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Why ESG & digital transformation should be inseparable? (Part III)

date: 9 March 2022
reading time: 7 min

An ethical investment portfolio must take a joint perspective on ESG and Digital Transformation integration for business decisions. Successful companies greatly benefit from carrying out ESG and DT change processes together. Those who carefully choose the right path and the best suited IT partner stay ahead and win.

This is part III from the blog series on the topic of ESG, created in Future Processing and AKFI collaboration. You can find part I and part II below:

The conclusion of our investigation into ESG and DT specifics has led us to the following question:

How should we combine ESG and Digital Transformation parts and processes into planning, investing, and reporting to succeed?

We may look at what other businesses did to win (even if they failed in the first place). We assess our current transformation status and, last but not least, select an IT partner with whom we will engage to develop and implement the desired business outcomes.

Why is choosing a reliable IT partner crucial?

There are a lot of preparations we need to make before taking the first crucial step towards DT and ESG changes. Every decision-maker should focus on an in-depth analysis of the company’s ‘as is’ situation. It should include employees’ mindset, challenges and obstacles to be removed, and opportunities to be leveraged.

Choosing a qualified, experienced and fully reliable IT partner can contribute to the success of Digital Transformation and ESG changes. A team of experts will:

  • make ESG and DT plans actionable, as major risks and sustainability analysis is demanded by investors, stakeholders, corporate executives and boards of directors;

  • evaluate key potential risks (internal, as well as external);

  • work out the right strategy for both processes and correlated changes;

  • factor-in all current requirements and regulations;

  • provide support on different stages of implementation and further.

The best IT partner is also the one who engages in the company’s workflow, asks as many questions as needed, looks into many different areas to trace potential risks, listens attentively to employees and has demonstrable experience in designing solutions for individual needs from scratch.

AKFI’s framework to integrate DT with ESG

As a global industry consortium that connects with enterprises to develop actionable DT and ESG plans to protect stakeholders from catastrophic risks, AKFI developed a unique framework – EDGES™.

  • Sustainability
  • Resilience
  • Longevity

Starting with a page from Peter Druker’s famous dictum:

If you can’t measure it, you can’t manage it. If you don’t measure, then how do you know how you are doing?

This is the primary function of the EDGES methodology.

It lays the groundwork for tools and dashboards that track the twin journeys of ESG sustainability and Digital Transformation. EDGES is AKFI’s solution for journey planning, as managers and directors face increasing pressure from stakeholders to reveal their Digital Transformation and environmental, social, and governance (ESG) strategies.

Companies currently provide separate reporting on financial results, ESG, and, on occasion, Digital Transformation. That leaves stakeholders, financial analysts, and management with the task of piecing the puzzle together.

We can imagine the challenge as a large bag of puzzle pieces, some of which are redundant and some of which are missing. Everyone is playing catch-up as the jigsaw is put together!

So what is missing in the puzzle?

To begin, Digital Transformation reporting, if done, delivers only the digitalization of IT and the implementation of AI and IoT by businesses; many times, it is simply a press release. This is the “D” area.

As a result of this, Digital Transformation is missing three other key transformation elements: economic, social, and governance.

  • The internal economic impact on processes, and external economic impact on profitability and economic development of communities (cities, regions, countries).

  • The social responsibility toward employees reskilling and cultural transformation.

  • The business model transformation leading disruptive innovation and to XaaS (Everything as a Service).

Case study: Ford has learnt a lesson

When it comes to integrating ESG and Digital Transformation, the car industry presents a number of examples and case studies. The car industry disruption is marked by the development of electric vehicles, or eVs for short. The list included newcomers such as Tesla and BYD and the current car manufacturers such as Volkswagen, Ford, GM, Toyota and many others. Together these companies are investing over a hundred billion dollars in the next few years.

“Disrupters like Tesla have shaken up thinking about how digital can be integrated into the vehicle experience, so the car becomes an integral part of the digital world. In fact, the vehicle may well become the device itself.”

At Ford, the journey to electric vehicles began early. Henry Ford began work on a low-cost electric automobile in 1914. Turn the clock back a century, and Ford is again in the news with their attempt to lead the development of electric vehicles. This time management had to learn the hard way how ESG and DT risks should be combined in electric automobiles. Let’s take a look at the entire sequence of events.

THEN: Ford Smart Mobility Digital Transformation failure

It all began in 2014, when Mark Fields, then-president and CEO of Ford Motor Corporation, announced the company’s big aspirations to transform into a “personal mobility” company. Mr. Fields chose to build new digitally-enabled cars and smart mobility solutions in a fresh new category named Ford Smart Mobility, putting innovation at the forefront of Ford’s plans. It was meant to be the first stage in Ford’s transformation into a product and mobility company.

A lot went wrong from the planning stage. Instead of combining Digital Transformation culture, employees, and stakeholders, Ford started by isolating them. Thousands of miles separated the new company from Ford’s headquarters.

While Ford was pouring billions of dollars into the new eV sustainability project, other parts of the company were experiencing quality issues. As a result, the value of Ford’s stock plummeted, and Mark Fields was forced to resign.

NOW: Ford integrates ESG and DT

Ford’s board of directors and new executives decided to take a bigger step and consider all of the risks that come with combining Digital Transformation and sustainability goals. To have a complete picture, they integrated ESG and DT into a broad strategic plan of the company’s future.

This is how Ford’s first Integrated Sustainability and Financial Report saw the light of day and started this time on the twin journey of sustainability and Digital Transformation.

“Two core elements underpin everything we’re doing to ensure our mobility solutions benefit cities and citizens: focusing on the real-world experiences of our customers to help make movement more accessible and seamless improving the safety, efficiency and sustainability of the overall transportation ecosystem”

While Ford’s electric vehicle journey began with Henry Ford’s first cars, many other companies have had similar eV teething problems. As Digital Transformation technology replaces the gas (petrol) engine, there are numerous examples of how high-level sustainability goals can be achieved.

Many of these risks could be avoided if DT and ESG were better integrated from the start of the planning process.

ESG & DT should be inseparable

When planning, investing, and reporting, ESG and DT practices demand in-depth scrutiny. Those who want to prosper in the digital world must think about all risks in sustainable business.

A well-thought-out Digital Transformation provides companies with sustainable digital journeys that are customised to their needs. They require a comprehensive digital strategy and a compelling business case, both of which can only be established through unbiased industry collaboration. A trustworthy IT partner’s engagement helps avoid the bumps in the road ahead. Finally, among the many risks that firms must face, there are numerous opportunities for value creation and innovation.

The question remains, when are you ready to start engaging in the ESG and Digital Transformation integration in your company?


About AKFI

Manuel Vexler is the Executive Director of AKFI, the Actionable Knowledge Foundational Institute, a non-profit global industry consortium. It serves as a platform for forward-thinking companies embarking on Digital Transformation and ESG initiatives. Members’ working groups integrate Digital Transformation and ESG expertise and together develop actionable plans. When implemented, the strategies safeguard stakeholders against catastrophic risks, resulting in substantial economic benefits for stakeholders.

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