As sustainability regulation accelerates across major economies, a quieter but increasingly material risk is emerging inside companies: a widening ESG skills gap that sits well beyond sustainability teams. While environmental, social and governance requirements are now embedded into financial reporting, risk management and assurance, much of the workforce responsible for delivering these obligations lacks the necessary capability.

New disclosure regimes including Australia’s AASB S2, the EU’s CSRD and global ISSB standards are transforming ESG from a voluntary strategy function into a regulated, auditable business discipline. Yet many organisations are discovering that the people expected to execute these requirements often do not work in ESG roles, exposing a structural gap between ambition and execution.

ESG Moves From Strategy to Enterprise Execution

For much of the past decade, sustainability expertise has been concentrated within specialist ESG teams. These teams have led reporting, stakeholder engagement and target-setting. However, as climate risk, emissions data and human rights due diligence are increasingly treated as financial and operational issues, ESG teams can no longer deliver in isolation.

Climate risk is now part of enterprise risk frameworks. Emissions data is becoming part of financial statements. Human rights impacts are being written into procurement contracts. This shift is forcing ESG responsibilities into finance, operations, procurement, engineering, audit and governance functions that were not originally trained to manage them.

According to the World Economic Forum, sustainability and green skills are among the fastest-growing global capabilities, yet only a small fraction of the workforce currently possesses them. The result is mounting pressure across organisations as compliance deadlines approach.

A Two-Speed ESG Reality Inside Organisations

The skills gap is creating a two-speed corporate environment. A small group of sustainability professionals is racing to interpret evolving regulations, while much larger teams responsible for data generation, controls and assurance struggle to keep pace.

Surveys of finance leaders indicate that confidence in managing sustainability-related reporting remains low. Globally, fewer than one third of finance leaders believe their teams are equipped to handle ESG disclosures. In Australia, companies preparing for AASB S2 are increasingly relying on external consultants to translate climate metrics into financial language and to build internal control frameworks from the ground up.

This dynamic increases costs, slows execution and heightens the risk of compliance failures, greenwashing allegations and investor scrutiny.

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Australia’s Capability Challenge Under Financial-Grade ESG Reporting

Australia is emerging as a critical test case for ESG capability. With AASB S2 introducing some of the region’s most demanding climate disclosure requirements, companies will be required to produce assured, comparable and decision-useful sustainability data.

At the same time, governance confidence is declining. Recent surveys indicate that only about half of Australian directors feel confident overseeing climate-related financial risks, a drop from previous years. ESG content remains limited across mainstream accounting, finance and business education, leaving organisations to bridge the gap internally.

This challenge is not purely technical. Many businesses still treat ESG as a niche discipline rather than a shared organisational competency, slowing integration into core decision-making.

Where the Capability Gaps Are Most Acute

The most significant gaps are appearing at the intersection of functions. Sustainability teams often lack deep financial and assurance expertise, while finance teams may not fully understand emissions accounting, biodiversity metrics or human rights indicators. Operational teams increasingly own ESG risks without formal training, and boards struggle to translate long-term climate targets into performance metrics and accountability structures.

These gaps are structural rather than ideological, reflecting how ESG responsibilities have expanded faster than workforce capability.

Early Signals of Organisational Response

Some organisations are beginning to respond by embedding ESG capability across functions rather than isolating it within sustainability teams. Large corporates are expanding internal ESG training across finance and operations, integrating climate risk into capital allocation and rolling out cross-functional capability programs.

Internationally, banks and consumer goods companies are launching enterprise-wide sustainability academies, targeting finance, procurement and supply chain teams to improve literacy and execution. These approaches signal a shift toward treating ESG capability as a foundational business skill.

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Building the Workforce Required for the ESG Transition

Closing the ESG skills gap will require both structural and cultural change. Education pathways will need to evolve to embed sustainability literacy into accounting, finance, law and governance curricula. Organisations will need to invest in mandatory internal training, cross-functional collaboration and leadership fluency.

Boards and executives will play a critical role in signalling that ESG capability is a core business requirement, not an optional add-on. Some companies are beginning to link executive incentives to ESG capability-building, reflecting the growing importance of execution readiness.

The Road Ahead

The sustainability transition is unlikely to fail due to lack of ambition. The greater risk lies in insufficient organisational capability. As ESG becomes inseparable from financial performance, risk management and corporate governance, the ability to build skills at scale will determine which organisations succeed.

Australia’s experience under AASB S2 may ultimately serve as a global case study, not only in regulatory compliance, but in how companies build the workforce needed to deliver credible, assured and investor-ready sustainability outcomes.

The future of ESG will not be defined by the size of sustainability teams, but by how effectively organisations embed sustainability literacy across every function of the business.

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