While digital transformation has become the focus for many of today’s enterprise technology strategies, another transformation is also taking place – one that may ultimately prove equally important to long term business success.
Just as technology leaders today are feeling pressure to help their organisations respond faster to changing market demands, now they must also rise to the challenge of developing and implementing their organisation’s environmental, social, and governance (ESG) initiatives.
According to KPMG Australia’s ESG Corporates Lead, Robert Poole, digital transformation and ESG initiatives are becoming intimately linked, with technology leaders playing a key role in both.
“One of the key requirements for any organisation’s ESG strategy is the ability to collect, manage, and analyse the vast amounts of data that will ultimately direct that strategy,” Poole said. “As a result, there is an equally massive opportunity for technology leaders to step up and play that critical role of finding and implementing solutions to help their organisations better understand and report their ESG transformation.”
Poole envisioned technology leaders as part of a triumvirate of c-suite executives alongside their peers in the finance function and in ESG strategy. Their role would be especially important when implementing the systems needed to measure and report the key metrics used to track ESG progress, such as carbon emissions, recycling, hiring policies, and other methods used to monitor ethical and responsible business practices.
Technology leaders already play a vital role in ensuring data describing business performance get to the people who need it in an accurate and timely fashion, and Poole said this would be no different for ESG reporting.
“There is a huge amount of data that comes into your traditional business systems associated with measuring and monitoring and improving the business,” Poole said. “Not surprisingly, many businesses are starting to think very seriously think how to do that for ESG. It will require a partnership between operations and IT and finance and all of the collection points, as well as the data capabilities to crunch the numbers.”
Getting granular
However, despite growing awareness of the role technology will play in ESG reporting, KPMG has found that many organisations lack detailed plans for how they would implement systems and processes that would make their ambitions achievable.
According to KPMG Australia’s Partner and National Sector Leader for Technology, Media, and Telecommunications, Levi Watters, much work was still required by organisations to achieve the level of granularity in data reporting and analysis they want.
“Software is moving to fill that gap, from the ERPs and from new emergent companies, but data and systems is still one of the least developed elements of the response,” Watters said. “Businesses need to be able to understand all of the data, and instrument that and collect that in the same way that we do anything else, such as for finance or compliance and so on.”
This meant it was vital for digital transformation strategies to also consider the long-term data needs of their ESG programs, to ensure that data tools and architectures were capable of harvesting and managing data relating to those initiatives.
“So as you do your digital transformation it is going to be better in the long run if in parallel you are capturing the ESG elements of the value chain at the same time,” Watters said.
The emerging need for technology based ESG capabilities has led many KPMG clients to seek additional training in related topics to help identify and fill the gaps in their reporting capabilities. This includes training in techniques for measuring environmental impact beyond standard Scope 1 or 2 emissions, improving workforce diversity and eliminating bias, and implementing ethical sourcing policies and supplier management. Organisations are also seeking to develop greater awareness of local and international regulations and reporting standards.
Watters said he had also noted an uplift in interest in developing the data skills needed to better collect, manage, interpret, and report data relating to ESG initiatives.
Moving beyond spreadsheets
These observations align with KPMG Australia’s recently released report 30 Voices on 2030: The ESG Revolution, which features the views of 30 of Australia’s corporate leaders across a wide range of industry sectors.
According to the report, corporate Australia has accepted the need for clear goals and transparent action on key ESG elements, with many having set targets and issued reports. However, while some companies had started acting, all conceded they had a long way to go to master their ESG strategies.
“Many have defined their strategy and set their targets,” Poole said. “They are measuring carbon, or recycling, or ethical sourcing. But they need to get it out of the spreadsheets and begin automating how it is captured and analysed.”
Organisations with complex supply chains also face challenges in terms of monitoring the actions of supply chain partners, including implementing mechanisms for accurate and timely reporting of ESG related data.
These capabilities will be especially important as organisations begin to actively consider the full lifecycle of their products, as Watters had found that many organisations lack the capabilities today to properly manage and monitor their partners, and so are looking to technology solutions to help fill these gaps.
This includes investigations of a range of emerging technologies, including distributed ledger technologies to better determine the provenance of goods moving through a supply chain, and the deployment of smart contracts to help eliminate workflow bottlenecks.
Another finding of the report was that smaller organisations were less confident that they could develop mature ESG practices, especially for capturing data and reporting it to shareholders.
However, Watters argued that this challenge presents a clear opportunity to the software industry and to technology service providers to create new services and capabilities to help clients bridge this gap.
New measure of business success
Ultimately, Poole said the momentum behind ESG initiatives today means all organisations have no choice other than to accelerate the planning and implementation of their ESG initiatives, or risk falling out of favour with their customers, investors, and even their own employees. And he added that even for those that are able to resist the social changes behind ESG initiatives, none could expect to escape the new regulatory regimes being implemented in Europe, the US, and in Australia.
“We are living in the era of transition as an economy, and success depends on how well you make that transition,” Poole said.
While the task might appear onerous, Poole highlighted the long-term value that would come from building more sustainable organisations that contributed to the sustainability of the planet.
“Business performance and strength of ESG initiatives will become the same thing over a short time,” Poole said. “Business performance will be increasingly based on what you can demonstrate in terms of your adherence to the goals you claim to stand for.”
He added that none of this can happen without the support of the technology function and its leaders, due to the key role they play in delivering the data capture, analytics, and reporting capabilities upon which ESG initiatives will be based.
“Addressing the ESG challenge is going to include a lot of systems and data thinking, so there is an opportunity out there for technology leaders to really support business,” Poole said.
