ESG (environmental, social, and governance) has been gaining steam for years now. As climate change effects grow both more perilous and pressing, governments and regulators have taken increasingly stringent measures to address the crisis and attempt to rein in emissions. Consumers have also become more conscious over the organizations they do business with, not only around environmental issues but also with respect to social responsibility and human rights issues.
This has made ESG an important conversation topic for many businesses. But the truth is—it should be top-of-mind for all businesses. While producers of physical goods and services like manufacturers or energy companies seem obvious candidates for ESG management, even seemingly low-emission businesses like software companies can generate significant carbon footprints to run their data centers and offices. Even if you think ESG can take a back seat, your organization likely still needs to develop a strategy for reducing environmental impact. This isn’t just to make a better world for the future, although that’s certainly a good reason. Focusing on ESG efforts within the business makes practical sense for meeting customer expectations, reducing governance risks, and gaining business opportunities in the future.
In this post, I’ll explain some of the key trends demonstrating the need for ESG-focused business strategies and give some tips on how to figure out where you stack up.
[Want to get a better handle on your ESG efforts? Learn more with the whitepaper Seize the ESG Opportunity with Simplified, Data-Driven Processes, a collaboration between Appian and PwC.]
Many organizations have some form of ESG management in place—from instating sustainability policies to fostering responsible working environments to ethically sourcing materials. However, even among those companies with plans in place, many view ESG as a secondary function of the business, often stopping at carbon capture measurement. Companies need to take emissions reductions seriously and empower teams to make changes.
If your organization hasn't yet formalized an ESG management strategy or needs to improve upon their existing plans, changes in the market and government regulations have increased the urgency. The numbers tell part of the story:
If you want to attract more customers, be aware that 83% of consumers believe companies should actively shape ESG policies.
If you want to keep boards happy, know that 64% of corporate directors claim ESG has become a part of their corporate strategy. Businesses have noted the important long-term business sense of emphasizing ESG practices.
If you want to attract and retain talent, note that 86% of employees prefer to work for companies that share a passion for the same issues and values they care about.
But hard figures alone don’t tell the full story. Regulatory requirements have ramped up as the effects of climate change have increased the urgency of environmental issues and have triggered governments to respond both with carrots and sticks. The United States recently passed the Inflation Reduction Act, which includes $128 billion USD worth of tax credits to help businesses shift toward using green energy. The European Union set an agreement to reach net-zero carbon emissions by 2050, with a push to reduce emissions levels by 55% of 1990 emission levels. Businesses that don’t do their part to help meet these emissions targets could find themselves on the wrong end of penalties from regulatory agencies.
Additionally, those companies that fall behind on setting ESG priorities will be left out in the cold on an important trend. According to McKinsey, north of 90% of S&P 500 companies publish ESG metrics for public consumption. This could be a sign of things to come—investors will likely want to view ESG metrics and reports from companies to avoid the potential financial risks accompanying regulatory fines or loss of consumer spending. In fact, businesses could potentially lose out on contracts if they negatively impact ESG metrics for business partners such as spiking their scope 3 emissions. Many businesses in the EU ask for ESG data as part of the request for proposal (RFP) process, which means businesses lacking that information at the ready could miss out on potential business opportunities.
The bottom line is this: All signs point toward ESG becoming a central strategic concern for businesses across industries. As climate change impacts worsen, even more pressure may come upon businesses to take greater care of their environmental footprint. Organizations that put programs in place to address these challenges, measure their impact, and demonstrate progress on ESG goals will be best positioned to capitalize in the future.
First, it’s important to make sustainability an integral corporate initiative. At a minimum, organizations should form task forces dedicated to establishing policies around ESG and determining how best to track key performance indicators regarding environmental risks. Truthfully, many organizations will likely need dedicated employees in the effort. Many companies have appointed chief sustainability officers (CSOs) to track and demonstrate their commitment to meeting ESG targets. In both cases, organizations need to make a commitment to empowering these employees to ensure their recommendations get implemented across the board. These teams will need to work across departments and communicate both laterally and horizontally to properly accomplish their goals, so it’s absolutely critical to build buy-in and give these teams the requisite power to access relevant data and implement the proper changes. This will help ensure your company takes its ESG commitments seriously and makes progress against key metrics.
Second, look to the latest technology to help you enhance your efforts. For example, tracking and measuring ESG data across the enterprise—particularly when you have to track scope 1, 2, and 3 emissions—requires gathering data from multiple data sources and may even require new functionality to capture metrics your organization has never tracked before. For example, an enterprise-grade process optimization and automation platform allows you and your IT team to easily connect disparate data sources into single applications and solutions for tracking metrics and regular monitoring of ESG outputs. Plus, with automation tools at the ready, you can often automate a good portion of the data collection, mitigation, and reporting. Having this information at the ready will go a long way when either regulators or the board come knocking.
It’s important also to recognize that many of the current ESG solutions on the market have some limitations. ESG software often allows you to run carbon calculations, set budgets, and create reports; the drawback is that these solutions rarely let these companies take direct action (and in some cases may not provide enough visibility into processes on the ground). The right unified technology platform can allow you to leverage process mining capabilities to discover carbon-intensive processes, then create cleaner processes using workflow-based design and automation capabilities.
Recently, Appian released a white paper in conjunction with PwC discussing the challenges with ESG and how the right technology can help. Learn how by reading Seize the ESG Opportunity with Simplified, Data-Driven Processes.