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Looking to the future of ESG with digital transformation

date: 7 December 2021
reading time: 6 min

ESG stands for “Environmental, Social and Governance” and refers to a set of criteria used by investors to evaluate a company’s conscientiousness in terms of environmental, social and governance aspects. Does this sound a little ambiguous to you? Well, let me break it down.

The environmental criteria pertain to a company’s impact on the planet, and may include the use of energy, disposal of hazardous waste, treatment of animals, and management of toxic emissions, etc.

The social criteria consider how an organisation manages its business relationships with its customers, employees or suppliers, and may include working conditions, wages, and communication aspects, etc.

The governance criteria revolve around how a company is managed, and examine, for example, style of leadership, shareholder rights, accounting methods, or transparency and diversity issues, etc.

ESG is growing in importance as an integral part of the corporate screening process, especially among investors of younger generations, not only in terms of ethical concerns but also risk management

Since ESG may also help investors avoid cooperating with organisations whose activities may cause, for example, a drastic drop in their stock prices (see: Deepwater Horizon oil spill).

No wonder sustainability and environmental factors are becoming key considerations in an organisation’s digital transformation:

This is why ESG is important from an investor’s perspective, but what benefits do ESG practices bring to the organisation itself? Let’s take a look.

Why is ESG critical for companies these days?

Firstly, implementing a consistent ESG framework builds a positive corporate image and attracts modern investors, top talents in the market, and customers who are no longer willing to support companies that don’t incorporate ESG within their strategies.

Secondly, it increases employee satisfaction, making your team more engaged in what they do.

Thirdly, ESG also holds companies accountable for their promises and helps them maintain reliability in front of their stakeholders.

All of this helps create value for businesses – but only when done right. However, some companies feel so much pressure that they develop false ESG frameworks in order to persuade clients and investors that they are environmentally friendly when, in reality, they’re not (because, for example, they don’t want to bear any additional costs).

This is called greenwashing, and it is a common pitfall that can do more harm than good, and should be avoided.

ESG and the role of technology

Disruptive technology solutions in terms of ESG are mostly used by companies for collecting data, measuring impact, and conducting analyses.

The Internet of Things

IoT makes it possible to track business performance across key environmental, social and governance factors. A smart network of sensors and other technology solutions can be used to measure, for example, waste management, water usage, carbon footprints and energy efficiency, or for monitoring road traffic, endangered species, levels of soil contamination and air quality.

And this can all be done in real time, while providing high levels of accuracy and automation, facilitating the remote management of systems and processes, and also making lightning-fast reactions possible.

Artificial Intelligence

AI-driven technology allows organisations to collect and analyse even more information from pictures (including satellite images) or surveillance videos. The final reports can be used to evaluate ESG risks and opportunities, and also for developing the standardised frameworks within which organisations can operate.

How to implement changes

It’s pretty clear that setting ESG objectives and developing proficient strategies is a must these days – and this cannot be done without technology. But how can these changes be implemented smoothly within a company?

Change should come from the top

A chief sustainability officer’s job is to initiate changes and set appropriate goals, but they need the full support of the other C-level executives, with the CEO at the helm. All of these players have to be involved in the process in order to properly orchestrate team efforts and implement new strategies throughout the entire organisation.

Tech leaders need to be involved in the planning process to make sure that all of the assumptions and goals are in line with a current or emerging digital transformation strategy. As different objectives begin to interlace, consistency and integrity become key factors in the process.

However, you don’t have to wait for the master strategy to be created – you can implement some quick yet significant changes right away.

Quick wins to achieve success

  • Quick fix #1: Make workloads as efficient as possible – this will reduce energy consumption and every single employee’s carbon footprint.

  • Quick fix #2: While creating a product roadmap, take the impact that the product may have on society under consideration – in order to make sure that you meet different client expectations for each region.

  • Quick fix #3: Reinforce themes of diversity and equality within your HR and team management strategies – this will help you close critical inclusion gaps within your organisation.

Culture change

OK, so let’s say that your ESG strategy is ready, and you have the full support of the entire C-suite. What now? Well, now’s the time to start making changes in the corporate culture, which involves a few significant check points.

Getting employees onboard – Your employees need to share a common understanding of the company’s vision and the reasons behind it. Also, not only do they need to know about ESG-related benefits, they also need to experience them. And not only once, but constantly. This can be achieved by organising meetings, training sessions, workshops and themed events.

Mindset shift – Changing the corporate culture requires shifting mindsets first. Everyone – from C-level executives to junior specialists – should start thinking and acting differently, and feel responsible for carrying out the company’s new mission. Keeping them engaged is crucial. Find the most positively oriented players, work with them and let them spread their energy so that they can infect the rest of your employees with their enthusiasm.

Changing legacy system – Get rid of any systems that may hinder your progress. You may have new AI or IoT-related tools that are ready to use, but if you still have your legacy systems in place, it may be difficult for you to persuade people to start using the new ones. So, change the legacy solutions, educate your employees and convince them to make the most of the new technology, by showing them how much easier and more pleasant this will make their jobs.

A sustainable future is coming

A fully sustainable future is close at hand. Organisations should leverage technology wisely to interweave the criteria for ESG into their digital transformation strategies. However, it’s critical that the CTO and other tech leaders be the ones to start driving change and provide invaluable technical support for every environmental, social and corporate governance initiative. By bridging ESG and the digital transformation, everyone wins – the companies, investors, stakeholders, employees, clients, business partners, and… the environment. So, let’s pull ourselves together and get the job done.

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