Not long ago I met with the chief information officer (CIO) of a retail bank to look at ways to improve their data strategy. Sustainability and Environmental, Social and Governance (ESG) data were top of mind. Investors, customers, and regulators were demanding it.
But a core challenge for this bank—not an atypical one—is that the data landscape was, quite simply, a mess. It lacked data quality, transparency, integration and governance. The bank faced a fundamental technology challenge that risked their ability to deliver on their sustainability strategy. For me, it underscored the importance of applying technology to meet the rigor required in this new and evolving realm of ESG/sustainability data, which, for many firms, remains out of reach.
ESG reporting matters more than ever
New pressures to measure, disclose and improve on ESG-related issues are coming from multiple vectors, and market dynamics are driving this shift. A growing number of companies around the world are reporting on their sustainability and ESG performance.
Many investors see ESG performance as a proxy for good management. Investor groups like the Task Force for Climate-Related Financial Disclosures (TCFD) are asking boards and the C-suite to explain and document their sustainability performance. We are increasingly seeing this narrative play out in the quarterly and annual reports of our global clients. Organizations are increasingly turning to their CIOs and chief data officers to help understand how to rise to this challenge, because technology and data are at the heart of the answer.
Customers, consumers, employees and, increasingly, investors want insight into the social and environmental footprints of the companies they partner with, work for or purchase from. Recent Accenture research highlights that conscious consumption among consumers is on the rise, particularly post-COVID. And regulators are requiring ESG disclosure as never before. Witness the EU’s recent Sustainable Financial Disclosure Regulation.Administrations globally have renewed focus on ESG. This trend will only continue to rise as greater ESG regulatory scrutiny becomes the norm.
Growing stakeholder pressure is indicative of a paradigm shift occurring across industry. Business models are fundamentally changing. For an organization to future proof itself, ESG has to be at the core of business and technology strategy. Increasing focus on sustainability is driving a need to proactively, in real time, report on ESG impacts. Leaders can no longer just be compliance-driven; they see the opportunities in being able to report meaningfully on ESG data to create competitive advantage.
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Organizations that can report on ESG effectively have a critical market opportunity compared to their competitors.
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Taking the pulse of your ESG data readiness
While understanding ESG requirements is the first order of business, the ability to abstract and measure a corporation’s raw data that relates to ESG metrics is the connective tissue for quality reporting.
For organizations to effectively adhere to reporting requirements, they need to delve into enterprise-level data that exists in large-scale enterprise platforms such as Oracle and SAP, to name a few. The data needs to be aggregated, synthesized, and visualized in such a way that it can be coherently communicated to a range of stakeholders.
Organizations that can report on ESG effectively have a critical market opportunity (compared to their competitors). Beyond meeting regulatory and stakeholder demands, the ability to understand, surface, query, analyze and act upon this data is a means to improving the business. It’s also a risk management tool to understand non-financial metrics that could impact the organization. For instance, detailed insight into supply chain ESG data can help avoid the supply side shocks we have seen during the COVID-19 pandemic. In short, using technology to extract ESG data is bigger than just sustainability.
Building for the future
Achieving that level of ESG data transparency requires a few essential steps. Here are three key ones:
- Create an architecture for the data stack/landscape to ensure the data is interoperable and integrated across the organization.
- Ensure the data layer is easily queried and analyzed with appropriate data tooling.
- Integrate the data sources with effective third-party providers, like ESG ratings firms, that can leverage the data output to produce a sustainability score or report.
This undertaking requires the right skills and capabilities, from data scientists to analysts to engineers with an understanding of cloud and new software architectures. The overall strategic aim is the ability to measure and report on an organization’s sustainability ledger with the same rigor as its financial ledger.
It’s about building for a future which—to a large extent—is already here.
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The cost of inaction is too high
Today, every business has to be a sustainable business with sustainability built into its core plays right at the board level. The cost of inaction is simply too high if you want to avoid falling behind in this inevitable. Solid, data-backed sustainability and ESG performance have become table stakes for any industry leader.
Optimizing and building a technology-driven approach requires an integrated approach, including a firm handle on the architecture, enterprise data, and associated capabilities. We have seen this first-hand, sitting at the intersection of business strategy and technology, from C-suite right through to building the platforms and architecture. All of these elements are crucial for extracting ESG information from a messy data landscape so investors and other stakeholders can make informed assessments of performance. This is not an insignificant task and requires transformational effort. But with the clock ticking, can you afford to wait?
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