How better data is making ESG actionable
With better data at their fingertips, firms can make more environmentally sustainable decisions. But comprehensive and fully comprehensible ESG metrics are unlikely to be developed through technological advances alone
The year is 2025. Environmental, social and governance (ESG) data is informing corporate decision-making around the world. The International Sustainability Standards Board (ISSB) has given companies a standardised ESG reporting framework to work to, making their disclosures far more useful and comparable than ever before.
Advances in digital tech have also made ESG data more actionable. Every product is having its greenhouse gas emissions tracked by AI-assisted satellite imagery and smart sensors as it traverses the global supply chain.
Business leaders have become knowledgeable about this field. ESG metrics have been embedded in corporate strategy and are being widely used to set performance targets and executive rewards.
Is such a utopia likely in the next three years? No chance. But will companies and their stakeholders advance towards this state of affairs? Much is happening that offers hope.
At present, companies must wrestle with a chaotic tangle of ESG standards, with some having to file 20 reports a year to keep their investors, regulators and customers happy.
And they’re struggling to obtain the required information. Few firms are collecting actionable data on carbon emissions in the supply chain, for instance, even though it’s responsible for about 80% of all consumer goods companies’ emissions, according to McKinsey.
But technologies that will help firms to achieve this are evolving, as is a standardised reporting system. There are high hopes that the recently created ISSB will come up with a de facto framework that most countries will adopt.
In addition, ESG Book – an open-source digital platform designed to make firms’ data more accessible – started offering its services in December 2021. ESG experts hope that both developments will help the private sector move towards publishing coherent, comparable information.
“They will change the ESG reporting game over the next two years,” predicts Jill Klindt, chief financial officer at Workiva, a provider of compliance software. “The ISSB will align standards and metrics across companies, so that investors and the public can compare apples and apples, which will help them to hold businesses accountable.”
Meanwhile, companies are developing smart sensors and other connected devices to measure the carbon emissions of individual products as they move through the supply chain. Some large brands are already using tech that can track billions of items and put a realistic figure on their total footprint. PepsiCo Europe, for instance, has created a digital model of its supply chain that has helped it to identify where it can work with suppliers to achieve significant emission reductions and efficiency savings.
Firms are also investing in AI fields such as natural language processing to boost efficiency by connecting ESG and financial information.
Charles Sincock, managing principal and ESG lead at consultancy Capco, explains: “AI’s ability to scan vast data records and interpret the results is a key advancement. Scanning public and private sources – from TikTok posts to Nasa images – can surface new and alternative data to fill knowledge gaps. One example is so-called thermosphere data, which analyses changes in vegetation to show the impact of tree-planting initiatives. Another is satellite imaging that assesses environmental effects of mining and community development programmes around mines.”
Anne Ascharsobi, director of social and environmental impact at Xero, agrees. “Big-data analytics and AI have changed the game,” she says. “They have led to a growing number of platforms that allow the consolidation of reliable ESG data in one place, inter-company comparisons and real-time monitoring.”
Pioneering companies are also using AI to scan hundreds of risks and opportunities in this field. The technology can monitor developments in ESG reporting, policy-making and regulation, as well as related media and NGO activities around the world.
“Much AI is trained in English, but natural language processing tools now enable firms to tap into foreign media and social networks,” says Louisiana Salge, senior sustainability specialist at EQ Investors. “It means that they could find out about a factory fire in Bangladesh, say, which would otherwise fall through the grid.”
Another cause for optimism is that business leaders are trying to improve their ESG data literacy, according to Ascharsobi.
“Several providers have started offering education to help them understand how to achieve actionable results from this data,” she reports. “Members of Xero’s leadership team are showing interest in deepening their understanding of the data we use.”
But not all companies are taking advantage of such developments, of course. For one thing, much of the technology is so new that the early adopters are still working out how to make the most of it. For another, it’s a big investment.
“It’s wishful thinking to hope that tech will solve all our problems in this field,” argues Daria Goncharova, chief sustainability officer at mining firm Polymetal International. “We rely on many scientists to help us understand sustainability data holistically and in context. For example, satellite imagery has proved a powerful tool in tracking deforestation, along with the heat-mapping of forest fires. Has all the data that these have generated changed how we act? Not enough yet.”
Salge observes that many companies are using old ESG data that’s not material to their business models and are focusing erroneously on proxies, such as energy consumption as an analogue for actual carbon emissions.
“The advance of the internet of things and smart cities can make a lot of ESG data more real and forward-looking, but we’re far from that point,” she says. “Technologies and consultants need to become cheaper. Supply chain traceability tech has great potential, for instance, but businesses are struggling to implement it because it’s so expensive.”
Climate change could cost the global economy many trillions of pounds over the coming years. The development of technologies and reporting standards is helping firms to tackle the problem, but it’s clear that the business world is still a long way from becoming an ESG data utopia.