Something Important is missing in ESG Management
As the market for sustainable investments expands, more investors are taking a keen interest in sustainability reports from companies. Yet the information might not meet these investors’ expectations. From an investor’s standpoint, if the sustainability disclosure were loosely related to the company’s financial and operational performance, it would be difficult to compare from one company to another.
For future development, we need an ESG Management Standard, a standard similar to any ISO Standard, in which corporates can set up a respective internal ESG management system and ESG auditing. Without a third party ESG audit and system implementation, ESG reporting would only be output without resolving the questions on data credibility.
Ultimately, we need a globally accepted system to be built from existing standards and frameworks that can fulfill the market needs and be adapted in different jurisdictions, to support companies in presenting comparable and relevant ESG information.
The Power of Data Technology on Future CSR Development
One must not overlook the trend of data and technology which would be a significant drive changing our ability to measure, calculate and monitor ESG factors as well as to assess their materiality and impact on long-term value creation. Also, with better visibility on challenging metrics such as resource consumption and biodiversity would likely allow the creation or enhancement of international frameworks and targets on several key issues.
Data technology can greatly facilitate the process of putting a price on impacts and externalities. Artificial intelligence shall also play a major role in identifying patterns linking economic performance to ESG factors. This enables the creation of the ‘right methodologies to assess and evaluate and more accurately, and also allows accurate predictions in long term CSR practice. Companies that can better measure their ESG impacts and risks shall surely be better positioned to make improved capital allocation decisions. On the other hand, recognizing the potential of the Internet of Things (IoT) on the manufacturing sector, which has been actively integrating IoT into operations leading to better optimization and efficiency, allowing us to automatically track the quality of vendors, suppliers and end products without ever leaving the office. It also allows us to plan the shipping or transportation routes, production schedules and maintenance routines more efficiently, proactively avoid us wasting time, products and resources.
New technologies allow corporates to collect real-time data and automate the data collection process. Ubiquitous access to the internet has made data more accessible and easier to gather, check and analyze. The extensive reach of technology into daily life means that stakeholders expect to be able to access information quickly and conveniently. They also demand that information be updated regularly and be easily verifiable about its consistency and validity. Revolutionary technologies such as Blockchain would allow multiple stakeholders to be involved in CSR projects and to access reliable information at their own convenience. Such ongoing public scrutiny shall further require companies to present coherent and reliable sustainability information all the time. It also leads to greater empowerment and involvement for stakeholders who will have a more direct impact on the development of corporate governance and strategy.
We are in a Zero-sum Game
In view of the overall trend, one can conclude that by demonstrating leadership in ESG will ultimately become a differentiating factor for entities in the public and private sectors, and market participants have much to gain from embracing ESG stewardship as part of their competitive advantage. While on the other hand, should any companies, investors and governments fail to act on ESG will likely face greater risks and miss significant opportunities as compared to ESG leaders in many key areas, ranging from better access to capital, to operational improvement and pursuing new business ventures.