ESG goes beyond compliance, evolving into a strategic imperative for organisations.
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The roots of Environment, Social and Governance (ESG) can be traced back to the labour improvements of the Industrial Revolution. The "E" gained prominence in response to the contemporary climate crisis. A significant milestone was the United Nations' "Who Cares Wins" report in 2004, which marked aligning business practices with sustainability. Over the past two decades, the ESG landscape has transformed, influenced by initiatives such as the EU's Sustainable Finance and Disclosure Regulation (SFDR) in 2019.
ESG goes beyond compliance, evolving into a strategic imperative for organisations. Adapting to emerging ESG regulations involves adjustments in data processes, consolidation, disclosure management, and planning. Beyond regulatory adherence, ESG performance crucially shapes an organisation's reputation among stakeholders, impacting investment decisions, financing access, and stock prices. ESG's role in risk management, especially concerning climate change, is pivotal for a company's viability. Monitoring ESG Key Performance Indicators (KPIs) and understanding their link to operations and finance allows organisations to optimise initiatives, fostering positive outcomes for both the planet and society.
ESG is a multifaceted tool for compliance, reputation enhancement, risk mitigation, positive impact, and overall performance optimisation. Its direct influence on the bottom line is evident through effective performance management, facilitating identifying opportunities, underperforming projects, and areas suitable for investment or divestment.
ESG in India: Regulatory Framework and Challenges
In India, the Companies Act of 2013 introduced one of the first ESG disclosure requirements for companies. Section 134(m) mandates companies to include a report by their Board of Directors on energy conservation. However, the implementation in India faced two challenges: Limited Regulatory Framework and Standardization—comparability of ESG reporting metrics. The steps articulated by the Securities and Exchange Board of India (SEBI) created a strong foothold on which the idea of sustainability was reported through these reports. Even with the dilemma of responsibility created by SEBI, the implementation in India faced challenges related to a limited regulatory framework and the comparability of ESG reporting metrics.
Tech-Driven ESG Integration: Rules, Data, and Sustainability Excellence
To integrate order and global standards into ESG, the world of technology becomes a heightened value addition in the reporting rules. Integrating technology defines the ongoing digital transformation and offers a definitive approach in which organisations invest less time and generate high-quality, ethically driven ESG reports. In the ever-evolving technical landscape, effective data management is crucial. A proposed Data Management Policy outlines key aspects, including data governance, metadata management, data quality management, data lineage, and data architecture, ensuring a sustainable, consistent, and effective capability to manage data.
In this context, technology amplifies data management, copes with the demand of the dynamic regulatory frameworks, envisions opportunities for the firm to develop, identifies risks, and ensures trust with security in these reports. The world of IT professionals plays a crucial role, leveraging their ambitious skills to deliver pristine software solutions.
Also read: Does it pay to link executive compensation to ESG goals?
Ideating the Software
The software organisations selected to analyse their internal data should be able to add custom Key Performance Indicators (KPIs), providing flexibility to every business function to moderate the design of their reports. On the user's front, the software must be easy to install, create necessary reports in line with ESG standards, and be equipped with necessary provisions for compliance updates to handle dynamic demands from regulatory bodies.
In addition, analytics evaluates the effectiveness of the ESG reports, comparing the company's performance with industry standards and competitors, and attenuates the firm's position to fixate growth more than its previous year's numbers. The firm's sustainability is quantified, while the reputation is magnified with numbers.
ESG Data Management: A Pillar for Sustainable Impact
Effective data management stands at the core of success in the dynamic realm of Environmental, Social, and Governance (ESG). Adopting a comprehensive Data Management Policy becomes imperative in response to the escalating demand for meticulous data handling. This policy, encompassing five fundamental aspects, is the cornerstone of a resilient data management framework for ESG initiatives.
First and foremost, Data Governance establishes defined roles, responsibilities, and controls, fostering accountability and transparency in data management. Metadata Management follows suit, identifying and managing critical data elements to enhance understanding and utilisation. Data Quality Management is pivotal, with implemented controls monitoring, managing, and reporting data quality to ensure the integrity of ESG-related data. The aspect of Data Lineage comes into play, capturing and tracking the origins and movements of data to foster trust in accuracy and reliability.
Finally, a scalable Data Architecture is designed to accommodate the evolving landscape of ESG processes, ensuring organisations can effectively handle the increasing volume and complexity of ESG-related data. Collectively, these aspects form a robust foundation, facilitating informed decision-making, building stakeholder trust, and supporting the sustainable and impactful progression of ESG initiatives.
ESG Analytics: Navigating Impactful Reporting and Infrastructure Strategies
A recent analysis of India's leading 100 companies, evaluating their Environmental, Social, and Governance (ESG) scores, underscores the impact of ESG initiatives on corporate practices. This comes in the backdrop of the European Union's Corporate Sustainability Reporting Directive (CSRD), which mandates ESG reporting and accentuates its escalating significance on the global stage. Microsoft contributes to this landscape through its cloud-based solution, facilitating the capture, analysis, and reporting of ESG data in alignment with CSRD requirements.
Analytics assumes a pivotal role in implementing and evaluating ESG strategies, involving benchmarking performance, tracking progress, and assessing the current ESG positioning of companies. Effective data collection, influenced by scope, complexity, volume, sources, technology, and tools, becomes crucial to successful ESG analytics.
The infrastructure supporting ESG analytics must prioritise scalability and cost management. Raw data cleansing, integration, and robust infrastructure, including cloud and storage solutions, must adapt to the increasing demands of data volumes and computation. Meticulous planning and scoping are essential for optimising resource utilisation and ensuring the sustainability and impact of ESG initiatives.
Implementing technology in ESG encounters challenges such as Data Availability, Subjectivity, Measurement, and Verification. Data mining and presenting metrics comparably need improvement. ESG also requires extensive employee training for accurate report publication, emphasising standardisation by a new global body. In addressing these challenges, we propose a ranking system for ESG reporting, focusing on quality across industries. Stakeholder benefits and revenue propagation through report scalability and reusability are integral to our proposed solutions.
Also read: ESG is not impact
Tech Integration: Driving ESG Reporting, Sustainability, and Brand Commitment
Despite complexities, integrating technology is crucial for ESG reporting. It ensures well-defined metrics aligned with sustainability goals. The shortage of skilled resources hampers mid-level companies, but technology enables efficient reporting through tools and platforms, mitigating resource scarcity and minimising costs. This benefits the environment and enhances a company's brand by showcasing a commitment to sustainability.
Tech solutions can be monetised sustainably through enterprise licensing, collaboration with ESG consultants, partnerships with technology vendors, white-labelled versions, consulting services, and premium support. These models enable tech companies to invest in making solutions adaptable to evolving ESG framework requirements, facilitating affordable migration for organisations in the long run.
In the global discourse on planet resurgence, technology empowers companies worldwide, including those in India, to publish accurate and comprehensive ESG reports. Technological amenities enable growth, development, and planet protection, promoting environmental homeostasis. Technology integration is not just a solution but a practical approach for companies to thrive while safeguarding the planet's interests, embodying the prevailing Homeostasis.
Acknowledgement: This opinion piece is part of extensive research done by the authors as part of the Emerging Leader Programme at ISB
Anjal Prakash is a Clinical Associate Professor (Research) at Bharti Institute of Public Policy, Indian School of Business (ISB). He teaches sustainability at ISB and contributes to IPCC reports.
Rutesh Adwani is leading Growth and Alliances at Areya Technologies, a global Salesforce Consulting Partner, is reshaping Net Zero Cloud solutions.
Abhishek Chakraborty is a Senior Manager at Bristol Myers Squibb, a pharma MNC leader in Innovative medicines.
Rajul Gupta is a Product Owner at Barclays UK.
Rajesh Iyer is the Vice President, Finance & Accounts, heading the Planning and Budgeting function at SBI Life Insurance Company Limited.
Poonam Singhal is a senior computer scientist at Adobe.
Veera Raghavan TV is Lead Product Manager with Boeing, handling customer-focused product management across various Domains like e-commerce, aviation, etc.
[This article has been reproduced with permission from the Indian School of Business, India]
