If ESG isn’t on your board’s agenda, it should be
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Tony Spillett, National Head of Technology & Media, BDO
How can technology help companies track their ESG progress and become more sustainability conscious?
Global warming is beginning to impact in a variety of ways, from extreme weather affecting supply chains, to growing investor interest in annual reports on climate change strategies.
The global pandemic has made some customers acutely aware of how employees are treated and how businesses affect their environment, and top talent cares about employers’ ESG reputation.
How can you become an ethical, sustainable business that communicates your values and success to stakeholders and investors? Many businesses have had to pivot and find new ways of working during the pandemic and as the economy begins to revive, there’s a strong motivation for creating a better, more sustainable and more inclusive future.
What is ESG?
ESG became more than a buzzword in 2020 when investment company BlackRock made the climate crisis the focus of its annual letter.
A wide variety of criteria and behaviours can come under the ESG heading. In some areas, there’s overlap. The below is not a definitive list, but it can help companies see the challenges they face.
- Climate change
- Environmental risks
- Energy use and alternative energy
- Pollution and Waste and recycling
- Natural resource conservation and sustainability
- Workplace safety
- Human rights
- Workforce diversity and inclusion
- Working conditions
- Impact on community
- Charity donations and volunteer work
- Accurate and transparent accounting
- Executive pay
- Board diversity, structure and independence
- Shareholder voting rights
- Political donations
Why ESG is important
Setting an ESG strategy and goals helps make a company’s ethical and sustainability intentions and actions accountable, quantifiable and easier to compare with competitors. It also makes it clear to shareholders, customers, employees and other stakeholders that your organisation is socially and environmentally sound.
For example, the UK Government has now said that it will consider ESG in its procurement process and will look at five areas:
- COVID-19 recovery
- Tackling economic inequality
- Fighting climate change
- Equal opportunity
Moreover, investors are increasingly focused on ESG in addition to a company’s financial profile. They know that ESG can have a big impact on a company’s financial risk, future opportunities and overall business resilience.
For tech firms seeking new funding rounds, ESG can be fundamentally important, with almost two thirds (63%) of UK private equity (PE) firms now taking into account ESG principles in their investments, according to BDO research. What’s more, 48% of PE firms report in detail on the ESG impact of their investments. This could mean that if you don’t meet their ESG standards, you could be turned down for funding.
Which tech companies are doing ESG well?
There are some great examples of tech companies having a positive ESG impact.
As part of their commitment to be an ethical business with integrity, Adobe has promised to operate 100 percent renewable energy by 2035¹ and has clear policies on AI ethics (such as tackling bias data), diversity and inclusion, human rights and more.
Like Adobe, Salesforce has also made a commitment to ethical use of AI. Its approach, according to Marc Benioff, Chairman and Co-CEO, is as follows: “We know that technology is not inherently good or bad; it's what we do with it that matters. And that's why we're making the ethical and humane use of technology a strategic focus.”². Salesforce also offers a carbon-neutral Cloud which has a much smaller environmental footprint than traditional IT hardware and software³.
UK tech company, Benevolent AI, is known for its data diversity initiative⁴. This is designed to combat common issues with drugs trials, where often over 80% of participants are of European descent and 40% of trials exclude the aging population. Another UK tech business, Kainos, is one of a handful of companies to have a dedicated inclusive design process. This ensures equal access, experiences and outcomes for users with access needs and all protected characteristics⁵.
How do other major tech players compare?
Many of the major tech players, such as Google, Apple and Microsoft⁶, score highly in the environmental category because they are often carbon neutral with a small physical footprint. However, many of the larger players are not performing as well in the social and governance categories.
This is due in part to high-profile privacy and data breaches⁸ and questions over reputation, ethics and employee rights⁹. It’s also because carbon emissions are fairly simple to quantify, compared to some of the social and governance aspects of ESG.
How to improve your ESG credentials
As you can see from all the vast array of issues that come under the ESG heading it’s potentially a huge challenge. Most organisations can’t tackle everything at once so you’ll need to prioritise, like the government has done with its suppliers.
The board should set top level priorities and goals. This may often require a hard look at all your business holistically. From how much power you use and if that is generated in a sustainable way to packaging, recruitment, employee wellbeing, suppliers and more you’ll need to baseline your current situation and decide where you want to get to and when.
The senior team will have to set the strategy and the goals. Dedicated resources may be required alongside the right kind of messaging strategy to spread the goals and new ways of working through the organisation. Contracts with suppliers and customers are likely to need to be renewed. Data gathering and monitoring will need to encompass the new goals. Training may be needed through the organisation.
You may aspire to B Corporation status or instead set particular goals for diversifying the workforce, recycling more and taking steps to manage the wellbeing of your team. You could consider taking the B Corp impact assessment to give you an idea of where to get started.
Tech businesses can play an interesting role. For example, it’s been estimated that more than 64 million unnecessary emails are sent every single day, most containing one or two-word phrases such as 'thank you' or 'thanks'. Their resultant carbon footprint is 23,475 tonnes of carbon a year¹º.
On the other hand, the efficiencies offered through technology can produce carbon savings from smarter production processes, video conferencing and cutting business travel.
How tech can be used to enhance ESG performance
Tech businesses can be at the forefront of leading the ESG movement, thanks to their ability to create and crunch meaningful data. A focus on using innovative technology to cut down on inefficiencies helps to propel their ESG status – but it requires commitment and planning.
"With ESG ratings soon becoming the norm, getting ahead of the curve will give you an advantage over your competitors."
How can clever use of tech help provide sophisticated measurements and boost your ESG performance?
1. Transparent reporting. Whether it’s the climate risk you are exposed to, the tax you pay, the number of training hours per employee¹¹, the gender or ethnicity pay gap, or your recordable injury rate, more transparent companies score higher in ESG metrics.
2. Robust data protection and privacy control. Investing in sophisticated systems can help avoid privacy issues and data breaches, which can have a big impact on ESG perceptions.
3. Monitoring of public perception and sentiment. With real-time monitoring using AI, you can be incredibly responsive to any dips in sentiment.
4. Cloud storage. Using the cloud tends to be better for the environment – and your ESG score – than data centres.
5. Employee productivity. By retaining motivated employees and attracting top talent from a wide pool, you should be able to see a productivity uplift.
The benefits of developing ESG credentials
Showing that you care about the planet and people just as much as you care about profit requires a considered approach.
Key actions are:
- Showcasing your ESG story to prospective clients and customers. A good tip is to summarise past performance, but focus primarily on future plans and commitments.
- Make your data understandable and digestible. Gather your disparate ESG data and work out what is the most relevant to your type of business.
Tech has a significant role to play in enable ESG strategy and bringing ESG credentials to the forefront, with tech businesses able to adapt and lead the way nimbly and effectively.
Make sure your tech business isn’t left behind your competitors. Develop your ESG strategy and spread the word. Download a copy of our guide ESG guide, and understand more about the business case for dealing with climate change.
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