly in capital-intensive and social-risk exposed sectors.
Our View
Despite global uncertainty, ESG in 2026 remains a core component of strategy, capital allocation, workforce design and risk management for many ASX-listed companies. 2026 will favour those able to distinguish between ESG as compliance and ESG as a genuine driver of risk, return and competitive advantage. Companies that proactively address these ESG themes will be better positioned to meet stakeholder expectations, navigate regulatory changes and create long-term sustainable value.
