Environmental, social and governance (ESG) metrics can be effectively used to measure and define the impact an organisation has, the trust it engenders and the value it takes beyond the shareholder and into the ecosystem.
Solutions powered by the Internet of Things (IoT) can fundamentally drive ESG criteria, says IoT Industry Council of South Africa (IOTIC) chairperson Sphamandla Dlamini.
Companies should leverage technology to achieve ESG goals and gain a stable foothold in a challenging economic environment. ESG integration has become a common approach to investing and, according to news service Bloomberg, ESG initiatives attracted $120-billion in funding in 2021, he says.
“ESG is a yardstick against which a company’s commitment to sustained outcomes is measured, and how investors respond to a company and its potential,” he says.
However, reporting on ESG is complex, demanding and detail-driven. It expects companies to provide comprehensive data and insights into every aspect of each criteria across ESG and to prove each point meticulously.
“Using IoT solutions will eliminate the risk of oversight, reduce the administrative burden associated with data collection and fast-track the delivery of insights to decision-makers,” adds Dlamini.
Most executives believe ESG will impact their ability to raise funds in the market. Companies have to analyse available information and deliver quantifiable insights to attract investment, he says.
There are risks involved in how companies measure this so-called triple bottom line, which is the company's commitment to social and environmental impact alongside profit. These risks include retrofitting ESG into existing corporate strategy, not investing in the right data and analytics, missing the depth of ESG reporting with poor metrics, and not focusing on the credibility of ESG measurement criteria, Dlamini highlights.
“One clear way to minimise the risk of retrofitting ESG to the existing strategy, a route that will almost certainly limit results, is to make sustainability intrinsic to the strategy development process. This approach makes the data and information harvested by the technology both relevant and rich,” he notes.
It is important to manage how businesses approach ESG and IoT. There is a risk that overusing these terms in sales will diminish their value and the tangibility of the meaningful outcomes that they can deliver. Instead, companies should move away from acronym-heavy metrics and focus on how technologies can transform business management while embedding social equity in the process.
“Smart operations are required that help decision-makers make sound decisions about day-to-day functions and approaches. In a digital world, operational transparency should be the first step that the organisation takes towards running a sustainable business.
“The second step is to decide on the targets and transformation roadmap it is to pursue under its ESG mandate,” says Dlamini.
Further, this mandate and roadmap should become the foundation of the business, not done in isolation but as part of a holistic approach to business as a whole. It covers the targets, the value chain, the transformation roadmap, and the unique circumstances of the business, and should be embedded into every part of the business.
“This can be achieved by undertaking a comprehensive study of the organisation’s value chain to develop a strategy that aligns with non-financial performance areas and ensures there is credibility built into ESG-related efforts. There are still high levels of uncertainty in the international and local communities,” he says.
“It will be a while before there are any generally accepted standards, but technology is critical to not only removing the admin burden but in ensuring that data collection is transparent, ethical, aligned and relevant.”
Technology, particularly IoT-driven technology, can play a significant role in helping organisations make positive contributions to society. With IoT embedded systems and sensor-driven data, companies can put ESG right in the heart of the business, he emphasises.