Why Digital Technology Is Critical To ESG Success

On 28 July 2022, we reached Earth Overshoot Day—the day on which we have used all the biological resources that the Earth regenerates in a year. Our rapid industrial and now technological advancement is the culprit. But that same technology will, it is hoped, prove to be our salvation.

There are many examples of how digital technologies can be applied to support environmental issues, including the use of robotics, the Internet of Things, and drones to improve efficiency, reduce waste, and provide less carbon-intensive means of environmental management. The 2022 World Economic Forum in Davos highlighted the many ways in which digital technology is transforming environmental protection across the world, from the use of blockchain technology to tackle illegal fishing to the use of AI to help protect endangered species. The WEF believes that digital technologies have the potential to cut global emissions in the three highest emitting sectors by 20% by 2050.

It can be equally effective on an organizational level. Corporate use of digital technology—defined as the use of electronic tools, devices, systems, and resources that generate, store, or process data—has the potential to power an organization’s ESG strategy and execution. From the perspective of businesses, ESG, and digital technology can be seen as two sides of the same coin.

One of the biggest challenges for businesses is ESG reporting. Regulators worldwide are steadily ramping up reporting requirements, and while most of these requirements apply to financial institutions and large or listed companies, they can impact smaller organizations in their supply chains. As requirements evolve, SMEs will increasingly come into scope for ESG-related disclosures.

Further ESG reporting requirements are an inevitability. But this is not necessarily seen as an onerous task; many large companies in the Middle East would welcome increased ESG regulation, and many see ESG as an opportunity to enhance their brand and reputation. Even so, some organizations see ESG reporting as a compliance burden rather than an opportunity.

Meeting ESG reporting requirements can be a significant challenge. Producing highly available, quality data is difficult and requires time, persistence, and investment. Source data required for ESG reporting—which includes human capital, cyber security, greenhouse gas emissions, and safety—will typically be produced and processed by multiple financial and transactional systems. Any gaps in data need to be identified and existing systems reconfigured. Data quality is also vital, requiring the appropriate governance and control environment to protect the consistency, integrity, and security of the organization’s ESG data. Robust data collection systems and powerful analytical tools are allowing organizations to gather reliable, consistent data and measure the progress of their ESG initiatives.

Digital technologies are already being used to improve efficiency, reduce waste and provide less carbon-intensive means of environmental management. ESG frameworks, in turn, can help organizations apply a broader approach to sustainability and highlight the potential risks in applying new digital technologies. For example, they have a social impact in the form of job displacement and reduced human-to-human contact.

Changing the way we use digital technology can significantly move the dial, such as by embedding ESG metrics as part of the technology sourcing processes and introducing electronic waste management. It can also play a central role in enabling an organization’s governance through systems that provide improved transparency, decision-making capabilities, and empowerment of compliance.

Digital technology is the key component of an ESG strategy, but it is also clear that an ESG-focused mindset can help organizations approach it in a sustainable, thoughtful way.