Environmental, social and governance (ESG) considerations are now becoming mainstream. These days, more and more pressure is being heaped on organisations to set sustainability goals and make ESG data more transparent. Why? Because ESG impacts everybody.
The public, investors and regulators are putting the sustainability initiatives of businesses firmly in the spotlight, so it’s important to stay mindful of the emerging trends. In this article, we’ll take a look at some of those trends and what they mean for businesses.
Boards and leaders must enhance their understanding of ESG
ESG has been well and truly placed under the microscope this year. Perhaps magnified by the increasing threat of climate change, there is now a wider understanding of the impact businesses have on society and the environment, and not just from within the corporate world.
Throughout the remainder of this year and beyond, corporate boards and business leaders will be under more pressure to demonstrate their understanding of and commitment to ESG initiatives. Whether that’s initiatives to help tackle climate change, social inequality or human rights violations, or sustainability measures to reduce carbon emissions, it’s crucial for businesses to understand how their operations factor into such complex situations.
But this increased pressure isn’t going to be alleviated by the latest certificate, standard or accreditation. It’s far from a box-ticking exercise. Shareholder activism is a very real outcome, as demonstrated on May 26, when shareholders of Exxon Mobil voted to replace two board members over concerns that the company is not addressing climate change with enough urgency.
That very same week, a court in the Netherlands ordered Royal Dutch Shell PLC to significantly accelerate its emissions reductions in order to cut its global carbon footprint by 45%, with a target year of 2030.
With this heightened emphasis on sustainability, there is an increasing need to foster a diverse, equitable and inclusive board that draws from a range of backgrounds and experiences. Because, if we’re ever going to achieve net zero, board members and business leaders must spend more time and effort working sound, impactful ESG commitments into their planning strategies.
Reporting standards will not be universal, but corporate disclosures will still come under scrutiny
Although an increasing number of companies are now publishing their sustainability goals and ESG-related data, there are still doubts about how much of it genuinely makes a difference.
With greenwashing rife, the public, investors, regulators and governments maintain a degree of scepticism, perhaps fearing that accreditations and sustainability labels are nothing more than a marketing ploy. There might be some truth in this, which is why we are in desperate need of a universal standard.
Currently, there are a number of ways for businesses to measure and report on ESG, which has its benefits – virtually every country or territory is developing a way to measure and report on key ESG metrics. However, this fragmented approach still leaves room for doubt and distrust.
Although it might be some time until we see universally accepted ESG standards that are provable, measurable and transparent, some organisations and governing bodies are developing their own. Take the International Sustainability Standards Board for example. They and organisations like them are helping to address the most difficult challenge when it comes to accountability – a global, cross-sector baseline for consistently disclosing standards.
While we understand more about the environment than we do the social impact, this year and next year we could begin to see the genesis of a consistent, globally accepted way to measure the social impact, with the best thinkers and organisations working together to solidify the metrics, data and reporting standards needed to make a difference.
Regulation will no doubt increase over the coming years, holding large organisations to account and upholding disclosure requirements and risk reporting, and not just risks to their own business – but risks to the planet and to people. The good news is that we’re already beginning to see movement around the fiscal concerns of ES. Banks and financial institutions in the UK are developing guidelines that outline the need for more information about the sustainability of investments and assets.
Data will be the single most important tool for sustainability and ESG
While it’s true that sustainability initiatives are good for your corporate image, it’s also important for your operational costs. Sustainable practices can lead to significant reductions in energy consumption, help us predict resource shortages and, as studies suggest, provide huge boosts to employee productivity. However, none of this is achievable without data.
Data tells us what we need to know, helping us measure and understand the costs associated with the energy buildings or businesses use, the way people interact with spaces and even the risks that lurk on the horizon. Through the use of smart sensors, we are able to track and then proactively – or automatically – modify our energy use, leading to more comfortable working conditions for our employees, lower carbon emissions and fewer costs.
Through collecting and analysing data, we are able to use sustainability analytics to measure a number of factors related to sustainability. As we discussed, energy and resources are primary concerns for most businesses, especially with the rise in energy costs. We can also use sustainability analytics to map our carbon footprint.
The insights garnered through this practice can help businesses, corporations and leaders steer their sustainability efforts in the right direction, improving the efficiency of the business in the process.
Additionally, using advanced analytics can help businesses show their customers exactly how they are making an impact. It’s not just investors that businesses need to demonstrate sustainability and ESG compliance to, it’s the general public too. Consumer trust is everything, and if businesses can confidently report on the impact they are having on the environment, wider society and their governance, what results is a more robust business.
If you’d like to learn more about ESG reporting and how your business can measure sustainability using smart sensors and sustainability analytics, contact us today.
