Harnessing the right technology can help companies manage ESG goals

AS environmental, social and governance (ESG) concerns rise on the agenda of businesses, managing them effectively becomes an increasingly complex task.

Knowing how to harness the right technological offerings, however, can be the game-changer in this respect.

"Technology can help companies better understand the changing environment around them, and better measure the impact that they're having," says David Smith, senior investment director - Asian Equities, at global asset manager abrdn.

He points to advances in areas like the Internet of Things (IoT), big data and analytics - which enable companies to be better connected with their environment, and to adapt and change, with real-time changes being possible in some cases to optimise operations, improve efficiency, and reduce impact.

"Use of technology in supply-chain management is a real game changer. Long supply chains spread across multiple geographies and jurisdictions used to represent enormous logistic challenges for companies, but now technology is bringing supply chains closer . . . and also helping to connect end-users with supply chains," Smith adds.

Starting point

But, it can be daunting to figure out where to begin, especially for businesses that have not yet formulated their ESG strategy.

Technological innovations can help businesses identify the ESG considerations that are relevant to them; and can then enable businesses to embed these into their core processes, as well as aid them in determining how effectively they are managing these considerations.

Cherine Fok, director, Sustainability Services and KPMG IMPACT, at professional services firm KPMG in Singapore, says that a strong ESG strategy would need to be built on quality data points - that is, data that provides insights informing a company's ESG strategy and enables its implementation in support of business growth.

"Increasingly, companies will have to look at new technologies that can deliver insights at scale to complement their ESG strategy.

"With the right technological solutions, companies should be able to gain more reliable sources of data sets and apply these new ESG frameworks to a much wider scope of scenarios. In turn, this can help companies identify emerging ESG considerations as they evolve over time, to prioritise investments in time and resources on the areas that matter," Fok says. "Technology will also enable companies to monitor their ESG performance and make crucial early interventions when progress falls behind."

Importantly, technological solutions should also facilitate the alignment of an organisation's ESG strategy across different functions. Being able to plug into the same platform, for instance, will create greater visibility across organisations, allowing different skill sets to be tapped as companies tackle the multi-dimensional nature of ESG topics, Fok adds.

Singapore businesses

In Singapore, companies listed on the Singapore Exchange (SGX) and those regulated by the Monetary Authority of Singapore (MAS) are subject to additional requirements to transparently disclose their ESG efforts.

"The additional requirements . . . call for a systemic and responsible integration of data and technology into the companies' core processes (that) is no longer just about 'best effort' or 'innovation'," says Yvonne Zhang, Risk Advisory Climate & Sustainability leader at professional services firm Deloitte South-east Asia. She points to the recently published frameworks, methodologies and toolkits by the MAS that guide companies to responsibly use data analytics solutions. Out in early February, the white papers are aimed at helping companies to eliminate bias, respect data privacy, improve accountability and reduce blind spots in their choice of technology and solution implementation.

SGX rolled out climate-reporting rules at the end of last year: all issuers must provide climate reporting on a 'comply or explain' basis in their sustainability reports from their financial years (FYs) starting in 2022; climate reporting will be mandatory for issuers in the financial, energy, and agriculture, food and forest products industries from FYs commencing in 2023, and for those from the materials and buildings, and transportation industries from FYs commencing in 2024.

Having the right technology in place can help companies track the performance metrics required by ESG-related rules and regulations, says Brian Ho, Climate & Sustainability Assurance leader at Deloitte South-east Asia. "Looking into the TCFD (Task Force on Climate-Related Financial Disclosures) recommendations and the new SGX listing rules, it is compulsory for companies from certain sectors to disclose their greenhouse gas (GHG) emissions. Utilising blockchain-enabled ESG platforms that are ISO-certified can ensure that these companies have accurate and standardised data collection, analytics and reporting for their GHG emissions."

Ho says these would streamline companies' reporting processes, and cut their costs, particularly when it comes to tracking performance along complex supply chains. "(These platforms) help to validate data and automate risk calculations along the value chain - operation, upstream and downstream - thereafter, reducing the high cost of in-person internal audits."

Avoiding greenwashing

Having solutions that help them better collect, track and disclose ESG data also means that companies would be better able to communicate their ESG efforts effectively to their stakeholders.

And stakeholders can, in turn, also tap the technology currently available in the market to help them better understand the companies they are involved in.

For investors, this means being able to better evaluate how well their investment targets are meeting their ESG objectives - which is key in helping them avoid falling prey to greenwashing.

Smith says: "Technology is helping companies monitor and manage their own ESG issues, and this in turn helps them aggregate data to communicate to investors and broader stakeholders, allowing them to substantiate their strategy with real data. This helps companies move beyond 'motherhood' statements, to demonstrating how they are achieving their goals."

Zhang builds on this point, stressing that the goal of ESG communications is to enable better decision-making based on a more complete picture of a company's holistic performance, and not to dress up unfulfilled ESG aspirations.

"One such example locally is the effort by the MAS and SGX's Project GreenPrint to make reliable, current, verified and relevant ESG data accessible to investors of all levels. The 'equalisation' of access to data and improving the quality of ESG disclosure is the key, instead of creating more attractive dashboards with a kitchen-sink's worth of data or opinions that obscure or confuse viewers, as that would be greenwashing," she says.

The improvement in the quality of data, made possible by technological advancement, has enabled investors to better compare and contrast their investments and enriched their insight.

Thomas Höhne-Sparborth, head of Sustainability Research at Swiss banking group Lombard Odier, says: "As an investor, we are excited about a number of technological developments that are helping us more comprehensively understand and assess the sustainability of a company's business model."

Enriching insight

He notes that new methodologies are emerging to assess not just the environmental impact of companies today, but also how those are evolving, and whether planned decarbonisation targets meet the objectives of the Paris Agreement - a legally binding international treaty on climate change adopted by 196 parties in 2015.

"Forward-looking metrics such as Implied Temperature Rise seek to compare the rate of decarbonisation that a company is pursuing against industry-specific benchmarks, to assess ambition and credibility - translating this into the level of global warming that would result if every company in the economy were to manage emissions in a similar fashion. This is a key new innovation in the market, shifting the focus from carbon footprints today, to how those emissions are being managed, helping to identify transition leaders and laggards," Höhne-Sparborth says.

And innovations such as geospatial analysis is helping companies and investors by offering satellite imagery that can detect environmental changes around company assets, or those in their supply chain, which he says can lead to more objective results than relying on the self-reported data of companies or their suppliers. "For instance, at Lombard Odier, we are using geospatial analysis to monitor deforestation, as well as to help us assess exposure to physical risks linked to climate change."

And then there's environmental modelling, which Höhne-Sparborth says allows companies to focus on a broader set of environmental impacts than emissions alone, such as the impacts of air pollution and the use of agrochemicals and waste streams. "New approaches are emerging to assess the aggregate consequence of these various forms of impact on local biodiversity loss, providing a more comprehensive and integrated assessment of a company's impact on nature," he explains.

Technological platforms can also facilitate interactions between stakeholders.

Fok cites the example of KPMG's Climate IQ digital tool, which helps businesses identify climate risks and opportunities, and employs a 'glass box' approach that provides clarity to all parties on the ESG data sets and methodologies that have been applied.

"This enables conversations to be premised on the same starting point so that strategic decisions can be formulated based on business needs and regulatory requirements," she says.

The future

And the advent of new technologies promises even more in terms of their ability to help businesses and their stakeholders manage their ESG goals.

Zhang points to the recent carbon-neutral Beijing Winter Olympics as a good showcase of what technology and conscious consumption can do to roll back environmental impact. "The green hydrogen that powered the low-carbon logistics of the event has become a viable solution for commercial roll-out; the smart re-use of sporting venues and the repurposing of redundant infrastructure, such as the defunct coal powered steel-mills of ShouGang, and the backward compatible integration of robotics, AR (augmented reality) and AI (artificial intelligence), can already improve service delivery in an otherwise highly constrained Covid-19 environment."

Ho is looking forward to innovative solutions that will hasten the scaling-up of green hydrogen, helping to solve its intermittency issue and the energy crisis that the market is now facing. "Presently, the market is investing in the Artificial Intelligence of Things (AIoT) solution - a combination of AI technologies and IoT infrastructure - to accelerate and expedite the scaling-up of green hydrogen."

Fok predicts the growth of technological solutions built around ecosystems in the near future - similar to the open data digital platforms that are becoming more mainstream.

"With such an infrastructure, ESG data would become much more accessible, 'crowd-sourced' and traceable in the future.

"Against the backdrop of growing stakeholder expectations, these platforms will encourage governments, regulators and industry bodies to work together to facilitate data flows for better consistency and comparability," she says.