The term ‘ESG’ (Environmental, Social and Governance) is everywhere. In its own right, the potential impact is important enough, but it can so often be viewed as a standalone initiative. At its worst it becomes a tick box exercise, when in fact its real benefit is in informing and driving fundamental changes in your organization’s wider actions and endeavors.
ESG – good for the planet, good for business
In January 2023, the EU’s Corporate Sustainability Reporting Directive came into effect. Under its terms, all large companies and all listed companies (except micro-enterprises) must disclose information on the risks and opportunities arising from social and environmental issues, and their impact on people and the environment.
Set against this we have an AI revolution taking place – witness the activity on LinkedIn, with almost every other post lauding the benefits of some ChatGPT derivative or similar, leading to something of an AI feeding frenzy.
Looking through an ESG lens, the environmental impact of AI is huge. According to calculations by the specialist in sustainable data science, Kasper Groes Albin Ludvigsen, published in Medium at the end of 2022, ChatGPT could have consumed as much electricity as 175,000 people in the month of January 2023 alone. Equally, there are numerous articles that reference AI’s huge water impact.
One thing is clear. Whilst there can be many positive outcomes and by products from AI on ESG, the true end-to-end cost of this next wave of Digital Transformation is not yet well understood.
Given we are still trying to get to grips with the effects of the Industrial Revolution from an environmental perspective, how good is humankind’s track record of not repeating the mistakes of the past? How can we exploit opportunity without understanding the true cost and impact?
Wider business benefits of ESG
Developing an ESG strategy that is in harmony with your Digital Transformation yields multiple advantages. And whilst ESG reporting is now mandatory for corporations in the EU, doing so helps quantify the benefits that exist for every party:
- Investors. Many investors place great importance on ESG reporting and an overall strategy
- Customers. Consumers are increasingly concerned about the companies they place business with, and ESG is becoming far more important in their decision making
- Suppliers / Supply Chain. Companies are receiving more requests for information on their ESG credentials, capabilities and response. They must be able to demonstrate their end-to-end position when reporting, driving positive change throughout the supply chain
- Employees. Recruiting and retaining talent can be difficult, expensive and disruptive when there are issues with ESG policies. Research indicates that as many as 47% of employees would look for new roles if their organization is not proactive here
- Market reputation. Creating a strong reputation and a positive view of a company takes time and effort. Negative disclosures around ESG will quickly damage reputations, whereas positive ones will confer competitive advantage
Balancing potential conflicts between digital transformation and ESG
Detractors of ESG will point to the irony that a robust ESG process itself has an environmental impact: data centers in the EU consume more than 2.7% of the bloc’s electricity. And the Ukraine war has highlighted that the geopolitics of power supply will increasingly affect decisions on data processes and sovereignty – when Cloud storage and transference requires so many terawatts of electricity, securing a good price must be balanced against political and geographic risk.
Digital transformation is, by its very definition, a process of huge change. Done right it unlocks competitive advantage, delivers cost savings, drives productivity, opens up new opportunities and delivers compliance with ESG obligations. But done half-heartedly or implemented sporadically it will almost certainly be a huge waste of time, effort and resources.
Deloitte calculates that digital transformation could unlock as much as US$1.25 trillion in additional market capitalization across all Fortune 500 companies. However, done incorrectly, market value could actually be eroded, putting more than US$1.5 trillion at risk.
Prior preparation prevents poor performance
When it comes down to it, successful digital transformation requires only three things:
- An agreed plan
- The right tech platforms
- A joined-up approach
And whilst that sounds simple, it involves significant planning and project management resources. It’s not possible to retro-fix a digital solution onto your existing processes – a successful digital transformation requires a center-out approach, incorporating data privacy and protection and considering ESG objectives at the very heart of policy and technology.
When digital transformation is done correctly, “it’s like a caterpillar turning into a butterfly,” but when done wrong, “all you have is a really fast caterpillar.”
MIT Sloan Professor George Westerman
ESG at the heart of the digital transformation process
The comprehensive and insightful data analysis and management required to power your digital transformation needs a huge team of business experts, platform designers and technology specialists, all following a clear process:
- Develop an agreed, business-wide strategy
- Create and share a roadmap
- Define the metrics of success, and measure them
- Build user-friendly dashboards and data analytics
- Use optimal data platforms and cloud services
- Ensure data privacy and protection
- Set and track ESG targets. Not only does ESG need to be considered, it needs to sit right at the heart of digital transformation, informing and guiding the entire organization
Simply ‘ESG washing’ operations with fancy reports is both ineffective and expensive. That’s why Calligo ensures that every digital transformation we drive is engineered with careful attention to its environmental impact. Future-proofing your data use in a way that protects everyone’s future.
To help you navigate the expansive topic of digital transformation, we’ve put together a comprehensive eBook, outlining all the key considerations for your organization. And if all this sounds daunting, don’t worry – we’ve seen plenty of similar challenges. Data privacy, for example. Once seen as a vague afterthought or something for someone else, today it takes center stage – the concept of Privacy by Design even has its own ISO standard (31700). Understanding the end-to-end ESG impact of Digital Transformation is heading the same way.
If you want to learn some more, or if you want specific advice, consultancy support or technical implementation, why not talk to our experts, who can get your digital transformation journey underway?