The Basics of ESG and Sustainable Technology
In this article
This article was originally published in July 2022
The acronym "ESG" stands for environmental, social and governance. And in today's socially conscious global economy, the term has become a popular way for boardrooms, consumers, employees, partners, policy makers, investors and other stakeholders to gauge an organization's overall well-being, risk management abilities, resiliency, performance and long-term value trajectory.
There's no better time to learn about ESG, especially as the decisions made by today's governments, industries and businesses have the potential to directly shape the future of our society and planet.
ESG: A new corporate imperative
The idea of ESG has been around since the mid 2000s, with many of ESG's core concepts dating back to the 1950s and '60s. European companies and governments have been influential early adopters of corporate sustainability initiatives based on a variety of factors — a trend that is finally gaining more traction in the U.S.
What's driving the recent surge in ESG interest?
In the C-suite, drivers include the business impact of climate change and extreme weather on operations and the ability to scale, rising pressure for corporate action and accountability from customers, tightening global and local regulations, plus an increase in the availability and quality of ESG data.
For consumers and investors, ESG awareness can plausibly be tied to the rise of social media, which has globally amplified issues such as extreme weather events and climate debates, social justice movements; workplace, income and healthcare inequalities laid bare by a pandemic; and instances of fallout attributed to poor corporate governance.
These factors and more have presented business leaders with an imperative to prioritize ESG initiatives. Not only must organizations credibly demonstrate to stakeholders they're serious about their commitment to sustainable development, ethics and responsible business operations, they must also figure out how to harness ESG as a driver of business value if they wish to successfully scale into our shared digital future.
The ABCs of ESG
Let's start by outlining the criteria generally agreed to fall under each area of ESG:
Environmental
ESG's environmental component concentrates on the impact of an organization's operations, resources or policies on the environment (as well as any commitments to minimizing that harm). The most prominent example might be a corporate pledge aimed at reducing its contribution to common factors fueling climate change (e.g., measuring and publicly reporting on its carbon footprint or the toxic chemicals used in manufacturing processes).
Related terms: Greenhouse gas emissions, sustainability, NetZero, environmental impact, carbon neutrality, carbon footprint, carbon tax, energy efficiency, waste management, water conservation, carbon credits, etc.
Social
The social component of ESG generally focuses on enhancing the quality of various relationships. This might include how an organization advocates for diversity, equity and inclusion (commonly referred to as DE&I) for workers, suppliers, customers and those in the greater community.
Related terms: Diversity, inclusion, equity, social justice, mental and physical health, career readiness, mentoring, community partnerships, etc.
Governance
The governance component of ESG deals with corporate practices, policies and processes for creating positive change and ensuring disclosure, transparency, risk management, compliance and fairness across key areas such as leadership roles, executive pay, audits, internal controls, and shareholder and investor rights.
Related terms: Enterprise risk management, governance, ethics, compliance, global security, business resiliency, global safety, global impact, code of conduct, anti-corruption, trade compliance, sustainable procurement, etc.
ESG benefits
It is a common misconception that investing in ESG initiatives must come at a cost to the bottom line. The opposite is often true as accelerating ESG initiatives can lead to significant cost savings through efficiency gains and a reduced risk profile.
By integrating ESG best practices across the business, we've seen organizations tap into new revenue streams to drive financial performance, become more agile in the face of unexpected market shifts and uneven regulatory environments, and boost workforce innovation and productivity — all while laying the foundations for a better world.
Business leaders are starting to recognize the role ESG programs are poised to play in the long-term value and growth of their companies. For example, recent data suggest companies that invested in ESG pre-pandemic fared better than the competition financially during the crisis.
On the other hand, ESG programs represent a massive exercise in strategic planning, execution and program management for business and IT executives, particularly given technology's role in driving ESG results.
Technology and the road to ESG transformation
Organizations are turning to sustainable technology to integrate ESG initiatives into business models and begin delivering tangible outcomes for stakeholders.
Why is technology considered a key enabler and accelerator of ESG success?
ESG-related challenges
With the pace of digital transformation accelerating across industries, business and IT leaders have a prime opportunity to tackle pressing challenges while creating a more sustainable future. Some of the challenges technology can help address fall into the following buckets:
- Climate/weather: Escalating business risks due to climate change and a rise in severe weather events.
- Data and analytics: The growing business need for high-functioning applications and real-time data to enable exceptional experiences and streamline executive decision-making.
- Infrastructure modernization: Minimizing the impact of new and old technology investments on the planet, including maintaining and upgrading on-premises data centers and enterprise architecture.
- Customers: Rising customer consumption of digital-centric services, plus a growing expectation for seamless omnichannel experiences.
- Regulation: Complicated and uneven regulations and compliance hurdles across nations, states and industries.
- Social pressure: Increasingly vocal media pressure from policy and advocacy groups across political and societal spectrums who have indicated they're willing to modify buying habits depending on corporate sustainability posture.
- Cost stability: Skyrocketing energy costs tied to fluctuating global markets and nascent technology advances.
- Supply: Breakdowns in critical supply chains, a limited availability of ethical labor, and the downstream impact of investing in and expanding into emerging markets.
Five ESG-primed technology areas
Faced with the mandate to develop an ESG strategy and execute targeted initiatives, business leaders can struggle to identify where to begin the ESG journey or how to leverage technology to realize their ambitions and commitments. This isn't surprising as there is a wide range of technologies to consider when it comes to enabling ESG initiatives.
Here is just a short list:
1. Data center optimization: Data centers use massive amounts of energy. The acceleration of digital transformation across industries means the strain on data centers — both privately run and outsourced to cloud service providers — will continue to grow. Data center optimization, in conjunction with optimizing operations and power input, is a key area where companies and partners alike can drastically reduce their power consumption.
2. Cloud computing: Trading on-premises servers for the consolidated footprint of data centers managed and maintained by public cloud providers (e.g., AWS, Google Cloud, Microsoft Azure) enables organizations to reduce the total cost of IT while lowering energy consumption in the process.
3. High-performance computing (HPC): In the context of ESG solutions, sustainability means more efficient utilization of resources. Better utilization, coupled with shorter computing timeframes, means improved environmental sustainability. HPC is being leveraged by organizations for a variety of use cases, such as more accurately predicting the location and impact of severe weather, accelerating drug discovery and speeding up manufacturing cycles.
4. Data and artificial intelligence: The right tools and methodologies can add visibility and predictability to your ESG strategy. Organizations that adopt a data-centric mindset can leverage AI/ML technology and automation to reduce risk and ingrain sustainability best practices throughout their value chain. For instance, applying digital twin technology to physical systems in areas such as manufacturing, mining, supply chain optimization, and energy trend forecasting.
5. Facilities infrastructure: From optimizing building infrastructure to incorporating advanced cooling techniques or smart technology, there is ample room for organizations to invest in their facilities infrastructure as part of a comprehensive ESG program.
Where to start
Leveraging technology to enable ESG throughout all aspects of the business should be on every CIO's to-do list. Especially as it represents an opportunity for IT to drive value and financial success across the business while reducing negative environmental and social impacts. It's a win-win!
Technology will play a critical role in the success of any ESG program. But the ecosystem of tools and solutions can be complex and time consuming to navigate.
So, where should you start?
We suggest finding a partner with a comprehensive end-to-end approach to ESG. One that starts with assessment and strategy and ends with a practical, actionable roadmap for building and realizing your unique sustainability goals.
If that partner can help CIOs bypass the chaotic technology landscape and come to smart conclusions about ESG technology faster, even better.