In the quest to build sustainable, purpose-driven companies, technology cannot be an afterthought.
ESG – environmental, social and governance – has become a top priority for every business.
Stakeholders, whether customers, employees, regulators, shareholders or investors, demand ever more evidence that organisations have a purpose beyond profit, and are contributing to society, treating workers fairly, and caring for the planet.
Leaders are taking ESG very seriously. According to EY’s 2022 CEO Outlook, 97 percent of CEOs say their company has a sustainability strategy. And a further 28 percent believe that, by becoming leaders in sustainability, they will gain valuable competitive advantage.
But in a recent EY global survey of CIOs, more than two-thirds (68 percent) admit they’re not using data and technology to help improve their organisation’s sustainability.
And another study, by market research firm Verdantix, finds that just one-fifth of companies give their CIO a central role in the sustainability strategy.
Key sustainability strategy decision-makers
We are at an early stage where it often feels as if corporate ESG strategy is an afterthought in the digital transformation agenda and vice versa. In order to fully integrate these two imperatives, the CIO and CDO should increasingly be in step with the CSO, CFO and CEO – collectively driving ESG and technology through the enterprise.
The technology backbone of the new, purpose-driven enterprise
The time and effort needed to produce an annual sustainability report has grown exponentially – and this document is only the most basic requirement. As internal and external demands for ESG data continue to rise, it is clear that the days of simply pulling together a spreadsheet once a year are over.
Many companies are still evaluating the data they need to track their ESG performance, how and where to source it (from within and outside the organisation), local and global compliance requirements, and how to establish systems to support existing, amended and new processes which will withstand auditor scrutiny.
With ESG impacting every part of the business, including supply chain, operations, finance, procurement and HR, and with reporting standards evolving quickly, companies are discovering significant gaps in their IT architectures hindering data collection and analysis.
Progress to date has been piecemeal, with pockets of technology-supported processes collecting ESG related data. Examples typically include environment, health & safety (EHS), supply chain, HR, and employee travel data. This might cover data related to carbon footprint, workforce diversity, equal pay and employee accidents, not just for the company but also suppliers and customers.
Given the wide range of ESG data sourced from every business process, companies will probably need to combine ‘ESG-specific’ and ‘ESG-enabling’ technology.
Much of the information is generated by or managed in disparate solutions. Consequently, it takes considerable manual effort to combine the data into a consistent format suitable for consolidated regulatory and financial reporting – and even this is neither reliable nor auditable. Robust enterprise grade solutions will be required.
At the same time, CIOs are implementing new technology solutions with huge potential to capture and process ESG relevant data, but without considering ESG needs. Examples include EHS systems, sensors and instrumentation, ERP systems, data lakes, and AI/blockchain solutions. In future, organisations should seek unified, multi-purpose architecture that is fully aligned with ESG.
Developing an ESG technology strategy
Before CIOs, CFOs and boards consider technology investment, they should be fully aware of the growing role of ESG in reporting and in boosting corporate performance. As corporate strategy rapidly incorporates ESG, digital strategies must align accordingly.
For example, a manufacturing company may commit to improvements in water usage in production processes, carbon emissions, proportion of its products that are recyclable, and wages and working conditions of employees and contractors. Without a technology strategy that supports the collection of high-quality data along the entire value chain, companies will not be able to report data or demonstrate progress against these commitments.
Given the wide range of ESG data sourced from virtually every business process, companies will probably need to combine ‘ESG-specific’ and ‘ESG-enabling’ technology, creating a network of connected applications and platforms. There is a huge difference in effort and return between building proof of concept/prototype applications and delivering fully operationalised solutions that satisfy independent auditors. It is especially important not to just go for the latest ‘big thing’ without determining whether it fits into a longer-term technology strategy.
This is a difficult path to navigate: demonstrating progress and complying with new regulations, while also avoiding solutions that may be incomplete or incompatible with existing technology. Some ‘quick wins’ may actually make the organisation less able to adapt to evolving ESG requirements and business goals. For example, while the current focus for many organisations is on regulatory reporting, long-term value is derived from performance management, as ESG data becomes integrated with company-wide decision-making.
A nimble investment approach for a fast changing market
Organisations face the challenge of rapidly developing hybrid architectures: a mix of business applications, platforms, and data that is aligned to their ESG strategy.
As demands for data change and companies optimise their ESG data processes, these solutions must be flexible enough to adapt to changing reporting standards – sometimes across different regulatory regimes – and remain auditable. Over the next few years, ESG solutions may never be 100 percent complete, so companies should be prepared to continually enhance or replace existing systems, or develop new ones, to support their ESG programmes.
Indeed, we are already seeing a wave of new technology data solutions that help internal and external reporting, business intelligence and performance management. These come from a broad range of providers, including startups, established software players, content providers, financial services companies, small and large consultancies, software and platform vendors, and managed service providers.
As business leaders contemplate a sustainable future, where their company’s value is determined by both financial and non-financial outcomes, a technology-enabled ESG strategy will be central to business performance.
• Ensure your company leadership is aware of the importance of technology in delivering ESG goals
• Appreciate that ESG impacts almost every business process in your organisation, from finance to supply chain, HR to operations
• Stay abreast of the ESG technology market but don’t expect to find a single platform solution
• Aim for a hybrid architecture leveraging a combination of applications and platforms
• Start today by introducing modular solutions that improve ESG data collection, reporting and auditability, while providing flexibility to upgrade as both technology and ESG drivers evolve.
In our next article, we will explore some of the common types of technologies that comprise a hybrid solution.