Organisations are increasingly realising that ESG is not merely a regulatory affair but a firm economic construct that can generate value through itself, a value that is as solid as any commodity or service that is being traded. The only way to generate this value is through the precise gathering and reporting of the numerous ESG parameters. The more precise, efficient, and dynamic the gathering and processing of this data, the more pronounced and reliable the value ESG generates. This is where technology comes in.
Oracle surveyed more than 10,000 consumers and business leaders across 15 different markets. 88% of the respondents stated that to succeed in the long run, they need technology to drive their sustainability and societal initiatives. Like in every other area, tech is responding rapidly across software, hardware, and AI/ML to meet this need.
Software: Our experience indicates that a majority of business leaders are concerned that ESG information resides on different information systems, and these are, more often than not, weakly integrated with each other or not at all. The other major concern is the spreadsheet curse whereby a majority of ESG data is stored on offline spreadsheets – this might have worked so far, but with ESG data getting more diverse, more dynamic, and more voluminous, spreadsheets are becoming less efficient and very risky. There is also a need for visually engaging data in the forms of graph, charts, and meaningful dashboards which can become an integrated way of presenting and analysing all relevant ESG data.
Technology becomes even more crucial as one digs deeper into the broader ESG agenda. For example, consider GHG Accounting & Scope 3 emissions. So far, less than 10% of over 200 companies surveyed in the Nordic Sustainability survey of 2022 had plans to reduce scope 3 emissions. And if Scandinavia provides us with this figure, we can reasonably understand the state of companies globally. Scope 3 emissions can be considered as the ‘derivatives’ of the ESG ecosystem. Their very nature makes them difficult to analyse, but offer the greatest opportunity within ESG as well. As more companies actively consider their Scope 3 emissions, technology platforms will be needed to aid this measurement and analysis.
We are already seeing several tech product and platform companies trying to solve for this issue and the tech around this will only get better over time.
Hardware: Energy Management Systems with a comprehensive set of hardware and software could be a key element in understanding and reducing the carbon footprint of an organisation, and hence an important ESG enabler. This would include smart meters, sensors and software specifically created to monitor power consumption among others. Companies are increasingly using such technology to meet the twin objective of operational excellence and ESG. As with software, several new technologies are emerging in this area.
AI/ML: Touted as the ‘next thing’ in virtually all industries globally, AI/ML is equally useful in the field of ESG simply because it can understand ESG directives on a global scale, thereby providing an integration hitherto unthinkable within the ESG ecosystem. Providing AI with specific data-driven scenarios (concerning exact sustainability-related targets) ensures that the AI charts a course to achieve them. Machine Learning exponentially enhances this process through efficient resource allocation. All of this can be a big aid in identifying operations and processes to be optimised to meet ESG targets.
Other emerging technologies: Other technologies can also aid ESG and its reporting. For example, NLP techniques can unify disparate metrics and come up with a singular perspective over which stakeholders can reasonably evaluate a company. Similarly, blockchains can enable trusted and standardised ESG data collection and reporting. Using blockchain can also enable tracing the origin of raw materials all the way from where they are mined, to how exactly they reached the end consumers. To this, then, can be added compliances safeguarding this entire logistical route and also helping companies reduce Scope 3 emissions.
In summary, data is key to the future of ESG. Presently, the manner in which ESG data is compiled, measured, reported, and analysed by companies, shareholders, rating agencies, investors and other concerned groups is generally fragmented, inefficient, time consuming and error prone. This data is, at best, an approximation. The future of ESG would require solving for this data issue, which can only be achieved through the use of technology. Like most other things, tech could thus become a big enabler for realising the true potential and benefits of ESG.