Why organizations need to hardwire data and technology into their ESG strategy

Digital transformation and sustainability sit at or near the top of most corporate agendas in 2023. According to a KPMG survey, two-thirds of Canadian CEOs report having an aggressive digital investment strategy, while 71 per cent recognize that stakeholder scrutiny of their performance on environmental, social and governance (ESG) issues is continuing to accelerate.¹

“The pressure is on companies to progress their ESG commitments, and those who bring a technology lens to their sustainability strategy will be better positioned in the long run,” says Ally Karmali, ESG partner and ESG Data & Technology lead at KPMG in Canada. “It’s more advantageous to start thinking about ESG and digital transformation as working in lockstep, and then make decisions that serve both priorities.”

As part of that process, companies need to set clear ESG goals and be prepared to act quickly in a rapidly evolving regulatory environment, explains Mr. Karmali.

“This includes coming to grips with the rate at which ESG reporting frameworks are being published, in both speed and quantity, and making hard decisions as competing priorities vie for limited economic resources and human capital.”

He says the increased frequency of extreme weather events, like this summer’s unprecedented forest fires and record-breaking temperatures, pose significant economic and operational consequences. That highlights the need for companies to factor climate change into their decision-making today.

“Those consequences also include very real risks to human health, safety and security, as well as threats to nature, biodiversity and cultural heritage,” adds Mr. Karmali.

As organizations grapple with climate-related impacts across their operations, leaders are increasingly looking to technology for answers.

“Rapid-scale change is urgently needed. Technology has the potential to advance progress in areas like carbon avoidance, carbon removal, circularity, environmental protection and social well-being all at the same time,” says Mr. Karmali. “For example, data combined with technologies like artificial intelligence (AI), cloud and blockchain are quickly becoming strategic enablers for organizations that want to meet their sustainability objectives and solve interconnected challenges that up until now seemed untenable.”

Until recently, organizations had limited tools available to help manage their sustainability footprint and ESG reporting objectives.

Microsoft’s Cloud for Sustainability is an example of emerging technology designed to address this gap. Using cloud and AI technology can give organizations a way to view sustainability performance across their business. This can help them make more informed decisions on a range of factors, from emissions management to sustainable procurement.

Tracy Lagasse, industry advisor, Financial Services at Microsoft Canada, believes the value of this innovation should not be limited to reporting. She sees other benefits in the ability to harness data to drive actionable insights that improve ESG and overall business performance.

“It’s not just about having the data so you can create a report and disclose what you are doing. You’re actually trying to move the needle on your metrics. It’s about having the data so you can make a genuine impact on your carbon footprint, water consumption or reducing the waste your operations produce,” explains Ms. Lagasse.

She says an organization’s ability to embrace innovation and make use of data is critical in meeting its long-term goals. Microsoft took that approach to address its own ESG objectives.

“We spent a lot of time looking at our data systems for tracking our own carbon footprint,” says Ms. Lagasse.

She notes ways to reduce greenhouse gas emissions. “These are things we can do with circular economics applied to cloud computing, so recycling our gear, or using telemetry with our devices to create products with better energy usage .”

The last several years have seen an unprecedented acceleration in digital transformation. Many companies feel the growing pains of rapid-scale change to meet the realities of the new world.

Companies that prioritize data collection before investing in digital and tech solutions will be better able to manage those challenges, suggests Zoe Willis, national leader of data, digital and analytics for KPMG in Canada.

“Better data leads to better decisions, and a first step is to source reliable data across your business operations,” she says. “That means doing the due diligence up front to understand your data gaps, establishing controls and governance structures, and centralizing your information as much as possible through data mapping. Then, use that information to assess what technologies best serve your sustainability priorities.”

The results can lead to more efficient and effective ways to reduce emissions through asset-level automation, build a more transparent supply chain, manage climate risk and ultimately make more informed decisions, adds Ms. Willis.

“For example, we’re seeing companies successfully leverage AI to manage building systems like HVAC and enable automated climate zones, or use cloud-enabled telemetric data and advanced analytics to optimize transportation routes,” explains Ms. Willis. “And with greater scrutiny on supply chain management, pairing geolocation information with vendor data can better track vendor emissions and other social considerations that tie back to your key business objectives.”

Ms. Willis says there’s no one-size-fits-all digital platform to address every ESG challenge. But strong data governance practices, coupled with innovative technology, will better position companies to capitalize on data-driven insights and opportunities.

While companies should take a combined approach to their digital transformation and sustainability strategies, they first need to define what environmental and social issues are material to their operations and aligned to their purpose, says Mr. Karmali. That’s required to set a plan and put people and technology in place to achieve it.

He adds that companies shouldn’t be intimidated by the work involved in integrating their digital and ESG strategy.

“Companies that hardwire sustainability into their decision-making can benefit from improved operational efficiencies, customer engagement and finding new ways of working. Data and technology play a key role in making those outcomes a reality .”