Investing in sustainability: How ESG impacts business, brand, and bottom line

I was excited to discuss sustainability on ServiceNow’s panel at Climate Week in NYC.

ESG is such a layered topic. The premise may be straightforward – organizations must do all they can to mitigate climate change – but there are so many moving parts. In fact, the first question that Maria Hart, Director Alliances ESG Business Development, of ServiceNow put to us was ‘What makes ESG (environment, social, and governance issues) such a complex, difficult challenge for organizations to solve?

Maria’s colleague, Geeta Jhamb, Senior Advisory Solution Architect, Risk Practice, of ServiceNow presented that in many cases, ESG is the responsibility of a designated team – but in fact, its success depends more on the engagement of the functions on the front line. It is down to the people who own the data to drive the program. It is true. More importantly, it is not as big of a priority as it should be, and there is work to be done by the people to demonstrate its relevance and importance.

How can this argument be made? How can sustainability be moved up on the agenda at board level?

The forces fueling the ESG fire

So, what’s driving this surge in ESG consciousness? Several factors combine to create a flame of change.

A regulatory tsunami

The biggest cause of is regulation. Organizations need to recognize an alphabet soup of laws, guidance, and codes of practice, and it’s getting more and more complex. For example, in 2022, the European Commission adopted a proposal for a directive on corporate sustainability due diligence (CSDD). It includes due diligence and auditing around the sourcing of products. Developments like this simply can’t be ignored.

Brand reputational risk

The negative risk of sustainability on a brand is a major factor. There is an inherent trust associated with a brand, and a lack of commitment to sustainability from the brand, can imperil the trust of its customers.

The war for talent

People gravitates towards employers with values they respect. An organization that doesn’t demonstrate commitment to high ESG standards is going to be a less attractive employer as organizations that do prioritize ESG.

The investor imperative

In our talk, Geeta said that 60% of EU organizations, regardless of the nature of the product or service they seek, are including ESG requirements as part of their RFP process. Shareholders and other investors also expect to see organizations making formal pledges to ESG standards before they commit funds. In short, conforming to ESG principles is clearly not just a box-ticking exercise: it could mean losing out on business, or funding, or both.

A long-term approach – Building an ESG foundation

With so many different imperatives to act on ESG, it’s very tempting for organizations to jump right in. But in my view, simply jumping into the ESG fray without a strategic roadmap can lead to confusion and inefficacy. Here’s where a data-driven, technology-enabled approach comes into play:

Here’s an example I used in our discussion. Let’s call it a shoe manufacturing company based in the US. The raw materials used to produce shoes were a big factor in the business, and the IT team wanted to be prepared because they knew that eventually they would be expected to provide reports including evidence of provenance.

The power of data

Our advice to the CIO was that two types of assessment would be needed. The first was a qualitative assessment: what was the organization’s readiness to embark on this kind of journey? The second was more quantitative: what data do you have that’s measurable? Specifically, as far as IT was concerned, it related to the IT assets and the associated relationships of those assets. Were they aligned in a way that was ready to be measured?

In fact, in the context of sustainability, IT is a two-edged sword. Yes, it provides the data that organizations need to assess their positions and act; but on the other hand, it’s also a significant consumer of resources. It’s said that if IT were a country, it would be the third largest in the world in terms of CO2 emissions, and it accounts for 3%-3.5% of total emissions and growing.

Cross-functional collaboration

Is this a reason for gloom? In my view, no. Instead, it’s a call to action – a demand to place upon us to use IT as effectively as we can, mitigating against its sustainability overheads while at the same time putting it to best use. This means interacting and integrating with other functions in the corporation, including finance, HR, and operations, to create a new foundation for ESG. Because, just as IT is itself the bedrock on which all those business functions are based, so ESG itself will only be effective when it’s built on something that brings all these organizational constructs together.

From insights to action

In our discussion, Geeta pointed out that implicit in this argument was the need for a platform. An effective IT platform, she argued, should bring together data, ultimately yielding information made available to users to gain insights. It should provide a basis for an organizational change management strategy, from which workable policies can be developed – policies that can be tracked in practice, to ensure that teams are doing what’s needed and expected of them in pursuit of ESG goals.

While the challenges may seem daunting, the rewards of embracing ESG are significant. Improved brand reputation, talent acquisition, investor confidence, and even operational efficiency are just some of the benefits of prioritizing sustainable practices.

In the next article of this series, we’ll delve deeper into practical steps organizations can take to embark on their ESG journey, providing actionable strategies and tools to navigate the path towards a more sustainable future.

Ready to unlock the potential of ESG for your organization? Explore how our ServiceNow partnership can help you develop a winning ESG program. Click here to find out more about how the world works with ServiceNow, and about partnering with Capgemini on an ESG program.