Industrialisation and mechanisation, introduced in the 20th century, took the world into the climate change conundrum. Can new-age digital technologies help us get out of it in the 21st century?
Over the last couple of years, the pandemic, shifting climate patterns, geopolitical friction, social disparities, and several other factors repeatedly pushed ESG to the center stage. Interestingly, over the decades, ESG overlapped with the idea of Corporate Social Responsibility. This drew upon the notion of extended accountability of businesses beyond their shareholders. Modern understanding of ESG, however, is exceptionally dynamic. It has evolved and continues to be shaped by business responses to various environmental, social, and political stimuli.
The earliest evidence of ESG consciousness can be seen way back in the 1950s and 60s. Trade unions drove tangible social and environmental impact by leveraging pension funds and choosing to invest in sustainable projects like affordable housing and healthcare facilities. We then saw the emergence of the Shareholder Value Theory in 1970. This proposed that businesses need to look beyond maximisation of profit. This period also witnessed a growing concern for the environmental future of humankind and the need for its conservation. While the celebration of the first Earth Day at the end of the 1970s led to the formation of the US Environmental Protection Agency, the successive years also witnessed a surge of legislation directed to guide the environmental conduct of businesses. It includes the Occupational Safety and Health Act, the Clean Water Act, the Clean Air Act, and the National Environmental Education Act. However, the idea of sustainable investment and ESG adherence as a benchmark started to crystallise for the first time around the 1990s and 2000s.
However, the sustainability narrative got a reality check, with the Covid-19 pandemic unveiling a fundamentally skewed view with it bringing to the fore. Loopholes were exposed in the system: insufficient healthcare infrastructure, political ideologies, and policy gaps across geographies.
Accelerators to advance sustainability goals in 2023 and beyond
The good news is that companies now understand that to achieve sustainability goals, they require a systematic approach. They know that if they want to build sustainability as a competitive advantage then they need to integrate technology and data from the very beginning. As more firms consider their technology and sustainability agendas in tandem, they should consider whether they are applying game-changing technology and digital thinking to the task of fulfilling sustainability goals—or whether this vital business issue is missing an important dimension.
Going forward, a few things I feel should be important for the further evolution of ESG in 2023 and beyond are:
Identifying and addressing ESG risks: With new environmental issues popping up incessantly, businesses need to be more focused on their emission management performance. More than ever, organisations will be held accountable by regulators, investors, and consumers. Here, businesses can be better prepared by continuously pressing for greater transparency in their disclosures. They need to ensure ESG risks are identified proactively and addressed to operate sustainably
- Ensuring sustainable work conditions: The need for occupational health and safety of employees and workers is coming back into focus. However, now, the scope is expanding across the value chain. Big businesses face the demand of ensuring sustainable work conditions for their employees, and that of their supply chain partners alike. So also is the case with ESG performance. In 2023, diversity, equity, and inclusion will play a pivotal role in defining the integrity of the corporate culture.
- Harnessing the power of digital: Digital technologies will continue to get more closely embedded into the ESG strategy of businesses. PWC estimates that AI can reduce GHG by 4% in 2030. While emission reduction use cases will continue to proliferate, 2023 will witness the expanding role of digital technologies in other sustainability areas. For instance, the use of Process Mining platforms to gain in-depth visibility into transaction logs and ensure operational conformance with ESG best practices. Hopefully, with such granular access to data for decision-making, eliminating waste and building truly circular, ethical and low-impact production systems will be much closer in 2023 than ever.
- Data sharing and collaboration: Data sharing can enable new models of collaboration across industries and help develop joint solutions to environmental issues. Through this, companies may pool resources easily, bridge capability gaps, enter new markets, and expand their reach. Data sharing creates value in ways more than one - enables innovation, creates trust, facilitates coordination, raises awareness, and validates hypotheses.
- Sustainability as a strategic imperative: To guarantee that their organisations stay both resilient and competitive, leaders must make sustainability a strategic imperative across the board. This will equip them with the tools they need to reap the benefits of their digital transformation activities, establishing them for long-term value generation
For businesses worldwide, 2023 will inevitably bring sustainability challenges. However, instead of roadblocks, sustainability-minded business leaders must perceive them as reasons to innovate better, consolidating their ESG posturing and preparing to face future uncertainties confidently.