Over the last two years, there has been a sea change in how financial markets view Environmental, Social and Governance (ESG) considerations, which have been pushed even higher up the agenda by the COVID-19 pandemic, a trend cited by Accenture CEO Julie Sweet last week when she noted:
As people are re-building, re-platforming in the cloud and investing, there's a huge interest in doing so sustainably.
This shift in attitude is due to a widely held belief that a direct correlation exists between ESG disclosure and organizations’ operational performance, which includes factors, such as financial growth, risk management and company reputation, according to the Edelman Trust Barometer Special Report on institutional investors.
The change in attitude was highlighted clearly last January when the world’s largest asset manager Blackrock indicated it would henceforth give clients’ ESG performance equal weight with traditional financial measures, such as credit and liquidity risk, and vote against boards that failed to adhere to recognised standards in the area.
Unsurprisingly, these moves have had a marked impact on the world’s 650 listed companies. As David Metcalfe, CEO of research and consulting firm Verdantix, explained during a roundtable event hosted by industrial software vendor, Aveva:
Passive sustainability was the default in 2010. There was a realisation of a need to do something but people weren’t going to change how they ran the business. CEOs delegated risk management down the organisation but it wasn’t a priority. But there’s now been a shift due to the impact of the financial guys…what’s positive is that the financial market community has decided this will be how it makes more money over the next 20 years and, in that instance, corporates have to play ball.
But he also pointed to studies indicating the huge contribution that digitisation can make towards achieving both ESG-related aims and the United Nation’s (UN) Sustainable Development Goals (SDGs):
It’s about building a collaborative digital capability, with cloud, AI and the like. Firms that really do ESG well have an information architecture in place to deal with management information and risk controls. It may also involve geo-spatial data and the ability to do performance improvement, but it’ll consist of composite systems that work together and are unified by the SDG goals set by the CEO.
Taking it to the next level
Olivier Blum, Chief Strategy and Sustainability Officer for Schneider Electric, which provides energy automation and management solutions and has just been named the most sustainable company on the planet, agreed that “digital probably offers the best opportunity” to help companies achieve their aims in this context. He explained how Schneider Electric intends to take its activities to the next level here:
SDGs are a very important framework today and most customers are more open to them now. So we’re looking at two parts of the equation: we’re testing to see how technology can make us more sustainable, and how our products can help our customers here too.
As a result, over the next five years, the company has committed to implement appropriate SDGs across its business worldwide using technology to help. Blum continued:
Digital is very important if you have more than 150,000 employees and want to ensure there’s commitment from all your entities as well as track their progress...Fifteen years ago, you couldn’t track how things were being used anywhere, but now we can track performance throughout the world and also use data to help customers move to more sustainable options.
Blum advised that any real change had to be driven by a coherent strategy, however, which involved the board clearly defining what it wanted to achieve:
It all starts with strategy, so it’s up to leaders everywhere in large companies to commit to making their organization more sustainable in future. But just as important is how you measure and digitise any action that you want to introduce – a lot of companies start doing this, but then stop after a few years.
Craig Hayman, CEO at Aveva, which has just signed up to the UN’s Global Compact and joined the Business for Social Responsibility network, definitely agreed that leaders have an important role to play in shifting an organization’s focus:
The importance of attaching yourself to global sustainability movements is that, as a CEO, you have to declare what you intend to do. You intend to win the game, not tie, so you say what you’re going to do. You take a risk in doing it but you’re able to rally the best resources and people to achieve your goals.
The impact of sustainability
Making a commitment to sustainability had an impact on the business in various ways, Hayman said. Firstly, its investor model changed. Secondly, internal change management was required to facilitate the shift in emphasis.
Finally, the focus of the vendor’s software development activities moved from building products in the most efficient way possible to optimise profits towards reducing carbon emissions and the use of resources, such as water.
Hayman also believes the pandemic has speeded up a wider shift in the tech industry more generally, however. He explained:
In the past, people said customers had to ‘rip and replace’ with their platform and everything would be fine. But the world naturally diversifies, so why would tech be different? COVID was an acceleration point in this regard as we’ve all found we have to interoperate with whatever is there already.
One organization that has followed just this kind of interoperability approach is Petronas, Malaysia’s state-owned oil-and-gas company, which changed its mission statement last year. Its aim now is to hit net zero for its carbon emissions and to transform into a “progressive energy and solutions partner, enriching lives for a sustainable future” by 2050.
A key part of this process has entailed creating techniques to collect and measure data in areas, such as power plant flaring and venting, to keep them stable and optimise their use of resources. But according to Prakash Kumar Karunakaran, head of Petronas’ NervCentre at Group Technical Solutions, there has traditionally been “no data or way to measure these things”. He added:
This is where Big Data analytics comes in as it enables us to quickly build models and test them, and it’s very effective when you’re comparing them with point measurements…It all starts with the data, so we’re using technology like remote and autonomous systems, drones and image analysis to help us better manage what we’re seeing on the ground. It then feeds back to a central orchestrated system that shows total carbon emissions. It’s not complete yet, but we’re getting there.
The secrets to sustainability success
To make it easier to understand and interpret huge amounts of data held in large numbers of systems, a front end “knowledge graph” to present industrial data was created. Karunakaran explained:
Building a knowledge graph on industry systems is not easy, and using AI and running natural language processing on engineering systems has been a nightmare. But we have seen success. We use the OSI [Open Systems Interconnection) model and collect more than two billion points of power data from our plants. So we can’t just rely on a single system. We have to cater to a platform of platforms or a system of systems to flexibly bring data forth and convert it into knowledge to create sustainable insights for us to act on afterwards.
One of the key secrets to overall sustainability success though, he believes, is breaking the issue down into manageable chunks. For Petronas, this entails starting simple, for example, by increasing operational efficiency and using the least amount of energy possible to deliver products.
The next step involves moving to low carbon solutions, so transitioning over time from coal to less damaging energy sources, such as natural gas, and eventually to renewables. Then, it is about reducing the organization’s overall carbon footprint further by employing green technology, such as industrial motors powered by renewables rather than carbon.
The final stage is to introduce carbon offsetting both for those areas within the company’s own operations and its wider supply chain where eradicating carbon usage has proved impossible.
There is encouragement to be taken from the comments and debate at this roundtable. As Robert Opp, Chief Digital Officer at the UN Development Program, noted, there has been an “amazing shift” that has taken place over the last 10 to 15 years, and particularly over the last 12 months, in which “sustainability has moved from CSR [corporate social responsibility] to using SDG goals as a rallying platform”.
He referred to the “breath-taking” use of digital technology, such as AI combined with cloud and data analysis tools, in “powering new efficiencies”, enabling new “business lines” and facilitating “fundamental reengineering”. And while the pandemic has led to a “reversal in human development” for the first time ever, Opp also called it “an amazing opportunity for disruption and innovation”.
As a post-COVID re-building takes place in the Vaccine Economy, the message is clear:
We have to take advantage of the situation to build back better and greener to ensure that the 70 million people who have been pushed into extreme poverty are not left behind.