Strong ESG (Environmental, Social, and Governance) practice is good for business. In fact, organisations with a greater focus on ESG stand to gain a range of benefits, including:
- More innovation
- Long-term talent retention
- Customer loyalty
- Higher revenues
- Increased resilience
- Reduced risk
The argument for ESG has been made and, broadly speaking, won.
However, as organizations allocate more resources toward improving ESG, the ways in which it is practised are rightfully coming under greater scrutiny. And while each area of ESG is under significant scrutiny, the environmental subset gets the most attention.
Different approaches to a better environmental impact
There is no single approach for organisations to improve their environmental impact. Individual businesses evaluate the carbon footprint of their own operations, as well as their impact through customers, partners, and the supply chain. Then they make strategic decisions on where best to direct their sustainability efforts.
For example, rather than focusing on decarbonizing their own operations, many financial institutions are directing their efforts towards their investment portfolios and in meeting various ESG indices set by the capital markets. The financial industry is having a huge impact on sustainability in general, as it channels investments into the ‘green economy’ where eco-friendly companies create sustainable products. Banks are also influencing business customers to be more sustainable in order to have their loans approved.
The airline industry, one of the major sources of greenhouse gases, is also focusing efforts on where it can get the biggest environmental impact — reducing the emissions created by aircraft. Airlines hope to achieve this by switching from traditional fossil-derived jet fuels to ones made from renewable sources. They are also looking to new materials to make their aircraft lighter and more aerodynamic, and hence less fuel hungry. But while lighter planes and sustainable fuels will undoubtedly have a major impact on decreasing emissions from aviation, they aren’t available yet and won’t be for many years.
The common thread here is return on investment, and it’s a logical strategy. But companies also need to go for the immediate wins and lower-hanging fruit, such as decarbonizing their IT operations. In parallel, R&D needs to continue, and strategies should be developed for bigger and more substantive changes to come.
Moving IT up the environmental impact agenda
In my experience, many compute-intensive businesses are turning their attention to the energy consumption of their digital infrastructure. Many of these enterprises are now moving workloads to the cloud to reduce their energy consumption and carbon footprint.
But less IT-dependent sectors place it much lower on the agenda. Turning the spotlight back to the IT estate could be a good place to start for these companies. Afterall, we know that IT contributes between 2.1% and 3.9% of global greenhouse gas emissions today, largely from data centers.
Digital twins, IoT systems, edge computing, AI and machine learning can provide signficantly more positive environmental impacts across the board. For example, many industries use digital twins for infrastructure inspections rather than flying maintenance crews out to remote sites. AI can help understand exactly how physical resources are used, and how that use can be optimized to cut all possible waste.
But these technologies can produce negative environmental impacts of their own. Training a single AI model can emit nearly five times the lifetime emissions of an average American car. Blockchain is also notoriously energy-intensive. Every element of the IT strategy from current hardware requirements to cloud-optimised deployments to digitalization strategies needs to be carefully viewed through an ESG lens.
A change of direction
Concurrently, we’re seeing a shift towards mandatory rather than voluntary sustainability, and regulations around corporate environmental impact are getting tighter. For example, the EU’s Corporate Sustainability Reporting Directive (CSRD) is about modernizing and strengthening rules regarding the environmental and social information that companies have to report. It will require around 50,000 large companies and listed SMEs to report in line with the European Sustainability Reporting Standards (ESRS).
The EU is also expanding the scope and ambition of its Emissions Trading Scheme (ETS), which creates a price for greenhouse gas emissions thereby encouraging companies to reduce fossil fuel consumption. It is also introducing the Carbon Border Adjustment Mechanism (CBAM), which will ask producers to pay for any CO2 emissions imported through their supply chain.
As ever, it is best to start laying the groundwork before legislation comes into force: developing a broad strategic or even tactical response is much harder once the clock starts ticking and timetables are fixed.
IT leaders’ critical role in creating better environmental impact
As IT leaders, our oversight of digital technologies, perhaps the biggest driver in delivering better environmental impact, dictates that we must engage with ESG strategies. We cannot look past the overwhelming benefits it provides to our businesses and our planet. Plus, with the added regulatory and legislative pressures, soon, the choice will no longer be ours. It’s time to get ahead.