The news continually reports on climate change and social justice issues. These concepts have pervaded the culture and are affecting how companies behave and operate. A company that fails to perform and improve fast enough becomes fodder for the next news cycle and, more importantly, could find investment capital harder to secure.
Many CEOs have made public commitments to address issues regarding social inequity and environmental impacts, but how can these goals be achieved and how can they be measured? Does automation and technology play a role in answering these questions
Rapid growth and maximization of shareholder value have often translated to short-term earnings through expedient solutions that disregard environmental and social impact. With the business environment changing, corporate earnings are no longer the sole measure for a company’s economic performance. Statistics show that companies prioritizing environmental, social, governance (ESG) issues actually perform better in the long run across several financial metrics. Shareholders, investors, and consumers alike are becoming more concerned with company ethics, responsible governance, and sustainable decisions that offer long-term returns. This means ESG-centric companies can drive profitable growth through business practices that decrease risk, align with customer values, and positively impact people and the environment.
This year BlackRock, one of the world’s largest asset managers, issued specific directives calling on firms to align with global efforts to reach net-zero greenhouse gas emissions by 2050. The details include “the need for better data to improve disclosures of emissions and set rigorous short, medium and long-term targets to reduce them. Goals like this make it crucial for investors to track progress and identify companies that are leading the energy transition.” Many companies have publicly declared ambitious carbon-neutral pledges. Amazon created The Climate Pledge, an industry group for sustainable businesses to commit to net-zero by 2040. There is no shortage of climate promises spurred largely by climate change concerns and investor demands.
In asset-heavy industries, companies are quickly supporting renewable energy, lowering and offsetting carbon, broader sustainability endeavors, and transition to new energy sources. Manufacturers have set carbon-reduction targets, looking for ways to reduce emissions and decrease climate-related business risks. ExxonMobil was the first oil supermajor to disclose greenhouse gas emissions data and said that it will provide annual emissions reports. Shell aims to be net-zero on all emissions from manufacturing by 2050 or sooner, and to reduce their carbon footprint by 65 percent on its energy products and plans to help its customers decarbonize. BP has taken an active stance to help get the world to net-zero and anticipates achieving this for itself by 2050. Equinor announced an ambitious investment in renewables, emissions-cutting from oil and gas activities and alignment with other industry giants on the 2050 net-zero target date.
Stakeholders have more questions than ever for corporate boards about “doing well and doing good.” Does the company’s environmental record align with current regulations and sustainability best practices? Are any red flags looming in terms of supply chain management or worker health and safety? How do the board’s composition and governance practices compare with peers?
Keeping the Promises Made
To answer effectively, boards need access to the same data their investors have, and they need to make sure they’re not missing anything in terms of their company’s leadership, business practices, and overall governance. However, governance professionals indicated that “visibility into sustainability and ESG issues” is severely lacking. There are over 2,000 laws, regulations, and policies worldwide right now related to climate. It is easy for boards and governance professionals to feel like they can’t keep up, and they can't if they continue to rely on manual processes for environmental, sustainability, governance (ESG) data entry, charts, reporting and other time-consuming tasks.
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Keywords: Sustainability, ESG, Environmental, Social, Governance, Automation, AI, Sensing, Control, ARC Advisory Group.