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IT’s Key Role in Planting ESG Effort
Environmental, social and governance (ESG) is an emerging area of focus for companies that could loom large in the future. How can CIOs plan for this today?
4 Min Read
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At a Glance
- How your company plans for future ESG compliance will be crucial for future success.
- Companies need to go beyond a line item about ESG in their strategic plans.
- CIOs need to understand the complex and fluid nature of ESG regulatory changes.
First mentioned in a 2006 United Nations’ report, ESG (environmental, social, and governance) is an area of corporate performance and responsibility that has been monitored by investment firms for two decades. Yet there is still no consensus on just what an ESG-compliant company looks like, or what tangibles investors will get out of ESG compliance.
In a November 2022 Borsa Istanbul Review research paper, ESG was examined for corporate profitability and investment firm value. Researchers concluded that environmental ESG work did not significantly add to firm value, but that collective work in all ESG categories did. Researchers stated, “These findings suggest that investing in high ESG performance promises financial return for the firm in terms of both value and profitability.”
The conclusion is vague. So just what do ESG proponents and market players expect to see?
“A company’s ESG performance is monitored by prospective investors, employees, partners, journalists and the general public,” said Sustainability’s Blaise Hope in an article. “Whether driving for a ‘triple bottom line,’ competing for the best talent, or simply positioning your company to survive long term, nailing your ESG strategy and delivering on it is crucial. So, it has moved firmly into the must-have category for firms.”
That may be, but how your company approaches ESG compliance is a unique strategic question that every company must answer for itself. For instance, a company in a heavy carbon-producing industry like oil and gas will have a different ESG approach than a large university or a bank. At the corporate IT level, where much of the ESG heavy lifting occurs in the form of monitoring performance, managing data and reporting on results, ESG strategy will vary by company and industry. There is no one ESG “best approach” that works for everyone.
When so much about ESG is left undefined and yet you know that IT will be involved in it, how can CIOs anticipate and plan for ESG?
Be proactive and agile. ESG is likely listed as a line item in the company’s strategic plan, but there might not be any sub-points below it.
What is most likely to launch ESG work and sub-points are the demands that will surely come from governments and industry regulators. Like the Sarbanes-Oxley Act, HIPAA, PCI security and other important corporate compliance measures that have gone before it, ESG means new laws and regulations will force action, and it likely will define the tactical side of ESG.
Understanding these dynamics, what CIOs can do now is to use every active project and organizational initiative that can justify the integration of data and systems to the max, and to do the integrations.
The one thing we know about all compliance measures is that they require new levels of integration that the company usually lacks. If you can focus on integration work now, you will be more agile-and better prepared for ESG regs when they hit.
Keep your ears to the ground. You can learn a lot about the directions ESG is taking from your outside audit firms, regulators and your internal legal or regulatory department. These entities already have information in advance on future ESG directions and what laws or regulations are likely to be forthcoming.
Do your part internally. Several years ago, I was visiting with the CIO of a large healthcare company in the Northeast. He told me that the company wanted to trim its carbon footprint and that the first place the company looked for tangible results was in the data center.
“This prompted us to move more IT to the cloud, and even to build a new, eco-friendly data center,” he said. “We virtualized servers as much as possible, reduced energy consumption, mandated that all new equipment we purchased used less power, and even redid the HVAC unit airflows.”
Partner with your vendors. ESG should be added as a screening criterion into your new IT requests for proposals for prospective vendors. It’s also important to sit down with existing vendors to see what they are doing in the ESG area.
Learning what vendors are doing could generate some ideas for CIOs on how they can focus on ESG work. Vendor input also informs IT on how proactive their IT ecosystem of vendors (especially cloud providers) are being with ESG.
Last Word
I’ve always chosen the Y2K project as the textbook “best project ever” for CIOs. No CIO who was involved in Y2K, and the anxiety and hard work that went with it, would likely agree, but here’s why I think Y2K was the ideal IT and CIO project:
Y2K had a definite “drop dead” end date of December 31 when all work had to be completed.
The business importance of Y2K was top of mind and clearly understood by everyone. There were no issues in terms of Y2K being a top priority, or in funding it, or in providing the necessary resources.
Y2K was “do or die” mission-critical! You either did it, or you risked going out of business!
ESG is nothing like Y2K. Companies still don’t know what they should be doing for ESG. And, for their IT departments, the objectives are even murkier.
However, that doesn’t mean that CIOs shouldn’t be strategizing or working on ESG. If one thing about ESG is certain, it’s that governments and regulators will ultimately weigh in with laws and guidelines.
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