Companies are starting to discover how they can incorporate new technologies such as artificial intelligence (AI), blockchain or the Internet of Things (IoT) to advance their environmental, social and governance (ESG) efforts and the way they report on them.
Over the past decade the world’s biggest companies have started to come under pressure from stakeholders to improve the management of natural resources and human capital. Although most non-financial data disclosure remains voluntary, stakeholders are now requesting that these companies release at least some non-financial data.
However, these expectations create problems for companies, the primary problem being that although many of them are following the guidelines of the Global Reporting Initiative (GRI), there is no single global standard for ESG reporting.
The great convergence
Change may come in the form of gradual standardisation in the reporting industry and the technology they use to report with. The dominant standard, the GRI, has been used by three-quarters of the global Fortune 250 companies that produce ESG reports. On environmental topics, it has aligned with another standard-bearer, the Carbon Disclosure Project (CDP). “What we are trying to create is a singular global standard, like that of the International Financial Reporting Standards,” says GRI’s chief executive, Tim Mohin.
A digital boost
Potential changes in reporting requirements create opportunities to include digital solutions. Third-party digital software could also speed up company reporting, according to Professor Ioannou, associate professor of strategy and entrepreneurship at London Business School. “A lot of companies complain that ESG reporting is costly, time consuming, and they are not sure what the use is,” he explains. “Emerging software will produce reports for different sustainability standards in a fraction of the time. The effort and cost are going to come dramatically down—and that deals with a major issue that companies are facing in their reporting.”
The new goldmine: public data
Simultaneously, the ever-expanding troves of publicly available data will bolster the limited disclosure done by companies. By mining tens of thousands of news articles, civil society reports, trade journals and social media posts daily, and using machine learning to make sense of the findings, third parties are already providing an objective perspective that can beef up businesses’ selective disclosures.
Furthermore, by revealing information about a company’s behaviour, such technologies could help shift capital away from the worst-offending businesses—a prerequisite in the transition to a more sustainable economy.
Into the future
The IoT promises to capture more data that could be used in the sustainability arena. And blockchain technology, particularly its next iteration—the Lightning Network, which operates on top of a blockchain to enable faster transfers through bidirectional channels—will help consumers trace the component parts that make their products.
Although the ability to adequately measure and report on sustainability is still being debated and developed, it is clear that the technological tools to aid these processes exist and can be further adapted, leaving more time for sustainability managers to focus on strategy and deployment rather than reporting and data checks.