How better data is making ESG actionable

The year is 2025. Envi­ron­men­tal, social and gov­er­nance (ESG) data is inform­ing cor­po­rate deci­sion-mak­ing around the world. The Inter­na­tion­al Sus­tain­abil­i­ty Stan­dards Board (ISSB) has giv­en com­pa­nies a stan­dard­ised ESG report­ing frame­work to work to, mak­ing their dis­clo­sures far more use­ful and com­pa­ra­ble than ever before.

Advances in dig­i­tal tech have also made ESG data more action­able. Every prod­uct is hav­ing its green­house gas emis­sions tracked by AI-assist­ed satel­lite imagery and smart sen­sors as it tra­vers­es the glob­al sup­ply chain.

Busi­ness lead­ers have become knowl­edge­able about this field. ESG met­rics have been embed­ded in cor­po­rate strat­e­gy and are being wide­ly used to set per­for­mance tar­gets and exec­u­tive rewards. 

Is such a utopia like­ly in the next three years? No chance. But will com­pa­nies and their stake­hold­ers advance towards this state of affairs? Much is hap­pen­ing that offers hope.

At present, com­pa­nies must wres­tle with a chaot­ic tan­gle of ESG stan­dards, with some hav­ing to file 20 reports a year to keep their investors, reg­u­la­tors and cus­tomers hap­py.

And they’re strug­gling to obtain the required infor­ma­tion. Few firms are col­lect­ing action­able data on car­bon emis­sions in the sup­ply chain, for instance, even though it’s respon­si­ble for about 80% of all con­sumer goods com­pa­nies’ emis­sions, accord­ing to McK­in­sey.

But tech­nolo­gies that will help firms to achieve this are evolv­ing, as is a stan­dard­ised report­ing sys­tem. There are high hopes that the recent­ly cre­at­ed ISSB will come up with a de fac­to frame­work that most coun­tries will adopt. 

In addi­tion, ESG Book – an open-source dig­i­tal plat­form designed to make firms’ data more acces­si­ble – start­ed offer­ing its ser­vices in Decem­ber 2021. ESG experts hope that both devel­op­ments will help the pri­vate sec­tor move towards pub­lish­ing coher­ent, com­pa­ra­ble infor­ma­tion.

“They will change the ESG report­ing game over the next two years,” pre­dicts Jill Klindt, chief finan­cial offi­cer at Worki­va, a provider of com­pli­ance soft­ware. “The ISSB will align stan­dards and met­rics across com­pa­nies, so that investors and the pub­lic can com­pare apples and apples, which will help them to hold busi­ness­es account­able.”

Mean­while, com­pa­nies are devel­op­ing smart sen­sors and oth­er con­nect­ed devices to mea­sure the car­bon emis­sions of indi­vid­ual prod­ucts as they move through the sup­ply chain. Some large brands are already using tech that can track bil­lions of items and put a real­is­tic fig­ure on their total foot­print. Pep­si­Co Europe, for instance, has cre­at­ed a dig­i­tal mod­el of its sup­ply chain that has helped it to iden­ti­fy where it can work with sup­pli­ers to achieve sig­nif­i­cant emis­sion reduc­tions and effi­cien­cy sav­ings.

Firms are also invest­ing in AI fields such as nat­ur­al lan­guage pro­cess­ing to boost effi­cien­cy by con­nect­ing ESG and finan­cial infor­ma­tion. 

Charles Sin­cock, man­ag­ing prin­ci­pal and ESG lead at con­sul­tan­cy Cap­co, explains: “AI’s abil­i­ty to scan vast data records and inter­pret the results is a key advance­ment. Scan­ning pub­lic and pri­vate sources – from Tik­Tok posts to Nasa images – can sur­face new and alter­na­tive data to fill knowl­edge gaps. One exam­ple is so-called ther­mos­phere data, which analy­ses changes in veg­e­ta­tion to show the impact of tree-plant­i­ng ini­tia­tives. Anoth­er is satel­lite imag­ing that assess­es envi­ron­men­tal effects of min­ing and com­mu­ni­ty devel­op­ment pro­grammes around mines.”

Anne Aschar­so­bi, direc­tor of social and envi­ron­men­tal impact at Xero, agrees. “Big-data ana­lyt­ics and AI have changed the game,” she says. “They have led to a grow­ing num­ber of plat­forms that allow the con­sol­i­da­tion of reli­able ESG data in one place, inter-com­pa­ny com­par­isons and real-time mon­i­tor­ing.”

Pio­neer­ing com­pa­nies are also using AI to scan hun­dreds of risks and oppor­tu­ni­ties in this field. The tech­nol­o­gy can mon­i­tor devel­op­ments in ESG report­ing, pol­i­cy-mak­ing and reg­u­la­tion, as well as relat­ed media and NGO activ­i­ties around the world.

“Much AI is trained in Eng­lish, but nat­ur­al lan­guage pro­cess­ing tools now enable firms to tap into for­eign media and social net­works,” says Louisiana Salge, senior sus­tain­abil­i­ty spe­cial­ist at EQ Investors. “It means that they could find out about a fac­to­ry fire in Bangladesh, say, which would oth­er­wise fall through the grid.”

Anoth­er cause for opti­mism is that busi­ness lead­ers are try­ing to improve their ESG data lit­er­a­cy, accord­ing to Aschar­so­bi. 

“Sev­er­al providers have start­ed offer­ing edu­ca­tion to help them under­stand how to achieve action­able results from this data,” she reports. “Mem­bers of Xero’s lead­er­ship team are show­ing inter­est in deep­en­ing their under­stand­ing of the data we use.”

But not all com­pa­nies are tak­ing advan­tage of such devel­op­ments, of course. For one thing, much of the tech­nol­o­gy is so new that the ear­ly adopters are still work­ing out how to make the most of it. For anoth­er, it’s a big invest­ment.

“It’s wish­ful think­ing to hope that tech will solve all our prob­lems in this field,” argues Daria Gon­charo­va, chief sus­tain­abil­i­ty offi­cer at min­ing firm Poly­met­al Inter­na­tion­al. “We rely on many sci­en­tists to help us under­stand sus­tain­abil­i­ty data holis­ti­cal­ly and in con­text. For exam­ple, satel­lite imagery has proved a pow­er­ful tool in track­ing defor­esta­tion, along with the heat-map­ping of for­est fires. Has all the data that these have gen­er­at­ed changed how we act? Not enough yet.”

Salge observes that many com­pa­nies are using old ESG data that’s not mate­r­i­al to their busi­ness mod­els and are focus­ing erro­neous­ly on prox­ies, such as ener­gy con­sump­tion as an ana­logue for actu­al car­bon emis­sions. 

“The advance of the inter­net of things and smart cities can make a lot of ESG data more real and for­ward-look­ing, but we’re far from that point,” she says. “Tech­nolo­gies and con­sul­tants need to become cheap­er. Sup­ply chain trace­abil­i­ty tech has great poten­tial, for instance, but busi­ness­es are strug­gling to imple­ment it because it’s so expen­sive.”

Cli­mate change could cost the glob­al econ­o­my many tril­lions of pounds over the com­ing years. The devel­op­ment of tech­nolo­gies and report­ing stan­dards is help­ing firms to tack­le the prob­lem, but it’s clear that the busi­ness world is still a long way from becom­ing an ESG data utopia.