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How can the CIO solve the E+S+G equation?
The intersection of ESG and the IT organization
Social responsibility and environmental stewardship have been part of corporate integrity messaging for decades. It began with a philanthropic and a social responsibility focus but has evolved into being embedded in strategy and fiduciary duty. Today, many management teams are examining their controls and reporting mechanisms around environmental, social and governance (ESG) factors, setting sustainability goals and establishing benchmarks against industry peers.These concerns are largely driven by investor influence, external stakeholders and societal expectations wherein transparency is expected.
These changes mean that the information technology (IT) role will not only expand to report against the needs of the market, but IT leaders also have a unique opportunity to help their companies unlock new value from sustainability and ESG data.
UNDERSTANDING EACH ASPECT OF ESG
While ESG data requirements are still evolving, the expectation is that companies will be able to provide investors with climate-related reports and other nonfinancial performance data.
Because many organizations approach ESG from different angles across an array of activities and various functions, a holistic ESG assessment is the first step to prepare for the next wave of ESG data reporting expectations. It becomes the job of IT leaders, such as the CIO, to establish the data set under the larger ESG umbrella and enable visibility and transparency regarding the company’s efforts. This also lets companies review their efforts against peers, do due diligence about their suppliers, assess their own benchmarks, and discover where they can improve efficiency and utilization.
Environmental criteria consider actions a company can take to perform as a steward of nature and the planet.
What it is
This includes action on climate change, greenhouse gas (GHG) emissions
and reductions, the sustainable use and protection of water and marine
resources, the transition to a circular economy, pollution prevention and
conservation, and restoration of biodiversity and ecosystems.
What it looks like
This considers all emissions across a company’s value chain: vehicles and facilities, purchased utilities, purchased goods and services, upstream and downstream transportation, processing and end-of-life treatment of sold products, etc.
Scopes 1, 2 and 3 emissions
Scope 1- emissions are the emissions produced directly through owned or controlled sources.
Scope 2 - emissions are indirect emissions generated from energy that is purchased.
Note: Scopes 1 and 2 combined account for only about 10%–20% of total emissions, depending on the sector. The other 80%–90% of emissions
fall under Scope 3, which are all indirect emissions that occur within the value chain, upstream and downstream.
Scope 3 - data extends into multiple categories for which organizations can determine what data to collect, such as employee commuting, transportation and distribution of assets, and the use and disposal of products. Scope 3 is most often simply divided into upstream and downstream categories: upstream categories being the indirect emissions related to purchased or acquired goods and services, downstream categories being the indirect emissions related to sold goods and services.
Materiality is also at the heart of varying approaches to emission reporting and measuring environmental impact. Many organizations at the start of their sustainability journey will perform what is called a materiality assessment. This is a process that looks across stakeholders to identify the key ESG topics that are likely to have a material impact on their business or consolidated financial statements over the short, medium and long term. Carbon emissions reporting and carbon credits and offsets are a primary focus, but companies are also setting targets around water use, natural resources and the responsible use of
raw materials.
How companies are committing to action
In order to achieve enhanced sustainability, leading companies are designing facilities and logistics with sustainability in mind, using energy-efficient technologies, and sustainable materials and sourcing and seeking low emission alternatives. Some have pledged net-zero carbon-emissions targets and carbon offsets. Others are
incorporating ESG metrics into leadership remuneration.
Social criteria examine how an organization manages relationships with employees, suppliers, customers and the communities where it operates.
What it is
This includes labor standards, health and safety performance, and the way a company treats clients and customers, as well as verifying that workforce and suppliers represent the communities and customers being served.
What it looks like
• Preparing the talent pipeline through STEM (science, technology, engineering, math) education programs and
hiring and cross-training for future skills and diversity
• Using pretax profit to fund community efforts
• Working to decrease the digital divide
• Providing employee resource groups
• Creating jobs in a community
How companies are committing to action
The pandemic and increased calls social justice gave many companies reason to examine their commitments to society and the people in their communities. Companies have turned their efforts to address diversity, equity and inclusion (DEI) initiatives; health equity concerns; and other
systemic inequalities.
Empowering employees to support their own wellbeing
Project purpose
• A global consumer products and retail company wants to implement a holistic approach to managing the wellbeing and productivity of its people by collecting and synthesizing global employee data.
What the EY team did
• All employees were surveyed, measuring engagement and wellbeing of the workforce. This was followed by targeted interventions designed to empower employees to support their own wellbeing (including physical and mental health, workplace health, personal finances, and family/ community support), as well as that of their colleagues and the organization.
• The program is in its fourth iteration at this agency, allowing comparisons over time and the return on investment (ROI) of wellbeing initiatives to be assessed.
Value delivered
• The delivery was assessed to have reduced annual sick leave on average by two days per employee across the organization.
• The organization has also replaced its overall engagement survey with this framework to assess a holistic model of wellbeing, engagement
and productivity.
Governance criteria examine a company’s leadership,executive pay, audits, internal controls and shareholder rights.
What it is
Governance includes anti-corruption measures and ethical business practices, regulatory compliance, tax transparency, and how decisions are made across the executive board.
What it looks like
• Data governance and AI governance strategies
• Risk management strategies
• Reliable, objective and consistent environmental
reports
• Fair and transparent compensation and disciplinary policies
• Board diversity, structure and compensation
How companies are committing to action
The amount of time that boards devote to ESG topics has increased significantly. Two years ago, only 15% would discuss the ESG agenda and reporting at every meeting. Today, 49% do so, with another 33% discussing these issues frequently.
Climate risk training to a banking client
Project purpose
• With the growing attention on climate risk disclosures, a leading bank identified the need for the design, development and delivery of climate risk training for its board members and management committee to improve their awareness and understanding implications for their business.
What the EY team did
• Designed, developed and delivered a 90-minute virtual training session for the management committee and members of the
board with optional 1:1 mentoring sessions
Value delivered
• The design and development of the training involved:
• Accelerated design and development workshops
• End-to-end walk-throughs on their delivery platform
• Collateral for the training included:
• Reading and training materials
• Facilitation of slides
• Facilitator guide
• Post-session 1:1 mentoring
Implications
- Detail: The international financial and monetary architecture is becoming more multipolar, less institutionalized, and less transparent due to China's growing role.
- Concern: This shift may create uncertainties and challenges for Western countries and the IMF, as well as increase risks for borrowers.
- Suggestion: Western countries, the IMF, and borrowers should engage in dialogue and cooperation with China to promote a more stable, transparent, and inclusive global financial system.
