ESG takes centre stage: From buzzword to boardroom talk
In the past, organizations were expected to maximize profits and report on the impact of their decisions and operations based on the value to shareholders. But in recent years, turbulent geopolitics, trade wars, global warming, and COVID-19, among other factors, have caused a dramatic shift from shareholder value to stakeholder value. Today, governments, regulatory bodies, activists, investors, and consumers demand that organizations have a longer-term vision backed by quantifiable performance metrics and targets that measure broader stakeholder impact.
As a result of the collective awareness, buzzwords like the triple bottom line, sustainability, green, and eco-friendly have paved their way into boardroom conversations under the umbrella term of environmental, social, and governance (ESG).
The stakes of resisting an ESG strategy are high, with potential consequences being reduced investor interest, higher cost of capital, increased risks, and negative public perception.
Rocky path: Evolving complexity in implementing ESG strategies
While the conversation on ESG is here to stay, the path to implementing it and conveying the results to stakeholders in a meaningful, comparable, and measurable way is still under development.
Organizations face several impediments in their journey towards ESG compliance because of the evolving nature of the ESG space: the changing reporting frameworks and regulatory requirements, lack of industry benchmarks, multiple sources of guidance, and more. Only once an organization understands, distills, and contextualizes the evolving components for itself can it correctly define and distinguish between its short- and long-term ESG targets, and communicate the corresponding impact to its stakeholders.
These targets must then be supported by credible and consistent metrics. This is where organizations often face difficulty—how do you determine the metrics on which to report and how do you ensure the integrity of the data that backs them consistently? These questions require the aid of technology in bringing structure, consistency, and integrity to create a robust reporting process.
What unique benefits can digitization bring to ESG implementation?
The visual below examines the key activities involved in ESG implementation and how digitization can enable them.