According to a recent survey by risk and compliance software firm Navex, 87% of 1,250 managers and senior executives polled at companies across the US, UK, France and Germany plan to either maintain or increase their focus on ESG over the coming year. In the same poll, 83% of respondents agreed that a brand’s reputation is influenced by ESG.
But a focus on ESG purely through the prism of reputational risk is an increasingly antiquated stance. Merely talking about one’s ambitions and implementing a cohesive, actionable strategy that positions sustainability and ESG considerations at the heart of one’s business are two quite different things. More than half (58%) of CEOs polled for a 2022 Google Cloud survey acknowledged that their company exaggerated its environmental efforts, but such exaggerations are becoming an increasing brand risk in themselves. Accountability is key, but for that one needs robust methodologies, and access to requisite talent and expert insights in order to define and deliver a successful sustainability and ESG strategy roadmap.
This has traditionally been easier for larger enterprises with far deeper pockets, but things are beginning to change. For companies of all sizes serious about tackling sustainability, an array of new services and platforms are emerging to help ease the journey and ‘democratise’ knowledge – with many of the most impactful harnessing and exploiting the power of big data.
10 Steps to net zeroBy Rio ESG
A question of scalability
Dan Botterill is in a good position to reflect on the rise of ESG prominence in the corporate and investment landscape. A sustainability consultant and entrepreneur since the early 2000s, he has spent his career working across various ESG fields. In 2018, he founded Rio – a software platform that leverages AI to help organisations and investors implement sustainability and ESG strategies through streamlined data management, effective governance, and skills development.
Most enterprises do not have the resources to invest millions into developing a platform that can place ESG at the heart of their business, he says. The idea behind Rio is to provide that capability for all.
Botterill acknowledges that discussion around sustainability has “grown exponentially” over recent years and that the conversation has become more nuanced, but also says that, far from greenwashing being a thing of the past, it has merely become “more sophisticated”. He is happy that the conversation is at least now firmly in the mainstream, but also admits: “I really thought we’d have got to this point a decade ago. Progress has been too slow.
“ESG is still often seen as a question of compliance, and falls short on the sustainability side, in that it’s being used tactically and transactionally,” Botterill argues. “What Rio wants to do is help organisations bring sustainability through as their core business model and find a balance between environmental, social and economic progression, rather than such considerations only coming in after profit. They need to want to take that approach, but they also need access to tools and knowledge to do it properly.”
In Botterill’s view, the need to both demystify requirements around ESG and create actionable insights is only heightened by regulations that are often “too broad” to really force change, allowing companies to include terms like ‘net zero’ in their annual reports without underpinning such commitments with concrete, measurable steps to make them happen.
This speaks to broader challenges. With ESG often edging towards mere box-ticking, Botterill says that the sudden emergence of groups and individuals selling ESG and sustainability solutions – often pricey advisory firms with glibly simple solutions to pan-corporate problems – has served to bring more confusion, rather than clarity, to this space.
“They often lack a fundamental knowledge and understanding of the subject area,” Botterill says. “A client of mine, who works as head of ESG at a major investor, was only recently lamenting to me how ungenuine many market solutions are – with little appreciation for the complexity of the subject matter.”
Anecdotally, Botterill even suggests these attitudes sometimes enter C-suite thinking, with certain multinationals hiring chief sustainability officers (CSOs) as a form of window dressing, putting them on big salaries but with very little actual responsibility, placing the CSO far away from the heard of core strategic decision-making.
Botterill concedes that identifying where actionable, sustainable improvements can be made is a challenge. That is especially true when trying to monitor non-environmental items like wages and labour conditions, part of what Botterill characterises as ‘ESEG’ – environmental, social and economic governance.
Significant data gaps and a lack of real-time and standardised information can prove a major limitation. There is a real need for more robust, data-centric ESG models. While Botterill laments the continued influence of those selling overly simplified solutions, he has also seen the difference genuinely talented ESG consultants can make in this regard. Their numbers are limited and their cost is high, however, so the challenge becomes how one can create a scalable platform that widens access to such talent and insight.
“It’s about finding a way to model the experience, knowledge, processes and techniques that those excellent consultants provide, then digitise it and get it out there,” he says. “What we want to do is make ESG insight and action much more cost-effective and accessible to everybody.”
Rio has been working with clients spanning the public sector in the UK (including the NHS, Ministry of Justice and British Council), the private sector (FTSE 100 businesses such as JD Sports) and various investors, funds, asset managers and administrators, to do just that.
The platform enables organisations to gather vast quantities of information from multifarious sources. That encompasses enviro-socio-economic data points from the organisations’ internal systems and processes as well as the supply chain.
From there, data and performance is analysed to help inform exactly what needs to happen next, ensuring enterprises develop detailed plans on where their ESG work will be most effective, and drive sustainable improvement.
ESG strategy: The human factor
All this takes time and effort, and as Botterill puts it: “There’s no magic bullet.” That’s doubly true from a technology perspective. Though AI and analytics can make ESG work much smoother, companies such as Rio also rely on in-house sustainability consultants to provide advice and act as a sounding board for new ideas. The Rio team boasts a mix of software developers, sustainability and ESG experts.
Botterill stresses that this scalability of talent can offer significant savings, while providing a human face to the process and creating more durable relationships with clients.
But commitment must ultimately come from the client side. However good the platform one is using might be – and the quality of the actionable insights generated – it will make little impact unless there is a genuine desire to pursue change.
CEOs, CFOs and chief risk officers are probably the most obvious stakeholders to engage here, but whoever takes the lead in integrating AI into an ESG strategy, Botterill argues, they ultimately need to blend sustainability into broader corporate goals. “I think what we’re going to see, for the more informed organisations, is that they take sustainability as the business plan,” he suggests.
This will be made easier, he says, as demonstrable proof mounts that better ESG scores can translate to greater profits.
“It comes down to demystifying this whole challenge and creating accountability,” Botterill explains. “Such insights are vital, but only if they are used to create a roadmap to ultimately be a better company.”